Friday, March 04, 2005
About Social Security
It mystifies me why people act like Social Security is hard to fix. To me, it seems pretty easy. It only needs three steps:
1) Make social security a real "Pay as you go" system. No more phoney surpluses that just get wasted by Congress, and no more worries about deficits. Instead, every year, estimate what Social Security will cost that year. The calculation this isn't hard - birthdays are pretty predictable.
2) Pop the cap on the payroll tax.
3) Tear up all the "trust fund" T-Bills
The net effect would be a much lower SS tax rate. Low income people would pay less, middle income people would pay about the same, rich people would pay more.
Of course some, like yourself, would pay a lot more. But before you blow a gasket, consider this: 20% of Americans pay 80% of all taxes (I heard that somewhere). Unless the system is fixed, the debts created by the current system, which spends the excess SS dollars and prints T-bills, will have to redeemed out of the General Fund. That means that 80% of that debt already belongs to you top-20%ers!
So what do you get out of it? Well, get this: you can tear up all the T-Bills already created! If the system becomes a real pay-as-you-go system, there is no need to ever redeem all the "trust fund" T-bills that have already been printed. This reduces the national debt immediately, stimulating the economy and helping everybody.
This idea is almost too simple - I need to think of a complication. Oh wait, here's one: the SS tax is currently paid by two sources: employees and employers (and the self-employed, but let's ignore that for now). A fluctuating SS tax rate would mess with employers and employment. That doesn't seem like a good idea. Lowering the rate would make employees cheaper for employers, but if there is no need to do that now - and we seem to be able to manage our unemployment just fine at the current rates - why on earth would we need it at a time when employment is so good that SS rates are that low? On the other hand, if we actually ever had to raise the rates above the current levels, it would make employees more expensive, possibly raising unemployment and thereby actually increasing the problem in the next year.
Fortunately, that's easy to fix too - just put in the law that the rate for employer contribution will remain constant. The only exception would occur if the rates dropped so low that just the employer contribution alone is enough to cover it all. Not a bad problem to have, right? So why worry? I worry because any politician - past, present, or future - will think that the natural solution is to leave the employer rate fixed, and let Congress buy votes with the excess! Since we don't want that to happen - we both know that the best government is the smallest government, right? - the law should be written right from the start that, if the system ever starts generating excess dollars, then the employer rate has to be adjusted down - AND NEVER RISE AGAIN.
Of course, that puts all the fluctuations on the employee side of the paystub, but that's okay. In fact, it's good - people need to pay more attention to these things.
What I really like about this solution is that it brings us all more closely together. Let's say that some rich CEO somewhere off-shores a bunch of high-paying American jobs. If that happens today, the other CEOs come and sit at his knees, hoping to learn from him. But under the proposed system, doing the same thing will directly raise the SS rates on the rest of the rich guys. Maybe they'll all stop playing golf with him. Hey, I say hit them where it hurts! On top of that, maybe this would push us all to work harder and closer together, to encourage every American to achieve their highest potential... thereby lowering rates and making life better for everybody.
In return for sharing this great idea with you, all I ask in return is that you don't complain (too much) about the unfairness of it all. It is unfair, but my sympathy is low. Until these last few years, I've spent my professional career in the worst of all possible worlds (SS-wise): earning right at the cap. Every year I paid just as many dollars as the richest man in the country, and at as high a rate as the poorest. Was that fair?
As for personal accounts: they could fit in this scheme, on top of this scheme, or be completely left out. Personally, I think they are a great idea, because they build wealth and grow the economy. "Left out" is trivial, and "on top" is easy - lowering the rates would leave lower-paid workers more money that they could save. Even the most complicated approach, making private accounts part of the system, is still pretty straightforward - if a payer chooses to put part (or all) of their contribution (but not their employers contribution) into a private account, their benefits would be reduced using by the appreciated value of the T-Bill it could have purchased. Just apply the appropriate actuarial data to that appreciated value, and reduce his check accordingly.
It's important to exclude employer's contribution from the personal accounts, for two reasons: 1) so that some money always goes into the system to meet current obligations, and 2) so that everybody earns at least some government-backed benefits. You and I both know that this later is irrelevant - if any stock market index fund earns less than T-Bills over a 30-40 year period, does anybody really think that the government will have money to pay benefits to anyone? - but we have a lot of soft-hearted voters who worry about things like that, and won't pass anything that doesn't address it. Personally, I blame women's suffrage.
If personal accounts are in the system, it raises rates in the near-term (because current outlays remain the same), but it lowers future rates (because it reduces future outlays). That would be a very good thing, given the demographic trends. If personal accounts would raise current rates too much, then put a annual dollar cap on the personal account. Sucks to be rich, of course - you'd be the ones to hit the cap - but in the long haul an "ownership society" will pull the poor toward the rich, making them more sympathetic to the needs of business - and that's worth something, isn't it?
Well, there it is.. What do you think? Pretty good, eh? And I didn't even stay in a Holiday Inn Express last night!