The $1 trillion budget recently approved by Congress included only minor cuts to discretionary spending, but did nothing to address the programs that account for the lion's share of federal spending. This week I sent Idaho Rep. Raul Labrador a proposal to phase out social security within about thirty years. I'm sure my suggestions will be viewed as radical because they are outside the frame of reference for most generations of Americans. But that is precisely the point: We have been duped into the socialist mentality that the "nanny state" should invest a portion of our earnings and "help" us plan for our retirement! No, "Uncle Sam," you do not know what is best. American citizens are perfectly capable of making financial decisions to save for retirement and choosing private investment options for those savings.
As you read my proposal, consider how you might have preferred to invest 7% of your income throughout your lifetime. (That is the approximate percentage of social security taxation, plus a comparable match made by employers.) Maybe that 7% would have gone toward retirement, or maybe you have other retirement savings and would have used that money to avoid debt such as a mortgage, car loan, or student loan.
I believe Social Security should be entirely phased out, because the premise of Social Security is fundamentally flawed on four counts:
- It incorrectly assumes a "right" to retirement.
- It is based on an economically unsustainable principle of annuity/pension payments for life.
- It is not an enumerated power of the federal government to tax citizens and employers and put those monies into forced retirement savings accounts.
- The savings earned for retirement are forfeited if the person dies before retirement age, with no provision for full payment to the beneficiary's heirs.
Social Security incorrectly assumes a "right" to retirement. Prior to the past few decades, most people in our country (and certainly around the world) accepted that they would work until they died, unless they possessed the financial means to "retire." Retirement was something to be earned and saved for. Person who did not have the means to "retire" either had to continue to work or move in with family members (elderly parents used to live with and be cared for by their grown children). The federal government has taken over "retirement planning" when that ought to be the responsibility of individuals and families.
Social Security is based on an economically unsustainable principle of annuity/pension payments for life. Social Security calculates a monthly payment based on a person's individual (or spousal) lifetime earnings and social security contributions. However, there is no guarantee that the recipient will receive only the contributions he and his employer made, plus interest; the citizen may receive more than they contributed, or less (see #4 below). Rather than pay out only what was "invested" by the federal government on the citizen's behalf, social security operates in a fantasy land of lifetime payment calculations with periodic adjustments for inflation. This is unsustainable economics! No life insurance company would (or could) operate this way. (This is also a flaw of federal, state, and city government pension funds - many of these government entities face bankruptcy as a result.)
It is not an enumerated power of the federal government to tax citizens and employers and put those monies into forced retirement savings accounts. The Constitution is utterly silent on the topic of federal retirement planning for its citizens. (As I noted in #1 above, the concept of "retirement" was probably unheard of in the Founding Father's era.) All powers not specifically entrusted to the federal government are reserved to the states and the people. In this case, it is clear that the people should be responsible for their own financial management, not the federal government or the states.
The savings earned for retirement are forfeited if the person dies before retirement age, with no provision for full payment to the beneficiary's heirs. This flaw is linked to #2 above. In some cases, the citizen dies before reaching social security benefits "age" and no one in the family receives benefits. This is theft, for the citizen contributed to Social Security throughout his working years and those citizen and employer contributions, plus interest, should pass to his heirs.
Having established the need to abolish Social Security, the remaining dilemma is how to phase it out?
The measures I suggest would:
- move most retirement assets management from the public sector to the private sector, stimulating the financial management sector of the economy;
- greatly reduce the staff and scope of Social Security administrative functions, phasing the agency out entirely within 30 years;
- reduce employer and IRS staff obligations to collect social security taxes;
- maintain benefits for current recipients and those approaching social security retirement age (should they elect to participate in social security);
- ensure retirement savings are received by the contributor and his or her heirs, if the beneficiary dies before retirement age; and
- eliminate "payments for life," instead providing payments that reflect the amount of money actually in the person's social security account, with projected interest.
Here are my specific solutions:
- Continue to provide current social security (SS) retirement benefits recipients with monthly benefits according to the "contract" specified when they enrolled for benefits (including survivor benefits). In lieu of annual cost of living increases (COLAs), (1) provide annual lump sum dividend payments based on that year's interest earnings in the aggregate of the retirement recipients' SS accounts, with earnings shared among enrollees (as for mutual fund or insurance dividends); or, (2) keep those earnings invested to ensure there will be enough funding for current recipients and their survivors who are entitled to benefits.
