A ‘Race to the Top’ for Social Security

If you’re below a certain age, your annual Social Security statement is accompanied by a fact sheet titled “What young workers should know about Social Security and saving.”

The fact sheet explains that the Social Security Trust Funds are due to go broke by 2037 and that, as things stand now, payroll taxes won’t cover “the full benefit amounts scheduled.”

“However,” it says, “this does not mean that Social Security benefit payments would disappear. Even if modifications to the program are not made, there would still be enough funds in 2037 from taxes … to pay about $760 for every $1,000 in benefits scheduled.”

Benefits won’t “disappear”? Well, that’s reassuring!

The fact sheet presents this potential 24 percent haircut for Americans around my age as a worst-case scenario. Prudent souls will recognize that, with fewer workers and more beneficiaries who live longer, it may be the best case.

I fear the temptation to “fix” Social Security by giving Washington more authority is too great (witness the result of the year-long health-care debate). Pension reform for 300 million-plus people is most likely to result in bigger government, higher taxes, lower benefits.

But what about reform for 5 million, 10 million, even 20 million Americans at a time?

What I mean is a kind of “Race to the Top” for Social Security reform, in which states compete to devise solutions for the program on a smaller scale.

Give state governments two years to draft plans for people younger than a certain age; people above a certain age would remain in Social Security. Actuaries would set the appropriate cut-off, but let’s assume it’d be around age 50.

The feds would allow the best plans, or maybe any plan that’s sound, to move forward. They could be experiments for a federal reform or simply a devolution of power to the states.

Why would a state even want to participate? Because, in the states whose plans were chosen, jobs would be exempted from the federal Social Security payroll tax, a total 12.4 percent for employee and employer.

That would free states to create their own payroll taxes to replace a portion of the federal tax. But states would have every incentive to keep from replacing the entire amount, making themselves as attractive to employers as possible.

Talk about a job-creating stimulus. How would it work?

To gain broad support, I’d leave the ideological direction of the plans to the states themselves. They might be more progressive, perhaps by using means testing or graduated tax rates. But I would expect many states to be more free-market, with true private accounts.

Is it wise to let people invest more of their savings, given the losses sustained by some 401(k) accounts? There are of course risks, which states could address in designing their plans.

But long-term investments that are risk-weighted for the investor’s age and retirement plans can still provide a better return than Social Security has in the past. And given our national finances, there’s also risk in counting on Social Security.

The plans could be only for state residents, open to people in any state (like existing 529 college-tuition savings programs), or designed to draw new residents. They could be designed to take in state employees as a way to transition out of similarly unsustainable public pension plans.

Now, why would citizens want it? For one, it would allow for true reform that enhances personal freedom and limits government, which will be far more difficult to do nationwide.

It might also make government more responsive. In Georgia, a congressman has 14 times as many constituents as a state representative does.

This is, I admit, a radical proposal. But we need to consider ideas that are big in ways other than their price tags.

107 comments Add your comment

oldtimer

September 8th, 2010
7:29 pm

Sounds like a good plan…government will never do it….

No More Progressives!

September 8th, 2010
7:37 pm

Social Security – the only Federally sanctioned Ponzi scheme.

Dems lose big

September 8th, 2010
7:44 pm

Not to change the subject but…..HA HA.

Obama’s jobs pitch fails to dazzle Washington

http://money.cnn.com/2010/09/08/news/economy/Jobs_reaction/

Tammy

September 8th, 2010
8:35 pm

September 7, 2010
Parties Tied at 46% in Generic Ballot for CongressLatest weekly update shows more competitive contestby Frank NewportPRINCETON, NJ — Republicans and Democrats are tied at 46% among registered voters in Gallup’s weekly tracking of congressional voting preferences, marking a shift after five consecutive weeks in which the Republicans held the advantage.

HA HA. Republicans were up by 10 points last week. Looks like all they have to do to blow their lead is for John Boehner talk about his “fix” for the economy. Presto, bye-bye lead!

khc

September 8th, 2010
8:42 pm

how could anyone take boehner serious….what a clown; shame the problem so big that no politically real answers exist. but how do you eat an elephant…..

md

September 8th, 2010
8:44 pm

And the argument against privatization is that many may lose their investments.

