Full throttle toward economic oblivionIt’s a new year. Last year’s “crisis” is over, and yet the next “crisis” lies in wait.
Back in 2008, folks told us the $10 trillion debt would be half that by now.
But today it’s nearly $17 trillion, growing over a trillion a year ad infinitum.
Even with increased taxes, there is no way we can catch up.
What are we to do?
As sacred as Social Security is, it is a big problem, if not the biggest.
This year, Social Security will pay more in benefits than it takes in. Despite all the tax revenue we “contribute,” it is not sustainable much longer.
Liberal economist Ludwig von Mises once aptly described Social Security payment as robbing Peter to pay Paul, saying: “The Paul’s of 1940 do not owe it to themselves. It is the Peters of 1970 who owe it to the Paul’s of 1940....The statesmen of 1940 solve their problems by shifting them to the statesmen of 1970. On that date the statesmen of 1940 will be either dead or elder statesmen glorying in their wonderful achievement, social security.”
In 1945, 42 employees (Peters) contributed to each recipient (Pauls). Today, nearly 2 employees contribute.
Since our government has borrowed against our Social Security reserves, we have to pay that money back with new tax money.
This “Rob Peter/Pay Paul” concept is one reason we are $16 trillion in debt.
Every year taxes cover less and we borrow more. We’re racing full throttle toward economic oblivion.
Yet we have solutions, solutions that have a current historical track record of success.
Chile, whose Social Security program was like ours, offered a private retirement option to those who wanted it 30 years ago.
More than 90 percent chose to participate. The average annual growth rate has been 9 percent over 30 years versus our negative returns.
Likewise, three Texas counties opted out of Social Security 30 years ago for a local retirement system.
These folks have better retirement and life insurance benefits. The employee contributes the same 13.9 percent payroll tax, split between employee and employer. The county’s financial responsibility ends there.
Managed by investment professionals, these retirement funds have grown between 3.5 percent and 7 percent every year, even during economic downturns.
Further, their account can be willed to heirs upon death.
The government ensures investment companies are operating properly and transparently. Nothing more.
There have been lessons learned. It is not perfect. And the GAO noted that lower wage employees might fare better with Social Security.
But, as an option, the Texas county plan would build a private retirement savings of $275,000-$600,000 (depending on the interest rate) over a 40-year employment period for employees who earn $25,000 per year, and with no impact on the paycheck.
Using average U.S. wage of $42,979, savings would equal $500,000 to $1 million.
Combined with a normal 401K or Roth IRA savings plan and distributed wisely, this would provide a lifetime income stream after retirement.
This plan does require individual responsibility, planning, and discipline.
However, the rewards would be great for participants and this would be the first step in rescuing Social Security’s future while preserving its present, in reducing long-term liabilities, in creating jobs, empowering employees, and giving them an option for better retirement.
Let’s do something smart about Social Security for a change, and do it now.
Jack Van Zandt