Structured Supplemental Retirement Security Savings
Social Security is not in crisis. It can be endlessly modified to adjust it to changed conditions. There is no reason why it can’t function for as long as this country exists. It’s a popular social program. It is also at the center of regressive taxation in America. And on that basis, progressives would be wise to consider ideas that could reinstitute generally more progressive taxation that would garner easy public support.
My idea is to jump off from the only component of the Bush sales pitch to destroy Social Security that was attractive to ordinary people. They did like the idea of seeing a personal account that would grow just like they imagine what those with investment accounts get. As they discovered that this was in lieu of and not in addition to Social Security and would be subject to the risk of the stock market, their enthusiasm waned.
The GOP thinktanks have gone back to the drawing boards in search of a new way to sell this bait and switch. GWB will be baaack on this one. The only thing left on his agenda that he has yet to accomplish (except for Iran, Venezuela and Cuba). The DLC will also be on us to privatize social security -- to steal another GOP initiative with the hope that it will do for Hillary or some other DLC Democrat what NAFTA did for Clinton. That will put liberals back on defense and we know how effective we’ve been on defense for the past few years, and how much NAFTA hurt Democrats with unions.
The basic pitch is that every American deserves to have a retirement nest egg. A nest egg that government and corporations can’t steal from. A nest egg that leaves no retiree behind.
1. Every adult wage earner will get a SSRSS account.
2. All wages and compensation will be subject to FICA tax, a portion of which will fund SSRSS.
3. Accounts will be managed by the Social Security Administration and participating SSRSS states.
4. Social Security benefits will not be changed.
I. What working Americans will get.
A. An annual account contribution based on age beginning with (adjusted at least every ten years):
1) 21 - 29: $500
2) 30 - 34: $750
3) 35-39: $1,000
4) 40-44: $1,250
5) 45-50: $1,500
6) 50-55: $1,750
7) 56-65: $2,000
B. Workers can match the contributions. Allowable contributions to IRA and 401K accounts will be decreased by the allowable SSRSS matching contribution.
C. Workers will define where their investments will go.
II. FICA collections
A. FICA tax rates will rise and fall to most nearly match collections to payments. The first order of business for each new session of Congress will be to authorize the rate for the two years beginning in two years. For example, the session of Congress convened January 2005 would authorize the rate beginning 1/1/07.*
B. All wages and compensation, excluding employer contributions for healthcare and deferred retirement plans up to a maximum of $10,000, will be subject to employee and employer FICA tax. This includes stock options.
>b>C. The employee and employer FICA tax rate on compensation in excess of 25 times the average income of all full time US workers will be 10% each. Congress will define the average income amount two years in advance as part of the SSI rate authorization bill.
A. The Social Security Administration will maintain the records of every account. Each account will disclose contributions, matches, how funds are held and income.
B. SSA will purchase US T-Bills for workers selecting that investment and transfer funds to State agencies participating in SSRSS for workers resident in that State and selecting this option. Federal auditors will review State plans and a combination of Federal and State auditors will review federal plans. State plans will be restricted to investments in public improvement bonds. No more than 50% of any bond issue may be purchased with public employee retirement and SSRSS funds. States are free to offer participants specific types of public improvement investment options such as: schools, roads and bridges, alternative energy, public housing, etc. State and municipal agencies must continue to purchase bond guarantees.
C. Congress may consider authorizing special purpose bonds to increase the range of choices for federal investments by workers. The red states can buy the Iraq Occupation bonds, and the blue states can buy the alternative energy investment bonds. (Yes, I know there would be no real difference in these bonds, but people like it better when they feel as if they can make a statement.)
A. SSA will handle and distribute as a supplement to Social Security payments. Disabled workers collecting SS may elect to receive early distributions. Workers can choose a ten, twenty or thirty year distribution schedule when first eligible for distributions.
B. Distributions will be tax free.
C. Account balances at death will transfer to the spouse’s account and if no surviving spouse, in equal shares to the accounts of surviving children. If there are surviving college age children collecting SSI, the surviving spouse or children if no surviving spouse may receive distributions for tuition and textbooks. If no surviving spouse or children, the worker may designate one or more recipients. All transferred funds will be subject to the conditions of the recipient’s account, except for the allowable educational distribution.
This is doable. The current annual FICA surplus will cover a large portion of the contributions to personal accounts. Expanding FICA to all forms of compensation and using FICA tax policy instead of a corporate income tax penalty for excessive executive salary will more than make up the necessary shortfall. Also note that income taxes will increase as income deferred into IRA and 401K accounts are reduced. It will force Congress and the POTUS to stop raiding Social Security funds to hide some of their fiscal mismanagement. The match will encourage savings by younger and poorer workers. States will benefit from those resident workers who want to invest locally. Everyone is a winner except for that small group of Americans who haven’t been paying their fair share and the investment community that has had fantasies of getting their hands on Social Security funds. This is one that GWB can’t steal because it contains nothing that would advance the GOP dream to destroy the New Deal. It expands the New Deal. And dammit, it might just get a few more million off their butts to show up at the polls and challenge all those “Culture of Life” folks to choose between their money or the life of a clump of cells.
* Beginning 2018, the Social Security trust fund balance shall be treated like a forty year annuity, and the annual annuity distribution will reduce the amount required to be collected through FICA taxes. The funds for the annuity payments shall be collected through a tax surcharge on the gross income of individuals in the top ten percent and a corporates (the details of which I haven't thought through). TBD if the surcharge is flat or progressive.