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A Chance for Responsible Bipartisanship: Raise the Retirement Age
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I’ve been advocating for at least 10 years that politicians raise the 1930s-era Social Security retirement age and undertake other basic, structural reforms to stem the government entitlement disaster.

Flashback March 31, 2000:

Under the Federal Insurance Contributions Act (FICA), working Americans pay 6.2 percent on their first $62,700 of gross income to fund the Old Age and Survivors Insurance and Disability Insurance program. Employers must match those taxes, which ultimately come from every employee’s paycheck as well. As a self-employed person, I fork over the whole 12.4 percent chunk of FICA payroll taxes on my own.

Another 2.9 percent tax on all wages goes to Hospital Insurance (Medicare Part A). Add it all up and the result is 15.3 percent of total income automatically confiscated by the government from able-bodied working people. That’s more than $4,500 a year for someone who has a salary of $30,000.

What do we get for our forced contributions? The return on our “investment,” pardon my MTV vocabulary, sucks. Most retirees this year can expect to receive about what they put in, plus interest. But the payback is dwindling over time because benefits will have to be cut or taxes raised – or both – to address an impending shortfall caused by the retirement of the baby boomers.

Beyond the year 2034, the D.C.-based Concord Coalition reports, Social Security revenue will be sufficient to pay just 72 cents of every dollar of promised benefits.

We hear a lot about fairness and tax cuts and “supporting workers” and “keeping the economy strong” from political leaders on both sides of the aisle. Yet, structural reform of the nation’s unjust, anti-worker, budget-busting entitlement system has gone nowhere. And neither major-party presidential nominee has uttered a word about slashing our payroll taxes or repealing unfair exemptions from this mandatory wealth-transfer scheme.

Above $62,700 of gross income, for example, earnings are exempt from the retirement portion of Social Security taxes. Why not cut the payroll tax rate and apply it to all earned income? If the high-earner exemption were abolished, it would lower the Social Security tax rate without reducing payroll tax receipts; everyone earning less than $82,000 (which means all but 3 percent of all working Americans) would get a tax break. What could be a better work incentive than that? What could be more equitable than everyone paying the same flat rate?

Moreover, if Congress were so concerned about nonsensical Depression-era rules, it would raise the standard retirement age immediately to reflect increases in life expectancy that have occurred since the 1930s when Social Security was enacted.

Finally, officials in both parties are coming to an agreement on the archaic retirement age. It has taken the spread of global crises for them to get to this point. Better late than never, I guess:

In a rare departure from this year’s intense political posturing over the soaring budget deficit, House leaders of both parties recently signaled that they are prepared to tackle a leading long-term liability — Social Security — by raising the retirement age.

Politicians often talk in generalities about cutting the deficit, but discussing specifics about how Congress may curb the growth of the biggest and most popular programs such as Social Security and defense is controversial and usually taboo in an election year.

But lessons learned from the debt crisis in Europe and worries that the U.S. could soon confront its own debt crisis, with annual deficits projected at about $1 trillion for years to come, may have prompted the unusually frank comments by House Majority Leader Steny H. Hoyer, Maryland Democrat, and House Minority Leader John A. Boehner, Ohio Republican.

Speaking in unrelated forums, both leaders stressed that with people living longer and enjoying better health in their senior years, the nation simply can’t afford any longer to be paying out benefits for as long as 30 years after retirement.

Both sides have demagogued the entitlement issue, pandered to the seniors’ lobby, and squandered precious opportunities to defuse the ticking entitlement time bomb. Young workers need to raise their voices and tell the Beltway politicians to stop dawdling and get on with it.

***

One more thing: Ultimately, I support the Chile solution for Social Security. Jose Pinera explains:

As secretary of labor and social security, I could have postponed the crisis by playing at the edges, increasing payroll taxes a little and slashing benefits a little. But instead of making some cosmetic adjustments, I decided to undertake a structural reform that would solve the problem once and for all.

We decided to save the idea of a retirement plan by basing it on a completely different concept — one that links benefits and contributions.

Chile allowed every worker to choose whether to stay in the state-run, pay-as-you-go social security system or to put the whole payroll tax into an individual retirement account. For the first time in history we have allowed the common worker to benefit from one of the most powerful forces on earth: compound interest.

Some 93% of Chilean workers chose the new system. They trust the private sector and prefer market risk to political risk. If you invest money in the market, it could go up or down. Over a 40-year period, though, a diversified portfolio will have very low risk and provide a positive rate of real return. But when the government runs the pension system, it can slash benefits at any time.

The Chilean system is run completely by private companies. We now have 15 mutual funds competing for workers’ savings.

We guaranteed benefits for the elderly — we told those people who had already retired that they had nothing to fear from this reform. We also told people entering the labor force for the first time that they had to go to the new system.

ORDER IT NOW

Today, all workers in Chile are capitalists, because their money is invested in the stock market. And they also understand that if government tomorrow were to create the conditions for inflation, they would be damaged because some of the money is also invested in bonds — around 60%. So the whole working population of Chile has a vested interest in sound economic policies and a pro-market, pro-private-enterprise environment.

(Republished from MichelleMalkin.com by permission of author or representative)
 
• Category: Ideology • Tags: Politics