So, letting the misfits continue to manage it is better how?????

Avery

September 8th, 2010
8:57 pm

Or you could just remove the income cap and the SSI budget problems are pretty much solved….

Le Bourgeois

September 8th, 2010
9:26 pm

I’m all for S.S. pension reform, however, I agree with you Kyle. Until Democrats (and even some big government Republicans) are completely out of the picture in both the Congress and Oval Office, true austerity measures cannot take root. At least you bring forth fresh ideas unlike some of your co-workers that just complain.

I propose a gradual, inch-by-inch style of agenda that the next group of Republicans should introduce. A sweeping change may only turn into the “Obamacare” fiasco and cost us all more down the road. Instead, each individual reform should be brought forth in a clear and concise manner with total pages of a bill not to exceed 10. Example, raise pension age limits then raise the tax cap based on inflation and time then allow for some private investment accounts, etc.

Otherwise, I’m afraid that our Dear Leader and Congress may try to invoke an Argentine-style seizure of private pension accounts for redistribution to balance the books. If tax increases won’t sell, wealth-envy just might if this recession keeps going.

Algonquin j. Calhoun

September 8th, 2010
9:26 pm

Republicans don’t give a damn about fixing Social Security. They’ve been out to destroy it for many a year!

carpetbagger

September 8th, 2010
9:37 pm

An interesting proposal, Kyle, but it won’t happen under either party in all likelihood, since it devolves power to the states. The only type of “Race to the Top” we will ever have is one like we had for education, i.e., which further increases the involvement of the federal government in the affairs of the citizenry.

Peter

September 8th, 2010
9:39 pm

Kyle I have contributed way over 200K in my life time…….don’t I wish it was in MY savings account.

Avery

September 8th, 2010
10:59 pm

Also: These Private “time-weighted” and “risk-weighted” plans have recently been shown to suffer from serious agency problems that conservatives usually only attribute to government.

barking frog

September 8th, 2010
11:27 pm

There has never been anything wrong with Social Security,
except that both Republicans and Democrats have used it
as a hidden tax by treating the “Trust Fund” as a Slush
fund.

Avery

September 8th, 2010
11:56 pm

Barking frog is correct. It was pay as you go until the early 1980s, when they set up the “trust fund” which both parties immediately used for general funds.

Proud Citizen

September 9th, 2010
3:06 am

Social Security are your membership dues to live in the greatest country on Earth. Are you really too broke to be a part of it?

If the pittance you pay in keeps you from having your own retirement plan, you need more help than you’ll get by commenting on this column.

If you don’t want to belong, move.

newtoncogeo

September 9th, 2010
3:17 am

Why re-invent the wheel?

Thirty years ago the government employees of Galveston County, Texas chose to “opt out” of the Federal Ponzi scheme (Social INsecurity) and switch to (excerpt from link below):

a “….plan, put together by financial experts, …. a ‘banking model’ rather than an ‘investment model.’ ….. To eliminate the risks of the up-and-down stock market, workers’ contributions were put into conservative fixed-rate guaranteed annuities, rather than fluctuating stocks, bonds or mutual funds. ….. results have been impressive: ….. averaged an annual rate of return of about 6.5 percent over 24 years. …. provided substantially better benefits in all three Social Security categories: retirement, survivorship and disability.”

Retiree benefits are almost THREE TIMES the “benefits” paid by Social INsecurity, AND,
unlike Social INsecurity, the worker’s contributions are “….. like a savings account that is passed on to family members upon death.”

http://www.ncpa.org/pub/ba514
http://blogs.ajc.com/kyle-wingfield/2010/09/08/a-race-to-the-top-for-social-security/

This is the “secret” which politicians, especially Democrats, don’t want you to know – this is what happens when the retirement system is “privatized”.

All politicians know about this. (Galveston) They just trust to the ignorance of the voters (and the non-voters) to continue to put money into the NON-EXISTANT “Social Security Trust Fund”.

Under a plan like the Galveston County workers have, you would: get more money if you are injured, more money when you retire and the money in your account would go to your spouse/children when you die.

