If the economy takes another serious downturn in the next five years (and it will), another stimulus plan will likely be needed. Here is my suggestion - end Social Security.
Social Security is nothing more than a federally-mandated multi-trillion dollar Ponzi scheme: early "investors" get paid with the seed money from new "investors". Like all Ponzi schemes, Social Security will fail once the number of early "investors" exceeds the number of new "investors" by a substantial number. This is beginning to happen with the retirement of the Baby Boom generation, and the pace will only quicken as business contractions make early retirement buyouts more and more attractive.
Thus, the Social Security system is a huge future liability to (1) the Federal Government - which is funded by the American taxpayers, or (2) today's workers, who will likely see nothing of their "investments" once it's time for their retirement. Such a huge future liability undermines the value of our already-rapidly-devaluing currency, just making hyperinflation along the lines of 1920's Germany or 2000's Zimbabwe a coming certainty, so it just makes sense to kill the Social Security system now while it still has some money left in it.
General Principles
A two-pronged system would be the closest thing to equitable a nation of 320,000,000 can get under these circumstances: One prong for "Senior investors" and one prong for "Junior investors". Seniors stay on the system as it is and juniors would get paid out for "investments" to date.
A breaking point between "senior" and "junior" would need to be firmly established. I'm sure the Federal government would engage in a months-long statistical study to determine the most equitable age at which the dividing line should be set, but I'm going to toss a dart and call it at 53 years of age. People 53 and over get to stay on the current system, people under 53 get everything they have paid into the system returned to them.
The Working Guts - Senior Investors
In theory, before lobbyist whores and sackless politicians wheedle their insidious and nebulous special interests into the plan, it's rather simple. On a prescripted drop-dead date, everybody under the age of 53 no longer gets Social Security withheld from their paychecks. For example - let's say Barack smells the bacon frying and knows bloody well he's not getting re-elected, so he cowboys up and does something bold and permanent on his way out the door by declaring January 1, 2013 as the drop-dead date. Thus, everybody born on December 31, 1959 gets to stay on the system as they've been promised, but everybody born since January 1, 1960 is on their own.
The elders see absolutely no changes to the system. None. No friggin' changes. Do not come back and say "what about if this happens... blah blah blah..." - no changes. Done. In theory, these people have worked and contributed for 35 years under the scenario that they'd be getting government checks in their golden years to pay thier bills after they're done working - they deserve that the government upholds its part of the bargain.
The Working Guts - Junior Investors
The rest of us still have time to make adjustments, so adjustments it will be. First, the government would no longer withhold that 6.2% of the first $106,800 earned (as of 2009) from each and every paycheck. That money, in theory, could be invested in private retirement accounts and/or added to existing workplace retirement accounts entirely at the discretion of the employee. In short, it's your money now - try not to be stupid.
Further, all the money the junior investors have paid in through the drop-dead date will be refunded to them from the Social Secruity Trust Fund. This, of course, is the tricky part. Just writing 120,000,000 big-ass checks and mailing them out would lead to pandemonium and the hyperinflation we're trying to avoid as a brand-new mass infusion of cash hits the markets all at once. Thus, a system of distribution must be devised to work the money back into the markets incrementally.
Again, the government's choice would be to contract with a legion of actuaries who, after 10 months and $125 million would come up with a complicated but theoretically equitable system. I say release 1/4 of the total withholdings based on a random selection of the last two digits of the recipient's Social Security number - one a week until all 100 numbers have been paid out, then start over again. Repeat four times.
This gets all the money into the system in four waves over a period of roughly eight years (400 weeks), providing idiot safeguards on two different fronts: (1) Idiots with piles of new cash, and (2) Lots of idiots with new cash all at once. The first scenario would put the stock market in an artificial short-term boom-bust cycle which would devour all the money we just put into the system, and the second scenario would only make 2013 a great year to be a stripper. Dragging the payments of many trillions of cash-money dollars over a series of years is the closest way to safe we can distribute this former retirement nest-egg.
Let's say Bob has paid in $40,000 to Social Security over his career. Bob is 50 years old with a mortgage and credit cards. Were we to give Bob $40,000 on Jan 2, 2013, he'd likely pay off his credit cards, buy a mid-life-crisismobile and hit the strip clubs with his bowling team. That makes for a great January 2013, but 2023 ain't so hot, and 2033 looks like crap now, since the wheels rusted off his retirement plan eight years ago. Under the proposed setup, Bob would get $10,000 in 2013-14 (depending on how his last two SSN digits pop up in the distribution queue), another $10,000 in 2015-16, another $10,000 in 2017-18, and a final $10,000 in 2019-20. He'd likely pay off his credit cards and go out to dinner with his wife on the first $10,000, and plan how to spend or invest the forthcoming $30,000 over the next six years. Smaller money makes for smaller mistakes, and since we idiots learn best from mistakes, the smaller they are the better.
The Working Guts - Employer Pay-in Portion
The is the non-sexy, gear-greasing part. Employers currently match employee withholdings into Social Security dollar for dollar - we pay in 6.2% through automatic withholdings, our employers pay in 6.2% through taxes. Well, that nice neat serendipity needs to get tossed, since the game will be played by two different sets of rules now.
Think of it like Major League Baseball. The Senior Circuit still pays their own way by having pitchers bat for themselves, and the Junior Circuit gets a little more line-up flexibility by using a designated hitter, but it can't work together unless three strikes make an out across the board.
Here's your board: Employers still pay in 6.2% of the first $106,800 (as of 2009) for all employees in the first year of the new plan. Each year afterward, employer pay-in decreases by 0.2% until they pay nothing in Year 32.
The employer pay-in portion is what will pay the current and future retirees after they've stopped earning their own paychecks. That pay-in amount can decrease slowly as the number of recipients decreases slowly (by, yes, dying. Old people die. Sorry to break that cold fact to you, Polyanna!) Theoretically, the amount employers had paid in from 2013 through 2044 will be enough to sustain payment to those hearty 85-plus-year olds still receiving Social Security checks in 2045 and beyond.
The reason employer pay-in has to remain even across the board (whether the Investor on the payroll is either Senior or Junior) is to prevent age discrimination. If an employer knows that by hiring a 60-year old, not only do they make a training investment for a shorter period of return but also have to pay in as much as $6621.60 per year more for that employee (as of 2009), they will find reasons to disqualify that candidate - thus putting yet even more of our experienced workers on the government dole that much earlier.
The Net Effect
This is a bit of a summary. Summaries like bullet points. Here you go:
- The future liability to the Federal government of Social Security is more quantifiable, thus reducing uncertainty in the currency markets and potential for hyperinflation.
- Employers slowly but surely pay in less to the Federal government for payroll taxes, which allows them to invest in their businesses and/or private employee retirement plans.
- Cash paid out now to middle-aged and younger workers gives them flexibility to take on their most pressing financial challenges is the short-term. Considering most would pay off credit cards and/or pay down mortgages, banks would potentially be capitalized to the point where the Federal government could end the bailouts.
- Social Security funds are dollars we already have in the system. No need to increase the money supply or national debt for this stimulus package - the taxpayers get their own money back.
- Bailout paybacks will allow a measure of money supply retirement, thus reducing the number of dollars out in the markets and increasing each one's relative value.
- American taxpayers will have more of their own money in the future to invest since withholdings will be stopped. More self-generated (not government-manufactured) capital in the markets going forward will lend stability.
I welcome your comments.
