Monday, March 07, 2005

How to fix Social Security

I have recently passed the mid-way point in my working years. I've been a tax paying worker for over 30 years (that would make me somewhere around 48..........OK......I'm 48 and the half way point was 5 years ago.........darn stubborn facts) and have worried about Social Security being "there for me" for at least 20 of those years. The truth is this; the older I get, the less I worry about it. But if I were a young worker now, I would want the Social Security system repaired, and turned into something more akin to a retirement system. What's that you say? "Social Security is a retirement system!" No, it's a tax and pay program which is rotten, corrupt, and unsalvageable.

Bothwell (I do enjoy reading his blog) posts today on the "Lock Box" idea. It's a good idea, but how does it ever get implemented?

First things first is what I say. Admit that Social Security is just a tax on wages to pay for old people's retirements. Once that simple hurdle is jumped, we can begin to talk about what's next.

What's next is that we make it very clear that we will continue to tax all workers to pay for old people's retirements. Everyone who retires in the next 10-20 years will be called Group A, and will not be affected at all. They will pay the same tax,and reap the same retirement payments. Everyone younger than that, who will retire from 21-40 years from now will be called Group B, and will be taxed at the same rate, but 25% of that tax must go into a 401K. Group B will not reap the benifits of the 401K. Instead, they will get the same retirement payments as Group A while the 401K builds equity for the future. Group C will be those retiring from 41-60 years from now, and will pay the same tax, but 50% will go into a 401K. They will retire with the same retirement benifits as Group A and B, but it will be paid for from the built up equity in the 401K that have been sitting since Group B began paying. Group D will be everyone younger than Group C, and will pay 1/2 the tax Groups A, B, and C paid, and will retire with their own 401K paying the bill. The built up equity in the original 401Ks will continue to pay Groups B and C until they all pass on to eternity (group A ...which includes me...will all be dead by then). Whatever is left in the 401Ks after B and C die can be thrown back into the genreal fund and wasted just like Social Security taxes are now. It would be a nostalgic bit of revelry for lawmakers.

Americans will submit to the idea of being taxed for the next 60 years if they know that in 70 years their grandchildren will be free from suffering under the same messed up system we now have. I'm no wizard with numbers, but I'd bet a, make that my hat...........that if someone ran these numbers it would work. The 401Ks would build up so rapidly with compounding interest that the need for tax increases would be eraticated. It may even be able to progress more rapidly than I have stated it.

The point is this.........a measly 3 to 5 percent of the social security tax voluntarily put into 401Ks by individuals, the boldest proposal to date, won't amount to a pot to ..........brew tea in. We must think big, outside the box, and the first step is to admit the truth. Social Security is a tax, not a retirement system.


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