Change can be good (Part II)

Okay ... President G.W. Bush has been re-inaugurated, whether or not you feel that he should have been doesn't matter at this point, the deed is done, and we don't need to discuss it here. Now the President has made statements in some of his speeches that have some people on edge. Specifically he wants to make some serious changes to the Social Security program and he wants Tax Reform.

First, on the subject of Social Security - currently Social Security tax is taken out of your paycheck and sent to Washington where it is doled out to pay the people currently collecting a Social Security check. Now ... what happens with anything left over? It's rolled into the general fund and used to fund highways, work programs, welfare, or any other program that the government wants to spend it on. Social Security is the government’s slush fund and your guarantee of being able to collect Social Security when you retire is zero.

Since the system, as it stands now, is using current income to pay current debts, the money paid into the system by individuals does not guarantee the individual paying the money anything. And, as more people begin to retire over the coming years (and the fact that on average people are living longer than they did when the system was established) we are likely looking at decreasing Social Security benefits and possibly eventually reaching a point where the system simply can no longer support itself. At which point the people currently paying Social Security could well find themselves with nothing to show in return, and nothing to retire on.

There are a few ways to 'reform' Social Security ... you can increase the amount people pay into the system by withholding more from their paychecks. This method, however, gives less money to those people working for a living which in turn gives them less to spend which harms economic growth and the overall prosperity of the county ... it also simply gives the politicians more money in their slush fund for the present and, while it may prolong the system's life, it doesn't fix the problems inherent in the system.

Another option would be to place all the money remaining after paying the people currently collecting their retirement money from the system into a secure general account and not use it for general funds. Technically this is supposed to happen already, but there is no such thing as a government owned account that won't be used for general funds. If congress controls the account directly they'll just 'borrow' the money needed for whatever little projects they need to fund ... saying that they plan pay it back later. Rumor has it that there is a filing cabinet in Washington filled with these IOUs ... that may be an urban legend or it may not I don't know personally.

A third option is ... privatization. There it is ... I've said it ... the word that seems to scare so many people, particularly in regards to Social Security. In a privatized system the money paid into Social Security by Klikhizz Grimscale would go into an account in the name of Klikhizz Grimscale and, upon retiring be paid to Klikhizz Grimscale. In the mean time it would be in some form of account owned by Klikhizz Grimscale earning some form of interest rate. The key being, since it is owned by Klikhizz Grimscale the poly-ticks in DC can't use the funds, and the funds are guaranteed to be there for Klikhizz Grimscale when he reaches the pre-set retirement age. And this is one of the main reasons that those poly-ticks in DC don't want such a system put into place.

As I’ve also mentioned, in a privatized system, since the account is OWNED by the individual the contents of that account can be willed to surviving family members or anyone that the individual cares to pass it to in the eventuality of their death. The money paid into these accounts is, in most forms of these plans, guaranteed to be paid to the individual upon reaching the set retirement age, and usually with a varying interest rate. Such that the individual, through the magic of compound interest, would generally receive much more than the total paid into the account.

A couple of arguments that I often hear from the anti-privatization crowd.....

1 - You'd be cutting off current recipients!

No. Most federal plans 'phase in' the reform. Effectively creating a hybrid system to start where a portion of the collected money is put into individual accounts and the remainder used to pay those people currently drawing on the system. The plans neither end current benefits, nor in any way lower the payments.

This is a scare tactic used to try and get those living on Social Security to vote against privatization. It is a scare tactic to pit grandparents against their grandchildren. It is used by those that would prefer a government that controls people’s financial lives so as to maintain their own power. It is used by those that would rather maintain their power now than concern themselves with the future of this country.

2 - Stocks are risky people could loose everything!

Well, first off while stock market accounts would potentially earn a person the highest return on their Social Security investment, it is, by most plans, considered too risky for this type of plan. Most privatization plans call for simple savings accounts or secure investment accounts with guaranteed returns. These are low-to-no risk plans. In some cases the plans allow for some minor control on the part Klikhizz Grimscale and may give him some options in how his money is handled, possibly even allowing him to invest a portion (but not all) of the money in his account into stocks for a potentially higher return on the investment.

Besides ... you aren't guaranteed anything under the current system anyway. If you keep that in mind even a privatization system that just stored the money and returned to you what you’d put in over the years would be a better system than what we have now.

3 - It would require too much manpower, it would only increase the size and cost of government!

Well, realistically the best way to do these plans is to contract out to a private organization. The private organization hires the people needed to handle the job of managing these accounts ... in so doing it employs people, which in turn will help the economy grow. Besides, name one thing that the government does better than private companies ... I can only think of one thing that the government is better at ... creating inefficiency, they've got that down to a science. The company handling these accounts would, of course, be under government contract, subject to government regulations, auditing, etc, etc, etc.

4 - It's never been done before!

Wrong again. In the late 1970s there was an 'opt out' clause in the Social Security Administration allowing local governments to withdraw from the system with a 2 year notice, and between 1981 and 1982 three counties in Texas opted out of the system (The clause was removed by a 1983 reform to the system that raised taxes, increased the retirement age and lowered benefits to allow the system to continue to function.) These three counties in Texas each set up their own privatized 'Social Security' systems which are still operating to this day.

While I haven't found specific numbers from the other two counties I did find published numbers (and comparison to Social Security payments) for Galveston County...

"A person retiring today at age 65 with 40 years of deposits and an annual salary of $20,000 would retire with $383,032 in a personal account."

And

"A retired $20,000-per-year worker with the personal retirement account would receive $2,740 each month at current interest rates, while Social Security benefits would be about $775 per month." (Yes someone who had made 20,000 a year could retire and start making 32,000 a year)

This is from a plan investing in annuities with a highly rated insurance company, though the interest rate may vary from year to year, the company must guarantee a rate for the year.

(More info on Galveston's system can be found here: National Center for Policy Analisis and Texas Public Policy Foundation)

Privatization CAN be done and it CAN work, but until public awareness of the options forces the poly-ticks in DC to get out of the way of reform, we the people are going to continue to wallow in an out dated system. It should also be noted that the DC poly-ticks have their own retirement plan and neither pay into, nor collect Social Security - they're already set for life. (*Ground shakes* 'umm, you guys stay here in the top of this high rise, we're going to get in this hot air balloon and tell you that you can't redesign the building you in.')

Now certainly any plan for privatization or reforming Social Security needs to be looked at in detail, but my point is that people shouldn't start running around and panicking at the mention of the word 'privatization'. Undoubtedly the poly-ticks will try and wrap any plan to their advantage and will take credit if it succeeds and blame their opponent if it fails.

Look into proposals about this with an open mind, but look closely ... this could affect you and your children's lives directly and shouldn't be taken lightly, it's your money.

I’ll tackle the issue of Tax reform in another piece because I believe two of the biggest issues facing this country today are the need for immediate and meaningful reform of the Tax and Social Security Systems