This is very much like the plan which the “evil” George Bush wanted to allow people to do with A PORTION of their Social Security Tax. But Democrats blocked that.

The plan exists – needing only a politician and a political party with backbone and “cajones” to make it happen.

Curious

September 9th, 2010
4:10 am

Kyle,
As I sit here in Afghanistan, I wonder if you served in the Military. If not, why not?

There are a lot of young men and women serving multiple tours that would not be necessary if you “real patriots’ would join.

It’s not too late. You can do it!

No More Progressives!

September 9th, 2010
6:05 am

khc

September 8th, 2010
8:42 pm
how could anyone take boehner serious…

I think you meant seriously.

As for seriously, you’d rather have moonbats like Grayson, Kucinich, Starks and Boxer managing you money?

No More Progressives!

September 9th, 2010
6:08 am

Avery

September 8th, 2010
10:59 pm
Also: These Private “time-weighted” and “risk-weighted” plans have recently been shown to suffer from serious agency problems that conservatives usually only attribute to government.

Well, then, hire an ambulance-shasing barrister to manage you money.

I want a professional, somone with a CFP on thier business card.

No More Progressives!

September 9th, 2010
6:12 am

barking frog

September 8th, 2010
11:27 pm
There has never been anything wrong with Social Security,
except that both Republicans and Democrats have used it
as a hidden tax by treating the “Trust Fund” as a Slush
fund.

http://www.u-s-history.com/pages/h1800.html

First, read about Carlos (Charles) Ponzi. Then, stretch yourself and learn about his Security Exchange Company.

Then compare his scams to what the Feds call Social Security.

An amazing likeness, I say!

Ayn Rant

September 9th, 2010
7:29 am

Don’t tamper with Social Security, Kyle! You’re just trying to devise another deceptive “privatization” scheme.

Social Security works just fine because politicians dare not tamper with it. It’s the only thing Americans can count on in their old age, as investments crash and property values fall. The concept is simple and the administration is lean.

Your suggestion that states could do anything innovative and efficient is laughable: states are anachronisms, even more corrupt and contemptible than the federal government.

The underfunding problem is greatly exaggerated and easily fixed. What individual or corporation wouldn’t be delighted to have a trust fund good until 2037? Underfunding can be fixed immediately by eliminating the ceiling on wages subject to the SS tax. High wage earners should pay the same percentage of Social Security tax as low wage earners, and receive proportionally higher benefits. It’s only fair. You like a “fair tax”, don’t you?

A simple administrative change would be prudent: set up Social Security as a public corporation distanced from political influence, and manage the trust fund independent of the federal General Fund. No big deal, just some minor tweaking.

Thanks for a rarity: an article free of the conservative vs. liberal, Republican vs. Democrat pig drool!

carlosgvv

September 9th, 2010
7:33 am

Many of you are young or early middle age, employed and think you will never need social security. By the time you’re 65 and life has used you for a punching bag and the only thing between you and the street is social security, you will sing a different tune.

Kyle'sInFantasyland

September 9th, 2010
7:41 am

Kyle ends the essay with “This is, I admit, a radical proposal. But we need to consider ideas that are big in ways other than their price tags.” Methinks Kyle’s editors originally trashed the entire essay. Kyle later added the last paragraph to save it from the trash pile. Too bad.

JKL2

September 9th, 2010
8:01 am

When a 4% investment would earn you more than the 96% you put into Social Security, I vote for the 4% investment.

I know this concept was too difficult for the Democrats to understand, so they voted it down. It’s more important for them to hold onto your 4% than it is double your retirement income.

JKL2

September 9th, 2010
8:07 am

Curious – There are a lot of young men and women serving multiple tours that would not be necessary if you “real patriots’ would join

The last I checked, the military was overstrength. How are you supposing to fix the Op-tempo when no more positions are available? Maybe the President could focus on Bin Laden and “finish” the war like he promised he would. (Oops. Forgot what the President says while campaigning is just “political talk” and you can’t actually hold him accountable for anything because “that’s the way Washington works”.

