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Social Security reform is an opportunity
June 10th 02:41:24 PM
Perhaps the most pressing financial issue for the future of our generation is that of ballooning entitlement programs; programs like Social Security, which rely on growing populations to keep them on strong financial footing. Unfortunately, due to the upcoming retirement of the baby boomer generation, that financial footing is being threatened, as there will be so many retirees that there simply will not be enough workers in the workforce to fund all of their Social Security benefits. That, of course, has set up a situation in which our generation- the next set of workers in America- are going to be forced to pay for this financial problem.
Under current estimates, Social Security will begin to pay out more in benefits than it receives in taxes in 2008; the system will then have to tap into the "Social Security trust fund" in 2017, which will contain approximately $5 trillion in government bonds. In order to keep paying the benefits it promises, Social Security will have to cash all of these bonds in from 2017-2041; because the government is going to have to cash its own bonds in, it will have to find the money to pay off the $5 trillion, which will require one- or a mix- of three things: higher taxes on all of us, deficit spending, or benefit cuts. After 2041, the situation becomes even worse, as the trust fund will be empty. This will mandate about a 27% benefit cut- across the board- for every single retiree at this point. Conveniently, this is around the same time every member of our generation will be retiring.
The conclusion? Under the current system, our generation will have had to pay higher taxes or will have had to deal with huge deficit problems from 2017-2041, while also having a 27% benefit cut when we retire. Are higher taxes and smaller benefits a fair deal? Absolutely not.
This, of course, is exactly why the issue of Social Security reform is so important for our generation- we refuse to be ripped off. Social Security is a system that started off with a small payroll tax rate, but one that has been increased over 20 times since the program's inception- now at 12.4% of the first $90,000 every American earns. In order to keep the system solvent (so it can pay out the benefits it promises), there are only a few solutions: raise payroll taxes even more, cut those benefits, or raise the rate of return on your taxes. President Bush says exactly that now, and former President Clinton said exactly this in the late 1990s.
Only one of those solutions can offer opportunity, instead of taking something away (like your money or your benefits)- and that is raising the rate of return. This is exactly why personal retirement accounts are such a great idea- by allowing Americans to invest part of their Social Security taxes in stocks and bonds, Americans can make more money off of those investments than Social Security could ever dream to promise them. Combining that with progressive indexing- a plan which grows benefits faster for the lower class, at a medium rate for the middle class, and at a slower rate for the upper class- the Social Security financing problem is virtually eliminated. The President's plan for Social Security reform consists of exactly these solutions: the choice for you to invest part of your payroll taxes in a personal account, and progressive indexing.
Most importantly of all, though, this plan offers something that no other plan can: choice and opportunity. If you want to try to go for the gold and invest part of your payroll taxes, you can choose to do so. You can choose the amount of risk you want to take, or you can play it safe. If you don't want to invest, you have the choice to keep those taxes in the Social Security system instead. Upon retirement, if you chose to invest part of your taxes, you will get money out of both your personal account and a smaller payment from Social Security. If you chose not to invest, you would get a bigger payment from Social Security, but you wouldn't have had the opportunity to get a bigger retirement paycheck, as you wouldn't have been investing in that personal account. The choice would be yours, and the power would be in your hands.
There are even more opportunities than this, however- if you chose to invest in that personal account, any money that remains in your personal account upon death can be sent to anyone you deem worthy. You could send it to your children to pay for their college education. You could leave it to your spouse so he or she can have a more stable financial future. You could donate it to a charity. You could send it to a close friend or a colleague who needs financial help. You could even send it back to the government (why anyone would do such a thing, I do not know). Under the current Social Security system, you can do none of these things- all the money you paid into the system stays in the government upon your death. Worse yet, if you died before the retirement age (65-70 depending on what year you retire), all of your Social Security taxes would remain in the government- but under a system of personal accounts, all of the wealth you accumulated could be sent to whomever you deem.
Which one seems like the more fair deal? The choice is obvious. We have an opportunity in these times to both fix the Social Security system's financial problems AND offer Americans more opportunity. Should we not do both? Why do one without the other? Social Security should not just be a tax that burdens every American worker until they retire. It should not just be a tax that constantly goes up as the system runs into financial problems. Social Security should be an opportunity for Americans to grow their wealth, an opportunity for those in the lower and middle classes to have a safe, secure, comfortable retirement. It should be an opportunity for people to invest in the markets; people who currently don't have the money to do so. It should be an opportunity not just for our generation, but for future generations- a chance to have each and every one of us leave our heirs and our loved ones a much deserved inheritance after we die.
For decades, Social Security had been called the "third rail of politics." Anyone who wanted to change the system- even to improve it- would immediately be run over by a giant train of fear mongers, political assassins, and those who didn't want others to fix a system they created or supported. That time is over- thanks to both President Bush and President Clinton, who both have brought Social Security's problems to the forefront in the past 10 years or so- we now have the opportunity to reform Social Security. Reform means improvement. Reform means opportunity. Reform means choice. Reform means stability. Reform means the solution to a burden that could threaten the pocketbooks of every single American in our generation.
The power in is your hands. Don't let this opportunity pass us by, for we may never have such a chance again. Our generation needs to make it clear to every member of Congress that we want this program fixed- and that we want opportunity to come with it. Contact your Senator or Representative, tell your friends how important this issue is to our financial future, and help make Social Security reform a reality.
-Sunny Sidhu
Posted by Jonathan Swanson
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