On 02/05/2008, I authored a post “Benevolent Dictators Make Good Government”. Examples are King David – Israel – (1010 BC –970 B.C.) in ancient times and General Douglas McArthur – Japan – (1945 –1947) in modern times. I started musing about what I would do if I were absolute dictator of the United States to fast track our country back to a position of greatness and prosperity. Therefore I am submitting a series of posts to PA Pundits (many controversial) about how I would provide solutions to the major issues facing our nation.
I would issue an order to immediately privatize Social Security for everyone, with the government collecting colleting the contributions, but then directly forwarding them to private financial institutions. The government could ensure a level of security in the investment of the funds with Wall Street. I would also immediately increase the retirement age to 70 years, because of longer life expectancy.
In the 19th Century, German Chancellor Otto von Bismarck had a big idea – that a worker with a pension depends on the state and is a more docile worker. He invented a pay-as-you-go social security system with a moral flaw that destroys the link between effort and reward. It makes benefits the product of political pressure rather than what you contribute by your work. This dependency on political demagogues has spilled over into other areas besides retirement. People say “Offer me more and I’ll vote for you.” That corruption of both workers and politicians has fed a culture of irresponsibility.
In the 1920’s, legendary con man Charles Ponzi devised a scheme that still carries his name and is now illegal in all 50 states. It works much the same way as von Bismarck’s system and the way U.S. Social Security works today. Ponzi convinced “investors” to put money in his coupons, promising big profits, but there were no profits, just a pyramid scam. Ponzi took money from the second round of investors and put it in the pockets of the first. Eventually he ran out of takers and money, was convicted of fraud and sent to prison. Like Ponzi’s scheme, Social Security makes no investments. Its “investors” are taxpayers, who, like the folks Ponzi bilked, won’t get paid unless there are enough new taxpayers to cover them. When the Baby Boomers begin retiring at the rate of 10,000 a day, there won’t be enough young taxpayers to tap, and just like Ponzi’s scheme, Social Security will collapse.
Is there a better way than Social Security to provide financial retirement security for U.S. workers? Yes! Personal retirement accounts are the answer. Here are examples:
The nation of Chile had a social security system that predated the U.S., having started in 1926. In the late 1970’s the benefit payments were greater than taxes collected and there were no funded reserves. The anticipated decline in the support/benefit ratio meant the problems were only going to get worse. In 1981, midway through the dictatorship of General Augusto Pinochet, the system faced bankruptcy if the government didn’t provide more subsidies. Pinochet hired a group of U.S. trained economists, who recommended personal accounts for the system, creating something like a mandatory 401(K) plan. Ten percent of a worker’s wages is automatically deducted and sent to one of several independently managed mutual fund companies selected by the worker. Chile allowed each worker to choose whether to stay in the state run pay-as-you-go system or put the whole payroll tax into an individual retirement account. Some 93% of workers chose the new system. They trusted the private sector and preferred market risk to political risk. Chile’s citizens proudly carry what looks like a standard bank passbook from the pre-computer age. They call it a “Libretta”, a deliverer of liberty. Ownership has changed the way workers see life. They are no longer at the mercy of politicians or union bosses. The typical Chilean worker’s main asset is not a small house, but the Libretta, with most worth over $100,000 that can be passed on to heirs.
The United States also has an example of a personal retirement plan that works. The Social Security Act of 1935 permitted municipal governments to opt out of the system – a loophole that Congress closed in 1983. In 1981, employees of Galveston County, Texas, chose by a vote of 78 percent to 22 percent to leave Social Security for a personal account alternative. Brazoria and Matagorda counties soon followed, swelling the group to 5,000 participants. Employees now pay 6.13 percent of income and the counties contribute 7.65 percent – for a total of 13.78 percent. Of that 13.78 percent, 9.737 percent goes to the employee’s individual retirement account that pays a 6.5 percent average interest rate, compounded daily. The cost of the program, known as the Alternative Plan, is virtually the same as Social Security, but the benefits are far greater. A person retiring at age 65 with 40 years of deposits and an annual wage of $20,000 will retire with $383,000 in a personal account and $2,740 a month vs. $775 per month for Social Security. A person with a wage of $50,000 for 40 years will retire with $956,303 in the account and $6,843 a month from the private plan vs. $1,302 a month from Social Security. The personal accounts are estates that can be left to heirs. Social Security leaves nothing. Life insurance for the personal plan is three times the worker’s annual pay (with a minimum of $50,000 and a maximum of $150,000). Social Security pays a one-time death benefit of $255 to a surviving spouse.
