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Chapter 27: Entitlements: What’s wrong & how to fix it

June 7, 2012

“For more than forty years, the United States Congress has shamelessly used payroll taxes intended for Social Security to fund big government spending.” Mike Pence

What’s wrong with our entitlement policies

  • Cruel government hoax. Social Security and many other government entitlement programs are legal only because the government runs them. Jane and Juan Q. Citizen are forced to pay into Social Security, with the implied promise that the money is being invested for their retirement. It’s a hoax perpetuated by career politicians and bureaucrats. Instead of investing Jane and Juan’s money, the government uses it to pay people who have already retired. Even when there are more people paying in than retired people drawing benefits, the politicians spend the surpluses on more government programs. The attitude of these thieves of the public’s money (who, laughably, call themselves “public servants”) was, “We can use their money to buy their votes with more promises and more spending, so why not?” And for too long, citizens allowed them to get away with it because we either didn’t understand or didn’t want to face up to it.
  • It’s unsustainable. Social Security worked well when there were plenty of working people paying into it and not as many retirees. Well, the jig is up. Now that baby boomers are retiring, there are more people retiring and fewer working people to support them. Plus people are living longer. So the Ponzi scheme called Social Security is unsustainable.
  • Medicare. Another significant unsustainable entitlement, Medicare, is discussed in the chapter titled “Health Care.”

How to fix our entitlements mess

  • Take back our money. The taxpayer-funded portion of congressional retirement accounts should be put into the general Social Security fund. (See the “Career Politicians” chapter for more about this proposal.)
  • Retire later. People are living longer and there won’t be enough money to support all those baby boomers in retirement. In order to ensure enough money will be there to meet our long-term obligations, we must gradually increase the age at which Social Security can be drawn. (See “Poverty” to consider how a negative income tax could help ease the long wait for the truly needy.)
  • Broaden and lower the Social Security tax. The first $106,800 in income is currently taxed 4.2 percent for Society Security; the portion of an individual’s income over $106,800 is not subject to this tax. Applying the payroll tax to all income would allow a reduction in the 4.2 percent rate. This would be an overdue admission that Social Security is a massive income distribution/welfare system (not a retirement investment).
  • Phase it out. The three steps above—especially the second and third steps—would solve Social Security’s short-term financial problem without undue hardship to anybody. Once the system is on sound financial footing, new workers not already paying into Social Security should not be forced to do so. They would be better off investing in their own retirement plans. The government isn’t good at this sort of thing anyway, and Social Security would end naturally when the last retiree already in the system dies.
  • Let people opt out. Finally, workers already in the system could be permitted to opt out of Social Security entirely under carefully conceived conditions. Those who have already put money in could choose either a one-time cash transfer to their private retirement account (IRA or 401k) or reduced Social Security benefits when they retire. (Structured properly so the system wouldn’t end up with too few contributors to cover payments, this could be a win-win situation for these individuals and for the stability of Social Security.)
  • Means testing. Even after the steps mentioned above, means testing may still be necessary to meet our Social Security obligations. People who are successful enough to be able to retire comfortably without drawing Social Security may have to have their future benefits reduced or eliminated. Reductions could be on a sliding scale based on income.

“For my children, it makes sense to talk about modernizing Social Security, letting them create stronger personal accounts, letting them get a higher rate of return over the long run.” —U.S. Senator John Sununu

From → Entitlements

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