Rick

September 9th, 2010
8:12 am

Why do we allow legal immigrants or US citizens who haven’t worked in the system at all or for a very short time to collect SS benefits? These benefits are skewed to pay those who paid less into the system to collect proportionally much more (see the SS web site).

It seems whatever government program we speak about, it is always about taking more from those who make more and in theory at least the ones that have worked harder to get educations and good jobs.

Seems like the HS dropout who didn’t attend classes and smoked weed are the ones government programs are seeking to provide the most benefits.

When will personal responsibility for one’s own actions start to get traction here in the US?

Solving the unsolvable insolvency of Social Security

September 9th, 2010
8:28 am

Social Security should only be for the insolvent over 70 years of age. No one, whose income is over 35K per year at age seventy should get social security. It’s ridiculous that Social Security is seen as an entitlement.

It’s not. It’s a safety net for the down and out. It should only be given in the form of rent vouchers and food stamps, and maybe a little cash. It’s to keep old people off the streets only.

Healthcare for the elderly? Why? They’re just going to croak anyway. Lets make our society one large 300-million member death panel. If you manage to survive past 70 years of age: TOO BAD FOR YOU. We have to do this, people.

If not, we’re finished.

The Aristocrat

September 9th, 2010
8:34 am

The SS system could easily be fixed (or removed) by making participation voluntary.

JackLeg

September 9th, 2010
9:00 am

The problem with khc, and most liberals is that they are just plain ignorant. When liberals keep saying that the GOP has no ideas seem to forget how Washington works. Since Pelosi is the speaker not one of the 1100 GOP bills have been brought up to the floor for any kind of vote. Why is that khc? Could it be that the speaker of the house gets to decide what get brought to the floor, so when the dimacrats tell you that they have no solutions that is simply a lie. When they tell you that the GOP is the party of “No” they are describing themselves, they have said “NO” to ANY GOP bill since they took control in 2006. Funny how liberals like to create a situation then blame everybody else for what they did…. Losers…

Disgusted

September 9th, 2010
9:09 am

Face the fact that no retirement system will ever be perfect for everybody. Yes, SS is skewed to provide a higher benefit to low income people relative to contributions. No, SS is not a retirement savings plan, nor do its benefits even come close to funding a full retirement. It is an insurance plan, one designed to provide subsistence benefits to workers, to the disabled, and to the dependents of workers.

I fear the consequences of allowing individual states to design alternative plans, for I have seen what political ideology can do to systems. Want an example? Take the most recent Georgia income tax cut, which essentially exempted incredibly wealthy people with exceptionally generous retirement plans from any income tax obligation whatsoever. I’ve seen what political idealogues can do to poorer people.

I once felt the same way about SS as young Kyle does. I paid in over $200,000 of my earned income to the system, matched by my employers’ contributions. I concluded many decades ago that the benefits would not be there for me. I yearned for exemption from the system.

And now, on the fourth Wednesday of every month, I see an SS deposit in my checking account. It’s as faithful as the sun’s rising every day. It will continue till I die. Is that deposit as much as I could have earned by using an alternative investment? No, but personally I don’t mind seeing people less fortunate than I getting help once they get too old to work. If you’re so selfish that you can’t stand the thought of some of your money’s going to help somebody less fortunate, then by all means move to a country with lots of jungle, where you can be a true Darwinist.

I dismiss many of the arguments put forth by Kyle and other conservatives. As one blogger has already noted, Republicans have fought Social Security since its enactment, and they will continue to do so. They handily dismiss the notion that SS deposits have been used to fund wars, general appropriations, and tax cuts—in short, for almost everything but payment of benefits. Now that the bill is coming due, they want the system radically altered or abolished. There’s nothing wrong with the current system that simply lifting the cap on earned income eligible for SS taxation won’t repair.

Curious

September 9th, 2010
9:09 am

JKL2
The military could find room for a smart person like you. The military is full due to huge enlistment bonuses and poor economic conditions.

Just Think! During Vietnam, when I first joined, being in the military was a sacrifice. Now, it’s another profession. Do your part and help reduce costs.

Bosch

September 9th, 2010
9:17 am

Um, leave it up to our State goons to handle this? No thanks.

