Social Security is viewed as retirement funds by many US citizens. It is not, or at least it should not be. It should be a financial safety net for those facing unplanned dire financial situations.
The current structure of Social Security is like an insurance plan, with many paying premiums (payroll tax) into the plan. Unlike typical insurance, where many pay into it while a few occasionally claim benefits, Social Security has some (W2 and 1099 recipients) who pay into it and many more (most over the age of 62 are eligible) claiming monthly benefits. Therefore, Social Security is always on the brink of bankruptcy.
A financial safety net is a necessity for a strong and thriving democracy. Without it, liberty will be limited to those with the means and unavailable to the poorest.
The financial safety net has to be funded via tax. But what kind of taxes, who should be taxed, and who the financial safety net should protect are all critical questions.
Payroll, income, and profit taxes are unreliable and inconsistent revenue streams supporting broad base benefits like Social Security. A broad base Federal Sales tax is the most reliable form of revenue to support a long-term broad base financial safety net for those in dire financial situations. Unlike payroll, income, or profit tax, Sales tax rarely fluctuates significantly during recessions.
Some classes of the poor, like those on food stamps, may be exempted from Sales Tax. But in general, all consumers will pay Sales Tax. It is a broad base tax that means most, if not all, will pay it.
Social Security is NOT a retirement fund. That concept must be made clear to US Citizens so that Social Security can be used strictly as a safety net for the poorest and people in dire situations.
Suppose Social Security can be a safety net and not a general retirement fund for all. In that case, the tax that needs to be collected may drastically reduce, making the general sales tax approach acceptable. We may not need a 14% Sales Tax to support Social Security when it is a financial safety net, not a general retirement claim fund.
The Social Security Administration of today has to be reformed and re-chartered. The new Administration must create rules to determine who may be eligible and how long to receive Social Security benefits. They will also ensure Social Security has enough funds to support the projected needs. When the fund is projected to be insufficient, the Administration must reduce benefits to secure Social Security. It is also up to the Administration to present its financial plans to Congress yearly to ensure it has sufficient funds. Congress can change the Sales Tax rate according to Social Security’s needs.
A retirement fund, separate from Social Security, could be mandated by the Federal government. People must set aside X% of their gross monthly income to a government-backed retirement fund. This retirement fund has the same concept as 401K or IRA. The only difference is that it is mandatory to set aside X% of monthly income for this fund. People can self-direct their retirement fund accounts to government-approved but privately run retirement investment vehicles. Many of these investment vehicles are the same as those from Vanguard or Fidelity.
Another significant side benefit of this government-mandated but privately run retirement fund is that many more Americans will have skin in the game to ensure the US economy will continue growing, allowing their retirement funds to grow. It will align many Americans to see economic growth necessary for an enjoyable and secured retirement.
Government cannot touch the money in the retirement funds and use the funds for other purposes. Those funds are strictly private property.
With the above, Social Security will be long-lived with almost no risk of going bankrupt. It is precisely like a typical insurance plan, with many people paying a premium (Broad base Sales Tax), but only a few will claim the benefits.
With the mandatory retirement contributions by all who receive W2 or 1099, many people reaching retirement age will have enough to live on.
But still, there will be people who, for various reasons, did not contribute enough to the retirement funds and may face financial hardship when they reach retirement age. Those people will fall into the safety net of Social Security. The broad base Federal Sales Tax will be there to ensure there is enough funding to support these people.
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