Eliminating Crony Capitalism in Taxation in the US

I have been falsely accused of supporting "progressive taxes" but that isn't necessarily the case.

In truth I'm not necessariy a fan of progressive taxation on earned income but, in theory, under progressive taxation the same dollars are taxed at the same tax rates. A person with a million dollar a year net income pays the identical taxes on their first $50,000 of net income as a person with only $50,000 in net income. The problem today that reflects "crony caplitalism" is that not all dollars of income are taxed the same and that reflects crony capitalism. "Unearned Income" is taxed at less than one-half the rates of "earned" income. Corporations are taxed at about two-thirds or less of what a small business owner pays.

Favoritism in taxation where some pay higher rates on the same income than others pay is crony capitalism.

There are certainly alternatives to progressive tax rates though. Below I outline a proposal that would be a different way to tax income (under the 16th Amendment) and that I believe would eliminate "crony capitalism" in taxation. It also addresses the tax burden related to our two most expensive "welfare" programs (i.e. Social Security/Medicare) and eventually ends them over time. It would also vastly increase the wealth accumulation of low and middle income workers in America.

Personal Income Taxes:
First and foremost repeal the Capital Gains tax loophole and treat all personal income identically. Eliminate all personal deductions and replace them with a flat exemption of $50,000/yr per household (adjusted for inflation). All income below that exemption threshold would be tax free and all above it would be taxed. The $50,000 threshold was established because it is slightly less than the median household income in the United States. The tax rate would be a single flat tax rate determined by government spending authorizations each year (including the financial obligation to pay off existing government debt).

FICA/Payroll Taxes for Social Security/Medicare
The FICA/Payroll taxation is currently 15.3%.

The first $50,000 in personal income (regardless of source) would be dedicted to personal (vested) private investment portfolios that are highly diversified and age-adjusted. Based upon historic investment data we can expect a minimum return on investment of 8% and this would result in a portfolio valued at roughly $3.6 million after a 45 year working career for maximum mandatory contributions. A minimum wage worker would have a portfolio valued at about $1.3 million. In all cases this "wealth" accumulation would provide more income than Social Security at retirement age eliminating the need Social Security and would actually provide enough income for the individual to afford private health insurance eliminating the need for Medicare. A person could invest more in these accounts if they choose to do so increasing their personal wealth at retirement. These investment accounts could not be borrowed against and could only be withdrawn from for retirement purposes. If the person dies before retirement age these funds go to the heirs of the deceased to provide supplemental funding their retirement portfolios.

The cap would be lifted on the FICA/Payroll taxes and the revenues from incomes above $50,000 per year would be used to fund the transitional phase from the current Social Security/Medicare welfare programs. There is a 45 year transitional period to "privatize" Social Security and Medicare that I estimate will cost about $40-$45 trillion overall. At the end of this transitional period the "taxation" imposed above $50,000 (adjusted for inflation) would cease to exist. Social Security/Medicare would disappear completely and the American People would be far better off financially in retirement.

This would also vastly increase the amount of personal wealth for low and middle income individuals where today the average personal assets are retirement age are only $100,000 and where a significant percentage have nothing at retirement age. Instead of "nothing" even a person that worked at minimum wage would have over $1 million is personal wealth at age 65. We need to note a single fact and that is that 40% of Americans that pay into Social Security/Medicare today die before ever collecting any retirement benefits. Every dollar in taxation they paid is lost in taxation. Under privatization this money belongs to them, plus the return on investment, and that wealth is transferred to their heirs as opposed to being lost tax dollars sent to the US government. Virtually all of this "money" comes from low and middle income workers in America today.

A "safety net" could still exist but because of "privatization" there would be little if any need for it. The current projections of insolveny for Social Security/Medicare are solved without reducing benefits or significantly increasing the tax rates. Because all personal income would be subjected to the "FICA/Payroll" taxes it would greatly expand the revenues to pay benefits during the next 45 years.

