You either hate George W. Bush or you love him. You either think Bill Clinton was a great president or the worst thing that ever happened to the United States of America. You're either Democrat or Republican, left or right, conservative or liberal. If you're a conservative right-winger then liberal might as well be a four letter word and if you're progressive then the right wing are nothing but a bunch of ideologues who only care about the rich.
There is no middle ground. There is no common sense and no one is ever reasonable.
That's the whole point of this website. Be reasonable with politics, money and life in general.
Let's take something that's in the news now and that, like everything else, has divided the nation into two camps. I'm talking about social security. You're either a supporter of private accounts or not and that's as far as the debate seems to go. There really isn't a debate, there aren't several plans competing on their merits there's just a lot of vitriol, accusations and name calling.
As I write these words the only plan out there is the creation of private accounts where you can divert 4% of your social security tax into a private account. As the plan stands now your future benefits will be reduced by the 4% you diverted into your account plus a 3% return based on what you would have gotten if that money had stayed in the social security trust fund. In order to do better with the private account than you would have with the current system you will have to earn at least 3%. The danger is that you can end up doing worse than you would have if you had simply stayed with the current system by earning less than 3%.
I'll say it clearly and early that I am against the private accounts but I hope to convince you I'm right by using facts and logic and steering clear of unprovable general statements like "it's your money you should be able to do what you want with it." I'll avoid statements like that because they just don't make sense. Why stop at 4% if it's my money? Why can't I just keep it all?
Even though I'm personally against private accounts there is no way I could make the argument that a 3% return is difficult to achieve. This is especially true when you consider that you won't be allowed to buy individual stocks within the private account. You will be limited to a certain number of mutual funds or bonds and that carries less risk and more chance of long term gains over 3%. But the fact remains that I am against the private accounts. And the fact remains that it is possible to do worse with private accounts than without them but I just don't put much weight on that argument so I'll have to find other means to convince you.
So far I'm sure I haven't convinced anyone to oppose private accounts and may have even convinced someone that private accounts are a good thing. That's ok it's early yet.
My argument against private accounts have more to do with principle than with the fact that the concept is flawed.
What exactly is social security? Why was it created and what is its purpose?
Social security is either a retirement plan or it's a safety net - guess which one I think it is? Social security was never intended to be a person's sole source of income in retirement. It was not meant to replace saving and planning for the future. No one would have suggested at the time social security was implemented that you should forget about pensions or savings.
Social security was meant to fill a gap, to insure that retirement alone would not be a cause for poverty. When social security was first being debated it was referred to as social insurance a term we no longer use but probably should. It is truly an insurance policy much more than a retirement plan.
If you agree with the idea that social security is a safety net then you can see why I think private accounts change the very intent of social security. You still may not think social security is necessary, you might just be ideologically opposed to any kind of entitlement program. If that's the case then admit it, don't sugar coat your feelings, implying that you want to "fix" social security.
IT'S MY MONEY
To those of you who believe the reason private accounts are a good idea is because you can do a much better job of investing the money than the government can, I say you didn't read the above explanation of social security. But ok I'll give you my list of why the "it's my money" argument really doesn't work.
If you believe it is your money then you should believe it's all your money, not just the four percent they will allow you to divert into your private account. If you believe it's "your money" then you don't really think social security has any value whatsoever. What do you feel about taxes in general? Do you think that's your money too? Well of course it is but the services government provides also belongs to you. Are you willing to give that up?
If I told you that you could keep every last cent you made but the consequence was that you had to eliminate any government program in your life would you take it? Would you give up police and fire protection? Would you give up the possibility of collecting unemployment if you were laid off? Would you give up military protection? Road paving? Immigration and border control?
So it may indeed be your money but it's also your country and you have a certain expectation that government can provide something that you alone can not.
THE OWNERSHIP SOCIETY
You here the President use the phrase ownership society when pushing his privitization plan and it's meant to make you feel as if you have total and complete control over your money. That phrase is supposed to appeal to the entrepreneurial spirit of Americans and it is effective. The problem is it just isn't true.
You see, buying Microsoft stock - now that promotes the ownership society, that gives you a stake in a company, in the ownership of something real. The private accounts that the President is talking about gives you nothing of that sort. They choose several mutual funds, bonds and money market accounts for you (that doesn't sound like control to me) and let you decide (within those choices) where to put your money. That isn't much control over something that is supposed to be "your money."
"We're not going to let you use your money to buy lottery tickets," the President told one audience. That sounds like government control over my money if I ever heard it. So don't believe the hype about an ownership society or that it's your money those are just marketing buzzwords.
Here's my biggest problem with the private accounts (and the administration agrees with this), they do nothing in and of themselves to fix the problem. It's simple math. The government allows you to divert 4% of your salary into a private account and reduces your benefits by that amount plus whatever interest they would have paid on it. That doesn't save them any money whatsoever it's a wash. You might personally do better but that hasn't helped the government any. They still need to find a way to reduce their costs further. Well if that's the case then forgetting about the private accounts and instead concentrating on fixing the problem seems like a better solution. Sure if you still think private accounts are a good idea after the system is fixed then we can talk but fixing it is the first priority.
Ok so there's my argument against private accounts but do I have a solution? Well yes I do and boy is this going to be unpopular. I can hear the reaction already. I will be accused of punishing those who work hard and do the right thing but I'll address that too before I finish.
Everyone gets social security, the poor grandmother in the city, the middle class senior in the suburbs and even Bill Gates the richest man in the world. Well he paid into it so why shouldn't he get it? Never mind that he's met his Social Security obligation an hour after the new year at least he paid into it. Good point but how selfish can one man be. Of course I'm not saying that Bill Gates is selfish I'm saying the person who thinks that way and has billions of dollars is being selfish. I'm not an actuary I don't have the math skills to figure this out but I bet you would go a long way toward fixing the problem, if you didn't fix it entirely, if you would eliminate benefits for people with a net worth over 50 or 20 or even 10 million dollars. Sure they'd have to pay into the system but do they really need $3,000 a month when they're 65?
Another concept is eliminating the cap on contributions. As things stand right now every worker pays 6.2% of their salary up to $87,500. That means that if you make $87,500 or less you are paying 6.2% to social security but if you make say $150,000 then you are only paying 3.6% of your salary. So the janitor at your kid's school is paying more on a percentage basis than the executive at your employer. Is that fair?
Now if the cap is eliminated entirely and everyone paid 6.2% then there would be way more money than was needed so why not reduce the amount of the tax and eliminate the cap. Again I'm no actuary or math genius so I'll just pull a number out of thin air. Imagine if by eliminating the cap you could reduce the amount of tax by half to 3.1% and still fully fund the system wouldn't that be nice? Isn't that more fair to the janitor and not really a burden on the executive?
Now once changes like these are implemented and the system is solvent if you and the President want to introduce private accounts I'm all for it. What do you think? Did I change your mind? Am I missing something? Do I have it wrong? Let me know and I'll keep you all posted.