According to a new Gallop poll, a lack of retirement funds is America’s most pressing financial concern. The survey found Americans aged 30-49 are the most apprehensive about retirement. Americans who have yer to retire are already relying heavily on their personal retirement accounts such as 401Ks and IRAs. Every reform plan, from privatization to raising the retirement age is met with vicious opposition and insidious demagoguery about impoverishing seniors. With high unemployment and polls showing a precipitous drop in support for Obama among young voters, Congressman Pete Sessions is proposing the SAFE ACT (HR 2109), that would allow younger workers to control all their retirement savings. Here are some of the key details of the proposal: Every American would be able to opt out of the current system and direct the full 6.2% of payroll taxes to a personal retirement account beginning January 1, 2012. After 15 years of the bills enactment, employers would contribute their share of payroll taxes to the employee’s SAFE account. Self-employed individuals would be able to divert the full amount of their payroll taxes to a SAFE account. The SAFE accounts would be tax free and any cash contributions would be tax deductible. Also, all post-retirement distributions from the account would be tax free. Upon the death of the account beneficiary, irrespective of age, the inheritors of the estate will assume full ownership of the account. While this is admirable, with the Fair Tax and complete privatization for everyone, this proposal becomes moot.
Because they were afraid voters would see through the Social Security scam, since 1983 members of Congress participate in Social Security. Senators and Representatives also participate in the Civil Service Retirement System or the Federal Employees Retirement System that went into effect in 1987. Like all federal government employees, current members of Congress contribute portions of their salaries to these programs as well as Social Security. However, Congressional pensions accrue at a higher rate than average – 70 percent higher, according to Representative Asa Hutchinson of Arkansas. Congress also has a special retirement plan that they voted for themselves many years ago. It works like this: When they retire, they continue to draw their full pay until they die, increased by cost of living adjustments. For instance, calculating an average life span for each, former Senator Bill Bradley and his wife may be expected to draw $7,900,000, with Mrs. Bradley drawing $275,000 during the last year of her life. They paid nothing into this. It comes from our tax money. The Democrats in Congress, together with their willing sycophants in the AARP leadership, are trying to scare American senior citizens into believing personal accounts are a risky scheme that will take away their Social Security. If Social Security is so wonderful, we should take the Golden Fleece retirement plan away from Congress and put them in the system with the rest of us. Members of Congress who want to retain the existing pay-as-you-go system should share the fate of their mentor Charles Ponzi. They should be convicted of fraud and sent to prison. The government is spending our retirement, but for some reason we don’t take it seriously. If Social Security were a private entity, its CEO and directors would be in jail long ago.
The Social Security “surplus” that was expected to vanish by 2017 may disappear sooner due to the current economic crisis. With unemployment rising, the payroll tax revenue that finances Social Security benefits for 51 million retirees and other recipients is falling, according to a report from the Congressional Budget Office. As a result, the trust fund’s annual surplus is forecast to be gone nearly a decade early – and deprive the government of billions of dollars it had been counting on to balance the nation’s books. The Treasury Department has for decades borrowed money from the Social Security trust fund to finance government operations. If it is no longer able to do so, it could be forced to borrow an additional $700 Billion over the next decade from China, Japan, and other investors.
Instead of temporarily patching the system by increasing taxes, decreasing benefits, or increasing the retirement age, we must look for a permanent fix. The best solution is to completely privatize Social Security. The government could mandate a minimum level of contribution to private retirement plans instead of running the Social Security scam. The government could even collect the contributions, but they should be immediately forwarded to a private financial institution rather than being spent by the Federal Government. Some people are hesitant to privatize social security, but that is illogical. The most corrupt, most poorly run private system has a better chance of working over the long term than our current government run system. We cannot wait to do something, because the longer we mark time, the higher the probability that the system will collapse and we will lose all the money we have contributed over our lifetime.
Credits – Redstate.com