Sunday, March 20, 2005

Social Security - Condensed

There is a full version coming shortly that will expand on this topic in much greater detail coming later tonight. It will prove the conjectures presented here.

Social Security will go bankrupt in five to fifteen years. There are three viable ways of preventing this from happening; Personal Savings Accounts, increasing or modifying the social security tax (yes, it's a friggin' tax, not a donation), or modifying the age at which benefits are reached.

Personal savings accounts (PSA), in reality, do nothing to directly change the Social Security deficit. What they do is put a portion of your funds into a more direct account that you can have some control over, albeit very little. The only deficit benefit reached through PSA's are a reduced overall Social Security system that can be funded more easily through the general fund. Afraid that the start up costs would kill us? Think again. The Thrift Savings Plan has been in effect for several years and runs at an overhead of only one percent.

As a sub-system within this program the extra money that is to be gained over the current system is at a minimum 9% more than Social Security's COLA adjustments per year. I'm sure some brilliant Senator or Congressman has already eyed this pot of money for his or her private tax dollars. Some of it could go to fund the outdated Social Security system, maybe 2% would suffice? It would still leave an average annual gain of 7% over COLA for the individual per year.

Increasing the tax burden on Social Security has had success in preventing the total melt down of the system. It has also had some adverse effects on GDP. If any of you have taken a basic college economics class you would be familiar with the static rules for taxes vs. available funds for GDP. The more you tax people, the less money there is to be taxed. This system contains an equilibrium point that we are currently close to already. Unless you plan on getting creative with how you tax people, like raising the payroll tax cap from 80,400 to something like 100,000, then you will have potentially created an economic depression.

The third option on the table is that of changing the age of retirement. Currently the ages of retirement are 62 for your minimum available payout, 67 for your full payout (in most cases), and 70 for extra payout. Theoretically, you could raise each of these ages by one or two and reap an overall tax savings of hundreds of billions of dollars. It would make sense too. People are living longer than ever before. Unfortunately, this would only delay the inevitable by one or two years. Politicians, being who they are, would more than likely spend the money in other programs and in turn have nothing left over for our seniors.

Hopefully this has piqued your interest ever so slighly as to what could happen to Social Security. We really are in dire straights right now. The full data and essay will be available later tonight. I just thought you would like a sampler.

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