Minimum-Wage Millionaires: The Capitalist Way to Save Social Security
1995; Hoover Institution; Issue: 73 Linguagem: Inglês
ISSN
0146-5945
Autores Tópico(s)Economic, financial, and policy analysis
ResumoSuppose you are 20 years old and earning $10,000 a year. You and your employer are paying $1,240 a year in Social Security taxes. That's 12.4 percent of your hard-earned income, for benefits that you will never see. Suppose instead you could invest that same $1,240, as well as an additional $2.50 a week. By the time you are 65, thanks to the magic of compound interest, you would be a millionaire. You would be assured a comfortable retirement. This isn't a game-show fantasy. This isn't a lottery jackpot. It is a realistic goal. But unlocking this economic opportunity means revolutionizing Social Security. Every American who earns $10,000 a year or more can become a millionaire over the course of one working lifetime -- 45 years. By the year 2000, there will be over 100 million Americans who fall in this category. In a recent survey, Americans between the ages of 18 and 34 reported they are more likely to see a UFO (46 percent) than their Social Security benefits (28 percent). They're right. The Social Security trust fund starts running out of money, under current projections, in the year 2013. If you're 20 today, that's when you turn 38. By the year 2030, when you turn 55, the fund will be short $200 billion a year and be unable to meet one quarter of its obligations. By the ear 2042, when you turn 67 and reach your so-called normal retirement age, the fund will have an accumulated debt of $4.7 trillion. I'm not making this up. This isn't science fiction. These numbers come from the 1994 report of the trustees of the Social Security system. You could get all your benefits, of course, if there were an enormous tax increase for your children and grandchildren. According to the Social Security trustees, honoring existing promises for Social Security and Medicare benefits will require a rise in payroll taxes from the current level of 15.3 percent to 25.7 percent in 2030. But that simply isn't going to happen. Americans are already overtaxed. Do you think they'll put up with 25 percent payroll taxes, and federal income taxes, plus state and local taxes on top of that? Some politicians will tell you not to worry: Social Security is building up a big trust fund that will take care of all those promises. By the end of this year, the trust fund will have $475 billion in assets -- on paper. By 2020, there will be $3 trillion on paper. The trouble is, when the program needs the money, the money will already have been spent on everything the federal government spends money on. To redeem its IOUs to the trust fund, the federal government will have to borrow money or raise taxes -- by over $36,000 per family -- just as if the trust fund had no assets at all. So you and your employer are now paying one eighth of your income to pay for the Social Security benefits of current retirees, and to build up an illusory trust fund. Meanwhile, your own retirement is in jeopardy. No wonder younger Americans fear they are on a treadmill. No wonder there is so much trepidation about the future of the country. No wonder we have a savings crisis: our savings are being spent. No wonder most Americans now say their children will enjoy less opportunity than they do. It doesn't have to be this way. Social Security can be saved without raising taxes, and without lowering the benefits or cost-of-living adjustments of existing retirees. Social Security can be saved in a way that will open up opportunity for younger people -- so that their standard of living will be better than that of their parents and grandparents. If we use the principles of democratic capitalism to reform Social Security, the 20-year-old making the minimum wage can become a millionaire by the time he or she retires. Most Americans are on a treadmill because they have but one source of income: wages. The way to get ahead is to earn income from capital. Money makes money. With capital, you can retire in comfort and bequeath a nest egg to your children. …
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