The current system of middle-class entitlement goes well beyond the original anti-poverty goal. The goal now is to provide something approaching a middle-class level of benefits, with higher benefit levels going towards those who "contributed" more. In effect, the government is forcing people to save for their own retirements, but, as you've pointed out, providing absurdly low safety-net level returns.
Why is that necessary? It must be because we think the government knows what's good for us better than we do! That could be true, and although I'm suspicious of the idea, I can't prove it's not. Heaven knows we use that sort of reasoning a lot - for example, our laws against controlled substances and gambling, even our freeway speed limits!
How about a hybrid system in which (1) means testing takes place through increased taxation of SS benefits to those who report higher income, (2) high net worth families are allowed to opt out of SS in return for not paying FICA or paying a reduced rate, and (3) those who opt out are allowed to make higher contributions to their IRAs and 401(k)s?
In the event of a financial catastrophe, the high net worth folks have their own safety net as do those who elect to remain in the SS system.
The incentives to save are increased because the group which is allowed to opt out must fund its own safety net. Moreover, to entice this group to opt out, there would have to be tax benefits associated with their increased contributions to private plans. Along with means testing, such tax benefits would mean that few rich people would likely elect to remain in the governmental safety net. Additionally, a nice corollary result might be that our abysmal savings rate would increase.
Such a hybrid plan is probably politically impossible since it would mean tax benefits to the wealthy. On the other hand, shouldn't those who opt out of a benefits program such as SS be entitled to some benefit for allowing others to be rescued and taking on the risk that their own safety net might someday be found to have a hole in it?
The numbers probably cannot be tweaked to make such a hybrid plan work, anyway, but it seems like a reasonably good idea. |
