Sunday, November 9, 2008

How to Fix Social Security

Some of you may recognize I am revisiting this issue but it is an an area where Conservatives need a palatable alternative to what Liberals have to offer.

Their are many problems with social security. First it is demographically unsustainable in the long run without raising taxes on the working or cutting benefits on the retired. Second it redistributes money without in any way creating economic gain. In contrast 401ks, Ira's etc... give a boost to the economy because they provide capital funds to business. In spite of recent events in the long term they provide a higher rate of return then Social Security. Of course liberals will not hear of changing Social Security's pay as you go system into a better system that gives some control to the public. I once had Congressman Rush Holt (D, NJ) say to me that the "public is not smart enough to make there own investment decisions"

In spite of this I think I have come up with an idea that we might be able to sell to the public. The percentages I use are for illustrative purposes only. The numbers would have to be played with to find the combination that works and that will require someone with more technical knowledge and mathematical ability then I can muster. Any way here it goes.

We pay a Social Security payroll tax of 7.5%. Give people the ability(voluntary) to divert 1% to a government approved mutual fund that invests only in state, local or federal bonds (leaving 6.5% for Social security). Completely safe and they get more money when they retire then just social security would pay.

"Wait a minute" you are saying. "Did you not just say this is a pay as you go system." What happens to the people currently getting benefits if that money is diverted?" Well the answer is part of the profit being made on the invested funds will not go to the investor. Part will have to go to shore up social security but not so much that the investor does not come out ahead.

This helps Social Security, Increases the amount of capital available and starts getting people use to the idea that there might be a better way.

As I said this is an outline of a concept that probably needs a lot of work but I think it may be a solution.

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