Wednesday, January 23, 2013

The FME Social Security Plan

I'm often told that I should listen to the President, because I don't have a better plan.  Not even considering the fact that the President rarely seems to have a plan, or at least one that we know about, this accusation is preposterous.  I have a great many better plans.

Let's examine Social Security as it is.

As it is, your government is stealing the money that you pay into Social Security.  Otherwise, there would be no risk of it's collapse.  Though your government may be allowed to borrow from Social Security, when they have no means of paying it back, the definition of the word "borrow" becomes blurry.

With the ridiculousness of our federal government's spending, such borrowing shouldn't be allowed. After all, anyone would feel uncomfortable loaning money to any person addicted to shopping sprees.

But getting the government's greedy hands out of the people's money isn't enough.  This still results in those who rely on Social Security as their retirement to live out the remainder of their lives in poverty.

So let me suggest something better.

Privatize it.  Or at the very least, leave it up to the individual to decide.

There is obviously a need for some kind of program.  Most will not plan for their retirement, which results in tax payers having to pay their way.  But why must this money be placed in such an inefficient program?

My proposition is this.  For those who are fine with the way things are, let them continue the way it is.  Their employer will continue to take that money out of their paycheck, and send it to the government to sit and wait.  For those who want to do something better, allow them to invest this money.  They should be allowed to get set up with a reputable investment firm,  There would be legal terms to this agreement.  The client (you) would not be allowed to withdraw anything from the account until they reach retirement age, or reach any other condition in which one would normally be able to receive Social Security Payments.

This would do two things.  First, it would result in more people retiring with a little dignity.  Less money that the federal government has to pay into other forms of government benefits like food stamps, when people are unable to get by on their Social Security.  Not to mention that a retired person with a little bit of wealth is a whole let better on the economy than one who is broke, in that they are spending money and supporting other job creating businesses.  Secondly, it would teach people about investing.  As people get to watch their money turn into more money, it encourages them to invest aside from that.  It gets them into the habit of it, and helps encourage them to do their own investing on the side.  This results in more wealthy people, and a dramatic increase in tax revenue.  Since most people do not invest, and since this would likely result in many more people investing, it would in a much greater revenue through the capital gains tax.  In doing this, we could then cut taxes, and still have a greater revenue.  Since cutting the capital gains tax increases the benefit of investing, it would encourage even more investing.  Since this new program would have created so many more investors, the impact would be all the greater.  But I digress.

What we have here, is an alternative to a program that doesn't work.  On one hand, you have Social Security.  Money is taken out of every paycheck, and entrusted to the government.  You hope that it will still be there when you need it, and if it is, you're still broke.  On the other hand, you have my plan.  Money is taken from your check, and sent to a reputable investment firm, in which they are legally obligated to take care of it, and withdrawals are not permitted until the right conditions are met.  Retirees are better off, and revenue is up.

Now, I realize that it's a little more complicated than that, and I've left out a few holes, but I have that figured out as well.

Investments are risky.  Not necessarily Craps in Vegas risky, but still risky.  Every investment is a risk.  If an investors portfolio goes completely bankrupt, than he's left with nothing.  As a sort of insurance, there would be a tax levied on all gains that would actually be very similar to the current Social Security program, but it would act as an insurance.  If this is not enough to cover the cost, than a portion of what would be invested in the first place could also go to Social Security.  This could work one of two ways.  It could go to a general fund, and covers every person with losses large enough to qualify with a set amount, or it could go to the current Social Security program as a back up.  Those that lost everything would still receive Social Security payments, likely still higher than those use primarily used Social Security.

Like I said before, there would be a legal agreement between the investment firm and the Federal Government.  Payments received either directly from the employer, or first from the Federal Government, would be deposited into the client's account.  The client could not take withdrawals.  Doing so would be a federal offense, and both the client and the firm would be held accountable.  The Social Security program would dictate when, and how much the client could withdraw, in the exact same way that they would if the client had used that traditional Social Security program.

In order for any investment firm or broker to qualify to be allowed to participate, they must have a good history.  Their clients must have a good amount of returns as compared to losses, and must have a minimum history, to be decided by the Federal Government.  These standards must be strict.  When a firm/broker fails to meet those standards, federal law would require that all funds involved in the Private Social Security program be frozen, and may be transferred by the client to another firm/broker.

As you can see, I've laid my whole plan out here.  Through privatization, we've taken an inefficient program, and made it benefit the country in multiple ways.  We let the effect of a free market do what it does.  When this succeeds, there is no reason that we can't apply this everywhere.  We can fix Medicare with Paul Ryan's voucher system, which works in a very similar way to this plan.  We can institute school choice, and allow parents the option of putting the money otherwise given to a public school as a partial payment towards a private school, or even allowing them to choose a different public school than the one in their district.  There is no end to what privatization cannot fix.  

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