JackLeg

September 9th, 2010
9:17 am

Opps 100 bills have NOT been brought to the floor… sorry

Dems lose big

September 9th, 2010
9:34 am

“Republicans don’t give a damn about fixing Social Security. They’ve been out to destroy it for many a year!”

SQUIRREL!

fitzgerald

September 9th, 2010
9:34 am

My sympathy is heavy for the folks that have only social security to live on when they retire. I paid social security between the ages of 12 and 34. I consider myself very fortunate because, at the age of 34, I went to work for a city that had opted out of social security. My monthly retirement is far greater than it would be if I received social security. Perhaps all taxes should go to the individual states in which a person lives and to hell with the federal government………….

Dems lose big

September 9th, 2010
9:40 am

Sinking With Obama, Dems Plan Political Triage

When you spot the word “triage” in a political news story, you know someone is in trouble.

Triage is the procedure by which medical personnel screening people injured in combat or disasters separate those who can be saved from those who can’t. The first group is given immediate surgery in hopes of recovery. The second is given painkillers to make the end bearable.

So it was startling to read last weekend in The New York Times that House Democratic leaders “are preparing a brutal triage of their own members in hopes of saving enough seats to keep a slim grip on the majority.”

http://www.realclearpolitics.com/articles/2010/09/09/sinking_with_obama_democrats_plan_political_triage_107079.html

The Aristocrat

September 9th, 2010
9:46 am

For those that have planned ahead for retirement, SS is nothing more than 6% wasted income. The Aristocrat’s generation is unlikely to see any of the money currently being robbed, as he will be ineligible to collect until close to 2050 assuming the eligibility age stays put. So, The Aristocrat is forced to put even more of his current earnings into long term investments and clamp down on his lifestyle habits today.

Q: How will his financial responsibility be rewarded? A: Higher taxes.

What a Joke

September 9th, 2010
10:09 am

ROLF, allow the state idiots to devise a new social security plan….ha ha ha, have you seen state pension plan deficits? How about the city of atlanta pension plan deficits? I would not trust the state thieves, why RoyTheCrook would just luv to git its hands on ~13% of our taxable income each and every year, in addition to the 6% state income tax, and all the other smaller taxes the lying, thieving scum in state and local guv currently steal from us.

Jefferson

September 9th, 2010
10:14 am

Seems to me if you can take the risk out of capitalism, via bailing out greedy banks and poor bankers, you can surely take care of the American workers who are the blood and guts of our nation.

barking frog

September 9th, 2010
10:25 am

Social Security is not like a ponzi scheme. Ponzi
did not have the ability to tax.

Hillbilly Deluxe

September 9th, 2010
10:26 am

Maybe it’d have been a good idea not to have taken money out of the SS trust fund, all these years, and used it for other things. That horse is out of the barn, though.

Seems to me if you can take the risk out of capitalism, via bailing out greedy banks and poor bankers, you can surely take care of the American workers who are the blood and guts of our nation.

You’d think so but how many of us can call our Senator or Representative and actually get to talk to him, any time we want?

Algonquin j. Calhoun

September 9th, 2010
10:28 am

Dems lose big
September 9th, 2010
9:34 am

“Republicans don’t give a damn about fixing Social Security. They’ve been out to destroy it for many a year!”

SQUIRREL!

Boy, that hurt! That’s the most intelligent comment I’ve heard from a Republinazi in ten minutes or so. Your defining of the word triage was fascinating in its slavish recapitulation of the definition given in the dictionary. Your reference to an article in the New York Times came from a Republinazi web site, probably Hannity, and should not be construed as evidence that you have the intellect and taste to read the Times!

DawgDad

September 9th, 2010
10:46 am

I hope our young workers are smart enough to realize unfunded benefit promises are like paper bags full of politician’s hot air, and vote in their self interest this November instead of voting for more leftist Government seizure of our hard-earned freedoms. Alas, I know they are not.

I am absolutely convinced if the Dems manage to hang onto power in Washington this November they are immediately coming after our trillions in 401K investments – they need the money to finance their spending programs and they’ve already discussed this ad nauseum (have you been paying attention?).

