Saving Social Security without raising taxes 

The forecast is grim. In just 10 years, the Social Security Administration will start paying out more in benefits than it collects in payroll taxes. If nothing is done, workers now in their 20s will have no retirement safety net when Social Security goes bankrupt in 2041.

To pay scheduled benefits, already high payroll taxes (currently 12.4 percent) would have to increase 50 percent and the tax cap (now $94,200) would have to be eliminated. But even those economy-stifling measures won’t save a system that’s fundamentally flawed. Disaster cannot be averted while Congress continues to siphon off Social Security taxes to meet short-term political objectives. The Social Security Trust Fund is already sitting on $12 trillion in IOUs from you-know-who.

But Congress can’t raid private accounts. That’s the genius behind a proposal by Rep. Paul Ryan, R-Wis., and Sen. John Sununu, R-N.H., to let workers’ share (6.2 percent) of payroll taxes go to voluntary personal accounts. Another proposal by the Free Enterprise Fund would leave existing Social Security revenue intact and finance smaller personal accounts from general revenues. Social Security’s chief actuary has determined that such reforms would tilt the system into permanent solvency by 2051 — without cutting benefits or raising taxes.

That’s because Social Security’s rate of return is a paltry 1.5 percent overall — worse than almost any other investment. Just switching to risk-free Treasury bonds would triple the payback for average middle-income workers. And members of Congress (who earn 7 percent on their separate Thrift Saving Plan accounts) couldn’t get their greedy hands on it.

Both reforms depend on Congress cutting the growth of federal spending by 1 percent over the next eight years — and transferring the savings to the Social Security Trust Fund or workers’ federally approved private accounts. And while we’re at it, why not also allow Bill Gates and other folks in the highest 1 percent or 2 percent of income earners to opt out of Social Security completely?

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Staff Report

Staff Report

A daily newspaper covering San Francisco, San Mateo County and serving Alameda, Marin and Santa Clara counties.
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