1/26 I don't think everyone understands this yet, so I'll make sure.
You know the 6.2% social security tax you pay every year (and
the matching 6.2% paid by your employer)? All of it goes directly
to people receiving social security checks today. It does not in
go into any "private account" for you. Instead, the government
tracks how much money you make over your life. Once you hit 67, you
start getting social security checks. The size of each check
will be somewhat proportional to how much you made over your life.
But this number is very progressive -- that is, people who made
a lot of money get a much smaller proportion of how much they
made, compared to people who made a small amount of money during
their life.
Once again, the current generation pays money directly to the
old generation.
What happens when you have "private accounts"? Well, everyone gets
a private account now. You are paying yourself, not other people.
However, the old people today still need their social security
checks. So who pays for it? The government! It takes out huge
loans to pay money to old people, since all the young people are now
saving for themselves instead of paying old people.
Now, it's not a 100% transition to private accounts. At the
beginning, it will be a 1/3 transition. So 4.2% tax goes to
the old system (paying old people), and 2% goes to yourself (your
private account).
\_ Where did you get 6.2? I pay 7.65% (as does my employer).
\_ Medicare is 1.45%. 6.2% is social security tax.
\_ But where does the government money come from? Taxes. Collected
the same way the money would be collected under the current system.
Right? Am I missing something?
\_ I don't understand your question.
\_ You are missing someting. If an individual goes the PRA route,
they will stop paying SS taxes and in stead pay a (regulated)
amount into their PRA. The government is now missing the payroll
taxes for this person but still has to pay for current SS
beneficiaries. To make up this missing money the government must
either raise taxes or run a (larger) defecit. The person who got
a PRA is paying X-dollars less in taxes but being forced to
invest X-dollars into their PRA.
You will see your payroll tax be replaced with a enforced PRA
contribution. That money must be made up with new taxes or a
defecit (future taxes).
\_ While you're contemplating this, please also ask yourself the
following questions.. Is an average American capable of making
reasonably good investment decisions for his/her private account? If
\_ You presume that there will be a choice.
not, then do you think you would trust the government to do that for
you? What about mutual funds? Where is the guarantee that whatever
gains you get from the higher stock market returns will not be
skimmed by those firms as administrative fees? What will happen to
the financial markets around the world as trillions of dollars from
the private accounts will start being poured into them? What will
happen to the world economy and the US economy in particular if the
US government tries to borrow trillions of dollars that are
necessary to implement the transition? Have you seen a country that
has successfully privitized their social security system?
\_ Solution is simple. Holders of the PRA are only allowed to
invest in T-bills. The rate of return is still better.
\_ The problem is that with financial industry lobbying you know
that regulation won't last for long. If you think they'll let
themselves miss out on this avalance of financial-services
business you'd be deluded. What about people (like me) who
think that with our current-account defecit T-bills are not
a terribly safe investment?
\_ You investing in T-bills is likely as safe as the SSA
investing in T-bills for you. Would limiting investments
to T-bills resolve the pp's concern for the lack of
security for PRA funds? I am trying to figure out if the
sensitivity is over the security of the investment or
something else.
\_ It may be as safe an investment, but it destroys the
system. Is that where your sensitivity is? Do you
want the system gone?
\_ We all understand this. SS does not need to be privatized, but
it needs the ability to invest better. Imagine if that massive
surplus has been invested in something other than navel lint.
\_ Why? What's wrong with treasuries?
\_ can I just opt out of the whole system? Where's my freedom to do
that? Don't send me checks, don't make me pay into it...
\_ It's part of living here. Don't like it? Move somewhere else.
\_ The social contract is that you get to live in a country where
old people get medical care and don't starve to death living on
the streets. In return, you must pay payroll taxes.
\_ The law allows that if you become Amish.
\_ Why do I have to pay for freeways even though I don't have
a car? Why do I have to pay for the police even though
I don't commit crimes?
\_ And why is there an income cap for SS tax?
\_ Do you mean, why is it that if I make $200K/year, I only pay
6.2% of $90K?
\_ Exactly. Why make any income exempt?
\_ I think it's because they want social security to be
progressive, but not THAT progressive. In fact, one of
the remedies toward fixing social security is to raise the
the amount taxable, while keeping the maximum social
security check amounts lower in proportion or the same.
\_ SS is regressive, at least when taxed.
\_ The payout is much more progressive, outweighing
what you put in. |
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