Fix Social Security, 8 Ideas On How
8 Ideas To Fix Social Security, What Is The Government Waiting For?
Years ago, when I was writing my thesis in college for my Economics degree, I wrote it on the problems that Social Security “S.S.” was facing, i.e., running out of Money. I won’t reprint my original thoughts, as my thesis was extremely long, full of facts, and would bore you to death. It’s funny how things don’t change. The program is still on pace to run out of money in the early to mid-2030s.
I will attempt to solve the S.S. issue. Especially since Congress will continue to look the other way until we are in dire straits, full-on running out of money, and are forced to do so. The problem is only to be exemplified when all of the “Baby Boom” generation leaves the workforce and starts utilizing SS. You heard it here first; the writing is on the wall.
It is not that nobody cares about this impending doom; the harsh reality is that nobody wants to be tied to fixing it. Besides, there are always other problems that get the “grease” from the proverbial “squeaky wheel.” Being the name that goes down in history to fix a major problem, even if it wasn’t created by the person fixing it, It is almost certainly a political death. All politicians alike create a problem and pass it on to future generations to fix it. Politicians would much rather add some pork to some other bill to push or enhance their own agenda. I will stop going down this rabbit hole before we get too far in the weeds.
History of Social Security:
The original goal of Social Security, established in the United States in 1935, was to provide a safety net for citizens during times of economic vulnerability, particularly in the aftermath of the Great Depression. Enacted under President Franklin D. Roosevelt as part of the New Deal, Social Security aimed to address the widespread poverty among the elderly and promote economic security. Roosevelt got this idea from one that was proposed in Germany by Otto Van Bismarck back in 1881.
The primary focus was on creating a system that would offer financial assistance to retirees, ensuring a basic income to help meet their essential needs. Over the years, the program has evolved to encompass disability benefits and survivor benefits, broadening its scope to provide support for individuals facing various life challenges. Despite subsequent changes, the fundamental objective remains grounded in fostering a social safety net and promoting economic stability for citizens at different stages of life.
Success:
The S.S. program was a great success, almost too successful. By the time the baby boom generation was working, funds were pouring into the program substantially higher than they were being paid out, which was creating massive surpluses. This piqued the interest of the government, especially because there always seems to be trouble balancing the budget.
In 1968, President Johnson changed the way the US federal budget was reported. At this time, the new reporting of the federal budget allowed Johnson and subsequent presidents access to use the S.S. surpluses, as this was now included as part of their budget. This remained the case until 1990 when it was removed from the budget.
Problems:
By 1990, our government had borrowed too much over too many years, which meant that the program was in trouble and changes were needed. Originally, the S.S. benefits that were promised as future payments were not taxable by the federal government, but in 1984, 50% could be taxed depending on your income. Then, in 1993, this same tax was raised from 50% to 85%. This taxation was done a little too late to affect the grand scheme of things.
Now, as we transition to the baby boom generation from working class to Retirement, you have the largest group of people leaving the workforce. Who will replace the boomers? Who will replace their income?
Wishful thinking:
The majority of this could have been avoided if S.S. and our government had taken corrective action back in 1990 or when I wrote my thesis two decades ago. It would have been simple: stop spending the surpluses. Rather, they should have saved the surpluses and invested it for future payments.
The simple proposal:
Taxes. The most simplistic fix would be to raise S.S. taxes in one way or another. This could virtually be done with the flick of a pen and could be accomplished in many ways.
- Raise the current S.S. tax up from 12.4%. 6.2% is paid by the employer and 6.2% is paid by the employee. In the most recent estimates that I saw, the rates would need to go up to about 14.5%.
- Make cuts. Decrease the amount of Social Security paid to participants who are not currently enrolled in receiving the benefits. It would be difficult to lower payments to participants if this is their sole form of income during retirement.
- Get rid of the S.S. program and force us to save. This would free up government resources in terms of time, money, and wages. It would allow us to potentially invest the 12.4% wages differently than what the government was doing.
