Saving Social Security and Medicare; It can be done!

In watching the debates I could not help but feel that both candidates were long on words and short on economic details. In my opinion, that is because they really don’t have solutions to some of our most challenging issues. Then, in the Wednesday edition of the Wall Street Journal there was an op-ed piece suggesting that we give up the extra income from Social Security if we wait until seventy to draw. According to Social Security that would not save the government any money because it is actuarially calculated to be the same dollar amount as if you drew at your normal distribution age.

Social Security and Medicare expenses represent, by far, the largest outlays of the Federal Budget (Other than interest on our debt) and both programs will reach insolvency within the next two decades unless changes are made. I think it is important to note that Social Security’s problems stem from the fact that Congress ‘borrowed’ the money being set aside for Social Security and used it for other things, leaving a drawer full of IOUs. In short our government stole this money and now we have to fix the problem they left in its wake!

Medicare, on the other hand, is in trouble because the funding mechanisms were never built properly in the first place. The payroll tax withholdings and premiums are not self-funding. Our elected officials created a model that was flawed from the start. Great work guys!

But, regardless of how we got here, everyone recognizes that trouble lies ahead. Unfortunately, our elected officials remain unwilling to step up to the plate. No well-run corporation would ignore such a problem. Their executive team would get in a room; hash out the issues and work to create alternative solutions.

So, you are my team and we are about to do just that! The hell with the President and Congress! In doings so, I believe you will see that these problems can be solved and that the leaders of both parties, to include the current candidates, are failing us.

My opening premise is that we want to do as little harm as possible to benefits being provided and if possible, keep the solutions as simple as possible. At the end of the day we have to sell the American electorate on these changes and I believe that requires both of these assumptions.

We’ll start with Social Security because it is the easiest to fix. According to CNN, reporting in June of this year, the trust fund will run out money in 2034 and the following year only 77% of benefits could be paid. Keep in mind, as Charles Krauthammer, a noted political commentator wrote, “The Social Security trust fund is a fiction. … In other words, the Social Security trust fund contains—nothing.” That is, the Congress took $2.6 trillion and used it for other things!

Nevertheless, we are where we are and we must see reality as it really is. My suggested solutions are really quite simple. Today, we tax the first $118,000 of earnings for social security. IF we taxed all wage earnings, not stopping at the figure above it would resolve 76% of the shortfall! Seventy six percent!!!!!

It is the single most important thing we can do to resolve the problem! One must ask why we haven’t done that? My belief is that because it would affect higher wage earners and the rich Congress is reticent because that’s where they go for campaign donations. But, the centrist calls BALONEY on that! One change that is simple and fair and resolves three fourths of the problem! That’s a have to do.

Add to that one other change and we will resolve an additional 10 to 15%. Today, your tax dollars go into government bonds. IF, instead, we put that money into the stock market in a well-diversified portfolio it would earn substantially more than what it does presently. I was conservative with the stock market data. My source used an 8% return, which I lowered to 4 to 6%. But, even conservatively measured, we reach 86 to 91% of problem resolution with just these two changes. Thus, that’s a have to do as well.

Both of these data points can be found at the Committee for a Responsible Federal Budget website. It is a non-partisan, not for profit group. Their Board is made up of members from both sides of the isle. If you have difficulty, use Google Search for: “The Reformer, an interactive tool to fix Social Security”.

Third, we should consider allowing state and local employees, who presently are exempt from the system to enter the Social Security system and pay their taxes and receive benefits. This resolves another 9% of the problem and benefits those individuals at the same time.

Just these three steps could solve the entire Social Security problem but I have added one additional step as a cushion.

We must attack fraud and abuse in payments. The CRFB estimates that 5% of total outlay is fraudulent. That’s NUTS! We must dedicate enough enforcement to get the losses down to 1%. I don’t think we can eliminate fraud but five percent is outrageous! Most good bankers would not accept such a fraud factor.

With just four changes we have resolved the shortfall! That’s not bad for a little bit of research work and the time to write this edition of the centrist. We have not reduced benefits for anyone! We actually improved overall benefits for state and local employees. We cut fraud losses by eighty percent. We did it all without increasing the withholding rate although we are requiring everyone to pay that rate on all wage earnings. The centrist argues that is a worthwhile tradeoff to resolve an issue that potentially could hurt a lot of people.

But there remains one other step we have to take. Unfortunately, we can’t trust our elected officials! That’s a pretty sad state of affairs but it is true. They stole this money once before. We cannot allow that to happen again. Therefore, legislation must be passed that makes it illegal for the President or Congress to use our funding for anything except Social Security, regardless of how large the trust fund becomes.

That’s the ONLY way this will work. You may have other ideas or suggestions. Please, let’s hear them! But either way, we have a workable plan that resolves the issue and we should be demanding that Congress act!

Next week, we’ll get to work on Medicare. That’s a much bigger and more difficult problem to solve but we will give it a try!

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