On Fixing Social Security, a Proposal

On Fixing Social Security, a Proposal

Among the many problems that we Americans (U.S. of A. types) face today, there are 3 that are easily the most contentious, fight generating, and politically mauled and left unresolved. These three: 1) Funding Social Security; 2) Funding Medicare and some Basic Universal Health Care; and 3) providing an incentive to U.S. based businesses to hire net additional U. S. employees.

I propose a new solution to the first: The Funding Of Social Security (SS). It is simple, easy, and will solve the problem for all future generations. (Perhaps a slight exaggeration, but prove it wrong, if you dare.) Secondarily it can be used to assist with issue #3, new jobs.

            Let’s review some of the major “Concerns” with the current Social Security System.

1. The U.S. of A’s economy has transformed from an “industrial” based economy to an economy based on consumer consumption: (70% of GDP per some sources). We now import far more goods than we export, so no workers in U.S. of A. are involved in their manufacture.

2. The original concept of SS was based on 8-10 workers supporting one retiree who would not be eligible for benefits until reaching the average life expectancy, as it then existed, of 65 years. We are approaching a point when that will become 2 workers per 1 retiree, per some sources, and we allow early retirement as soon as age 62. Life expectancy is now past 72 years of age. In addition, the UN forecasts that the U.S. of A’s population growth will peak and start a slow decline around 2050. That means even more aging folks and fewer young worker types to fund SS.

3. The monies collected in excess of annual SS needs were to be placed into a SS “Trust”. The SS Trust’s funds have been spent by Congress over the years rather than being placed into some type of a “bank account” for SS use only. The Government must now start redeeming their “IOUs” from the SS Trust Fund. That will require new borrowing or the taking of funds from current Government income. Thus we have the screams that SS is bankrupt. Which is inaccurate; it has been “Looted” by Congress. Nevertheless there are no funds now available to make payment obligations.

4. Politicians have proved that they can’t resist spending money, especially OPM. They are even more tempted to do so when they can use that money in an effort to bribe voters. A Politician’s #1 imperative is SELF PRESERVATION of his/her elected status, perks, and power; not to mention the wealth they seem to garner while acting as our Representatives.

5. The U.S. of A. has some number of illegal residents, in excess of 12 million per some estimates. Many of these have jobs, some paid by cash only. This results in 2 hits: loss of potential work for a U. S. of A. citizen and loss of any F.I.C.A. tax paid. Not to mention that many of these ‘illegals’ send a significant portion of their earnings abroad so that money can no longer circulate within the U. S. of A. providing economic stimulus and creating more jobs domestically.

6. We have become a nation of “EEWOWS”: “Entitlement Expectant Wusses Or Welfare Supplicants”. It is time we become men, and women, again. We must pay for what we want rather than send the bill ahead a generation or two. We must stop wanting someone else to take care of us. As the old saying goes, “Each tub must learn to sit on its own bottom”.

7. Today we have somewhere between 10 % to 20% unemployed citizens. This means no F.I.C.A tax for SS from up to 20% of the population!

A PROPOSED SOLUTION to THE FUNDING OF SOCIAL SECURITY: Institute a National Sales Tax of 7%. Wait now Shirley, don’t get excited, and hear me out.

1. The U.S. of A. has a $14 Trillion economy. 7% of that is $980 billion. Assume imperfect collection and exemptions reduce this to $700 Billion annually.

2. The entire, total, all proceeds of this tax to be used ONLY for SS benefits. These funds must be sequestered away so that these funds cannot be spent by Congress for any other purpose.

3. Put out bids for 3 to 6 private corporations to manage the funds. “Prudent man” rules in effect for actuarial prospects of future payments to beneficiaries. You know, like the Insurance Companies have to do.

4. The funds to be ‘locked’ from any spending by Congress. The private companies manage and hold the funds. I.E., Hands Off Politicians!! The Funds can only be invested in marketable securities, not special Treasury ‘IOUs’.

5. On the date that the Sales Tax goes into effect, Immediately REDUCE the current F.I.C.A. withholding on all U. S. of A. domiciled workers paying a F.I.C.A. tax. Reduce the F.I.C.A. tax on Gross Pay under $150,000.00 from 7.65% of their pay to 0.65%. This offsets the Sales Tax impact for most Worker Types.

6. Immediately INCREASE the current payment to those receiving SS by 7%, thus offsetting the impact of the sales tax.

7. The ONLY exemptions from this sales tax: Home Mortgage payments on primary residence only, or Rental on one primary residence; and charitable contributions. Yes Shirley, we all have to carry some of the load so everything else is taxed.

8. Put in some tough rules for SS eligibility:

A). Must work 20 years to be eligible.

B). Must be a U.S. of A. citizen, or legal Green Card worker in domestic US, for those 20 years.

C). Fuss with early and full retirement ages. Say 65 for early and 70 for full retirement by 2030.

