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American’tsavebecausetheypaytoomuchinsocialsecuritytaxes
July 27th 01:51:27 PM
Yesterday, House Democrats proposed their own solution to the Social Security problem called AmeriSave, a program that would funnel money to existing retirement accounts like IRAs and 401(k)s.
Too bad the solution does not address the Social Security shortfall, nor does it provide a feasible investment strategy for the demographic group it targets.
Congresswoman Nancy Pelosi (D-CA) claimed in at press conference yesterday that "Our plan will expand and improve existing investment accounts, such as 401(k)s and IRAs, so that American families can benefit from compound interest while retaining Social Security's guaranteed benefit, creating a comprehensive retirement strategy."
The problem, Congresswoman Pelosi, is that one can benefit from the wonder of compound interest only when one has disposable income to invest. The demographic group AmeriSave accounts target can’t afford to save in this manner; the glaring deficiency in the Democrats’ proposal is that if low-income Americans could afford to invest in retirement programs like 401(k)s and IRAs, they already would doing so.
Furthermore, the assumptions on which AmeriSave accounts are based are fundamentally flawed. AmeriSave accounts presuppose that 1) Social Security benefits are “guaranteed” benefits, and 2) investing a portion of payroll taxes through Personal Retirement Accounts destabilizes the current Social Security system.
This logic is faulty for two reasons.
First, Social Security benefits are anything but guaranteed. Flemming v. Nestor dispelled any notion that the government has an obligation to pay out Social Security benefits. Furthermore, as the 2005 Report of the Trustees identified, the system enters deficit spending in 2017 and exhausts all reserves in 2041.
Secondly, voluntary Personal Retirement Accounts offer retirees a better return on their payroll taxes that the government can never take away. While Social Security benefits themselves are not guaranteed, Personal Retirement Accounts would become the property of the owner, able to be passed on as an inheritance to future generations.
Personal Retirement Accounts avoid the fundamental flaws of AmeriSave accounts, providing the advantages of a 401(k) while allowing workers to invest a portion of their earnings that is already earmarked for payroll taxes.
Though it is laudable that Democratic House Leadership acknowledge that no retirement plan is complete without outside investments, AmeriSave accounts fail to achieve their objective: you can’t save money that doesn’t exist.
- Erin Robert
Posted by Jeremy Tunnell
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