Spitting With Fury At ...
By William Westmiller
Vituperation may be satisfying to the most self-righteous defenders and opponents of the Social Security System, but it won't help solve a complex problem. Recounting the actual and imagined failures and successes of the program leads to the same conclusion: something needs to be done.
Two facts are generally agreed. First, the current system will run out of money sometime in the next two decades. Let's not quibble about when or why or how. Second, there are millions of seniors who have become totally dependent on the system, having made contributions in good faith and expecting only a simple sustenance from the return on their investment.
Two "solutions" are not possible. An immediate shutdown of the program or maintaining it as-is by tripling taxes, are out of the question. A shutdown would admit decades of false political promises, but the penalty would fall on innocent recipients, not the perpetrators who seduced them into helpless dependance. Maintaining the current program, with cost-of-living adjustments and current benefits, would require 80% tax rates on our income and our children's income for several decades.
A solution is possible because private investment creates a profit and government securities can only create debt. The returns on those two different destinations for retirement income are different in both quality and quantity. Buying Treasury Bonds can only pay interest by increasing the total government debt. No productive effort is applied to generate anything resembling profit. The income derived from applying assets to productive enterprises creates a real profit that is at least three times larger than the numbers added to government ledgers as "interest" on bonds. This difference between debt and profit is the basis for a settlement of the Social Security problem, which I call the "Half n Half Solution".
Part One. For specious purposes, contributions to Social Security are divided equally between employer and employee. Given the option to recover the employee half of that contribution for private investment, a worker could safely improve his or her retirement assets by at least fifty percent (one half the multiple of three for private vsgovernment return). In exchange for that appreciable benefit, the worker agrees to accept only one half of the retirement benefits normally doled out by Social Security. The pleasing financial outcome is a net benefit to both plans, depending solely upon the time remaining to the individual's retirement. Up to seven years prior to retirement, workers will be better off in the current system. Anyone younger will benefit from the private option. As a result, government books will balance after seven years of increased expenses and a continuous reduction of expenses thereafter. Actuaries can crunch the numbers, but the benefits of increased profit over increased debt are evident.
Part Two. Past individual and employer contributions to Social Security have been recorded as a debt to the individual. Payments are not a reserved investment, they are simply applied as a credit against current government accounts. As a second option in the "Half n Half Solution", allow individuals to recover one half of their paid-in contributions in exchange for a separate one half reduction in Social Security benefits. The effect is to transfer one half of the government debt (as Treasury Bonds) from the Social Security Administration to individual accounts. No net change in current government debt, but a substantial reduction in future government obligations. The benefit for individuals is that those assets become fully vested and negotiable for other investments, which can generate profits far beyond the lost benefits. Again, it's a time-sensitive outcome that will be less substantial, but more beneficial, for younger workers. There may even be a large percentage of elderly contributors who will find this second option to be a beneficial.
This "Half n Half Solution" would allow some individuals to opt entirely out of the system, with substantially improved benefits. It would allow others (no matter their age) to opt entirely into the system, with all the current promised benefits and cost-of-living allowances. Most of the elderly wouldn't even have to consider the two options, since the presumption would always be a continuation of the current program. Those who chose a full opt-out could be obligated to maintain Part Two proceeds in a 401-K style plan, but would otherwise be entirely outside the program. The "employer share" of the payments to Social Security would be maintained to cover transition costs, but would be phased out entirely as self-funded retirees continually reduce government obligations.
The "Half n Half Solution" doesn't use smoke and mirrors to produce a benefit for all parties. It simply uses the difference between the profit of private investment and the expense of public debt to provide individuals with a simple and substantive choice. "Save Social Security" for those who would benefit, but "Retire Social Security" forthose who would suffer. There need be no spitting or fury if we simply allow people to choose their own social security.©1998, William Westmiller (Comments Welcome)