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    America's Phantom: Social Security


    Welcome to the new Broadway hit: The Phantom of America, starring America’s debt. 
    The premise of the story is that America, falling just short of $15 trillion in debt, is being dragged down the path of unsustainability. The role of the Phantom is played by Social Security. Its true identity—massive unfunded liabilities and unsustainable growth—is masked by the rosy depiction of “security” for all generations that pay into the system. The antagonist—Washington—has shackled younger generations to the reigns of the social system.

    What is separating younger Americans from crossing to the path of freedom? Weight capacity. 

    The increasing number of Baby Boomers entering retirement cannot be sustained by younger generations. Privatization must make its debut, remove the mask of this evil Phantom, and restore liberty and prosperity for the future.  

    What constitutes the system’s shortfalls are the following:

    • Social Security is the largest entitlement program and makes up around 22% of the federal budget. America’s debt has reached dangerous levels—contributing to our credit downgrade from AAA to AA+. 
    • Baby Boomers represent a quarter of the population of the United States. This generation produced a significantly smaller generation than their own, decreasing the amount of taxpayers supporting their retirement. In 1940, 42 taxpayers supported each retiree. Now, it is only 3.3 taxpayers per retiree—decreasing still. In order prevent its collapse, Washington must impose more taxes or decrease benefits.
    • Social Security surpluses continue to fall with an increase in beneficiaries.
    • Social Security “Trust Fund” consists of government IOU’s. Surpluses of Social Security revenue are held by the Treasury and can be used to increase spending, pay off government debt, and reduce taxes. If the money is being used for such purposes, it is not being saved.

    Privatization of Social Security would scrap these shortfalls and bring individual control back to the table. 

    Chile adopted this approach in May of 1981 and results have been more than exceptional. Individuals have direct control over their accounts—allowing them to switch between competing insurance companies, desired age of retirement, and plans that best fit their circumstances. Results from privatization include continual increases in economic growth, generated surpluses without raising taxes or interest rates, an increase in pensions by over 50 percent, and a 5 percent unemployment rate.

    Critics to privatization in the United States say that it will create trillions of dollars in transition costs. These costs are derived by retirees currently supported by the public system. It is estimated that the transition would cost around $3.7 trillion. 

    However, there is a way to pay for it. Chile paid for transitions costs with unused government assets. “Suffice it to say that even though governments have enormous pension liabilities, they also have enormous assets. In Chile we had state-owned enterprises,” said Jose Pinera, Chile’s Minister of Labor.

    America has assets too, and plenty of them:

    • $193 billion in gold assets
    • $919 billion in land 
    • $1.2 trillion in buildings and equipment
    •  $392 billion in mineral rights
    • $600 billion in TARP assets and direct loan portfolio
    • Hundreds of billions of dollars in federally-run utilities and other government-run operations

    These assets provide flexibility in transitioning to a new social security system. 

    Unfunded liabilities of the current system are upwards of $11 trillion—almost 4 times as much as the cost of transition. Directly paying off the transition costs would save taxpayers trillions of dollars in future unfunded liabilities. 

    Young America faces a future of paying off massive debt that they have inherited from a compulsive spending government. Social Security must be reformed before the curtain closes on younger generations.

    4 comments
    Carly EngageAmerica
    10/26/2011

    The way in which the program functions now is simply unsustainable. Currently Social Security and Medicare use 8.5% of nonentitlement revenuees (federal revenues dedicated to all other programs besides the two). By 2020, the deficits will grow to almost 25%. This means that within 9 years, in order to pay projected benefits to retirees and the disabled, the federal government will have to stop doing about one out of every five things it does today (http://eng.am/poetWU).

    All of the following solutions will substantially eliminate these problems: Reducing benefit payments by 5% AND increase the retirement age to 70 over time; increasing both the employee and employer contribution immediately by 1.1% for income up to $106,800 (its current limit); reducing benefit payments by 5% AND increase both the employee and employer contribution immediately by 0.05% each year for the next 20 years for income up to $106,800 (its current limit); removing the $106,800 limit and count all income towards the SS tax; decreasing the cost of living adjustment by 1% per year AND raise the retirement age to 67; or taxing income over $106,800 at 3%, index the retirement age to longevity AND decrease cost of living adjustment by 0.5% (http://eng.am/oTlck2).

    joetheeconomist
    10/24/2011

    The last sign of failure. It is the wealthy family selling its scraps to live beyond its means. You plan brings Jim Williams to mind who said that "it is only the trappings of the aristocracy that I desire. The things that they have to sell when the money is runs out. And it always does..."

    Here is a different idea. Sell the 3.7 trillion in assets, and just pay down the deficit. Your idea is simply shifting the burden of Social Security from people who participate in the system to the general taxpayer. If Social Security doesn't pay for itself, and it won't in 2036, let it go. There is no reason that the general tax payer should be asked to support failure.

    Joe The Economist
    www.fixssnow.org

    Jennifer W
    10/26/2011

    Social Security benefits will go up by 3.6 percent in 2012 to modify for the cost of living. This will be the first boost in Social Security benefits in 3 years. This comes as welcome information for retirees in the economic downturn. However, several will see much of that increase eaten by increases in Medicare rates. Article source: <a title="Social Security benefits to increase for the first time since 2009" href="http://personalmoneynetwork.com/moneyblog/2011/10/19/social-security-ben... Security benefits to increase for the first time since 2009</a>

    Michael Duncan
    10/25/2011

    Joe-

    How exactly do you see privatization, the system advocated in this post, as "shifting the burden of Social Security from people who participate in the system to the general taxpayer"? It actually shifts everyone's individual burden exactly where it belongs, with the individual.

    Many of the people who pay for Social Security are already not participating "in the system" as you put it. They are young people forced by the government to pay into other people's retirement. Privatization removes that burden by letting young people choose their own private retirement savings account.

    What you are saying doesn't make any sense. Not to mention that Social Security privatization is one of the plans listed on your own site. It seems like the only reason you posted to this blog was as a promotion of your own site.

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