D). Employees of State, Local, or the Federal Government that do not pay F.I.C.A.  are not eligible for SS. To become eligible that person must worked at a non- government, F.I.C.A. paying job for 10 years to be eligible. (OK Shirley, I know that they have been paying the 7% sales tax, but this exclusion is necessary because the governments aren’t paying the corporations’ piece of F.I.C.A. If the various governments opt to do that, then this provision is not applicable to that specific group. OK? Cheeze, give me a break!)

E). This tax will be collected on all foreign visitors with NO provision for them to avoid the tax, unlike the European VAT tax schemes. So they help fund US retirement system, but are not eligible to receive SS benefits as they are not US citizens. This includes ‘legals’ as well as illegal visitors/residents.

9. The sales tax is also collected on all foreign goods brought into the U.S. of A for sale. Thus those items made in China and sold here will now carry some burden for the retirement of U. S. of A. citizens. Not picking on China, just using them as the current punching bag.

10. SS Annual payment increases to be governed by CPI. Yes, I know that it is an abdominal yardstick, but it’s the one we have.

11. SS Administration needs to be reduced and re-missioned.

12. The remaining 0.65% F.I.C.A. tax paid by the employee is their “Ticket” to establish their eligibility for attaining the necessary retirement criteria. For example, that they worked for 20 years, not necessarily sequentially or for the same employer, and that they paid their F.I.C.A. tax and are citizens or valid Green Carders.

13. This leaves out three groups who will now be paying the 7% sales tax without a comparable income offset: Government workers not covered by current F.I.C.A. tax, those on Welfare, and those drawing Unemployment Payments.

A). State and Local governments can do as they please as to offsetting the new 7% sales tax impact on their employees. But based on current studies and headlines, it seems that the average government worker already fares better than their civilian counterpart.

B). Federal employees will just have to suck up and pay the additional tax. (See 13, A). above).

C). Welfare and Unemployment benefit recipients will also be left up to the local governments to handle the 7% tax. It might be an additional incentive to seek real work. But it does seem reasonable that the States might want to add their own sales tax increase, say 1%, to fund at least the Welfare for those that are unable to work. (No Shirley, I’m not throwing the unemployed and Welfare folks under the bus; they will continue to receive what they are eligible to receive, it just might not be increased to cover this 7% tax; but they’re already being supported by other folks.)

14. Kill the $250.00 death benefit. It is too small to be helpful and will just become another political bone to be chewed over.

15. The SS Trust in the hands of the private firms will be limited by law to pay out no more funds in the current year than were received the previous year. Might result in lower payments during a recession, but is better than bankrupting the Trust Fund.

16. Remove the cap on F.I.C.A; gross pay above $150,000.00 to be taxed at 7.65%. (No Shirley, it's not equitable, but it does help ensure solvency for all.)

17. “What Shirley?” “You know that once a National Sales Tax is instituted, our politicians will try to drive every pet project and funding need through that doorway.” “Good point Shirley!” Therefore, a 2/3rds affirmative vote in both the Congress and the Senate will be required to pass any increase in the 7% rate. And a 3/4s affirmative vote in both the Congress and the Senate will be required to include any additional use of the National Sales Tax Funds for any purpose other than SS. If the American voters have elected representatives to pass a 3/4s vote, we deserve what we get.

A Serendipitous Benefit can be realized by using the Corporate funded F.I.C.A. Tax (7.65%) to encourage new hiring in the U. S. of A.

1. Every business that increases its TOTAL U.S. of A. domestic work force headcount on an annual basis can hire the net additional employee(s) with a F.I.C.A. rate to the business of ONLY 0.65% up to a Gross pay of $150,000.00. This continues for the length of that employees’ employment with that firm.

2. Every business that increases its TOTAL U.S. of A. domestic work force headcount on an annual basis can also reduce its business F.I.C.A. rate for an existing employee down to .65% on the first $150,000.00 gross pay on a one to one basis.

A). The existing employee’s pay must be within 10% of the new employee's pay. (This is a bone for Shirley who just doesn’t trust CEO’s).

B). Example, if a business of 15 employees doubles its manpower to 30: then it does not have to pay the Corporate 7% of F.I.C.A. for the additional 15 net additional employees (the equivalent of one free employee under today’s system). In addition it saves the 7% F.I.C.A. for the current 15 employees, the equivalent of another full employee salary savings.

3. This should help make the business more competitive in the global economy, since every 15 new employees hired are the equivalent of two additional employees at no cost compared to today’s TAX SYSTEM. This obviously should help with Issue #3 above. Yes Shirley, the business just might keep the money as earnings rather than raise salaries, cut prices, invest in plant/equipment, or pay out dividends. That’s the beautiful thing about free enterprise and capitalism; each business can decide what is best for its own interests.

4. There is a four-year “claw back” provision for the Corporate F.I.C.A. savings on the existing employee(s) if the total domestic manpower goes down.

Yes Shirley, I know that was long, boring, and tedious, but the problem is huge. And yes it does take away part of the Medicare funds, but we will address that next time.