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POLLIWOG (Tadpole): the early stage of an animal that will eventually become a frog, hoping to be kissed by a princess, turning into a prince! POLIBLOG (Political Blog): the early stage of a center-right political blog that may eventually become a full blown blog of the center-right. Join in if you find any merit in the comments. If you are on the left and disagree, feel free to straighten me out! Who knows, with effort from all of us this blog may turn into a prince!

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Location: San Diego, California, United States

Friday, February 25, 2005

MY TAKE ON SOCIAL SECURITY

Do not pay attention to all the complex details both supporters and detractors of W's Social Security changes try to use to bring you into their fold. Here is an inescapable fact:

Social Security is a PAY AS YOU GO system - today's workers transfer money to the receivers of Social Security - and in 2018 (or 2025 or 2042 ad infinitum) - those workers will have to transfer money to the receivers of Social Security.

Therefore, as the demographics change - the ratio of workers to retirees is decreasing due to longer life - more must be paid in by each worker. This fact will break the system at some point in the future!

So W is simply trying to get away from the PAY AS YOU GO system, giving each of us some control over OUR money to nurture, under controls, for our supplemental retirement nestegg.

Social Security has served a great purpose. It is now time to transform it to a system that will work long into the future!

WORD FOR THE DAY: calumny

HINT: "Calumny is used by both sides of this issue."

5 Comments:

Blogger Jim said...

"Security for Our Old Folks+" - this is the name of my program to replace Social Security (acronym: SOOF+). Yesterday I suggested I "clear my brain" of the current misrepresented system and create a new system - of course we must recognize that the current system is in place and parts of it must be used as it would be unrealistic to assume we could start from scratch. Agreed?

SOOF+ will start with the following ideas:

1. The employee portion of the payroll deduction for Social Security is eliminated and Income Tax is increased an equal amount on earned income up to the current limit. Note: no effect on deficit or individuals!

2. Employers continue to match this amount into each individuals SOOF+ Investment Account. At the start, the distribution of this Account would vary with age, i.e. an older person may have it put into the "fund" rather than invest it, a younger person might have to invest it, etc. Note again: no effect on employer or individual.

These two changes eliminate the individuals concept of a "fund" that exists (it is simply part of the general income of the government) and starts the "individualization" of SOOF+, without any effect on cash flow.

This is the start. Give me your reaction to this, and I will continue in more detail as to changes that must be made in distribution.

12:33 PM  
Anonymous Anonymous said...

I'd still like to clarify the intentions a bit more...

For instance:
Is the goal is to let everyone have an account and that is the end of the story?
Are there limits on how investments can be made within the account?
Is there any other safety net included? for instance, if you happen to retire right at the time of a big market crash, and suddenly you've lost a lot of value?
Can it happen that the person spends all the money in the account and is still going strong (physically but not financially)?
Is there any 'guaranteed minimum' payout, and if so how might that be set?

11:06 AM  
Blogger Jim said...

All your questions are good ones and I will give you responses at the end of this post. I want to slow down the conversation, since I believe everyone goes to the questions you asked before understanding and agreeing on the basic changes that are required.

My system now has Income Tax increasing by 6.2% on all wage earners to the current limitation of Social Security. This is easy to implement since all we have to do is continue withholding, add a line to the Income Tax Form for SOOF+, and nobody thinks they have an "account", we are just giving money to the government to transfer to needy Old Folks. This is 1/2 the current available amount and there is no disruption to the governments cash flow.

The 6.2% the employer must continue to match now goes to an SOOF+ Investment Account tied to the name of the individual who earned the income. Most of your questions revolve around the disposition of this SOOF+IA, and I do not want to think in that detail yet.

My point is we can make these changes (the % split could be different, or other things could change upon detailed analysis)and it does not effect the cash flow of the program - cash into SOOF+ equals cash into SS!

And more importantly, you have at least 1/2 your cash flow to continue payments to the Old Folks - it could be significantly more depending on who takes the SOOF+IA option (I did not mention that participation would be voluntary - you could opt out and your employers portion would go into the general income, and you would get your full RE-defined SOOF+ payment).

Now let us go to the real problem:
THE OVERALL SIZE OF THE TRANSFER MUST BE DECREASED OVERRTIME DUE TO CHANGING DEMOGRAPHICS. How we do that is the real question!

My answers to your questions:
1. No - much detail to be done.
2. Yes - an important control.
3. Yes - much detail to be done.
4. No - much detail to be done - but my plan implies that all would get 1/2 of their current SS under SOOF+ (Please note above, the 1/2 paid in taxes will fulfill 1/2 of the governments committment to all of us - keep asking the questions!)
5. See 4. on individual tax portion. Much detail to be done on the SOOF+IA.

Is all this making any sense?

1:13 PM  
Blogger Jim said...

No response so I will assume this is all making sense! THE OVERALL SIZE OF THE TRANSFER MUST BE DECREASED OVER TIME DUE TO CHANGING DEMOGRAPHICS. Let's address this.

1. Life expectancy has increased apx. 10 years since inception of SS. Shouldn't the date of eligibility for SS have increased 10 years? Seems to me it should have - or at least some portion thereof. So giving SS to 62 year old or 65 year old Old Folks seems excessive, and in my mind has changed little (some adjustments have been made) due to the perception that their money is in an "account" - thus the "third rail of politics" over the last 70 years! If it was understood to be a transfer, SOOF+ could make this adjustment with some cooperation.

So - raise the age of receipt of SOOF+ payments!

2. MEANS TESTING - this is a necessity! SS was meant to be supplemental income to Old Folks, keeping them out of poverty. SOOF+ will do this!

I suggest something along the lines of: If your net worth at the age of eligibility for SOOF+ is 10 times (5 times, 15 times, twice - this would have to be defined) your average earned income over the last 10 years, then you are not eligible for SOOF+ payments from the non-voluntary side of the program. Your SOOF+ Investment Account does, of course, go to you while you live and to your estate when you die.

What do you think of these two changes to get SOOF+ on the right road for the foreseeable future?

10:07 AM  
Anonymous Anonymous said...

Sorry for the long pause - things got busy last week!

I agree that both age eligibility and means testing should be discussed as part of dealing with Social Security. I think, however, that part of the reason that SS has been a successful program that it hasn't had means testing - therefore it's never been seen in the same way as 'welfare' programs. I can imagine that if means testing were put in place, the pressure to decrease payments would increase.

11:26 AM  

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