- For SS enrollees approaching retirement age (age 60+?), provide the citizen with one of three options. Allowing a choice of distribution options acknowledges that citizens of this age are in their last years of spending their financial resources, and should be trusted to make their own decisions for how those resources will be used. (1) A fixed payment monthly retirement annuity for 10, 15, or 20 years (no COLA or dividend payments), to be projected based on the citizen's actual account holdings at retirement. The citizen would make the judgment about the length of annuity payment desired (e.g., higher payments for 10 years or lower payments for 20 years). A primary and secondary beneficiary would be designated to receive any remaining account assets should the retiree die before the last annuity payment date. (2) A lump sum payout of all citizen contributions and employer matching contributions with accrued interest, for the retiree to manage as he or she sees fit. That lump sum can be used to pay off a mortgage, given to the citizen's heirs as an inheritance, used to buy a business, put into a long term health care savings account, etc. (3) A lump sum payout into an IRA or other retirement plan, thus preserving the accrued assets for retirement purposes, but moving the assets to the private sector and placing the burden of financial management on the citizen.
- For persons ages 20 and under, issue an immediate lump sum pay-off of all social security contributions made to date. That lump sum should be theirs to use to pay for college, buy a vehicle, save for a house down payment, put into an IRA, buy a business, etc. Assuming these high school and college youth earn $3,000-5,000 per year, 15% of this amount would be $450-$750 per person per year worked. This is a small investment to make to free this generation to plan for their own retirement without government interference. The government will save far more than this in reducing the Social Security Administration (SSA) staff associated with managing these young citizens' SS accounts for a lifetime.
- For persons ages 21-59, roll over into an IRA all citizen and employer contributions that have been made to the beneficiary's account (with accrued interest).
- Implement a gradual pay-out to recipients under Categories B, C, and D above to spread out the Social Security Administration workload and the financial impact to the federal government. A specified percentage of citizens a week could be contacted for their payout option based on random selection of social security numbers for citizens in the affected age category. How many per week would be based on the total number of citizens with a social security account, and how quickly the total phase-out of SS is desired. For example, if there are 100 million Category B, C, or D enrollees, that would be 192,308 "conversions" to private investment per week over a 10-year period. That may seem like a monumental task, but how many social security checks are presently issued each month by the SSA? Those monthly checks would now only be issued to Category A and Category B, Option 1 recipients.
- Encourage working citizens age 18 and older to save for retirement by amending the retirement contributions deduction to apply to a much higher income bracket and increasing the annual allowable contributions to an IRA. The tax code could also be amended to encourage other types of retirement savings, such as 401(k) accounts. Allow parents to set up and make small ($500 per year?) after-tax retirement plan contributions to a minor's IRA account, to instill the mindset of saving early for retirement and allow parents to provide a future inheritance for their children in this manner.
- Eliminate taxes on social security benefits. This money was already taxed as income when it was earned! Furthermore, it is retirement benefits - not "income from whatever source derived!"
- Do not require employee or employer contributions to a retirement plan; leave that to the discretion of both individuals. Let the employer decide to offer retirement matching as part of a benefits plan, if he wants to. Let the employee decide if he has discretionary income to put toward retirement.
- Immediately revoke the Social Security tax!
For this plan to work, the current social security program must not be a PONZI scheme that requires perpetual taxation in order to fund future retirees. I sincerely hope that the program is sufficiently solvent to fund the lump sum payouts I recommend and thereby free workers and employers from the burden of government taxation and regulation brought on by decades of this misguided program.
The solutions to social security are not complicated, but they do require a new approach that adheres to the boundaries of both the Constitution and economic principles. The challenge is on for Congress to implement legislation to abolish social security rather than simply reforming it.
Evalyn Bennett is Secretary of the Lemhi County Tea Party in east-central Idaho. She wrote this article to express the viewpoint that social security is inconsistent with the Tea Party values of constitutionally limited government, fiscal responsibility, and free markets.Don't forget to Like Freedom Outpost on Facebook, Google Plus, & Twitter. You can also get Freedom Outpost delivered to your Amazon Kindle device here.