Social Security
When President George W. Bush rolled out his plan
for social security, he challenged anyone to come up with an alternative to his
idea.
I'd like to rise to the
challenge.
Let's first take a look at
the problem that social security currently faces. it's pretty straightforward,
really. Right now, social security is bringing in more money than it's paying
out. The surplus is being invested in low-interest government bonds. As life
expectancies increase, and as the baby boomers start to retire, it won't take
long before the scales will tip such that it is paying more out, than it is
bringing in. Once any surpluses are gone, there will be a deficit. Unlike the
general government budget, we absolutely don't want the social security trust
fund to run into a deficit.
Bush's plan
is to divert a small percentage of the social security taxes for younger
taxpayers into private brokerage accounts, not unlike a retirement fund
available from certain mutual fund or annuity
companies.
My big problem with this is
that it won't do anything to actually remedy the problem. If we're diverting
some of the social security taxes to private accounts that can only be drawn
from by that particular taxpayer and/or his or her beneficiaries, that won't do
much of anything to remedy the problem. Furthermore, it falls into the common
misconception that social security is intended to be an investment. It is not.
It is more like insurance, and, just as we don't demand a refund on our car
insurance when we don't get into an accident, we should not demand all of our
premiums back from social security, when it comes time to
retire.
I would have less problem with
Bush's plan if he would take the extra step and allow people to opt out. He's
effectively doing that while simultaneously forcing people to contribute the
same amount to the fund.
At its most
basic level, the solution to social security is to either bring more money in to
the fund, or to pay less out. And you don't need to be a finance major or an
actuary to recognize that. The current workers would likely balk at paying more
in social security taxes than they already are, and the current retirees would
likely balk at receiving less in their monthly check. So what are we to
do?
On a high level, there are two ways
of doing this in such a way that would not alter the way anyone who is currently
paying into the system, or receiving money from the system, do what they're
doing.
First is to raise the cap on the
requirements to opt into the system. Right now, if you earn more than a certain
amount in a given year (I believe it's $100,000.00 per year, but don't hold me
to that), then you're not paying into the trust fund. Raise the cap, and allow
the administrator of the fund to submit proposals to the secretary of treasury
on an as-needed basis, to increase this cap. This cap should be somewhat
commensurate with the direction median salaries are going around the
country.
Next, to handle the amount
coming out of the fund, is to take advantage of something we're doing anyway.
Beginning on January 1, 2012 and every ten years thereafter, change the
retirement age to coordinate somewhat with the median life expectancy, as
defined in the most recent census. Part of my rationale behind this is that
social security was never intended to have one person pay into it for 40 years,
only to be paying out to that person for the next 40 years, but it's happening
with increasing frequency.
There are a
couple of choices with regard to how to handle this, and I'm open to either
option.
First is to have it be a unisex
table. Round the unisex life expectancy up to the next whole number, subtract,
say, 10, and set that as the retirement age. So if in the year 2010 , the life
expectancy will be 78.2, then the retirement age will become 69. Then ten years
later, it will change again in response to the 2020
census.
The other option is to use the
gender-specific tables. If women live to age 78, and men to age 74, then use a
similar formula that is gender specific. I don't necessarily know if this is
the fairest way to handle this, however it could cause some degree of equity and
both accommodate those women who took time out of the workforce in order to
raise a family as well as do something to close the disparity between men's and
women's wages.
The downside to this is
the fact that many women generally marry older men, and may need to leave work
at a time that roughly corresponds to when their husbands die to help them with
their end-of-life issues.
The details
can be worked out relatively easily, and the exact numbers are open to
discussion. Still, these solutions do make more sense than Bush's
proposals.
Posted: Tue - February 22, 2005 at 08:58 PM