One of the things that often gets Republicans labeled as “heartless” is their apparent lack of support of social programs. While I am not a Republican I do agree that ending social programs as we know it would be a step in the right direction.
Does that mean I lack compassion? No. What I lack is the ability or desire to force some into supporting any program let alone a failing institution.
Before you get mad at me, let me give you a little history. Once upon a time, Matt and I were poor, starving students. We had two children while covered by medicare, have been on WIC and we also received food stamp benefits. When we used medicare we chose midwives and home birth, partially because the expense to the state would be minimal. Beggars can’t be choosers; midwives are far cheaper than hospitals and we didn’t want to take advantage of the system. We used WIC and food stamps by justifying that once he entered the work force, Matt’s career would be such that we would pay far more into the system than we would ever get out of it. If I had known then what I know now, I don’t think we would have signed up for the food programs.
With that little history lesson behind us I will move on to the point of this post. Social programs as we know them are sucking our economy dry. Medicaid and Social Security are already bankrupt and other smaller welfare programs are getting larger by the minute.
Currently, Medicaid and Social Security eat up more than half of our annual tax revenue. Add interest to our national debt and we are up to two thirds of our annual revenue. That leaves only one third of the amount our government takes in for things like military, veteran benefits, and administrative costs (government workers need to be paid after all). Add Obamacare (the latest entitlement) to this pie and soon we won’t have any money left for defense (which is the ONE thing I have mentioned here that is listed in the Constitution as a responsibility of the federal government.)
This cannot go on.
Social Security was broken with the second check that it paid out. Ida May Fuller was the first person to collect a Social Security check. She paid $24.75 into the system and by the time she received her second SS check she had already received more in benefits than she paid in. She collected a total of $22,888.72. That is approximately 925% more than she paid. Who paid for that 925%? Those who were working that hadn’t retired yet. When they retired who paid for their SS checks? SS, since it’s inception has been an epic failure that, with all due respect to Mitt Romney, looks a lot like a Ponzi Scheme (definition being a fraudulent investment operation that pays returns to its investors from their own money or the money paid by subsequent investors).
What would I do? I would allow anyone who wanted to opt out of SS to do so. Those who want to receive benefits will have to continue to pay into it. Those who wanted to take responsibility for their own retirement wouldn’t have to pay in, but they also wouldn’t be allowed to receive SS benefits. Allow individuals to keep and invest their own money and three things will happen:
- The stock market would boom because more people would be investing. The stock market would also become less volatile because more people would be investing wisely.
- Retirees would have a better quality of life and more money to spend because the return the on investments are far greater than that of SS ( while almost everyone receives more than they pay in, the days of Ida May and a 925% return are far behind us).
- Since you can bequeath your retirement accounts to your spouse, children or whomever else you want, the next generation’s retirement would be even more comfortable than the first because they are starting out with more to begin with.
I will admit this plan has some flaws. The biggest flaw being that our entire population has counted on this for some if not all of their retirement. Even if we were to pretend that SS wasn’t already bankrupt and working off of a system of IOU’s, as soon as we open up the ability for people to opt out I believe that the number of people who would stop contributing to FICA would make it impossible to keep paying the benefits for those who decided to stay in. The American people, especially those with their entire careers ahead of them, would realize which option was better and quickly start investing their own money.
I believe that my plan would have to be introduced slowly, say over 15 or 20 years. Here is how I would do that:
- No one who is not a citizen of this country will be allowed to receive Social Security or any other entitlement benefits.
- People would no longer be allowed to receive benefits until they die. They would receive benefits until they reach the amount they have contributed and then stop. Since almost everyone withdraws more in benefits than they put into the program, that extra money has to come from somewhere or more importantly someone. While the potential for wealth is unlimited, money also does not grow on trees. You can’t just print more money and have it not effect the overall economy in a bad way. The extra checks you get are pillaged either from another program’s budget or another person’s paycheck. Sound harsh? The truth hurts sometimes.
