bloxy-moron

Social Security II: Privatize it?

Privatizing Social Security (SS) is a major waffle issue for me.  On the one hand, I believe in the market and think that it would be an efficient way to bolster retirement returns.

On the other hand, I find it extremely scary giving the government   power in investing capital in the free market system.  There are countless ethical questions that could be raised of how stocks/funds are invested.  Could the feds go after Enron knowing that retirement funds that they are responsible for could come crashing down?  There are many other well documented and valid points against privatization but that is not my point here.

I have two ideas of how to privatize SS.  My first idea is very simple.  Have the government give a dollar for dollar refund for the first $1000 given to an IRA.  This would privatize a part of SS but it would take away the government control of the investments.  If a person can not afford to put in a $1000 into an IRA and wait for their income tax return,  then they could set up the IRA and the feds could send the check directly to the bank or broker.  There could also be a %100 tax penalty for early withdraw.

Basically this system would give free money to everyone to invest however they like and there would be very little overhead and new bureaucracy at the Fed level.  This would force people to set up IRAs and then they may be more likely to contribute to them with their own funds.

Second idea was borrowed from an editorial I read in Business Week.  It said we should privatize part of SS, but instead of funding it by borrowing from SS.  We should fund it by raising the top income bracket back up to where it was prior to Bush's cuts.  At first thought, I am naturally against raising taxes to fund programs.  But since this money would go directly back into the economy through private investment, I don't see this tax hike hurting the economy. 

I see the combination of taking the investing out of the government's hands, funding from outside of SS, and need based payments could potentially secure SS and also take care of our retirement needs better.  In the 30 years with the privatized IRAs, retirees would not need as big a SS payment and therefore it would have less chance of bankruptcy.

My Plan for Social Security Reform

This is a post of why the libertarian in my believes we should fix the Social Security(SS) problem by not giving benefits to everyone.  Privatized SS will be a post for another day.

After reading Tax Shift, I firmly believe SS is the worst form of tax.  First it taxes income or productivity and secondly and it is regressive. If you make over a certain dollar amount, you don't have to pay SS.  This means it is a tax on the poor and middle class only. 

Let me take a step back though.  Yes SS is a tax!  It is not a retirement plan.  There is no guarantee that a person will get back what the put into it.  Therefore it is a tax!

I don't think that the premise of SS is all bad.  It is not realistic to think that all people will retire and still have an income that will support them.  Or if a breadwinner dies or is injured, then will be able to support a family.  So some type of social security net is necessary.  SS is what we have now and I am proposing how it might work better.  There are surely better systems to solve this problem, but that is not the point of this post.

There are two parts of the SS system.  One is collecting funds and second is distributing the funds.  It is a simple system and it will fail when funds distributed are greater than funds collected.  My first proposal is that all workers pay into SS.  This way the tax is no longer regressive. 

Secondly after lots of thought, I think payouts should become need based.  I think everyone who pays in should be guaranteed a fixed amount of monthly income, say $2000.  If a person has another retirement plan, then they may not receive all or any SS benefit.  If you have plan that pays you $1500 a month then maybe you will only collect $1200 in SS.  Or if your plan pays you over $4000 a month then you don't collect any benefit.

At first thought, this may seem unfair.  "I payed money into SS my whole working life so I deserve to receive a benefit!"  Well, the libertarian in me says wait "Do I want to depend on the government for retirement income?"  Hell no!  So, I would rather not receive benefits (unless something tragic happens to me of course).  So given the choice, I would prefer paying a smaller SS tax and not receiving benefits then paying a bigger tax and receiving them.  Because, this is the option.  It is a simple system either collect more or payout less.  I opt for payout less and I will attempt to save for my own retirement.

Tax Shift book review

I have finally finished reading Tax Shift and my First Blogging Success turned out to be everything I expected.  This book was very insightful with tons of research. I am convinced that most of the ideas in the book should implemented ASAP. Tax Shift is one of those extremely hard books to review because it is quite short (90 pages of text with an appendix and 15 pages of notes and references) and very dense.  So if I were to hit on all of the interesting points, I would end up rewriting the book.

Here is a quote from the book that wraps it up nicely:

"Tax shifts pursue liberal ends, such as ecological restoration and a living wage, by conservative means, such as relying on free markets and rewarding enterprise"

Tax Shift was written / sponsored by the Northwest Environment Watch so it concentrates on the economies of Wash, Or, BC, and Idaho with a smidgen of Cal and Alaska.  But, it's ideas could be used globally. 

The basic idea of the book is that income and business taxes hurt the economy by taxing production, but the use of natural resources is not taxed heavily.  So by shifting taxes away from production and towards resources, both the economy and the environment would be helped.  Companies like Microsoft or Boeing would not have to pay taxes but companies like Weyerhaeuser would have to pay more taxes.  This would attract companies that produce intellectual products.  As consumers, some products would become cheaper and some would become more expensive. Everyone would benefit from an improved economy and environment.

The book starts by rating the different types of taxes based on the following criteria: economy (hurt or help), equity, environment, and ease of administration. Basically all of our current taxes got bad grades and should be replaced. 

Next the book looks at the history of the different types of taxes.  I found this very interesting as most of our taxes where pushed onto us under extreme circumstances and it is very difficult to make tax changes.

Finally most of the book looks at what should be taxed.  These things include farms ( seems risky but is well explained), cars, construction, urban sprawl, energy, and natural resources.  There is substantial research on the revenue that would be collected and the consequences of these taxes.  An interesting point that was made is that companies that are charged with the new taxes may not be opposed and may benefit from them.  If a resource depleting company currently makes efforts to be environmentally friendly, then they will have an advantage over other companies that aren't as friendly.

I recommend anyone who is interested in taxes or the environment to read this book. It is short and is free to download!   In the future, I look forward to debate on some of the specifics that are written about in Tax shift.

National Sales Tax

Here is a response to this post on the issue of a nation sales tax:
http://www.economicswithaface.com/weblog/archives/2004/11/a_national_sale.html

I like Peter's argument because I personally think consumption and not work should be taxed.  I appreciate that he didn't use the "progressive income is unfair" argument.  I feel saying it is unfair that wealthy people pay more taxes is ridiculous.  Life is not fair and that is why some people have more opportunities to wealth than other people.  I also agree/acknowledge that sales tax will (unless creatively implemented)  put a higher tax burden on the less wealthy. 

Although I personally prefer a consumption tax, I am not entirely convinced that it is better economically.  Take the sports car example.  Buying a fancy car is not just burning money (well OK for me it is).  The car requires gas, servicing, insurance, etc.  Buying a car like many purchases forces the consumer to support many other economic institutions. 

Another perspective.  As a president of a company, would I rather have a product that is appealing to consumers or would I rather have a business plan that is appealing to investors?  Obviously both are needed but my "no business experience" tells me that I would rather go after the consumer's money and a successful product would attract the investor's money.  So my point is that maybe consumers are more important than investors to businesses and therefore taxes should not hinder consumption.

What I really think in a nutshell is that income/investments should not be taxed.  Instead inheritance should be taxed very heavily (90% after the first mill maybe).  Also luxury items should be taxed.  So a person should be given the chance to create as much wealth as possible but on their death most of it should go back to society in the form of taxes and charity. I will most likely expand on these ideas in the future.