Reinventing Social Security (continued)
I blogged some thoughts on this topic in late November. My thinking on this subject hasn’t changed at all since then. But news is starting to leak out on what exactly Bush and his friends in congress have in mind. So we have more information to talk about in the blog world, which is always a good thing.
My dad sent me an email this morning with his thoughts on the topic. I replied back with mine. Then he replied to my email with some more thoughts and ended by saying that we don’t need to start a "running dialog" on the topic.
Well, maybe my dad and I don’t need a running dialog on the topic since we tend to agree on what needs to be done. And he’s a lifelong republican and I am a lifelong democrat. And one of the things we agree on is the lifelong republicans and democrats in congress are unlikely to reach agreement as easily as he and I did.
It seems to me that we do need to put the ponzi scheme we’ve had in place for 70 years to an end. Each generation should pay for their own retirement, not their parent’s retirement.
It also seems to me that we must honor the "contract" we have in place with the existing beneficiaries and soon to be benificiaries to pay the benefits they were promised and worked for years to earn.
And finally, it seems to me that expecting the average social security taxpayer to know exactly the best way to invest in their own retirement is unrealistic. There needs to be some kind of system in place that safeguards the money so it is invested wisely.
My dad had two suggestions to me that I liked.
The first was to phase in the personal savings accounts gradually over time. For example, you could start with 10% of the social security tax going to personal accounts, and raise it by 1-2% per year until the whole amount, or close to it, goes into personal accounts 50 to 100 years from now. You could phase out the defined benefit on the same timetable so nobody gets adversely affected.
The second was to limit personal savings accounts to "safe investments". One way to do that would be to limit the investments to government securities or government-backed securities. I think you could be more agressive than that and include equities for up to half the value of the account, as long as the equities are index funds or some other highly diversified and relatively conservative approach. I don’t see why highly diversified real estate investment trusts and mortgage backed securities couldn’t be part of the mix too.
As usually happens in government, the politics of this issue will certainly get in the way of doing the reasonable thing. The democrats have a lot to gain and very little to lose by pandering to the public’s anxiety over changing the current system. And they also have little to no incentive to give the republicans any political cover by voting for social security reform. So the republicans are going to have to get all the votes for this on their side of the aisle. And that means getting the hard core to vote for this. Which means being much more agressive about phasing in personal savings accounts than is fiscally responsible and probably also means less control over where the personal investment accounts can be invested.
If the climate wasn’t so poisoned in Washington, I might be more optimistic about one of the few initiatives in Bush’s agenda that I can get excited about. But I’m not too hopeful about a good outcome here, despite the obvious path that this thing has to take.