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As Long as We Remember...

September 30, 2002

Let's Eliminate Social Security Now

Ronald W. Wolf

The privatization of Social Security was a plank in the presidential campaign of George W. Bush. The basic idea was that you decide where your retirement money is invested, taking all the risk. The crash of the stock market in the past couple of years has prevented the Bush administration from pursuing efforts, for now, to privatize social security. That will change after the election in November.

Letís review Social Security basics and its shortcomings.

Social Security was originally intended to supplement the retirement income of those who could no longer work and allow them to eke out an existence in their final years. But there werenít supposed to be many years to eke out. The average life span in the 1930ís was far shorter than today; people typically received Social Security only for a few years, beginning at age 65. Today, people with a good diet and good access to health care can reasonably live to be 80 or 90.

No one has a Social Security account. There is a record of your contributions, but there isn't an account, equivalent to a bank account, from which recipients draw. Unless you die shortly after beginning to receive Social Security, you will eventually receive far more than you paid in.

There is no Social Security trust fund. The trust fund is a euphemism for the surplus of contributions - more was being paid into Social Security than paid out. A couple of years ago, it was estimated that the Social Security surplus would be gone around 2010. But itís gone now - refunded to you through tax rebates and tax cuts.

Your contributions go to support those receiving Social Security and aren't set aside somewhere. Someday, if you receive Social Security, those making contributions then will pay for it.

Eventually, the burden on those contributing to Social Security will increase with the graying of the post-World War II generation, as payments exceed contributions. In theory, Social Security contributions will have to go up. To make matters worse, the Bush administration intends to force a crisis so severe it can only be solved by radical changes to Social Security, as part of its effort toward privatization.

That would sound as if, yes, we need a plan to change Social Security, partly because of a real need and partly because of an engineered need. So hereís a plan weíll call the self-reliance model.

Legislation should be introduced to phase out Social Security. Republicans should take the lead here, since privatization of government functions is their bailiwick. Payments to recipients should be incrementally cut during the next 20 years until they receive nothing.

Next, gradually increase the age at which people can begin to receive Social Security. Hereís a proposed schedule. Raise it to age 67 in 2005, to 68 in 2007, 69 in 2009, 71 in 2011, 73 in 2013, and 75 in 2015. In 2022, thatís it. No more Social Security payments to anyone.

Trim in stages the amounts people pay in Social Security tax. Currently itís at 6.7 percent. Reduce it to 5 percent, then 4 percent, and so on until itís zero percent. Bring back the income tax deduction for IRA deposits in banks.. The federal government should insure each individual IRA account in banks up to $10,000,000, rather than the paltry $100,000 they do now.

Increase the annual tax-deductible amount for deposits into bank IRA accounts to $25,000 annually. Payroll deductions could be electronically deposited in IRA accounts instead of 401k plans. Usually the amount for an individualís annual IRA contribution is $2,000 (tax deductible or not, this year is an exception at $3,500). At one time all contributions to IRA accounts were tax deductible, so we can do that again. Eliminate the requirement to start withdrawals no later than age 69 and half. You can start withdrawals anytime after age 60 and as late as you want. Continue to allow the option to put your retirement future in the stock market, however foolish that seems at the moment. The key points are restoring the tax deductions for IRA deposits and increasing government insurance for your IRA accounts. If you live to 120 as it stands now, you will always draw your Social Security checks. It used to be social SECURITY; now with the new way - the Bush way - it will be a bank account. If you have a lengthy old age and outlive your money, thatís the price of self-reliance. You could, of course, work until you are 70 or 80 just to be safe.

Although retirement has been an enormous struggle for many since, well since Adam retired, clearly, with the self-reliance model, itís necessary to ignore the fact that retirement will remain a struggle. If youíre a regular working stiff and can't manage to bank millions, you have your pride in your self-reliance to comfort you through retirement.

The alternative is to recognize that a crisis is being manufactured, address the problem, and come up with a solution.

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