Corporate Taxation
The corporate tax rates would be the same rates as the personal income tax rates and applied to net gross income (i.e. income above the actual cost of production and/or providing the service) of the corporation. Eliminate all "special" deductions for corporations except for the "cost of production" in providing of the goods and/or services.

**************************************************************

This is a general proposal but it accomplished many things.

1. It eliminates "favoritism" in our tax policies.
2. It funds the government by the upper 50% of income households that can actually afford to fund government.
3. It resolves the problem identified by Congress in the 1930's (and then again in the 1960's) where 1/2 of the people (i.e. those with average or below average incomes) were not investing enough to accumulate wealth during their working career to provide income during their retirement years.
4. It is absolutely fair because every household has the identical exemption from taxation (i.e. incomes of $50K or below) and every household pays a Flat Tax Rate above that exemption (i.e. on all personal income above $50K).
5. It is Constitutional unlike the calls for Congress to impose a consumption tax with prebates as proposed by FairTax.org currently. The Contitution does not allow a Federal Sale Tax but the 16th Amendment does authorize the income tax.
6. It doesn't play "favoritism" with corporations, which are merely businesses owned by a lot of people, because corporations will pay the same tax rates as individuals on gross income.
7. It directly addresses government spending because the tax rate every year would be based upon authorized spending by Congress. If Congress increases spending then the tax rates will go up and if Congress reduces spending then the tax rates will go down.
8. The $50,000 exemption from personal income taxes removes any income tax withholding below that amount and will reduce the need for welfare to mitigate the effects of poverty albeit only slightly. It has never made sense to take money from someone in taxation and then give it back to them as welfare money. It makes far more sense to not take the money in the first place.
9. Similar to the proposals for a "consumption tax with prebates" it is actually "progressive" based upon applying the same "exemption" from taxation and the same "rates" above the exemption for all households in America based upon gross personal income of the household.

Is it perfect? Not from my "libertarian" perspective because it forces people to invest in their future when they should be doing this voluntarily. The problem is that we know that they won't and when they don't they become a burden on others in society. We can't let "granny" starve because "grandpa" didn't invest for retirement. From my "libertarian" perspective the only reason I can justify the mandatory investments is that the money still belongs to the person as they're 100% vested in their accounts. It is a compromise based upon a pragmatic necessity to ensure that people don't become a burden on society when they get old.

I'm sure that others can improve on this idea but I believe that the "bones" of the proposal are sound.

 

Agreed eliminate all corporate welfare and special statuses, including import tarriffs.
Disagreed - corporate taxes should zero
Agreed all income should have the same tax treatment with the exception of an inflation deduction for capital gains.

 

Corporate taxes should be zero, but stock holders of record on the last day of each quarter should be sent a statement of earnings per share, and they should report this as income.

 

I'm going to challenge the two exceptions noted.

The foundation for the belief that corporate incomes shouldn't be taxed is based upon a false foundation. The argument goes that the "investor" pays income taxes on the net gross income of the corporation but that isn't true. An investor only pays taxes on dividends but corporations don't issue all of the profits to the investors so not all of the corporate income would be taxed. In fact I've seen corporations with many millions of dollars in net gross income that didn't issue any dividend to the investors at all so under this proposal that income would not be taxed. At the same time a small business owner does pay taxes on all of their income from their business. They can't simply "hide" it in a bank account which is what a corporation could do if it wasn't subjected to taxation on income. In short the corporation would have untaxed net gross income where the small business owner would be taxed on all net gross income. That would be "favoritism" for the "corporation" that isn't being taxed the same as an enterprise that is privately owned.

The proposal to not taxing corporate income while taxing the identical income of a small business owner fails the "crony capitalism" test.

While I oppose inflationary monetary policies we must acknowledge that there isn't a "deduction" for inflation for workers. Because the "exemption" from taxation would be adjusted for inflation everyone, workers and investors alike, would be treated identically under the tax codes I've proposed.

