Silicon Investor (SI) -- The First Internet Community

STOCKTALK

We've detected that you're using an ad content blocking browser plug-in or feature. Ads provide a critical source of revenue to the continued operation of Silicon Investor. We ask that you disable ad blocking while on Silicon Investor in the best interests of our community. If you are not using an ad blocker but are still receiving this message, make sure your browser's tracking protection is set to the 'standard' level.

Strategies & Market Trends : Mish's Global Economic Trend Analysis -- Ignore unavailable to you. Want to Upgrade?

To: Chispas who wrote (15645)	11/13/2004 12:21:32 PM
From: Chispas	Respond to of 116555

From Laurence Kotlikoff and Scott Burns ~~~~~~~~~~~~~~ Their book "The Coming Generational Storm" 1. Basically, stop accruing any more social security benefits to anyone. Simply stop the current system. 2. Any benefits already accumulated should be paid, but the Social Security tax should be eliminated. Anyone promised any benefit will get everything they have been promised, and in full. 3. Social Security's Old Age Insurance payroll tax should be eliminated and replaced with equivalent, compulsory contributions to something the authors call a "Personal Security System" (PSS) account. The account would be invested in a weighted world index of stocks, bonds and real estate from every major stock market. 4. A new federal retails sales tax should be used to pay off the accrued retirement benefits owed under the old system. 5. To eliminate the dramatic unfairness in the current system, worker contributions should be shared 50-50 with their spouses. 6. The government would contribute to PSS accounts on behalf of the disabled and unemployed. 7. The government would match PSS contributions on a progressive basis. 8. The government would guarantee the real principle that workers contribute to their accounts. 9. Between the ages of 57 and 67, workers' PSS accounts would be gradually sold off and transformed into inflation-protected pensions. 10. If a worker were to die prior to age 67, any remaining PSS balances would be transferred to the PSS accounts of the worker's heirs. Under this scenario, young workers would be guaranteed a far better retirement than current Social Security benefits. Depending upon contributions, retirement could be many times better. Everyone gets their benefits. The system they propose is also clearly fairer. What's not to like? The Devil is in the details. I preface the details with this note. For those who do not know of Scott Burns, he is no liberal. He helped found the National Taxpayers Union and is no proponent of big government or taxes. The national sales tax Kotlikoff and Burns propose to deal with the accumulated benefits already due to future retirees would start at 12%. Over time (many decades) it would decrease to about 3%, as with each passing year, those who die would stop receiving benefits. They then follow this up with reasons why the sales tax is not really all that regressive, is certainly better than the current situation and so on. They explain why they use a world investment index. All nice arguments and reasonably set forth. Is this realistic? Do you really want to invest in a world index with all the currency problems and other issues? As bad as the U.S. debt may look, do we want to invest in a Europe where it is at least twice as bad? Are there better ways to solve the problem? Maybe, but it misses the point. And here we go from Kotlikoff and Burns's analysis to mine. Without any fanfare, they give us the real cost, in a very understandable way, of the current Social Security dilemma. It is 12% of our national sales for a very long time and only slowly decreasing to 3% in 4-5 decades. Yes, it creates a forced saving pool and it makes retirement fairer and more certain. It puts the burden of paying for their retirement on the boomer generation. Again, the burden falls onto a generation who believe they have already paid for their benefits. Politicians have told them this lie for years. (What painful solutions ! It's going to be a mess !) Text from the archives of DAILY RECKONING.