Saturday, June 02, 2012

Fixing America's Problems, Part Two: Social Security

It Won't Be the Apocalypse, But It DOES Need to Be Addressed Now.. Luckily, It's Nothing Simple Math Can't Fix. Math and Guts....

    2033: The Social Security Apocalypse!!  No, it isn't that bad, but it's getting worse - fast.  When I ran for Congress in 2006, the expected date for insolvency of the Social Security Trust Fund (as in 'trust us - the money's here somewhere) was 2041.  Thanks to more raiding by both the Bush and Obama Administrations, and further defunding of it by cutting the payroll tax by 2 points, it's....uhh......kinda sped up. If this keeps up, insolvency could be as early as 2022.

    Social Security is a funny program. It's one of our most popular benefits, but it is run horrendously, and in the 75 years since it's inception, it's hardly changed - but life has.  Ask FDR when Social Security was implemented if it's purpose was to be the sole source of income for retirees, and he'd laugh.  FDR planned a three legged stool of income - Social Security, Pension and Savings.  The second is rare, the third is almost as rare.  Worse than that, life expectancies have way outpaced any changes to the program.  In the beginning, recipients would collect for about 7 years.  Now, 20 years is a more correct number.  Add to that, the addition of permament disability - a hugely wasteful and frauded program - and the money goes even less.

    Yeah, these are all things that have either snuck up on us, slowly changed, or were self-inflicted by government.  As usual, anything can be screwed up by politicians... However, the greatest problem - and perhaps it's easiest solution - canbe found in one number:  1.7 , as in 1.7% interest that the trust fund earns in interest.  All the money is thrown in Federal Treasury Bills, where it earns just about the least interest as humanly possible, while still allowing Congress to raid it.  The natural urge is to take the money out of Congress' hands, but good luck getting them to pass a bill that defunds them of $200 billion a year. There are some inherent facts/problems with Social Security:

The Payroll Tax Is Regressive
The Benefit Period Is Unrealistic
The Interest Earned Is Pathetic
Congress Wastes the Money

    So, while any of fixing these problems would go a long way towards strengthening Social Security, out goal is to PERMANENTLY repair the program.  We found it a bit funny that a survey sent to the 13 7th District candidates about how to fix it was only answered by 4 or 5 of them.. We have no fears about putting suggestions out there, because no suggestions are worse, and maybe 65 year old farts don't care about things when they are dead, but we're not looking forward to getting 30% cuts to our benefits when he's dead and gone...  Here's our pitch.

Step One: Flatten the Payroll Tax

    With a cap of $110,000 or so, the Payroll Tax is the most regressive tax there is.  A guy making $110,000 contributes the same amount as a billionaire.. Sound fair to you? Not to us.... We say drop the Income Cap completely - but with a couple adjustments.  Currently, the Payroll Tax is 4.2% for employees and 6.2% for employers.  Adding that 6.2% to employers by eliminating the cap would be disastrous for businesses. Hey, we're not stupid.  What we propose is to keep the rates the same, but eliminate the cap for employees.  Yes, in the end, employees would pay more after that 110,000, but they were paying 6.2% last year, so until they get past $150,000 in income, they are paying the same amount they used to pay - and it's a contribution they pay every year anyway.  Really, they're not going to miss it.  So, employers don't get punished, and only high income earners pay more.  The only thing that would need to be capped is the max benefit...

Step Two: Raise the Minimum Retirement Age

   Look at it from someone my age.. I've been paying into Social Security and Medicare for close to 30 years now.  I've basically financed the health care, prescriptions and retirement of a entire generation of people - many of whom have WAAAYYYY more money than I do -  all to find out that none of these programs might not be around when it's my turn??  You'd be pissed off too.  People retiring after 20 years at a job is ridiculous, and calling it quits and getting paid at 62 is almost as bad.  Paying into a system for 40 years and collecting for 30 is a recipe for disaster... Retiring at 62 needs to end, and 65 probably could go with it.  We'll settle for a minimum retirement at 67.  Means testing is a nice thought, but that gets complicated.  Certain areas cost a lot more than other places do, and those things would have to be included in whatever Algorithim DC develops to figure it out - too much room to screw it up.

Step Three: Alternative Interest Methods

     Like Albert Einstein said, the most powerful force on Earth is Interest..  If the Trust Fund earned even a simple 3.5%, instead of the 1.7% it has made over it's lifetime, we would not be in this mess.  When you're dealing with a problem 20 years ahead - what we call foresight - little adjustments go a long way.  The problem of course, is that Democrats will NEVER allow the Trust Fund to go into the Stock Market.  The scare seniors by saying 'what would have happened if we had it there in 2008?'  The answer is that it would have lost about 1/4 of it's value - and then gained it all back by last year.   Still, we live in the real world, and in this age of government picking winners and losers in business, choosing a select number of stocks/mutual funds is doing the same thing.  So, how do you find a way to unite one party that will not let government keep it's hands off the cash, and the other party that prefers to decentralize power from Washington, DC?  We have an idea....

Step Four: Invest in State, Local Bonds - For Infrastructure Only

    Yes, even we will admit that this is the weakest part of our suggestions.. Would it be safer to put the money on Wall Street- where occassionally a guy loses a few billion- to places where shortfalls are the norm?  Hell yes, but it's never going to happen, so this is our best alternative.  Think of it this way.  State and local government bonds earn more interest than T-Bills do, so more revenue would be generated from it.  The key on it is to put that money to good use - not for student loan grants, bridges to nowhere or unemployment insurance, but for JOBS.  Municipalities would apply for loans to repair EXISTING roads, bridges and buildings that need safety upgrades (currently at over $2 billion in South Carolina), and the money would be loaned out based on need, financial stability and the interest paid to the Fund. 

   Instead of the money sitting in DC, doing little to no good, it would be WORKING - along with a few million skilled laborers out of work since the housing bubble.. Then you get the ancillary benefits that come with people working - all without raising taxes!  Democrats are happy because the money is still technically being controlled by Big Brother, and Republicans have decentralized the control of funds from DC.  They both compromise, they both win, and jobs are created...

   We're sure someone will blow holes all over this one, and maybe it deserves it.  Still, it's a bit of out of the box thinking that Washington DC has lacked for decades.  There are other ideas floating about: individualizing accounts personally and having that money go to your heirs if you die early, but that puts the Federal Government in charge of Estate Planning, and honestly, it would bankrupt the system even faster.  For now, we're just trying to make the system more fair and stable - making it completely fair would be impossible at this stage...

     That's Dr. Reino's Rx for curing Social Security.  Again, any changes to it are better than none - but it's better than the answer (or lack of) that 8 of the 13 candidates for Congress gave.  Yeah we know - you're busy trying to win a Primary.  But, which do you think would get more votes: another 50 robocalls, yard signs, speaking to the Kiwanis Club again - or having an actual solution printed in the largest paper in the Grand Strand?  God forbid we should know what your actual plans are...



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