Thank your lucky stars that the advocates for Social Security reform have lost the battle. Their attempt to tamper with the largest government program in the world would have subjected all Americans to a risky scheme and the unbearable costs of two oddball ideas that started to go out of style about 40 years ago: individual choice and personal responsibility.
With reformers' misguided efforts now behind us, proponents of the government's rightful role in shielding us from risk shouldbask in their success. They have protectedeach of us from ourselves.
Their victory, however, doesn't mean thatSocial Security's financial challenges areover. It does mean that we now know betterhow they will be met, and it gives us an opportunityto explore how best to employ thegovernment to meet additional challenges.
Starting around 2017, and for the indefinitefuture, the payroll tax will be less thanprojected benefits. This year only $90,000of wages is subject to the payroll tax rate of12.4%. This means that an average-incomefamily has all of its wages taxed, but the richfamily doesn't. The wealthy should have allof its wages taxed and contribute more to society'sneeds.
Bad economics? No way; it is part of ourculture as evidenced by the income taxwherein we take more from those accordingto their abilities and give more to thoseaccording to their needs.
Taxing the rich more is actually pretty cleverbecause they don't need all of their income,though they surely want it. Thismeans that they'll work even harder if theirtaxes are raised so they can continue to shoptill they drop. For the greater good, the government oughtto mine this field.
These new revenues, plus the near-termpositive cash flow, should be invested in ourcapital markets to garner the higher returnsthat the reformers rightly understood. However,the owner of the assets should be thegovernment.
This makes sense on several levels. First,the government could spread the risk inherentin capital markets across age and income groups.That is, when the market doeswell, the government would pay retireesless and save the excess for a rainy day.
All retirees, therefore, would get equal benefitsno matter what the market did or whatthey paid in. And the rich — well, they would pay more during their working years.
This would level the playing field and promoteequality of results by making the richpoorer. This neat outcome can't be accomplishedif individuals owned the assets, becausesome people would retire when themarket is in the doldrums and get less thanthose who cashed out at a market top.
Different outcomes caused solely bychance should be illegal. Thismayappear torun counter to state-run lotteries, whereinby chance alone somebody wins a millionbucks, but it isn't. The state uses lottery revenuesfor higher causes, ones that individualscan't appreciate and wouldn't support.
With the trillions in assets that eventuallywould accumulate, the state could favor certaingroups for the benefit of social solidarity.For instance, if the fund's assets were toexceed projected benefits, the governmentcould allocate a small portion to those whohave special needs. Politicians in Washingtonare in the best position to know whothese people are and, therefore, they, notwe, should make these choices.
With the owning of stocks and bonds inAmerican companies, the government finallywould be able to sit in the corporate driver'sseat. We have all heard of the Enrons,selfish CEOs and how managements havefailed. Only the power of the government,with its enlightened understanding of whatis best for society, would be able to put anendto all of this.
Those of us who would still own somestocks and bonds would thus get better protectionagainst loss from poor corporate governance.
Also, the government could direct managementstrategy. It is virtually impossible forthe management of a corporation, even alarge one, to have access to all informationwithin the government. It makes perfect sense to leverage this trove of knowledge byrequiring management to follow governmentdictates. This would benefit all stockholders and society as well.
With the government owning vastamounts of corporate America, it would bea formidable negotiator. For instance, itwould get the lowest fees for asset management,custody and the recordkeeping necessaryto pay the appropriate amount to eachretiree. Imagine what these fees would be ifindividuals controlled and had personalproperty rights over their assets.
Although its fees would be lower, the financialservices industry would benefit in otherways. For instance, it would need to targetfewer prospects because most of the assetswould eventually be controlled out of Washington.Marketing, distribution and travelcosts would tumble.
Also, the government may be interested instrictly limited investment strategies suchas indexed funds. Investment firms couldtherefore dramatically reduce portfoliomanagement overhead.
One of the selling points for Social Securityreform with individual accounts and personalproperty rights was that individualscould bequeath some of their accumulatedwealth to their loved ones. This can be accomplishedmore efficiently through government ownership and control.
There is no need, nor is it fair or appropriate,for a wealthy individual to bequeath assetsto his loved ones — who in their ownright are probably well off.
The government, which has informationon everybody's income and wealth, couldbetter allocate any excesses to those who itdetermines should receive them. Thiswould really take the sting out of the rich begettingthe rich.
With the Social Security reformers' defeat,society dodged a howitzer. We can nowmove more aggressively toward after-tax income equality,equal retirement benefits forall, a narrowing of the gap between rich andpoor and, most important, an expanded rolefor compassionate government so that eachof us is protected from risk, ourselves andthe dire consequences of individual choiceandpersonal responsibility.
Why didn't I think of this?