Alternate Social Security Plan

The Author previously gave a Social Security plan which proposed the Social Security Fund co-opting the banking system, thereby giving Social Security a source of income other than FICA taxes. The downside of the previous Plan was getting it enacted. Congress and President would have to surrender their right to spend the funds generated by FICA on their own personal agenda. It is still the real long-term solution to funding Retirement, though, and requires only Voter threats to hang Congressmen, Senators, and Presidents from Trees to get it passed.

A milder form of Social Security reform can be organized which avoids the perils of Privatization--with its assured loss of Benefits, and retaining the current System without its long-term deficit and Benefits slide. It can also avoid linking Benefits to Prices instead of Wages--another long-term Benefits slide. The Change is a simple rule adjustment in the collection of FICA taxes.

The current system of FICA tax collection collects equal amounts from Employee and Employer. Many Economists attest that Business passes such taxes to the Consumer through higher Prices, but the transfer is not completely perfect due to the potential loss of Sales. Employers are reimbursed, though, as they are allowed to deduct FICA taxes as Expenses. Employees and Consumers, on the other hand, are spending too much and Saving too little, accounted by the increases of Consumer debt.

Increasing FICA taxes on Employees will destabilize Household incomes drastically, except for the potential of raising the limit on such taxation to the mid-Six figures. What would happen if the Employers were required to pay 1.8 times the rate of Employees? Interesting things begin to happen. Consumption declines under Consumer Price increases, while Savings ratios increase as Consumer debt is paid down. Employers pass on the tax increases to the Consumer, causing the reduced Consumption and higher Savings ratio, and are protected from overt loss by the deductibility of FICA taxes as Expenses.

The Economists start to howl at this point, saying such means a downturn of the economy; but does it? Business soon learns it wants to maximize Sales under the new system. It also finds it is cheaper tax-wise to hire two Employees making $40,000 per year, than it is to hire one Employee earning $80k per year, as they are paying 1.8 times a 6.25 FICA tax rate. The need for Sales impels desire to get Cash within the hands of Consumers, the best way remains a higher Employed Labor force in the United States. Domestic production suddenly finds greater allure, while concentration on intense Productivity loses fascination.

Conclusion: This is the Author's own loose projections, and highly imperfect(think suspicious). Consumer Price Index will increase by 8% under such increased taxation for Employers, while Consumer debt will decrease by 28% after 3 years. Consumption will resume at current levels, after addition to the American Labor force of 7 million Workers. Wage demand will decrease or reverse, as Workers come to expect slower Wage growth--and become accustomed to a more moderate lifestyle. Government welfare transfers will decline as more Workers are employed. Imports will decrease to a point where the Trade deficit starts to disappear. The standard of living actually begins to increase with a wider spread increase. The most important final point: the Social Security Fund will not run into deficit, while Retirement Age and Benefits can be maintained. lgl