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Author: tmeri Big gold star, 5000 posts Old School Fool CAPS All Star Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 737152  
Subject: OT: On Fixing Social Security Date: 6/14/2004 5:54 PM
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Social Security is obviously broken, and the longer we wait to fix it, the worse the problem is getting. One of the things that bugs me about SS is that proposed solutions never actually get rid of it. My other complaint about proposed solutions is that they are patently unfair.

Of course, all programs are inherently unfair. But we should strive to make any solution as fair as possible. Any solution should also eliminate the program or replace it with one that is truly self-sustaining.

Here is my proposal for such a fix:

1. Eliminate social security payroll taxes today.
2. For the purposes of future SS benefits, calculate them as though everyone quit working today. If you've been working for only 10 years, you'll get the benefits that you would if you quit today. It won't be much, but then you haven't contributed as much as someone who paid SS tax for 40 years.
3. SS benefit payments according to #2 would be put on the government's books. No more of this phony double-bookkeeping. (Double-entry bookkeeping would still be allowed, of course. <g>)
4. Allow everyone who works to contribute to a new kind of tax-deferred account the same amount they would have paid in SS taxes. They will pay income taxes on the amount contributed, just as they would have for SS payroll taxes. (No net change to them.) They would begin withdrawing at their SS eligibility age. Income taxes on withdrawals would be assessed exactly as they are on actual SS income.


This seems fair to me. Of course, someone will find a group that they think is being ripped off, but you'll need to explain why. Anyone who is near to retirement can count on the benefits they've earned up until now. If they've already stopped working, their benefits will be exactly the same as if SS had never changed. If they are still working, they can redirect their payroll taxes to an even better plan. The new plan would never go bust.

The burden of fixing this falls on those paying income tax. That is a large burden, to be sure, but of course, we could use the SS trust fund to help offset it. HAHAHAHAHAHAHAHA! Seriously, I don't think there is any actual money in this trust fund, but if there is some lying around somewhere off the books, it should be invested and then used to offset budget increases used to pay SS benefits.

The brunt of the burden is born upfront and gradually decreases to zero in some number of years.

I leave the other details as an exercise for discussion. What about employers' contributions? Should we require people to invest in the new plan or make it optional? What do we do with idiots who won't save for retirement? What about people who had fewer than 40 quarters of work?

Now if only we could find a solution to Medicare...

- tmeri
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