January 17, 2005
SAVING DIDDLY-SQUAT
You can expect to hear a great deal of hot air over the coming months about Social Security. What you probably wonít hear is a simple plan to change the system in order to boost the personal savings of the average worker while also protecting Social Security. Read to hear the plan? Okay, but first this.
One of the major goals of reforming Social Security, according to the Bush Administration, is to get U.S. taxpayers to save more money. Unfortunately, the Administrationís proposal to privatize a portion of Social Security wonít help Americans save diddly-squat.
The problems facing Social Security are real. U.S. citizens are saving almost nothing. This means that a lot of us wonít be ready for retirement. The Bush Administrationís solutions are new tax-favored savings accounts, similar to IRAs and 401ks, but bigger, along with private accounts in which workers can invest part of their Social Security deductions. And, of course, more tax cuts on income from investments, i.e., more tax cuts for the wealthy. But none of these will help. What they will do is enlarge the federal budget deficit-ñwhich is already massively huge. If individuals save more but the government goes deeper into deficit, itís a wash.
And thereís a second flaw. Bush's proposals assume that the typical U.S. taxpayer will in fact save more if given a tax incentive to do so. But thatís very doubtful. Tax subsidies for retirement accounts increased over the past four years, but during that same time personal savings dropped. Thatís because wages haven't increased-ñwhile the costs of living, complete with things like health insurance, gas, and food, have soared. In other words, the real reason most Americans havenít saved is because their paychecks havenít grown; yet their bills have.
Ready for that solution I promised? Here it is:
Exempt the first $10,000 of income from payroll taxes-ñso long as $1,240.00 is saved by each person (thatís the payroll tax-ñ12.4 percent, contributed equally by employers and employees)--and then make up the loss to the Social Security system by raising the ceiling on earnings now subject to the payroll tax. (This year, that ceiling is around $90,000.00)
There it is...a simple and equitable way to increase savings, while reforming Social Security. A lot better, I think, than rewarding publicly-held companies for their ruthless pursuit of increasing shareholder value by cutting costs, i.e., laying off employees, and increasing prices soon thereafter.
Posted by Mikal at January 17, 2005 8:48 AM
| TrackBack
Bushís plan is nothing but smoke and mirrors. I believe that in the long run it will cost more than fixing SS for the very reasons that you state. But I would like to add one other ìfixî and that is payout based on need, roll back on the amount that you get based on your retirement income.
I am 56 years old with 26 years with the ìcompanyî and I am getting very nervous about my retirement. My fellow engineers that I have worked with are getting laid off and are not finding jobs that make anything near to what they were making. A friend, who was laid off with 28 years with the company, with BSEE and a MBA and was a project manager for multimillion dollar construction projects, is now working at a home improvement store checking you receipts as you leave the store.
The other trend that I am worrying about is the cutting of retirement health benefits. We keep on getting these e-mails from Human Resources saying about how other companies are cutting their retirement health benefits and that we should be happy with the benefits that we have. This is the same method that they used when they announced that they were doing away with pension plan and offering us 401Kís instead.
Yes, Bushís plan will be nothing but a windfall for the brokerage houses.
