Lets consider some added ways to fund the system!
Another major priority of the Bush administration appears to be Social Security. President Bush and his staff have been closed mouth as to the exact proposals they plan to recommend. Now the camel's nose is beginning to appear under the tent.
First we heard that the 2% diversion of worker Social Security taxes to private accounts might be recommended. That was immediately followed by where is the money to come from to allow Social Security taxes to be diverted into private accounts? Again the answer begins to appear by Mr. Bush saying no tax increases to pay for the transition cost to partially privatize the system. Now we are hearing a 4% option which would double the amount of the transition funds required and again no real explanation as to where these monies would come from.
Within the last several days we have heard about increasing the retirement age and cutting back benefits more significantly in the out years to pay for the transition costs. That also seems to imply that Bush intends to borrow the transition costs and repay them at some future time by reduced payouts and increased retirement age. Who will pay the interest on any borrow transition funding? In other words it looks as if he is proposing the very same solution he has for everything else and that is borrow and pay some time in the future.
Many people believe that the federal government misspent some of their Social Security taxes and that is the reason why the trust fund is not large enough to cover the baby boomer retirement. Some years ago, I obtained my parents Social Security lifetime statements and compared the amount of tax they and their employers paid over the years with the money they received from Social Security. This analysis made it crystal clear why the Social Security trust fund is not large enough to deal with the baby boomers. Although my parents were covered by Social Security from its inception my mother in the 18 years that she drew Social Security received 20 times more in benefits than both she and her employers paid into the system. My father, who received Social Security for 26 years, got about 27 times more money than he and his employers paid into the system.
So before we become too critical of how our Social Security taxes have been used lets take a look at who has received them. No investment, including the Bush equity plan for Social Security, would have generated the income necessary to pay 20 to 30 times the amount contributed to the system. In fact when I looked at my parents Social Security statements I found that during the 30s 40s 50s and 60s the amount paid into the system was very small. Thus, even if it had been invested in equities the way George W. Bush is suggesting, they still would not have had nearly enough money to receive what they got from the Social Security System. In addition, where would the account maintenance fees come from? That is certainly a question that needs to be asked of President Bush. For the small taxpayer even today, an investment of five or six hundred dollars per year will see a great deal of the added income that Bush is touting as a solution paid to investment bankers. How will that help the workers making an average income? Today the White House admitted that the creation of the individual accounts Bush wants will not solve the funding needs of Social Security.
We should be looking at other ways to resolve the funding issue with Social Security. All we're looking at is what Bush proposed. When the President selected the members of the Social Security Commission he made sure all the members shared his notion of the individual accounts and other possible suggestions were not considered. Below are specific alternative suggestions to provide the funding necessary for Social Security without borrowing more money:
Stop any attempt to extend Social Security benefits to illegal aliens.
Continue the gradual increase of full retirement to age 70.
Consider limiting the payout to retirees with non-Social Security income above $150,000 per year. When a retired couple has non-Social Security income above $150,000 per year (index this amount each year by cost of living), the benefits under Social Security would end at the point when the individual’s contribution had been completely returned to the taxpayer. For example, if an individual during their lifetime paid $70,000 in Social Security taxes, excluding their employer contribution, their Social Security payments would terminate if their non-Social Security income exceeded the maximum amount when they reach a total payout of $70,000 in this example.
Should a retiree’s non-Social Security income fall below the maximum amount, the Social Security payments would resume based on their original entitlement so long as their non-Social Security income remained below the maximum amount.
Re-examine the option to set aside 2% or 4% of their Social Security tax to individual accounts. Issues to be evaluated should include:
Evaluate whether or not the creation of these individual accounts will make Social Security solvent. If the creation of these individual accounts does not solve he funding issues of Social Security, then why create massive change to the existing system?
Look at the Transition costs to supplant the removal of the younger workers 2 % or 4% of their taxes into individual accounts. Develop realistic estimates as to the transition costs. Identify the source needed to fund this transition amount before deciding to implement this change without borrowing more money.
Consider the impact on a worker who selects the private account option wherein the value of their account at the time of retirement was less than the total benefits that would be paid under the traditional Social Security amount. Would there be a provision to subsidize the payment of the amount received under the individual retirement option to bring it equal to the traditional Social Security benefit?
Evaluate an alternative to the individual equity account that would allow portions of the Social Security Trust Fund to be invested in stock market index funds. This would provide the advantage of increased earnings equity investments produce without the high cost to maintain millions of small accounts that would be required under the individual account concept. This idea has been successfully used by every state pension fund of the United States as well as many large corporate pension plans. Lift the income limit upon which Social Security taxes are paid to include all earned income similar to the current Medicare tax. This additional revenue would increase the Trust Fund and with the higher earnings from investing in equities should fund the system without borrowing more money!