Tuesday, April 26, 2005

A modest proposal for Social Security

I have been reading the letters which are in opposition to President Bush’s plan for the reform of Social Security. However, try as I might, I have been unable to find the actual plan. I would appreciate it if someone could point me to the real and total plan that he has proposed.
Nonetheless, I am intrigued by the defenders of the present system. To me, the present plan is the most regressive, racist, sexist and elitist form of taxation that has ever been designed by the hand of man.
The tax is regressive because it only applies to the first $90,000 of earned income. Everyone who makes more than that is exempted from being taxed on the overages. The net result is that a waitress earning minimum wage with two children will pay 12.6% of her wages in taxes, even though she pays no income tax. Compare this to former presidential candidate, Senator Kerry, who paid a net tax of 12.3% of his multimillions. Sure, some would argue that only one half of the 12.6% is paid by the employee, and the other half by the employer, but if the employer was not required to withhold it, could they use the difference to pay the employee a higher wage?
The tax is also racist and sexist. If you are a Native American, or an African American male with only a high school education, you will work your entire life to pay into the Social Security system, but more than half of you will never live to see a dime of it. However, college educated white and Asian females will receive far more than they pay into it.
The tax is elitist in that the members of Congress that will decide how to maintain the present system do not pay into it. Nor do many other federal employees, and certain other select groups exempted by Congress as pay back, no doubt, for some substantial contribution to an election campaign.
Some of the letter writers have pointed out that there is a Social Security Trust fund, in that the government has purchased Treasury bills to repay the debt from the over charges that they have already collected. Yeah, right!. Ask veterans and Native Americans about the government’s ability to keep a promise. If you really believe that you have an account waiting for you when you retire, go to the bank with your Social Security annual statement and get a loan against it. After your banker picks himself up off the floor from laughing so hard, you might finally realize that your account does not really exist.
The other problem is, even if Social Security is not in a crisis now, it will be eventually. While it is as American as apple pie to wait until it is almost too late to deal with a problem, I commend President Bust for taking on this unpopular issue now. As it stands at the moment, our children and grandchildren will have to work two jobs just to pay for all of us that are retired. Since they will be too exhausted to vote, I am sure that the current system will continue along just fine.
What we need to do is to rethink the whole darned thing. For instance, if given a magic wand, I would change the system in the following ways:
1st. Social Security is not your retirement plan. I would change it to pay every retiree 120% of the poverty level, regardless of the amount that they have paid into it. This is in recognition of the idea that the original plan was to acknowledge our responsibility to our fellow citizens when they cease to work. While 120% of the poverty level is not a lot, it is the minimum amount to ensure your golden years with a certain amount of dignity, especially if you have taken other independent steps to enhance your retirement.
2nd. Everyone would pay into the system, no exceptions, no caps or limits to be taxed, nothing. If we are all going to assume the collective responsibility for our fellow citizens, everyone must participate. Exempting anyone from the system would deprive their contribution to the whole.
3rd. Until you are age 45, one half of your social security contributions will be sent to your own account. This account would be available to you for investments that would be used to supplement your retirement. This proposal has the added benefit that most people will hit their peak earning years from 45 to 55, thereby providing sufficient cash to keep the system afloat.
If, from age 16 to 30 you were to invest in Growth type funds, your return compounded could provide you with a very comfortable existence. From 30 to 45, less risk would be recommended and from 45 to retirement, capital protection should be your goal. If you die prior to reaching retirement, that amount that was left would be credited to your estate for distribution in accordance with your will.
While it is true that there are the Enrons and WorldComs of the world which have engaged in criminal behavior, there are far more Johnson and Johnson and Exxons in the market place that can provide a very positive return. In fact, if you had invested $1000 in 1955 in the Dow Jones Industrial Average, and didn’t do anything else, it would be worth $25,000 today. It is not a risky gamble if taken over the long term to invest in stocks. While there are short time set backs, (2001-2004 for example) overall, the market provides better returns than T bills do.
My proposal is not that complicated, and would provide a basis for discussion. However, to just say that it is fine for now, is only delaying an inevitable disaster. We all need to recognize that something must be done. I would look forward to hearing any concrete plans that are going to be offered.

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