Topic: Social Security
Ending Social Security by Applying Payroll Taxes to Primary Residences Because Social Security is a Bernard Madoff style Ponzi scheme, if we can end Social Security today and allow participants to invest the payroll tax in their primary residences this generation pay off the promises to the baby boomers and retire with even greater wealth than those whose bills it will have paid. Do the math yourself.by Paul Benedict
(libertarian)
Saturday, February 21, 2009
If Americans became persuaded to end Social Security today, they would need to generate twenty-two trillion dollars over twenty years simply to make good the promises in which senior American citizens and those nearing retirement have trusted. However, it is the Bernie Madoff style design defects in Social Security that have, on the one hand, leveraged all Americans into this debt, but that, on the other hand, allow for this generation of Social Security wage slaves to liberate themselves and their progeny. This generation can complete the baby boomer bailout and liberate itself from the wage slavery of Social Security by transforming the program into an investment in primary residences.
For instance, the median American Household (in non-inflation adjusted dollars) will have paid more than a quarter of a million dollars into Social Security by the time its members retire. However, if Social Security were a real retirement investment plan rather than a Ponzi "insurance" plan, that same lifetime of investment would be worth almost $700,000. It is the difference between these two numbers, about $450,000, that reveals this generation's ability to earn the benefits that were promised to first waves of boomers and yet retire with benefits greater than the boomers' whose bills they will have paid.
The $450,000 dollars of investment interest that makes this difference must be based on an investment that is secure, inflation and recession proof, and eminently comprehensible to the median American household. That leaves out equity markets and bond markets. The secure investment that can produce the foundation for the wealth Americans must produce to end Social Security is investment in their primary residence. For instance, the median American household, in 2007, earned about $50,000 dollars a year and, if one allows for $2,000 in income taxes, typical property taxes and insurance, and a monthly expenditure of about 25% of the household income for home payments, a conservative home purchase, at today's interest rates (5.55%) would be one that finances about $150,000. Assuming an FHA loan, with 3% down and fees paid up front, the home purchase price would be about $155,000. (Oddly, the median price of American home sold in February 2009 is $213,100). The monthly house payments (excluding taxes and insurance) for such an purchase, over the thirty year period, would be $851.68.
If the median American household was permitted to invest its median monthly Social Security payroll tax ($533.30) in its principal residence as an additional equity payment, the savings are significant. Instead of paying $852 for thirty years, the household pays for only a little over twelve years. Within 12 years the household will have $155,000 in equity rather than $35,000 (American home loans are "front loaded" so little principal is paid and little equity is earned in the first ten years). Granted, home equity is now and will always be in flux relative to changing market values, but the median American household would save, no matter what, almost $100,000 in interest over the course of the loan, the twelve year loan. From the day that last house payment is made, the median American household would begin receiving "benefits" from Social Security to the tune of $852.00 per month, or $10,224 per year.
From the day that last house payment is made, the sky is the limit for median American household. Even if from that day forward, the federal government began confiscating 9.3% of that household's wages to pay for hollow baby boomer Social Security promises, the median American household would still come out ahead. If this financially liberated median household used only other 3.1 % of their payroll taxes in conjunction with 25% of what was once their monthly payment, and deposited this $343 per month into an IRA or a Roth savings account (lets say at 4.5% compounded quarterly) for the last 28 years of their Social Security working life, they would have an abundance in comparison with the paltry benefits an ordinary Social Security plan. Instead of promised benefits of about $16,500 per year, the median household would own, own a $230,400 interest bearing account and own, $155,000 (not adjusted for inflation) of equity in their home. Although the end result for is far superior to the poverty line dependency result of Social Security, this end result does not count eighteen extra years of "benefits" that devolved from not having house payments at all. That is 18 x $7,670 (remember we've invested 25% already), or $138,000 more in personal income liberated from the government confiscation regime and from the land-lording neighborhood banking institutions.
Ultimately, in the "out years," as the last of the promises made to the baby boomers has been delivered, those entering the system would be required to participate with smaller and smaller amounts in payroll deductions, until at last, with a constitutional amendment in its heart, the S.S. beast would lie slain, strewn out across the pages of the twentieth century like the crater of an atomic explosion. Social Security cards could be burned and their numbers exposed harmlessly in phone books and the evil bondage of socialism would stand in smoking ruin, a dire warning forever against the excesses of government.
