Reforming Social Security – It’s about Choice

One of the most controversial topics and the one issue that many politicians do not want to talk about let alone think about it. The cowardice of Congress to seriously deal with this issue has created a situation where the “head in the sand” philosophy will no longer work. This issue must be addressed head on and American must be told the truth from those whom we have placed with this trust, because that trust has been broken.

Many Americans of my generation and those coming behind me realize that Social Security as we know it is not going to be there when we reach retirement age. The simple fact that mathematics is now quickly catching up and the failure of reforming the program 20 years ago has caused this problem. So what do we do? With most Americans not saving and the average American spends 117% of there income, what can be done?

There are few proposals out there from Democrats and Republicans; even those are vague and do not address the root cause of the problem. There is one solution that will work.

Michael Tanner from the CATO Institute is the Director of Social Security Choice and he proposed the idea of the 6.2% Solution in 2004. With his permission I am integrating his proposal as a part of my Campaign Platform.

He writes:

“For the past several years there has been a growing consensus about the need to reform Social Security. Now, however, the debate has advanced to the point where it becomes important to move beyond generalities and provide specific proposals for transforming Social Security to a system of individual accounts. The Cato Project on Social Security Choice, therefore, has developed a proposal to give workers ownership of and control over their retirement funds.

Under this proposal:

  • Individuals would be allowed to divert their half (6.2 percentage points) of the payroll tax to individually owned, privately invested accounts. Those who chose to do so would agree to forgo all future accrual of retirement benefits under the traditional Social Security system.
  • The remaining 6.2 percentage points of payroll taxes would be used to pay transition costs and to fund disability and survivors’ benefits.
  • Workers who chose the individual account option would receive a “recognition bond” based on the accrued value of their lifetime-to-date benefits. Those bonds, redeemable at the worker’s retirement, would be fully tradable in secondary markets.
  • Those who wished to remain in the traditional Social Security system would be free to do so, accepting a level of benefits payable with the current level of revenue.

We expect this plan to restore Social Security to long-term and sustainable solvency and to do so at a cost that is less than the cost of simply propping up the existing program. And it would do far more than that.

Younger workers who chose the individual account option would receive benefits substantially higher than those that could be paid under traditional Social Security. At the same time, the plan would treat women and minorities more fairly and allow low-income workers to accumulate real wealth.

Most important, this proposal would reduce Americans’ reliance on government and give individuals greater ownership of wealth, as well as responsibility for and control over their own lives. It would be a profound and significant increase in individual liberty.

The 6.2% Solution A Plan for Reforming Social Security Cato Social Security Choice Paper No 32

Original Post on CATO.

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