RETIREMENT: Proposed Solution

The United States Social Security system has a $8.6 trillion present value unfunded Social Security liability through 2086 Government Social Security Unfunded Liability: Present Value.  This is equal to 90% of current US GDP and would require each US household to pay $78,000 of after-income.  Remember annual median US household income is $50,000.US Census: US Median Household Income.  Clearly, as baby boomers retire worldwide in the next 10-15 years, there will be many more retirees consuming social security resources and relatively fewer workers paying taxes to fund the entitlement.  Demographic changes alone make collectivist entitlements eventually impossible to function.  Spending tax money on all budget expenses instead of walling off the taxes for social security use is another major problem. 

Proposed Solution #1: Private Social Security accounts, administered by government

I would propose a ‘My Golden Years’ Act to allow people to control their own retirement savings and help their loved ones fill the gaps in the current program without any tax increases.

• Conventional political wisdom from left-leaning Public Broadcasting Station, PBS Menu of Social Security Fixes, is Social Security deficit can be largely fixed now by making the following changes: 1) index social security to a federal wage index or a ‘chained price index’ instead of the current current price index (@15% of gap), 2) raise tax on social security income to 90% of income versus today’s low 80% (30-40% of gap), 3) means-test social security benefits for the top 20-25% of income earners (5% of gap) though the income level is bad social engineering, and 4) apply the payroll tax to employee benefits compensation (a large 40% of gap).  I would only support #4 if these funds were directly invested in a personally-owned and controlled private retirement account at a federally-qualified financial institution that could be administered by government.
• Allow tax-deductible charity contributions and no gift tax for any company or personal contributions made directly to any American over 65 years old or any private trust which serves Americans over 65 to help pay for their retirement and other care.  This will empower the private sector to fill any gaps in Social Security in the years ahead as we make the transition to self-directed retirement.  There are thousands of households already supporting siblings or parents in need and government should reward their contributions with tax deductions and no gift tax.
• Golden Security Account: Allow Americans under 55 to self-direct their Social Security tax money including now on employee benefits to a ‘Golden Security Account’ account identical to a 401(k) account but administered by Social Security. The individual owns and directs the account and passes assets to surviving spouse and children without estate tax.
• Allow people to contribute up to $20-$30,000/year to their retirement account tax-free.   Similar to the Federal Employee Benefits program which works well, the government will accredit authorized investment firms and investment products.  Similar to a 401(k), the administrator will take funds directly from the paycheck.

In exchange for increased contribution limit to 401(k) accounts and tax-deductible contributions from others, we will add a means-test for Social Security recipients so wealthy recipients (based on personal income) receive a little less from the government.  This should make the system smaller and more solvent while allowing the private sector to creatively take care of their loved ones during the transition years.

Proposal #2: Eliminate all estate and gift taxes

The estate and gift tax is a completely unnatural tax.  There is no example in nature where a productive life form is required to pay 40% of their property to a distant ruling power for zero direct benefit.  The tax is simply double or treble taxation because estate assets have already been taxed as ordinary income and possibly a second time as dividend or capital gains income.  No one can justify the tax as being ‘right’.  Finally, the tax often forces business owners generating taxable wealth to sell their businesses to pay the tax.  Productive owners being required to sell assets to pay taxes will on average reduce the productive asset output and therefore the present value of that businesses’ long-term taxable income as revenue to government.  As noted above, individuals should be able to care for one another with unlimited contributions free of gift tax.

Proposed Solutions hot links: Work; Home; Education; Retirement; Health Care; Immigration; Rejuvenation & Relationships