Benefits of this plan, the Primary Residence Social Security Transformation (or PRSST), to be explored in future articles:
Savings on Section 8
Recovery of the TARP monies
Voters with a stake in the free enterprise system
Wealth of the Nation as a Root in Financial Storms
Object Lessons on the Benefits of Sound Financial Planning
The End of Dependency
The Reduction of Government Spending as a Percent of GDP
Reduced National Debt
Lower Interest Rates World Wide
Benefits Easy to Comprehend
Ideological Defeat of Communism: The Love of Ownership Trumps Promise of Government Security
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The views expressed in this
article are those of Paul Benedict only and do not represent
the views of Nolan Chart, LLC or its affiliates. Paul Benedict is
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employee or otherwise affiliated with Nolan Chart, LLC in his/her role as a columnist.
Posted By: Jahfre Fire Eater
Date: 2009-02-22 10:06:16
Hi Paul,
I really appreciated your article because it offers some fresh thinking not often heard in the SS debate. I don't buy into your proposal one little bit, but I appreciate the thought that went into it...as far as it goes.
Actually there are only 3 problems with your proposal that make it unworkable. Unfortunately, those 3 problems all fall into the category of "realities you can't ignore." No plan that relies on the following tactics is a viable candidate for implementation. So maybe you can base you next proposal on something that accounts for them. I'd be eager to read it.
My own plan is pretty simplistic: Don't waste energy dreaming up schemes aimed at correcting our present course. Instead, plan for a future that is likely not one that is no more than wishful fantasy. Our course is set and our leaders follow it doggedly at an ever accelerating rate. Inflation resulting from our current monetary policy will invalidate the SS model and it will collapse. I'll give it 5 years but doubt it will take that long. Be prepared to take care of yourself and your parents well into old age.
Here are my primary obstacles to accepting your proposal as a viable plan.
1. Cherry Picking Assumptions - You chose your data to fit your rationalization for your recommended policies and practices. Marks your propsal as propaganda, not proof of a sound theory.
2. Statist / Snapshot view of the world. Your proposal is based on everything staying just the same except for the changes you propose. Inflation moots your proposal.
3. If Everyone Would Just...Any plan that requires homogenous behavior can only be accomplished through resistable force and unescapable oppression.
Whenever I hear a (non-evil) plan that depends on "If Everyone Would Just..." my automatic response is "Well, they won't; what's Plan B?"
Posted By: Paul Benedict
Date: 2009-02-22 11:02:47
Hi Jahfre,
Thanks for the input. This is sort of a long hair wonkish thing. I'm glad anyone made it to the end.
Anyohw, as Ned Colletti keeps saying regarding Manny Ramierez, the Dodgers won't negotiate against themselves. If some one has another plan that is cool, it would be fun to compare notes. Actually, I did look at a plan B in an earlier article ([link edited for length] I will look at some others in future articles.
If S.S. would simply dry up and go away, that would be fine with me. Your analysis of government inertia sounds, sadly, a little too true, and since the last of the S.S. surplus -- the cheap money fund the government has had since Regan -- has been snarfed up by the bailout and the stimulus package... Maybe they'll let it die.
On the other hand, one reason I'd like to stir up thought on this is that it looks like the government is planning to raise taxes and cut benefits with speeches in a "veneer" so thin the Emmy gowns will look conservative. They will posture, it seems, in a disgusting hypocritical sincerity about "saving" S.S.. It's my hope that any one reading this package of articles wil realize that almost any retirement systme would be an improvement over what we have. If they want more money from us we can darn well insist on its transformation.
Yes, I do use a "static" model... Absolutely, I do. The variables are vast. They could be the subject of another half a dozen articles.
I certainly did not intend to cherry pick... If you would point out the examples you mean, that would be a great addition to the discussion. The C.D. rates are conservative historically. No one is getting those rates now. Still, even if folks use FDIC insured C.D. funds so that the principle remained safe they would be better off than with S.S.
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