I am familiar with the Senators' stated positions, and with the President's framework in this early stage. I think that they may be able to kill two birds with one stone if they think outside the box. What I mean is that they could achieve tax simplification, private accounts, and permanent sustainability while lowering the payroll tax rate. Let me explain:

1. Every citizen has a private retirement account "PRA".
2. Contributions to PRAs are income tax deductible, investments incur no dividend or capital gains taxes, and can receive rollovers from 401(k)s and existing IRAs. Contributions default to money markets unless directed otherwise.
3. IRA and 401(k) plans are eliminated going forward. Instead, $3k + up to 15% of income can be contributed into the PRA, with no cap.
4. 10% is deducted from all pre-tax income, with no cap: 5% goes into the PRA, and 5% goes into the general Social Security fund.
5. Early withdrawal penalties from PRAs mirror IRA regulations, except that any citizen 60 or older may withdrawl from their PRA, and only those with a worthless PRA will receive Social Security benefits from the general Social Security fund (equal or better than existing Social Security Benefits).
6. Upon death, any remaining assets in a PRA may be transferred to beneficiaries. If the beneficiary is anyone other than a spouse, transfers are treated as income to the beneficiaries.

This plan achieves tax simplification, private accounts, and permanent sustainability while lowering the payroll tax rate. It also promotes an ownership society and increases the savings incentives for rich and poor alike.

Let me sum up:
• This system achieves both private accounts and a stronger social safety net.
• It requires that the wealthy contribute to social security at the same rate as everyone else, but allows for tax advantaged retirment contributions even for the wealthy.
• It reduces the role of government because the government assists only those who have need (those who have no value left in their retirement account).
• It strengthens the social safety net of government because it increases funding and concentrates assistance on the needy.
• Retirement savings tax rates are no longer determined by the employer, as the 401(k) system provides.
• A single account for tax advantaged retirement savings will make administration much easier.
• Everyone is encouraged to get rich, and those who outlive their savings are protected.
• If funding surpluses are too high, the tax rate can be lowered.

Please promote Social Security modernization through your representatives.

Labels: Public Policy