Even Bush admits that private accounts won't solve the revenue shortfall.

When you weigh the consequences of borrowing trillions of dollars to fund SS, the cost of higher interest rates and currency devaluation could easily exceed the economic cost of higher taxes and/or benefit cuts.

Additionally, with Bush's plan people receive benefit cuts on the amount of their SS taxes that stay in the traditional SS, so in some cases, some people could receive less benefits and it's not a stretch to say that it's a "covert tax" that would be used to pay back the money the Govt. owes to the SS system.

In order to reduce risk, Investment options in this plan will be very limited and the chances of significant returns that exceed those you could get with SS funds invested in T-Bills isn't particularly great.

When you "retire" you're required to purchase an annuity from the Govt, which would pay you enough to ensure you stay above the poverty line. This is good and bad, it's bad becasue you don't get all the cash like you would with current tax deferred retirement options AND because you forfeit all principal remaining in an annuity when you die.

This means that for a lot of people, the money would end up in Govt. hands anyway. Bush has said that your heirs get the money when you die, but you can't inherit an annuity.

This plan is more about private ownership than getting a better return per se, as multiple states (Notably Nebraska - Bush's plan is very much based on Nebraska's) have used private accounts as part of state pension plans and the results have been mixed at best.

Another thing to consider, is that Bush's plan is nearly identical to the one adopted in the UK a plan that has failed miserably and most people don't even bother using anymore.

If Washington is truly serious about SS Reform, they would work to redesign the system in a way that, involved a mixture of benefit cuts, ADDING private accounts and small tax increases.

Our currency is already facing a lot of devaluation pressures, borrowing 1 Trillion (just in the short to medium term) to fund Bush's plan will make it worse, particularly when the long-term fundamentals are against the dollar anyway.

E.g. It doesn't make sense to use a plan that doesn't solve the revenue shortfall and will provide our retirees with dollars of lesser value.

If I were in Washington I would restructure SS as follows:

-Create a national 401k, similar to Canada's RRSP that people can elect to participate in via a direct tax deduction. In order to facilitate free market competition in terms of management rates and Investment options, each citizen can elect their own provider to manage the account for them. I would limit risk by only allowing a small % of the money to be used in the open stock market, with the rest in low risk mutual funds.

-As an addition to the above, I would raise the limits on 401ks and IRAs.

-I would raise the limit on how much of one's income is subject to SS taxes, the Govt. has been slowly doing this already but since it only impacts about 10% of the population few people are aware of it. In 2000 it was $75k and now it's around $81k.

Thing is, it's only $372 per citizen with another $372 tacked on my their employer. Money that's hardly missed by that portion of the populace.

I would gradually raise it to minimize economic impact.

I would also roll back benefits on higher earning citizens, again, slightly and have it based on your net worth + income at retirement.

Of course, some of the things I propose would have a taxation impact as far as less tax being collected due to the new Private Accounts and higher limits on 401ks and IRAs. I would seek to minimize this via reducing the amount of ways affluent people and corporations can duck Taxes AND by changing the way taxes are caclulated for Married Couples:

At the moment, a married couple with a joint income of $56k pays 15% as their top marginal tax rate, whilst a single person pays 25%.

I think that for certain brackets things need to be evened out between married people and non-married couples who live together. You shouldn't be taxed for not being married.

I'm not saying the married couple should pay 25%, just push things towards the middle.

With most couples being married, this should bring a lot of revenue - add a tax increase or those in the top 5% as well, a small one should do it.



Peace,











M2

The Blog: http://www.analyticalwealth.com/

An assassin’s life is never easy. Still, it beats being an assassin’s target.

Enjoy your money, but live below your means, lest you become a 70-yr old Wal-Mart Greeter.