Reforming Social Security (why we must...)

From The Washington Times

From The Washington Times editorials, Page A20, Monday, December 20, 2004
Link here: Reforming Social Security

Some very relevant facts:

In 1945, 10 years after it was established, there were more than 40 workers contributing into a fund for each retiree receiving benefits. Initially, a 1 percent payroll tax paid by both employees and employers on the first $3,000 of annual wages financed the benefits. Gradually, the ratio of workers to beneficiaries declined, while the tax rate and tax base increased. By 1960, the workers-to-retiree ratio fell below 10, while the combined payroll tax increased to 6 percent.
Today, the workers-to-retiree ratio is less than 3.5, on its way to a projected 2.1 by 2030. Meanwhile, the combined payroll tax has steadily increased to 12.4 percent, while the wage base to which it applies now approaches $90,000. Social Security clearly has become far more expensive for those financing it. In fact, tens of millions of working-class and middle-class households today pay far more in Social Security taxes than they pay in income taxes.

... more at linked article

And there-in is why we MUST reform Social Security and do something about the looming problem.

Unfortunately, Social Security is yet another area (and a reason why the government should back away from the health care area as quickly as possible) where business saw the government step in and take over responsibility for society and has ever since opted to do away with more of their own responsibility in the area. To be clear, before government involved itself in providing for people's retirement there were many segments of the population that weren't covered by some employer paid for (or assisted) retirement plan, but there were also large amounts of people that were covered by their employer's retirement plans. Examples such as the automotive industry, IBM and other large companies, exist where companies had good retirement plans that took care of their employees needs.

Business saw, though, that the costs were high for these plans, and that the government would cover these same employees thanks to the blanket coverage of Social Security, and they opted to eliminate and reduce their own plans in the name of competition and cutting costs. As they've done away with their own plans, and/or replaced them with 401-K's and other newer plans, more and more people are living longer and longer lives (thanks perhaps to the pharmaceutical industry). This has been a deadly combination for the citizens that rely on Social Security.

We must do something about Social Security now, and I'm glad to see that consideration is being given to raising the caps on the income that is taxed for social security to perhaps fund some partial privatization of the program. Hopefully the government (under Bush administration's direction) will reform the program in a great and meaningful way that will save it for all.

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I think that Bush is on the right track on the Privitation of Social Security. Allowing the citizens the choice in what investments is right for them and allowing the freedom in taking a responsibility in the future of their payments will both stimulate the economy and allow a greater rate of return. One factor facing today's social security is that it's based upon the Index of The Treasury and that the pay out of it is secure it falls below the rate of inflation. This creates a situation where it will lose money over time.

By allowing the investment into the market will create the situation where your investment will yield a much greater rate of return then can ever be hoped to match by merely indexing it with the treasury. For instance creation of an index fund that mirrors the market. With an 8-10% rate of return we're talking about the doubling of the money in 8-10 years with compounding returns. By simply using the market forces Social Security will be saved.

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