- I would incrementally raise the retirement age to 80 (yes 80). The current retirement age of 65 was established in 1935 when SS was enacted and when the average life expectancy was 62. As our life expectancy has increased, the retirement age has not. Life expectancy for 2010 was 79. Raising the retirement age for SS benefits would put things back the way they were when SS began. Those who want to retire sooner would be responsible for making sure they can cover themselves until they reach the age of 80. This would also make sure that SS continues to be a safety net for those who really need it.
- As unpalatable as it is for me, I think one of the only ways to pay for the current seniors is to put an income cap for SS eligibility. Those who have an annual income of say $500,000 a year would not be eligible for SS benefits. If we can figure out a way for small businesses not to get kicked by this, a family making 500k a year is making more than enough to save for a comfortable retirement. It’s incredibly unfair to have to pay into something you won’t be able to benefit from, but we can’t just jerk the rug out from under this monster. We have to fix it incrementally.
- Those who opt would not be able to get money back that they had already paid in.
- I would have the “opt out” option be on a sliding scale by age. Younger people (say up to age 45) would be able to withdraw 100%. Pay nothing, get nothing. You are on your own. If you decide to stay in you will only receive benefits in the amount you paid in. This is an excellent incentive to get younger people off of the system. You have a choice, show some self-discepline and save and invest for your own retirement or let the government take an interest free loan out of your paycheck every month. It doesn’t take a genius to decide which is the better option.
- The older you are, the closer you are to retirement and the more likely it is that you are counting on SS benefits. The likelihood of you being able to save enough for retirement isn’t as good as it is for the younger folks. Healthy investments take time to grow. If you decide to opt out after age 45 or so, you will still have to pay into SS, but only half of what you are paying now. The older you are when you decide to opt out the larger percentage that you will have to continue to pay into SS. Those who are too old to opt out 100% would also be able to withdraw some SS benefits, just not 100% like those who stay in and pay the full FICA tax.
- Employer contributions would incrementally be reduced until it is gone. I believe it would be far better for the economy if employers and employees were incentivized to participate in a retirement match program rather than punished with a tax (which is all FICA is). Since employers pay 7% in payroll taxes for their employee, even if they were to offer a 100% match of up to 6 percent of the employee’s income (which is very generous), the employer is still coming out ahead (not to mention the great head start on retirement the employee is getting). This would allow employers to have more capital with which they could either raise salaries, hire more employees, offer additional benefits or expand their company. This would be done quickly, say over five years so that the individual would be more incentivized and have more time to take advantage of a retirement match program.
- I would not, as some have suggested raise the income cap on the SS tax, nor would I increase the percentage paid into the program. This will not solve the problem and will only ensure that less people will have enough to make their own arrangements for retirement. This type of suggestion is like trying to use a bandaid on an amputated leg.
The goal for me is not to make Social Security financially viable but to eliminate the need for it all together. People need to take responsibility for their own lives. Social Security should not be considered a retirement program. It should be considered a safety net. Safety nets are not meant to be for everyone but for those who truly need it. If we can eliminate the need for SS for all but the poorest and oldest who truly can neither save for their own retirement nor work because of advanced age, real health problems or disability, it will take a tiny fraction of the amount we are currently paying into it to save it. Social Security as it currently stands is so monstrous that it has it’s very own tax which doesn’t even begin to cover the benefits being paid out. If we can get the need for SS down to what I have suggested, we would easily be able to pay for it along with everything else the federal government is responsible for with the revenue from a regular federal income tax rather than a payroll tax. Cut the payroll tax out of the equation and everyone gets a 7% raise, who can argue with that!
This isn’t about not having compassion or not wanting to help our neighbor. This is about what type of system is more likely to produce the maximum standard of living for the maximum number of people. It is a fact of life that those who prepare, save and invest for their retirement have a far greater standard of living than those who rely on SS. Social Security has failed. The average SS benefit starting in 2012 is $1230 a month (max benefit is $2513). That is a joke. No one can live comfortably on $1230 a month. Let us please stop pretending that Social Security is a good idea and figure out a way to scrap it all together.
Next time: Medicaid.