Social Security is the final piece
of the entitlement trilogy, that’s if you exclude the other programs created
through the Social Security act of 1935.
We talked about sending Medicaid and all the other programs down to the
State level and reducing the costs of health care to reduce the financial burden
to Medicare, so what do we do with the old age insurance entitlement. One option to combined Social Security with
Medicare, a voucher can also be used, but some sort of system would be
developed where a portion of the voucher would go into a HSA while the rest
would go into a general savings account.
In this case, bureaucratic waste will be reduced for you are applying
for a single benefit rather than two.
There would be a single body to manage the fund with a single
bureaucratic body in place to manage benefits.
Additionally, if the fusion of the two were to happen, all money owed to
Medicare would disappear from the national debt as it will no longer exist. This however is an extreme case for if Medicare
should fail for any reason Social Security can fill in the gap.
Some ideas: We could allow people to opt out of
Medicare for larger Social Security payments.
This would mean higher payouts for people receiving Social
Security. However, this would also mean
draining away funds from Medicare which could prove detrimental. So this idea may never come to pass.
Age increase: The most unpopular idea is raising
the retirement age. At current, the
retirement age is slowly being raised to 67 compliments of President Ronald
Reagan (so check your eligibility as full benefits are no longer available to
those age 65 if you were born in a certain year). The simplest way to raise the retirement age
is to make it 10 to 12 years prior to the average American life expectancy
which is currently age 78. If we set
eligibility within 10 years of life expectancy you could receive full benefits
at age 68. You could then set future age
eligibility to life expectancy so as the average life expectancy changes when a
person can retire will also change. To
provide stability the calculated life expectancy for eligibility would be taken
every five to ten years and those under age 55 would be affected by life
expectancy fluctuations. Once you turn
age 55 the age at which you can receive benefits would be set unless that life
expectancy some how decreases at which time you may receive your benefits
earlier. We are not going to make a
group of seniors wait to receive benefits if those younger then them can receive
it earlier, as it would be unfair. This
fluctuation should not happen often though as one, life expectancy would be
factored in every five to ten years (I recommend ten) and in general life
expectancy is supposed to increase not decrease in modern and developed
societies.
Making calculations accurate: The next idea is to reduce inflation
adjustments. In other words, change the
formula to more accurately calculate for inflation so as to more accurately
adjust payments. A step up from this is price
indexing where benefits are based on the price of food or other items. In this case, the highest priced item, let’s
say milk, is used and based on its price your benefits will be adjusted so no
matter what you will always be able to afford milk and other produce no matter
how much it costs. (This idea is also used by Paul Ryan and his budget plan)
Higher payouts?: Governor Mike Huckabee had a solution
where he would have Social Security provide an incentive to work longer by
promising a higher pay out when you decide to collect. The longer you work, the more you will
receive. In addition, Governor Huckabee
wanted to offer a lump sum upon death of the retiree to a chosen beneficiary
with whatever remained in the account. A
different solution would be ending the cap on Social Security contributions as
you can only put in a given amount per year.
This would allow for a continuous flow of funds into Social Security
especially from the more financially better off in our society. This solution will however, hurt the upper
middle class and higher who would be suffering the equivalent of a massive tax
increase. However, if we decrease the payroll tax (which supplies Social Security and Medicare part A with money) this pain can be mitigated. We could also tax Social
Security benefits across the board without exception, but this again would hurt
American citizens this time by decreasing the size of the money they receive ( i am not in favor of any form of double taxation like this).
Means testing: Probably the best solution is to
means test recipients based on their income after they retire. So if you are over a certain amount of income
you may not receive any Social Security benefits (or Medicare for that
matter). However, if you should fall
below the legal limits you would be allowed to receive benefits, but only up to
a specified amount. If you are a person
below the poverty line and are receiving benefits you will get supplemental
funds from Social Security. This
supplement will decrease as you get more revenue until your income combined
with your benefits is equal to the poverty line or greater. At any time if you should fall below the
poverty line or meet the eligibility requirements you should be able to receive
benefits.
Personal Account: None of these solutions prevent the
Federal government from borrowing from Social Security and putting it back in a
financial whole. What does however is
replacing the current system with a defined contribution plan, better known as
a personal savings (retirement) account.
This comes in two forms, a real account where it is in a persons name
with the worker deciding how much is invested resulting in an incentive to save
as the worker will get a larger payout and the governments’ incentive to keep
benefits in check. The other form is a
book keeping entry where people in the system may be afforded limited choices
of investments like government bonds with rates set and guaranteed by the
government. This is a stark contrast to
the current system where all the money is pooled and the payout is decided
based on how much you put in. The money
in a defined contribution plan is literally yours and because it is yours, the
government cannot borrow against it.
However, the government can provide a secondary retirement benefit
through the general revenue which will be provided to low income workers who
retire without adequate funds in their accounts. In each form of the defined contribution plan
people are taxed at a specific rate and credited to a virtual account with the
government setting the rate of return.
Then at retirement, the total is invested in an annuity (no more regular
payments) and is then given to the retiree.
This is already working in Galveston
Texas
The only problem with the defined
contribution plan is how to transition to the system. To properly transition, the current payroll
tax would have to continue while the new system is started for people entering
the workforce, or payroll taxes would end entirely and benefits paid out of the
general revenue. Either way it costs the
American tax payer. Of course other solutions
like means testing, price indexing and Governor Huckabees incentive to hold out
longer for a larger payout may reduce the pain of this transition step by
saving money. At the same time the
government would have to be prohibited from borrowing from the fund which would
be kept to make up for short falls and amass funds for the final leg of the
transition.
A voucher can work here too: Another alternative is to turn the
Social Security system into a voucher program using means testing and living
conditions in combination to determine how much each individual gets which
would always be enough to afford the area you’re living in. This also can be used to aid in the
transition to a defined contribution plan, or be a sensible alternative for
those who will never make enough money to retire. At this point, Social Security could even be
turned over to the States to provide even more customized benefits.
Conclusion: We have a lot of ideas to fix Social Security, but it is all a matter of finding the best
one(s). We can no longer afford to be fearful of change for the system as we know it is already dead.
See you tomorrow for my Conclusion.
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