Don't mend it, just end it

By Phil Carmichael
web posted June 1999

Last January President Clinton in his please-don't-kick-me-out-of-office speech, promised to "save Social Security first." The obvious question seems to be the one no one has asked. Why should we?

Let me first say I have two major problems with Social Security. The way it is funded, and it's mandatory.

If I were to run a retirement plan the way the government runs Social Security, I would be in jail. In 1916 Charles Ponzi tried it, he went to jail and we now hear often of the infamous "Ponzi Scheme". The fallacy of Social Security exists in the public's belief that they are somehow entitled to what they have "contributed" to the trust fund. Well people, there ain't no trust fund, and whatever there is, you're not entitled to one dime. Congress can decide at any time to end the program and keep all the money that everyone has paid in over time. This undoubtedly will happen to those of us under 30. The trust fund only exists as IOUs. The rest of the money has been siphoned off to pay for some congressman's pet pork barrel project otherwise known as a re-election fund. For the trust fund to actually exist, the government would have to invest the money. This would entail federal ownership of private business, otherwise known as communism. The reality is that all that money has disappeared. Where does the money come from to pay current retirees? From current workers. Voila, the infamous Ponzi scheme is alive and well.

Where does the federal government get the power to run a mandatory retirement plan for everyone? Nowhere, but they do it anyway. We let them because it sounds we like free lunches. Since most congressmen see the Constitution as little more than a nuisance, arguing that Social Security is unconstitutional will get me nowhere but out of breath. Americans do not need to be protected from themselves. Are you listening Bill? Only we can decide if we spend it right. It's none of the governments business how we decide to spend our money. Somewhere along the way these last six years, the entrepreneur was replaced by the bureaucrat. I can decide better how to save for my retirement than Bill can. I can find a good investment counselor without Bill's help. I can live with the consequences if I blow my nest egg. The food I feed my dog doesn't smell half bad. Forcing me to put money in the federal coffers when I'm not likely to get back everything I put in borders on the criminal

If we are to really do something serious to fix Social Security we have to make real, fundamental, lasting changes to the funding mechanism. I am not a whiner. I'm not going to complain without offering a suggestion or two of my own. Since the inhabitants of that black hole of good ideas otherwise known as the United States Congress don't seem to want to come up with real ideas, here's mine.

Obviously we can't cut everyone loose who is now relying on Social Security. We need a plan that will continue to pay out to retirees. We need a plan that won't require fixing every twenty years or so. We need a plan that won't have retirees feeding at the trough, while forcing those filling it to pour unprecedented amounts of money into it.

My idea is to make a tax credit (not deduction) of any amount paid into a retirement plan that cannot be accessed before 65 years of age as a IRA or 401(k) are now, up to the amount you would pay in payroll taxes. By taking the credit from monies paid into the general fund, Social Security is fully funded. Those retiring now, or about to retire, still get their money. This money would of course be invested as you see fit, with no say from the government. It's all yours. What about the money going into Social Security? If you are under 30, thanks for the contribution, no soup for you. If you're between 30 and 40, you'll get 25 per cent of the benefits you would have otherwise received. Between 40 and 50, you'll get 50 per cent. Between 50 and 60, 75 per cent. Over 60, you get your full Social Security benefit. This will wean the population off Social Security altogether. After everyone is successfully weaned from the government teat, we can begin to take real chunks out of the national debt

What about the low-income families you ask. Even the guy making minimum wage is going to be better off. Someone 25 now, making $25 000 a year, contributing to a conservative investment fund over forty years, can have over a million dollars for a nest egg. If you don't believe me check out and look at their privatization calculator. By this count, they would be making over $100 000 per year as a retiree. Under our current tax system, they would then be giving around $30 000 per year to the government, instead of taking $60 000 per year from the government. That's a $90 000 per year difference, per retiree! Talk about a surplus. Even with a low flat rate tax we would be awash in money. We could get rid of stupid taxes like the death tax, marriage tax, and capital gains taxes. We could even faze out the taxes altogether after you reached 80 years of age, and still have more money than they know what to do with, although I am sure they would find something to spend it on.

With all those tax credits we would have to cut the budget in other areas until the tax generating benefits kick in. If the government would just keep better track of the money we send them, and find that $3 trillion they can't account for, we wouldn't have trouble finding the cash. Congress might actually have to make some tough choices about where to make real cuts in an inflated budget. But then they might actually have to earn the $130 000 plus we pay them every year.

I won't be holding my breath.

Phil Carmichael's web page is located at and he can be reached at


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