First, however, let me say that if the Democrats want to move forward in the next election, they need to begin by defining themselves as something other than "against the other guy." Many of the planks of the Democratic platform begin with, "the Bush administration does x, y or z and we're going to change that." Forget that. Tell me what you're going to do. I'll recognize that it's different than what the Republicans are going to do. Really. Trust me.
So, I get down to the section on "Standing Up For the Great American Middle Class."
Which brings me to another thing (pardon me while I rant): They make it sound like middle class is this great thing. I think I'm middle class and, you know what? I want something better. Now, that doesn't mean that I need to be a Trump or Gates, but I want a little more comfort and ease in my life. I don't begrudge those guys their billions, they worked hard and smart to get them. Give me a message that says how your policies are going to make my life better. How my family won't have to have two wage-earners in order to get by. How you're working to make sure that I can own a home, build my savings, and like that.
And that's where I got to my wacky idea: Privatizing Social Security. Now, the Bush Administration wants to take a chunk of what I put into Social Security and let me invest it in a private investment account. (If I'm understanding what I hear in the news correctly, which isn't to say that's an accurate assessment of their plan.) I think that's dangerous on several levels. First, it means that my money isn't going in to Social Security. So my grandmother's checks and medical benefits are in danger because, hey, there's not enough money to pay for everyone if the money stops coming in. Also, leaving the investment of the money completely up to me means that I could be sacrificing my retirement by being a blithering idiot.
At the same time, part of the problem is that there are fewer young folks around and a growing population of seniors. We have a responsibility to our parents and grandparents to provide for them in their old age, but there are fewer of us to do it. By shouldering this burden now, many are looking at not having the same benefit when they are older.
Many young people, myself included, have recognized the problem and supplemented our retirement savings with plans already in place with the government. IRAs, 401(k)s and the like. I don’t think that, if things remain the same, Social Security will be a significant portion of my retirement income.
So why not tie these two things together? That is, why not start a sort of national IRA program? My first, rough, take on idea would be that Social Security taxes stay what they are now; we need to meet our commitments to the seniors (and others, like the disabled) that rely on Social Security. What would be added would be a way for people to contribute to the plan by payroll deduction, before taxes, just as is done with 401(k)s today. Why would people do this? Well, first, it's a tax savings. You are "making" less at the end of the year so you're paying lower taxes. And secondly, just like an employer, the government would match your contributions; that's free government money!
As I currently envision it, the matching money would be like an unvested contribution to your retirement account. That is, you would not have access to it until you retire. The money you contribute would be as available for you as money in a 401(k) is now, i.e., you could withdraw it for certain big events like buying your first house or paying for catastrophic medical costs or college. You would also be able to choose how to invest that portion of the money you contributed. (Probably with fewer options than in a typical 401(k) plan, maybe switching funds once every quarter, for example, in order to keep costs down.) The government would retain control over how their contribution was managed in order to secure its growth. (There'd have to be a guarantee that you would get at least the amount contributed to your account by the government (adjusted for inflation) when you retire.)
I would think that this would lead to several good things. Small businesses that can't afford pension plans and struggle to keep good employees because they cannot match the benefits of large corporations would get some relief on those fronts. People working lower-paying jobs would have a direct way to save and invest for the future. It would be ideal if a minimum wage worker contributing the maximum allowed to this retirement account would pay no income tax and still have a livable wage. The government continues to collect and pay for Social Security. As the people with these accounts reach retirement, however, they begin to represent a generation that has pre-paid for their retirement. That is, the young of the next generation aren't needed to contribute to the upkeep of the current one. If there are fluctuations in the population (like the Baby Boom), the impact on the retirement system is evened out because people are contributing before they get to retirement. Young people benefit from having a source of savings that they can invest as they see fit. For many of them, that will mean taking advantage of the long time they have until retirement to invest in high-return, higher-risk investments. But the government wouldn't do that with the chunk they control, meaning that complete idiots won't end up destitute at 65.
So, down the road, the government turns from needing to take from the young in order to care for the old to managing funds contributed when you're young so that you'll have a cushion when you're old.
Now, I'm fuzzy on the economics of using today's government funds to pay for tomorrow's expenses. Setting aside a chunk of money now means that it will be worth less later, unless the interest earned on the saved money is greater than inflation. So the government needs to have a way to invest the money it contributes to your fund so that it beats inflation. My rudimentary knowledge says that precious metals are used as an inflation hedging investment. So should the government invest its chunk in gold and silver? Are their other inflation-proof investments that would also provide greater social benefit if the government invested in them? (That would be cool because then we’d get double benefit from this scheme.)
Under my wacky scheme, when you retire, you get all the money you’ve invested, plus the interest. You also get the money the government put in along with its earnings. Now, the amount you can make on the government contributions should probably be capped in some fashion. That would mean that you’d still get a good (if not spectacular) return and if the government’s investments did very, very well, there would be extra money for other programs. (So, in a way, it’s a savings program for the government too. Hmm.) If the payments from the government portion of the savings are equal to or greater than what you’d collect from Social Security, you don’t get Social Security. You’d still get all the other benefits that come with Social Security, just not an extra check. If the money doesn’t add up, you get the difference. (So as more people join the program earlier, it becomes a better deal from the government’s standpoint. Until then, however, we don’t cut off the retired folks simply because they weren’t able to contribute early enough to build up the necessary savings.)
I re-read this and think, “Hey, isn’t that kinda like it’s supposed to be now?” I mean, wasn’t Social Security, at its advent, supposed to be just such a plan, where the amount you get out is based on what you put in? Looking into the history some, it seems more as if Social Security was started first as a sort of Old Age Insurance program. The theory being that if everyone kicked in, the folks that needed the most would be taken care of and those that were cared for by family or by other means helped to defray the costs of those that weren’t. So I guess that I’m proposing a bit of a change in that. I still think that we need to take care of people in their old age or if they cannot otherwise provide for their own care. My wacky scheme aims at letting young people today take on a bit more of that burden by continuing to pay into Social Security, but to also voluntarily join this new program. They put aside a little more now so that they’ll have it in their retirement. As the plan comes to fruition, the amount coming into Social Security goes less and less to the retirement income of seniors because they have this additional money to draw on instead. That means that there is money for better health care and additional benefits for the disabled. If we’re really lucky it could mean lower taxes. (Though I doubt that any politician would give up a good revenue stream if at all possible.)
I’m guessing there’s all kinds of things I haven’t thought of yet or just plain don’t know. I look forward to hearing your thoughts (and your own wacky schemes).