- Take part of the budget that is sent outside of the USA and repurpose it for helping our country vs. international relations. Which is about 4% of GDP or $71 Billion/yr.
- Wishful thinking. Get someone in the office who can balance the budget, and find or cut a different program to repurpose money for the S.S. department. The last time a president was able to accomplish this was during the Clinton administration, back in 2001.
Newer idea:
- Create a new flat tax. Instead of having a progressive tax system (like what is currently in place), implement a flat tax. Creating a flat tax, this way can set the tax at a level where it covers all of the programs that we need. This would also alleviate the discrepancy of the rich paying less than they should. If you consume goods in the US, everything will be taxed, period.
- Allow illegal immigrants to be legal. Allow them to get a S.S. card and start contributing towards this program so they are at least paying the tax. This could be accomplished in several ways. Another alternative would be to modify the program for illegals to allow them to work in the US or give them some type of vesting schedule to be a part of the full program.
Thinking Outside the Box:
- In a different article, I wrote about “Lottery Modified”. Fix the problem with free will and not raise taxes, but give people an incentive. The incentive is a chance to win the lottery. This type of idea could create new hype or buzz to fix or aid in fixing an old one. The idea is so simple, that it could just work:
The same premise of using gambling and addiction for a good cause. Since gaming, gambling, and lotteries have been around as far back as humans, why not use them rather than fight them? People will gamble regardless, but what if we have a program that is designed to get S.S. back on track as a temporary or permanent add-on to the already existing S.S. program?
Having the lottery run with prized link savings, but for the good of the people. Instead of the states receiving the money, all could go to the federal government to specifically fix programs like S.S. or Medicare.
The twist that I am proposing is having the lottery run with prized link savings but for the good of the people. Banks or C.U. are excluded from this, the same as my original article. Let the states, in this case, turn over control to the federal government. Make the rules as follows: each person who qualifies must put $400 per year into the state lottery to be eligible to win, or some form of biweekly amount to make it fair for those who do not have $400 lying around.
Where the public normally gets nothing if their lottery ticket is not a winning number, this is where they can start to save real money. The catch is they can’t get any of it until they are 65 or a reduction earlier. ½ of the amount promised if they take it at 59 1/2. On paper, the money would go into a fictitious, non-interest-bearing account, an electronic journal entry. The account will not lose anything, and the savings eventually will come back to the person making the contribution at retirement age. The actual money is put into Treasury Bills, but all the interest is pooled. The maximum result is that a person who starts at age 18 and retires at age 65 could have up to $18,800 (assuming they made every annual contribution) come back to them for retirement and have a chance to win the jackpot at each drawing along the way.
The $400 annual amount is derived from the ’22 total lottery purchases divided by the number of US adults. Last year, $108 Billion was spent on the lottery. There are $258.3 Million adults in the US. The prize could be paid out each week, month/quarter (larger), or year (largest). These payments would be given randomly. $108 Billion at 5% interest is $29,838,408,750.00 annually. Lottery winners would not start until after 1 full year in the program to make sure the states do not borrow money to get this lottery up and running. Assume ½ goes to the federal government for funding S.S. and overhead for running this. This leaves roughly $15 billion annually for the lucky lottery winners. Plus, these participants get back their investment at retirement. The great tradeoff is that the government will get to use it and continue to earn interest until your age 65 payouts, generating interest on the full amount, whereas the lottery only pays out on the new money brought in.
The best part of this strategy is where the actual money is invested. The $400 per person is used to purchase US Treasury Bills. If this investment were properly managed, it could help offset other government programs that are underfunded. The interest generated could also be used to pay down our nation’s debt. The uses could be endless. The key is to not repeat history and spend the surpluses like from other financial programs. This could be a huge win for everyone, not just one side or another.
Let me know your thoughts or what you might want to hear about next?
Sources:
https://www.marketplace.org/2023/02/08/what-would-it-take-balance-federal-budget/
Originally Published on https://pointwealthmanagement.com/blog/
