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Free Liberal: Coordinating towards higher values

Free Liberal

Coordinating towards higher values

Don't Call Me Late For Social Security

Paul Jacob writes about the impending doom in the Social Security system. The first baby boomer is retiring and about to start collecting. In a few short years, the system will require more than the tax revenues provide. This is not news, however. This is a design feature of the Social Secuirty reform enacted in the 80s. The retirement age was moved, taxes were increased and a surplus was programmed to fund general government so that when the baby boomers were retiring they could call upon general fund revenues (either borrowing or income taxes) to fund their retirements.

There is nothing to panic about here unless you are wed to lower taxes or a balanced budget for their own sakes.

The second part of the crisis is longer term - and some don't even believe it is a crisis. Using conservative estimates for growth, the system is out of actuarial balance over a 75 year time span (meaning the child born today will have to pay higher Social Security taxes if these assumptions hold up). Of course, those assumptions are ahistorical. Using historical growth rates, the system is within actuarial balance. Further, if those historical growth rates for the economy are not true and the conservative rates are, it makes no sense to go to an investment model, since the pessimistic assumptions on growth must also lead to pessimistic assumptions on the STOCK MARKET. You can't have it both ways. Either growth and the market both grow at historical rates and there is no crisis or they underperform and a different solution is needed.

Now, I am all for change in the Social Secuirty system, but not because I have any fears for its financial security. Rather, I believe that the best way to empower workers and turn them into savers is by giving them a stake in their workplace - and eventually a controling interest. Diverting a portion of Social Security retirement taxes to stock ownership, with the employer paid share of that portion going to ownership in the workplace for Chapter C and Chapter S corporations is just the kind of reform I would advocate, with some conditions. One of the conditions is that the income cap be raised or removed, as diverting revenue from the system for some hurts those who do not have that option. A second is that there should be an insurance pool to protect the share value of contributions so that retirees are protected. A third is that employee owners are allowed to vote for employee-directors rather than a unitary board and that they can designate their collective bargaining unit to do this for them. A fourth condition, and this is the hardist for non-syndicalists to swallow, the privatization plan must duplicate the redistributional aspects of the current system - meaning that there should be some level of equality in how shares are distributed rather than a consolation prize pension for unwise investors - preferably by requiring that the employer contribution be distributed equally to all employees regardless of salary level. Any attempts at privatization that don't meet all of these conditions will not attract the votes from the left side of the aisle in either chamber. Last time I checked the wind direction, it was coming from the left, so if you want any kind of investment or savings component any time soon you should memorize, repeat and believe in what you just read.

The other option for retirement saving reform is to invest in the real asset in any retirement system - children. Enact some kind of living wage, which could even be a $6,000 per person prebate for the Fair Tax - payable by the employer rather than the government (thus lowering administrative costs) as a credit to any Fair Tax revenue collected. Of course, this would require a higher Fair Tax rate, since the prebate would have to be paid to non-revenue collecting entities - so possibly a corporate income/VAT tax might be a better vehicle for that. The point is, regardless of how the money is given to employees or trainees/students with families, if you really want to get out of the demographic situation at the root cause of the aging crisis, you must indeed incentive childbirth as the way to a better way of life.

Michael Bindner



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