DownsizeDC.org
March 9, 2011
Social Security: How to deal with your biggest problem
By James Wilson

Quote of the Day: "He who will not economize will have to agonize." -- Confucius [Kung Fu-tse] (551-479 B.C.)

Since Social Security is considered the "third rail" of politics, our new campaign on this subject has been placed on the Our Heresies page on our website.

We're addressing this issue because of our concern about the following questions . . .

* How can the Federal State balance the budget without addressing the biggest deficit areas, Social Security and Medicare?
* How can we protect older Americans from the coming Social Security funding gap?
* How can we protect young people from the huge taxes that will be needed to close that gap?

Our answers . . .

DownsizeDC.org spent months studying the Social Security mess. It was depressing. There is NO easy, painless way to fix the problem, but we finally settled on the following goals . . .

* Protect those who depend on Social Security
* Reduce the scheme's liabilities
* Give future generations a better deal

When we say "depend" we're distinguishing between those who need Social Security to survive, and those who don't. For instance, Warren Buffet qualifies for Social Security, but he doesn't need it. It's wrong to rob the young to pay his benefits. With these thoughts in mind we propose four changes . . . 

1. Phase in a gradual increase in the retirement age (Retirement Age)
2. Means-test Social Security benefits to pay less to those who have other means of support (Means-test)
3. Allow young Americans to keep some of their Social Security taxes in return for forgoing future Social Security benefits (Partial Opt-out)
4. Reduce other federal spending in order to maintain Social Security for those who depend on it, while improving the opt-out deal for young people (Budget Cuts)

We settled on these four proposals because, sadly, there is no way to give everyone exactly what the politicians promised them, and/or to let young people completely out of Social Security.

Keeping all of the irresponsible promises the politicians made would crush young people under the highest taxes that anyone has ever had to pay. On the other hand . . .

If young people could opt-out entirely, there wouldn't be enough money to pay benefits to those who depend on them. 

Some organizations, like the Cato Institute, have advocated borrowing in order to allow more young people to opt-out of Social Security. We think this is a reasonable proposal. Young people would probably benefit from paying off this increased debt instead of paying the Social Security tax, but . . .

We have NOT advocated this approach here because of uncertainty about the Federal State's future ability to borrow.

These factors are why we have limited our proposals the way we have, but even our suggested changes will be hard to pass.

To be blunt, America's seniors are the biggest obstacle to preventing disaster. They have blocked all attempts to fix the mess, simply out of short-sighted, immature fear. Yes, that's a harsh statement, but we think it has to be said, just as it was necessary for the young boy to point out the emperor's nakedness in "The Emperor's New Clothes."

Here's the truth as we see it . . .

No one wants to harm people who are dependent on Social Security. NO ONE! In fact, the overwhelming majority of working Americans are willing to sacrifice to protect vulnerable seniors. But fear mongering, by con-artist politicians and AARP, constantly convinces seniors to react to all talk of change with hysterical fear.

Seniors need to start playing the role of wise elders, instead of hysterical children, and start supporting reasonable changes, rather than blocking them. Otherwise . . . 

* America will go bankrupt, like Greece . . .
* And when that happens real, deep, painful cuts will be FORCED on America's seniors in the most inconvenient way at the most inconvenient time.

In other words -- seniors need to become the solution, instead of the problem. They can do this by supporting the proposals we make here. Let's consider each proposal in turn . . .

1. Retirement Age: People are living longer and staying healthy longer. Social Security must adjust to this reality. Phasing in a higher retirement age will give people time to plan and harm no one who is dependent on the system

2. Means Test: This will impact no one who is dependent on Social Security. It will only impact those who have independent means of support

3. Partial Opt-out: This can be structured to reduce Social Security's future unfunded liabilities, while maintaining the revenue needed for those who are dependent on the system

4. Budget Cuts: Congress must start to set priorities and make choices. Abiding by Constitutional limits on so-called discretionary spending, as well as terminating our role as World Policeman, would be very helpful

Objections?

Some will oppose raising the retirement age, because previous generations got a better deal. This is a bad argument . . .

All Ponzi schemes give a better deal early on. That's how Ponzi frauds work. This is what we must change. It isn't fair that the final victims of the scheme should pay all the costs for mistakes made by earlier generations.

Older generations had decades to force the politicians to reform the system. Instead, they did nothing. Who should pay for this failing, the older people who neglected their civic responsibilities, or the blameless young?

Finally, the original retirement age was set at 65. That was the average life expectancy when the scheme was created. Raising the current retirement age to match current life expectancy merely maintains the scheme's original design.

The same arguments apply to any objections about means-testing.

Some will also argue against allowing young people to opt out of the system, for two reasons . . .

Reason #1: Alternative forms of retirement savings are supposedly too risky.

Social Security's multi-trillion dollar unfunded liabilities refute this objection. Social Security is a Ponzi scheme. Nothing is riskier. Ponzi schemes always collapse.

Reason #2: Taxes from the young are needed to fund current benefits.

Sadly, this reality may limit the Social Security opt-out for the young. But even a small opt-out is better than no opt-out! In addition, the politicians could, and should, enhance the opt-out by cutting other federal spending, and perhaps even by selling off federal assets that serve no Constitutional purpose.

If you like these proposals, please use our Educate the Powerful System to write Congress about them. We've hardwired the first sentence in the letter to Congress to read as follows . . .

Please take steps to reduce Social Security's liabilities.

This prevents people from hijacking our system for other purposes. But it still allows you to write instructions to your representatives using your own words to specify the means you prefer for reducing Social Security's liabilities. You could put one, some, or all of the following in your personal comments . . .

* Slowly raise the retirement age.
* Means-test benefits so that we don't cripple young people for the benefit of those who have independent means of support.
* Reduce Social Security's future unfunded liabilities by allowing young people to forgo future benefits for the sake of lower taxes now. 
* Cut other spending so as to enhance the Social Security opt-out for young people.

Finally . . .

If you're a grandparent seeking to protect your grandchildren from crushing taxation, please tell Congress that! Please let them know that you can't be manipulated into unreasonable fear. And if you're a person of independent means who supports means-testing, please tell them that too.

PLEASE NOTE: Every member of the Downsize DC staff will have to pay the costs involved with raising the retirement age. We are willing to pay that price. We are willing to sacrifice to fix the Social Security mess. How about you?

You can send your letter to Congress using DownsizeDC.org's Educate the Powerful System.

Jim Babka
President
DownsizeDC.org, Inc.

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