In reality the investor has a hedge against inflation because their "dollars" are invested where the worker doesn't have a hedge against inflation. The perfect example of this would be gold investments that retain purchasing power but aren't really a means of increasing personal wealth over time. Gold stores wealth where it maintians the same value relative to other commodities over time but the non-investor has their wealth in dollars that lose purchasing power (value) over time because the value of commodities the dollar can purchase becomes less because of inflation.

We can't give preferrential treatment to "investors" over "workers" based upon inflation as that would reflect crony capitalism. Even though the investor actually has a huge advantage related to inflation when limiting the issue of removing crony capitalism related to taxation it shouldn't be addressed.

Inflationary monetary policies are actually another from of crony caplitalism that needs to be addressed but I'm limiting this to taxation. Inflationary (crony capitalism) monetary policies are deserving of their own thread. If we eliminated inflationary monetary policies then this issue becomes competely moot related to taxation.

 

An interesting proposal but how would the stockholder pay the taxes? Let's assume the investor that has all of their "eggs in one basket" and the corporation reports that their "share" of corporate income equaled $1 million but the corporation didn't pay a dividend to the shareholder. The stockholder wouldn't have the actual income to pay the taxes.

This does recognize the problem that corporations don't pay dividends based upon all of the income and may not pay any dividends at all. Corporations can simply build untaxed capital (hide income from taxation) in a bank account if they don't pay any taxes on income. As noted though the small business owner pays taxes based upon the actual income to the enterprise and can't simply hide income in a bank account.

 

Many claim that an investor pays "double taxation" when a corporation pay taxes. While I find this faulty because not all corporate profits are paid out as dividends I do have a pragmatic proposal to address this.

Allow corporations to include dividend payments as a component of the cost of production when calculating their gross net profit.

That would result in all divident payments to shareholders being "untaxed" at the corporate level and then that income would be taxed at the personal income level. No "double taxation" in this income would occur.

Logical and pragmatic solution?

 

I would get rid of most corporate tests. Without double taxation at the corp level most small businesses would be well advised to change models. Better protection for the small business owner that way no taxes on the money they are saving to reinvest or spending on capital expenditures.

Every dollar held by a corporation not paid in wages or dividends must be invested in the economy, that is a good thing. Larger returns will attract more foreign investment, also a good thing. Corporate investment in capital expenditures would rise, also a good thing. We would attract European business another plus. Sweden did when it enacted more modest tax reforms.

Inflation waters down investments over time but capital gains by their nature are realized in a later year. The inflation deduction helps to stabilize buying and selling by removing the incentive to sell every dec 31 and buy back on jan 1 st. It also gives government an incentive not to spend and pay with inflationary dollars. That incentive would help the wage earners keep up, but in no system would wages keep up with inflation due to the lag effect, and the general effect it has on demand for labor because of ever decreasing real purchasing power.

Taxes are indexed to inflation for wage earners now though. You can see the brackets move from year to year if you check the rate tables. Milton Friedman campaigned for that during carter and Reagan's terms.

 

They can sell the stock which has appreciated by the money kept in the corporation

You take that risk when buying into a particular company.

There would be no corporate tax to hide from

They would become corporations too now without the double tax, removed corporate tests, and would receive greater personal protections afforded by the corporate shell. My only test would be general liability insurance of 5 times median income, or 5% of revenue, whichever is higher.

 

I like your solution to some extent, it is an improvement. But what about companies saving up to buy capital goods? I have been saving up for some time for a big expansion? Why should the money held for investi g be taxed if it is not being paid out for enjoyment? Is t cash on hand a security for bad times?

 

Once agian we have to compare publically held corporations to privately owned enterprises. As a small business owner I have to save "after-tax" dollars for capital investments. Why wouldn't a corporation be required to do the same? There should be as few differences between one person owning an enterprise and one million people owning the enterprise.

