After the so-called Presidential debates last night, the question of what to do with SSA came up. I mean, the system is broke, broken and a Ponzi Scheme that exists on taxes. So what to do? I took 10 minutes as I was writing to think up a simple plan... I don't claim it to be good, but it does put together a lot of disparate ideas floating around, which at least makes it something different and, hopefully, a start to something better.
Thus at Hot Air I replied thusly and this will be the end of the post:
Doing away with SSA also means doing away with FICA.
We can design a better system that puts all on SSA currently into a budget area where the bonds held by the fund are used and Congress can kick in any amount it can afford to help supplement that. There would be no new recipients coming into that system and the SSA card would be used only for those recipients who wish to stay in the system.
For everyone else you can set up an account to put in money before taxes of not more than 10% of your earned income so as to reduce your tax liability, and put it into an account where, in 30 years, you can take money out tax free for any reason or no reason at all. Children can either have accounts started by their parents, or are allowed to start one with general back-dating for initiation at age 18 or at any time thereafter.
A proviso for those starting an account with an SSA card is that the account has its timer started from the day you got your SSA card: it is considered back-dated to that day. If that is more than 30 years ago you now have a way to shelter income and have a tax free way to recover that income immediately, tax free.
Another proviso is that money must go into an account in any amount annually for it to continue its status. One red cent will do it. There is no requirement for where the funds MUST come from only that funds are PUT IN to the account annually.
This ends the idea of having to hold an investment because what everyone talks about is an ‘account’ that reaches some maturity date – it isn’t the way you invest, that can be in anything, but how long you’ve had the account. And as the retirement age is abolished this gives a good way for those who are older and have a higher general income to put away a bit more of that as they grow older. They can roll other investments into that account so that any with required amounts to take out (the current IRAs) can then go directly into the new account. The old IRAs are allowed to go in tax free and the money comes out, tax free.
All fund vehicles inside the account are considered untaxable, period. While companies and diversified holding organizations do have to pay taxes for any transactions, all benefits put into the personal account are secured from further taxation as income, capital gains or any other income source. Yes you still have to pay sales taxes and other forms of taxation, but that is on the spending side, not the income side.
This does some immediate things.
- First it allows those who whine and complain about an account TODAY to get to make a REAL ACCOUNT that might actually be better and more flexible than SSA because they have held an SSA card for a long time. You don’t get ‘benefits’ from the government, but can shelter a portion of current income from taxation and if you’ve had the card longer than 30 years, you can start spending it. That isn’t wise, of course, but the account remains open as long as you have funds in it.
- Second is that those who wish to leave SSA as recipients and go back to work can then utilize this account to do the same as any other long-term SSA card holder. If you can get a job that pays more, net, than SSA you will then have away to reduce its tax burden to you. This can be ‘means tested’ so that there is a fraction of SSA going to you, based on your earned income and the year that you get more in net income from your work than you do from SSA, your SSA access ends. You have become a full and independent older adult who no longer needs the help of Uncle Sam. Thank you.
- Third is that parents can put money into a child’s account and when that child grows older he or she will have something with a date certain of when they can get to the funds. If started at birth, then you can do that at 30 years old just when that first real house starts to become a necessity. If done at 18, then at 48 you gain access to the account for medical expenditures, advanced schooling for children or other needs. This is actually far better than SSA/Medicare/Medicaid will ever be.
No one can mandate that you put money into such an account, but it is available to you as a citizen. After SSA is removed your account can be started by your parents at any time from your birth day onwards, or by you at 18 if your parents are unable to do so.
And if you start to think that this is a way to get money out of the taxable reaches of government, then you are getting the point to the account. If we mean what we say about having a sustainable economy via investment then this is just the sort of thing you want as it can hold any investment vehicle, cash, or even an entire estate which can then be rolled over without any taxation to children or other account holders. This will put all governments on a short spending leash, yes, and any who wish to expose their earnings to the ravages of legislators can do so. This will cheese of anyone who thinks that anything should be liable for taxes to pay for ‘good things’… and says to them: responsible citizens who can pay their own way should have the risks and benefits of doing so. These people are not a ‘burden’ to the system because their investment and spending will create a new system very different from today’s and a direct pipeline of funds and investment vehicles into a tax shelter for even the poorest of citizens will allow all citizens to learn to take care of themselves.
Don’t just replace SSA and other entitlements.
Make something better that the government can’t ravage to its spendthrift ends.
This took all of 10 minutes to think up.
I am sure you can do better.
ajacksonian on September 8, 2011 at 7:12 AM