Wendy Williams, a waitress at Mom's restaurant on North Dixie Freeway and a part-time accountant, says she is "very disappointed in Social Security," adding, "I don’t think it will be around when I retire.”
Like the 41-year-old Williams, who has already put into the system half her adult life, many her age in America have figured out that the Social Security System does not work very well.
Williams is right to be disappointed in the system although it will probably be around in some form or other for quite a while. If the system is kept essentially in its present form, Americans can expect to become more and more dissatisfied with its performance as time goes by. There will be cuts in benefits and raises in taxes to try to keep it going in its present form.
The benefit cuts will take various forms. The retirement age will probably be raised. The actual benefits may be cut and receiving the benefits may become means tested. The actual average return on the money paid into the system will get quite small and will probably become negative. To add insult to injury, the money paid back will be taxed.
The root of this economic mess stems from the fact that that the citizen has no control over his or her money and no choice in whether to join the system. This has allowed for the evolution of a system that has no property rights, no trust or investment fund and no legitimate claim to economic soundness. The system gives the participant no capital to call his own even though he or she has paid in enough money over a working lifetime to make him independently rich.
The cost of providing benefits is quite high because there is no compound interest from investment to enlarge the income. If participation in the plan were voluntary, anyone with any sense would have opted out long ago.
Another dirty little secret is that citizens don’t even have a right to a pension after “contributing taxes” to the plan. That issue was decided several times by the Supreme Court --the last time was in Fleming vs. Nestor around 1960 -- when the justices ruled that the Social Security contribution was simply another tax and no one could infer that paying Social Security taxes entitled them to a pension.
There are several approaches to fixing this system. They all involve giving choice and ownership rights to the plan participants. Among them:
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The simplest way out would be to give people the choice of staying in the plan and paying the taxes of withdraw completely and not pay the taxes. Any shortfall would then be paid out of general funds. This is the plan of action most in line with free markets and personal freedom. In the long run it would be the cheapest way out and best for the country. Naturally the politicians will not let this happen any time soon.
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The next best way out is to give the people the choice of staying in the present plan or opting into personal accounts. This would give the people some choice and ownership rights as well as making the plan economically more efficient with the use of compound interest that would result from investment.
Naturally this approach will be demagogued to death. The opponents will raise all sorts of fears about the perils of individual investment. This opposition will ignore the fact that it is hard to come up with an investment worse that a guaranteed near zero or negative rate of return with the additional threat of total loss presented by the present Social Security System.
What could be worse than a system that takes enough of your money that you could have become independently wealthy and in return gives you a small pension , no equity or property rights and no right of survivor-ship.
Note also that going to private accounts will save the taxpayer money because private accounts are an economically more efficient way to provide retirement funds. Furthermore private accounts would harness the excess Social Security funds that are now being flushed down the rat hole of political spending. (Anyone who thought they were going into a Trust Fund lock-box somewhere should have themselves committed.)
The personal account approach has been tried in several countries including Chile , Great Britain and a few places in the US with success. So far in all cases it has worked better than the Social Security Systems that were replaced.
It should be noted that in all cases the individual is left with the option of staying in the present system or moving to the something else. This takes care of the people who are retired or near retirement and cannot build up equity in an alternate plan. It also allows for people who are afraid to invest.
The reader should be aware that the main opposition to any real plan to fix social security comes from politicians who see the present Social Security system as a powerful tool for political power. While the plan is a dismal failure as a good way to provide retirement it has been a smashing success as a means to elect demagogues and keep them in power.
We are left with the option of coming up with a real fix to the plan or be forever weighted down with an ever increasing burden that damages the economy of the United States.
The individual citizen should not wait for the politicians to solve the problem. He or she should immediately be starting his own investment program as over half the population is doing now.