Kyle, your proposals have serious merit – thus, they are doomed to the rubbish heap. If there’s nothing of substance for the Washington politicians to pocket or control, how do you ever expect this to come to pass? We serve them, they don’t serve us. If you don’t believe that, just take measure of the Washington politicians’ response to the Tea Party. Even the Republican establishment is having a difficult time coming to grips with the concept of responsible government serving the interests of its citizens, and not vice versa.

wallbanger

September 9th, 2010
10:53 am

I know that social security goes to many who have not paid into it, and goes to illegals as well. Why is it that I who have paid the maximum every year I have worked, but have also saved for my retirement, am not the target for those who would say, the payouts are only for the indigent? What was I doing? Mandatorily saving for some bum down the street who never got off his butt? If that is the case, then everyone ought to stop paying their ss tax immediately in a nationwide revolt. Cause that is slavery.

wallbanger

September 9th, 2010
10:54 am

should have read “am NOW the target”

DawgDad

September 9th, 2010
10:56 am

“And now, on the fourth Wednesday of every month, I see an SS deposit in my checking account. It’s as faithful as the sun’s rising every day. It will continue till I die.”

The Government has a vested financial interest in you dying ASAP, and they’re doing everything they can to gain complete control of your health care. So nice to hear you’ve thrown in the towel on standing up for principles. If you’re so interested in helping the less fortunate PLEASE give back your benefits, and stop asking others to do your bidding. Hypocrite.

JKL2

September 9th, 2010
11:06 am

Curious-

I’m at the bigger end of the pay scale, so I’m not saving anyone money. The Defense Department is just a small piece of the fraud, waste, and abuse scale. Government needs to get it’s act together, then we can talk.

I do know tons of overpaid officers I’d like to see go away.

Open Letter to Mike Luckovich

September 9th, 2010
11:12 am

Mike- since you never open your cartoons to comments, and your email is not in service at the ajc… I am sending this here. I respect that you have your own views, and you are certainly entitled to that. Every other editorialist on the ajc staff, however, opens their articles to comments except you. You are undoubtedly talented at what you do, or you wouldn’t have won a Pulitzer. But I would complain that your cartoons reflect the radical left viewpoint a vast majority of the time, and that doesn’t represent your readership. The president has shoved every policy down our throats for nearly two years even though the majority doesn’t support those policies (see http://www.realclearpolitics.com), he’s gonna raise taxes on the people who are most likely to offer jobs to us (but justify it by simply calling them wealthy), while every stimulus he has thrown at us hasn’t worked and now our debt is not just high… it’s totally over our heads. The Democratic Party has had and continues to have TOTAL POWER in our government… and are we better off? Doesn’t appear to be the case at all. Meanwhile, not all Muslims are terrorists, but ALL TERRORISTS are Muslim. The Imam of the Victory Mosque wants sharia law in America and will not denounce Hamas or Hezbollah even though they fire rockets into Israel aimlessly every day killing civilians. None of your cartoons ever represent these viewpoints. If you are only going to represent your own views, you should at least open your articles to comments. Just a viewpoint from the peanut gallery. Nevertheless, I always read your cartoons. Thanks.

md

September 9th, 2010
11:31 am

“If you’re so selfish that you can’t stand the thought of some of your money’s going to help somebody less fortunate, then by all means move to a country with lots of jungle, where you can be a true Darwinist.”

The “selfish” card – kin to the race card.

Not all “less fortunate” are in their predicament because they are simply less fortunate. Choices have consequences.

Should a student that chooses to study 24/7 and chooses to do no partying and makes all A’s have to share those A’s with a student that chooses to party 24/7 and do no studying and makes D’s and F’s?????

Who is the selfish one???????????

Dr. Pangloss

September 9th, 2010
11:37 am

The fact sheet explains that the Social Security Trust Funds are due to go broke by 2037 and that, as things stand now, payroll taxes won’t cover “the full benefit amounts scheduled.”

And in the next paragraph we learn that SS is not going broke at all.

According to the Senate Special Committee on Aging, we only need a few simple fixes to SS, and it will be in good shape–no cuts in benefits–until 2085. And they would be modest changes, not painful ones. And who knows what life will be like in 2085?