Once again simply compare what a small business owner has to do when compared to a large corporation. Neither of them should receive "favorable" treatment under the tax codes. The identical issue exists for investors and workers. Neither of them should receive "favorable" treatment over the other. "Favorable treatment in capitalism" is the fundamental definition of "crony capitalism" and that's what we currently have.

For decades we've given highly preferrential treatment to corporations over small business in crony capitalism and that never made any sense. Small enterprises provide the majority of jobs in the United States with over 2 out of 3 jobs being from small business. The entrepreneur is almost always risking their entire personal wealth on the business and that is completely unlike a corporation where the owners (stockholders) are (or should be) highly divesified in their investment portfolios.

Of course we know the reason behind crony capitalism and why the support for it crosses party lines. It's the large wealthy investors in the secondary stock markets that are the primary source of funding for the elections of the politicans either directly, or more importantly, though the large super-PAC's they fund. Between Romney and Obama they spent about $2 billion during the 2012 Presidential campaign and the vast majority of that money didn't come from working Americans. The politicans want to ensure that these very wealthy inverstors have the corporations they invest in generating the most money for them. That's why the rich are getting richer at a highly disproportionate rate to anyone else. Why was Bush so concerned with bailing out the banks in 2008? Because the banks (i.e. stockholders in the banks) represented literally billions of dollars in future campaign contributions. The TARP bailouts didn't help average Americans. TARP didn't reduce foreclosures (and actually lead to an increase in foreclosure) and it didn't "loosen up money" for private investments by business as just the opposite happened as business loans for small enterprise dried up completely. It didn't protect the bank accounts of average individuals as none of them had over the $250,000 FDIC insurance amount. It was all about protecting the wealthy that fund elections. Anyone that didn't see that was blind.

 

Anytime you have income taxation or for that matter any sort of taxation where there are statutory exceptions and exemption, the abuses decried by the OP are always possible. The only way to slam the door on that hanky-panky is consumption-based taxations with NO EXEMPTIONS. None whatsoever for any reason.

"No exemptions" broadens the tax base out to the point that rates can be reasonable for everyone.

 

Line item by line item.

Many corporations during expansion don't pay any dividends and eventually forcing the stockholder to sell their investment based upon the expansion of the corporation from profits would result in the investor losing their entire investment without ever realizing a single dollar from it.

Stock prices are independent from the actual value of a corporation in many cases. We seen a dramatic rise in stock prices that is completely unrelated to economic growth that would be reflective of the increasing income to the corporations.

As noted in a previous post I addressed this issue. Simply include stock dividend payments as a component in the cost of production in calculating the net gross profits of the enterprise. That eliminates the so-called "double-taxation" that many object to.

The reason for incorporation is to fund capital investment and that is a valid reason for incorporation in capitalism. Of course very, very few investments are in the primary stock market that actually capitalizes enterprise. Amost all investments in stocks are in the secondary stock market and none of that money funds the enterprise. This is why it's a myth that investing creates jobs because overwhelmingly stock market investments don't fund enterprise.

While the laws of incorporation are, or should be, unrelated to the taxation, actually stockholders receive extensive protections related to liabilities incurred by a corporation and the corporations also receive extensive protections that I believe go too far in some cases. Generally speaking, for example, punative damages cannot drive a corporation out of business but there are historical cases where it should have. Some corporations commit such egregious damages to people or the planet that they should be driven out of business by punative damages.

 

Overall, I agree with your OP ideas. I think your income tax cutoff is very high. At that level you are basically deciding that only half of the people in the country should pay to maintain the federal government. Part of the idea of government is a pooling of resources to do things that people couldn't effectively do on an individual basis. Forcing half the country to pay the bills for everyone wrecks this idea. Instead, I'd set the cutoff at right around the federal poverty line. This would ensure that the money needed for survival wouldn't be taxed, but that nearly everyone would make some contribution to the country.

