Social Security and Medicare - a way out
Okay, now I'm going to put my foot firmly on the third rail - Social Security.
When I talk about my position on Social Security with those under 40, I get a strong positive reaction. When I do the same with those over 55, they start twitching like they're going to have a seizure.
My position is simple, and the economic logic is compelling. Let people opt out of Social Security and Medicare if they want to. Those who opt out would no longer pay the "employee" share of their contribution. The "employer" share would continue to go into the system. For those, like me, who are self-employed, our self-employment tax would be cut in half. For those who don't know, the employee share and employer share are 7.65%, and the self-employment tax is 15.3%. Those who opt out would be ineligible for any future benefits from the system.
Economics: Each person who opts out leaves all of their past contributions in the system (a fiction, I know), and cuts their effective future revenue to the system in half. They cut the expense they impose on the system in the future by 100%.
A response I often get is that this wouldn't work and would bankrupt the system. Well if cutting future revenue from this group by 50% while cutting future expenses by 100% will bankrupt the system, then the current system is already in a whole lotta trouble.
There might be a short-term problem with keeping up with expenses for current retirees due to the drop in revenue, but this can be resolved if we (say it with me) Stop Wasting Money in other places as discussed at length elsewhere in this blog.
Part of this proposal is that we have to guarantee benefits to those who stay in the system. If you've paid in and you want to stay in, we must honor the deal that our country made with you.
At the same time, if you believe in freedom, you have to let people leave if they want out. Perhaps the motto of this policy is "Let My People Go". Almost everyone under 40 would opt out in a heartbeat. What is the rationale for depriving them of this choice. Remember that they would be choosing to continue paying half into the system just to be let out. Why would we do this? Because we don't believe the benefits will be there for us when we get older. The age of eligibility keeps going up. By the time I get in the ballpark it'll be over 80. My grandfather died at 65 and my father died at 64. I'm optimistic about my future, but what are my odds of collecting?
In the long run, this solution will end Social Security, but it will take about 50 years (when today's 40-year-olds are 90, and those over 50 who stayed in will be mostly dead). Within about 20 years, the system will start getting a lot stronger as the youngest of those who stay in the system will turn 70, and a substantial number will have died off. I'm not rooting for their deaths, mind you. My mother's in that group along with two other people who are wonderful grandparents to my children. With that 20-year prospect not too far away, we should be able to borrow to finance the short-term shortfall if we have to (though I still prefer the Stop Wasting Money approach).
My proposal should be contrasted with the phony reform approach of Bush and most Republicans -- private accounts. I favor real private accounts - they're called IRAs, and they're not mandatory.
I'm sure many who read this will reject it outright. But stand in the shoes of today's 20-year-old. The current system has this young person putting 15% or more of their income into Social Security and Medicare for 50 or even 60 years before he/she will collect anything. If you're in our young friend's shoes, do you think it's likely you'll be collecting on this deal when you get there? How long does our young friend have to live to break even, before you start thinking about how interest should have increased the value of the contributions? Even at 40, I would opt out because of my doubts about the system. My brother says the same at age 44.
Let my people go.
When I talk about my position on Social Security with those under 40, I get a strong positive reaction. When I do the same with those over 55, they start twitching like they're going to have a seizure.
My position is simple, and the economic logic is compelling. Let people opt out of Social Security and Medicare if they want to. Those who opt out would no longer pay the "employee" share of their contribution. The "employer" share would continue to go into the system. For those, like me, who are self-employed, our self-employment tax would be cut in half. For those who don't know, the employee share and employer share are 7.65%, and the self-employment tax is 15.3%. Those who opt out would be ineligible for any future benefits from the system.
Economics: Each person who opts out leaves all of their past contributions in the system (a fiction, I know), and cuts their effective future revenue to the system in half. They cut the expense they impose on the system in the future by 100%.
A response I often get is that this wouldn't work and would bankrupt the system. Well if cutting future revenue from this group by 50% while cutting future expenses by 100% will bankrupt the system, then the current system is already in a whole lotta trouble.
There might be a short-term problem with keeping up with expenses for current retirees due to the drop in revenue, but this can be resolved if we (say it with me) Stop Wasting Money in other places as discussed at length elsewhere in this blog.
Part of this proposal is that we have to guarantee benefits to those who stay in the system. If you've paid in and you want to stay in, we must honor the deal that our country made with you.
At the same time, if you believe in freedom, you have to let people leave if they want out. Perhaps the motto of this policy is "Let My People Go". Almost everyone under 40 would opt out in a heartbeat. What is the rationale for depriving them of this choice. Remember that they would be choosing to continue paying half into the system just to be let out. Why would we do this? Because we don't believe the benefits will be there for us when we get older. The age of eligibility keeps going up. By the time I get in the ballpark it'll be over 80. My grandfather died at 65 and my father died at 64. I'm optimistic about my future, but what are my odds of collecting?
In the long run, this solution will end Social Security, but it will take about 50 years (when today's 40-year-olds are 90, and those over 50 who stayed in will be mostly dead). Within about 20 years, the system will start getting a lot stronger as the youngest of those who stay in the system will turn 70, and a substantial number will have died off. I'm not rooting for their deaths, mind you. My mother's in that group along with two other people who are wonderful grandparents to my children. With that 20-year prospect not too far away, we should be able to borrow to finance the short-term shortfall if we have to (though I still prefer the Stop Wasting Money approach).
My proposal should be contrasted with the phony reform approach of Bush and most Republicans -- private accounts. I favor real private accounts - they're called IRAs, and they're not mandatory.
I'm sure many who read this will reject it outright. But stand in the shoes of today's 20-year-old. The current system has this young person putting 15% or more of their income into Social Security and Medicare for 50 or even 60 years before he/she will collect anything. If you're in our young friend's shoes, do you think it's likely you'll be collecting on this deal when you get there? How long does our young friend have to live to break even, before you start thinking about how interest should have increased the value of the contributions? Even at 40, I would opt out because of my doubts about the system. My brother says the same at age 44.
Let my people go.
posted by Albany Lawyer at 10:36 PM
1 Comments:
“Whoever has a pension in his old age is far more content and far easier to handle than one who has no such prospect.” – Otto von Bismark
Most people think Social Security is a bulwark of American democracy, but its roots came from Bismark’s socialist welfare-state. It was a method of controlling the discontented factions looking for something called “social justice”, and a mechanism to make the people less independent and more dependent on the government.
Social Security has always been a political tool, from an economic standpoint, it’s unsustainable and irresponsible.
Warren, the “twitching like they're going to have a seizure” effect when you mention your position on Social Security is proof of how effective a control it has been on people’s minds. Even the weak reforms proposed by Bush invoked what appeared to be a minor uprising. You make a very good rational argument for eliminating the system over time before future generations are faced with further fiscal disaster.
Post a Comment
<< Home