Social Security Goes into the Red in 2010 not 2018

by Dick McDonald - Ownership Society Institute

In 2010 the Congressional Budget Office has projected a $92 billion surplus of payroll tax receipts over Social Security benefits paid. That figure includes $120 billion in “non-cash” receipts of fictional interest paid on fictional US Bonds – a bookkeeping trick like Enron used to cover up Congress’s theft of over $4 trillion of excess payroll tax receipts it has been appropriating from Social Security since the early 80’s. See here.

http://finance.yahoo.com/focus-retirement/article/108747/next-in-line-for-a-bailout-social-security?mod=fidelity-readytoretire

That means that by September, 2010 the US Government will need a $28 billion cash infusion just to meet its Social Security obligations. So much for the age-old denial that Social Security isn’t broke. That it has unfulfilled promises of over $14 trillion in future benefits in excess of projected receipts. Similarly Medicare is in the tank for $93 trillion. The jig is up and the Democrats and RINOs have no where to go on this issue.

The real benefit to be gleaned from this is that Americans will seriously try to solve this problem by any means other than raising taxes and/or cutting benefits. Believe me Americans will insist on it. The baby boomers will demand their full benefits as they come on stream in the next 15 years and the kids will resort to violence if they are unfairly taxed because it will take 2 kids to support one retiree

President Obama has challenged the Republicans to come up with some ideas to solve the dilemma and the best they came up so far is Paul Ryan’s proposal to raise the retirement age to 70 years (benefit cut of major import), cut the Medicare benefits (benefit cut of major import) and allow a small portion of a worker’s payroll taxes be invested in a personal investment retirement account (step in the right direction).

The real tragedy is that current benefits don’t begin to cover retirement costs and trying to save these entitlements is merely rearranging the deck chairs on the titanic. What Americans want and will insist on is a re do of the funding of retirement costs so that more than the solvency of the government entitlement programs is achieved. Bush limited his Social Security reform to solving the solvency issue – Ryan appears to have limited his approach to solvency as well. There should be no limitations placed on what Americans can do in solving this issue.

We at the Ownership Society Institute (OSI) recommend these entitlement programs be scrapped with the proviso that the government guarantee that all benefits under them will be honored and form the floor under which no future benefits can ever fall.

In place of these programs we institute personal investment accounts we like to call “USAs” – Universal Savings Accounts. That into these accounts the entire 15.3% of payroll taxes presently sent to Congress will be redirected and immediately invested in the stock market for the 40-year working life of every taxpayer. The details of OSI’s plan are outlined here. It is called the Rise Up America plan.

In addition to solving the solvency issue RUA does the following:

· Generate the biggest tax cut in history

· Reduce the size of government by half

· Alleviate poverty and economically emancipate lower class citizens

· Infuse enormous sums directly into the economy and accelerate growth

· Eliminate the need for government pensions and Medicare

· Pay off $110 trillion of unfunded Social Security and Medicare liabilities

· Give back to Americans the money that they earn

· Increase the economic opportunities of all Americans

· Avoids Bankruptcies of cities, counties and states from pension liabilities

· Makes everyone a shareholder and responsible for oversight

· Reduces crimes especially those triggered by poverty

There a hundreds of other benefits of privatizing the entitlements but let’s leave it to a simple example.

The average American household makes over $50,000 a year and pays more than $7,500 in payroll taxes. Under RUA those taxes are placed into a USA and immediately invested in the stock market for 40 years. The $300,000 (40 years times $7,500 a year) grows into a $4,004,000 nest egg because of the magic of compounding. Just the annual income off that nest egg will generate a $33,000 a month retirement check – more than enough to support an affluent lifestyle.

RUA uses the principle of small government and takes away from government the responsibility to fund entitlements. It relies on the words of Alfred Einstein as everyone should. “The most powerful force in the universe is compound interest.”

All those concerns about such a sea change in the way the government does what its citizens will want is explained at www.riseupamerica.us including how to simultaneously fund the transition, place $1.3 trillion into the stock market annually, pay benefits under the old programs and miraculously enough increase the value of the US dollar. See here.