A few additions to Doug's comments:
>1. The SS system will become insolvent when the baby boom generation
>become recipients in about 15 years. The reasons are demographic. In
>1950 there were 16 workers for every beneficiary, paying 2 per cent of
>their paychecks into the system. Today there are only 3.9 workers per
>beneficiary, paying over 12% of their paychecks into the system. In 25
>years there will be only 2 workers per retiree paying 18 per cent of their
>earnings to keep the system solvent. These trends are caused not only by
>the one-time historic post-war birth boom, but also by the ongoing trend
>of increasing life-expectancy. (If we combine Medicare and SS, our
>payroll tax will double in 25 years from 15 to 30%, bringing the marginal
>tax rate for families earning between 39 and 49,000 to nearly 60%)
Among other problems, this model assumes that our population will become
elderly at a ridiculous rate: under their assumptions, the entire U.S.
will eventually look like Florida. If that's the case, we'll have bigger
problems than finding workers to pay for SSI. One easy solution: more
immigration of young workers.
>4. The solution is to get people into an "investment based system." If
>the average American worker 22 years old could put 1% of their wages into
>a private investment fund through a mandatory program, assuming a
>very modest growth rate of only 4%/ year, they could fully fund their
>health care retirment benefit. (He supplied parallel calculations for
>Medicare.)
Like Doug said, 4% a year? Also, Gramm's assuming that the stock market
will keep on growing--that we won't have a crash, a long period of
stagnation, etc. that could devastate the ability of people to retire. And
what about the people who get ripped off or who make a mistake because they
don't quite know what they're doing? Will they go live with Phil? Right
now, SSI is a guarantee; under Gramm's plan, it becomes a casino (where, as
Doug noted, the House will get a very nice cut of the profit).
>5. The current system is not only unproductive and insolvent, it is also
>unfair to poor people. This is because the money we put into the system
>counts only for the 35 years of our highest wages, typically then from
>ages 30-65. That's fine for professional people who start earning their
>salaries after they finish schooling close to age 30. But for working
>class people who enter the workforce at a much earlier age, say at 16,
>they are paying into the system for 14 years without getting anything
>from it.
The real problem with the system today for poor people is that the SSI
payroll tax is capped, which makes it a very regressive tax.
The other thing that might be worth pointing out is that the assault on SSI
follows to the letter the Right's blueprint for attacking govt. programs
they don't like (unlike, say, the Pentagon). They can't come out and say,
SSI is evil, so instead they manufacture a major crisis. Whatever this is
about, it ain't about ensuring that people who work can afford to retire.
Anders Schneiderman
Research and Education Director
Financial Markets Center
