Friday, November 12, 2010

Revive Social Security

Social Security is doing just fine.

Despite the Catfood Commission, Social Security will never increase the national debt. In fact Social Security is just about the ONLY government program that is well funded for as far as we can forecast. It has a huge surplus of well over 2.5 trillion dollars that will continue to grow to well over 4 trillion dollars before it begins to decline. Sometime between 20 and 30 years from now that trust fund will run out, and SS will have to run on its current revenues - just like it did for its first half century of existence. That is not "broken", that is what it was always intended to do. Once the trust fund is gone, we can continue to fund benefits at 80% of current levels basically forever. Not bad, do absolutely nothing at all and SS doesn't have to cut a penny, increase the retirement age or reduce any benefits for at least 20 years, and after that can go forever with just a 20% cut. So why do they want to make those benefit reductions now?

Here's a better idea. Let's enhance Social Security so that it lowers unemployment, stimulates the economy, and restores confidence.
  • Reduce unemployment by lowering the voluntary retirement age to 60 instead of raising it to 69. Life expectancy is mainly increasing because fewer people are dying young - but people reaching the end of their working years are not actually living significantly longer - and a lifetime of work, especially physical labor, is not easier on today's sexagenarians. 69 might be a good retirement age for a banker, but not for skilled iron-workers, or auto workers, or even janitors. Let them retire earlier and open up those jobs.

  • Turn FICA into a true flat tax, rather than the regressive tax it is now. Currently FICA taxes are 12.4% of the first $106,800 in earned wages (split between worker and employer), and absolutely nothing is collected for Social Security on any income above that - and FICA taxes are not collected on unearned income such as dividends and capital gains. Let's make it a true flat tax, Collect it on all income - no exceptions. We could then easily pay for lowering the voluntary retirement age, and never have to reduce benefits, and at the same time we could cut the FICA tax rate to about half of its current level.
Reduce unemployment, substantially reduce FICA taxes for most taxpayers, preserve benefits and create confidence in today's workers that Social Security will be there for their retirement. Damn, that sounds downright conservative!

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