When it comes to the Social Security system, the only absolute facts are that changes must be made to keep it solvent. With the arrival of retirement age for the baby boom generation, the system will have two workers for every retiree by 2030; currently there are 3.2 workers per retiree paying into the system. With the well running dry, there are many ideas about how to fix the problem, and everyone has a strong opinion. There are three basic schools of thought, though with many variations as to how to accomplish each goal.
Raising Taxes
A highly unpopular option with cash-strapped Americans, raising taxes would fill the coffers. Discussions about raising taxes usually center on which taxes can be raised, and for which segment of the population. Raising payroll taxes is the worst case scenario, and instead deliberations have centered on eliminating loopholes in the tax code for wealthy Americans, and the possibility of reinstating estate taxes while earmarking the money for Social Security.
There is an additional element to these negotiations. Though hotly debated around the country, some point out that legalizing immigration could give the government the needed taxes to ‘right the ship’, and that we have plenty of workers to pay into the system if all of the undocumented workers are counted.
Reduce Spending
Other models have been suggested with reduced spending of the Social Security money. An absolute distinction between retirement money and other government money is essential, since surpluses from the system have often been usurped for other government needs.
Ways to reduce spending are certainly not fashionable either, because they usually are centered on lowering already low benefits or raising the age at which benefits can be collected.
Privatize
The third option is to privatize part or all of the system and allow each person to direct investments in stocks, bonds, and mutual funds for increased return on investment of their funds. This would enable future retirees to control the structure of their income and build a nest egg that they could use as they see fit.
Careful planning would be required to implement privatization, as there are a number of problems to consider. A few major considerations are current retirees or those near retirement age, and widows or children who depend on survivor’s benefits to live.
Comments
5 responses to “Social Security Reform Ideas”
[…] My Retirement Blog: Social Security Reform Ideas […]
[…] At My Retirement Blog I had an article on social security reform ideas. […]
The third option in the article (privatization) is not a “fix” at all, but rather would represent the destruction of Social Security. Who would benefit from this? Wall Street, from the inflow of money that would no longer be collected for Soc. Sec. through payroll taxes. Those who claim that workers would also benefit should review the economic collapse of 2008-2009. Their memory cannot really be that short, unless their greed has obliterated the memory. Mega-banks, derivatives, leveraged buy-outs, the financialization of debt, the blind greed of bad loans made as if there were no tomorrow – all these have brought this country to its knees. That people can still be advocating putting workers’ retirement money behind all that sleeziness is worse than sick, it is near criminal.
How about making illegal aliens —legal? We need the workforce. We need their tax revenue. It is a win, win. Get them out of the emergency rooms and into the doctor’s office. Get them out of smuggling and into working within the system. They are the largest group- let them support the system.
For those who think SS would go away- just give me back the money my husband and I contributed for the last 35 years. We could invest it our selves and move forward.
In order to fix this, we must have a larger revenue stream. Two ways to do this.
1. Remove completely the cap on income subject to SS tax. People who earn millions will not miss it.
2. Subject all income from whatever source to the SS tax. When SS was enacted, 401k’s did not exist. Passive income from dividends, capital gains, etc was rare. Now it is a significant source of income.
There is no philosophical reason that income from earned income should be subject to this tax, and income from other sources should not.
It is only fair that all income be subject to this tax. Someone who gets the majority of their income from investments is eligible for SS and Medicare when they qualify, but the revenue for that was largely contributed by low and middle working class people.
This would accomplish two things. 1. It would enable a significant lowing of the rate of the tax, benefiting low and middle income earners, putting more money in circulation. 2. It would enable more money to also be diverted over to the Medicare side, where the real problem is.
In addition, this would drastically reduce the enormous cost of administering the SS contribution system. Do away with the whole edifice of W2’s, withholding, etc. saving significantly for small businesses. Simply collect it on the persons income tax return, one line with adjusted gross income times the new SS rate.