After all, we're all in this together.

 

Agreed, but my proposals wouldn't make them more likely to happen. Just more likely to have the cash on hand to pay out when the time comes that a judgment is over liability insurance.

Most answers are inside your quotes.

 

At first I was a supporter of the FairTax.org proposal for a consumption tax with prebates until I found out that it had already been corrupted by the politicans and special interests. So when I figured that out I developed a pure form of a consumption tax with prebates and then figured out that it failed on at least one primary count.

It didn't provide a means for eliminating todays Social Security/Medicare welfare programs based upon privatization over 45 years and the funding of that transition. Those advocating a consumption tax with prebates (like FairTax.org proposes) are willing to accept the Social Security/Medicare welfare programs forever because FICA/Payroll taxes will end and Social Security/Medicare will be funded by the consumption tax revenues. There's no mechanism for privatization of Social Security/Medicare under a consumption tax.

There is a limited theoretical advantage to the consumption tax with prebates. It would impose the same taxation on imported goods that's imposed on domestically produced goods. That is an advantage related to creating manufacturing jobs in America but it comes with the negative that it would also dramatically increase the cost of living because we purchase so many imported goods and would pay much more for them (i.e. current cost plus the consumption tax). We'd have more manufacturing jobs but would also have a much higher cost of living. That sort of balanced out to zero IMO.

Of course a consumption tax is not currently Constitutional based upon either the authorization for federal taxes in Article I Section 8 or the 16th Amendment. The US Constitution does not authorize a Federal Sales Tax and that is what a consumption tax is. Attempts in Congress to pass the FairTax.org law are purely political because it would fail on a Constitutional test. The only way a consumption tax can be imposed is by Constitutional Amendment and that's not likely to happen.

We need to deal with what we have based upon the US Constitution as it exists today.

 

tldr, will later

 

I can appreciate this comment and tried to elude to a reason why I set the exemption from taxation at basically the median income.

First of all we know that the "official poverty levels" are a political joke. No one can reasonably be expected to be able to live at the federal proverty levels. In fact, if memory serves me correctly, if person files for the "welfare" benefits they qualify for it would be equate to a $30,000/yr income and that was several years ago. I'd assume that its higher today and we know that about 47% of the American People have either a zero or negative income tax liability based upon welfare benefits and special tax rules that I'd eliminate.

Even the federal minimum wage is far above the "official poverty level" which also reflects what a joke it is. Someone with the "official proverty level" income isn't even working full time and those working full time at minimum wage fulltime are still in poverty by all objective standards. The minimum wage has never been based upon a requirement to be a "liveable wage" in the United States and doubtfully ever will be.

If we had a realistic "poverty level" it would be at or above $30,000 per year level because below that we're merely taxing a person with one hand and giving it back with the other. Of course the politicans don't want to be "realistic" with the poverty level because the "percentage under the poverty line" would expand dramatically. They'd be taken out and hung from the trees around the Capital if they admitted how bad poverty really was in the US.

But I went higher than even a $30,000/yr income that I would consider to be a realistic poverty level and I did so for a specific reason. I simply divided the nation into the "haves" and the "have-nots" based upon the median household income. By not taking taxes from those below the median income level it allows them a small financial ability to achieve upward mobility and that is the American Dream that's fundamentally been lost. At $50,000 per year it gives the person a chance to achieve the American Dream though upward mobility because it doesn't take every dollar in taxes above what they need to live on.

Let me also address the comment that "we should all contribute to the country" because that often comes up and it was also a reason why I set the "exemption from taxation" on federal taxes so high. The "country" includes the States as well as the Federal government and taxation is imposed for each. Anyone that has income and spends money is supporting either the State or Federal government or both. A major problem is that low income workers have a much higher tax burden relative to income than the wealthy when it comes to funding the State through taxation because the States impose regressive taxation. I happen to live in the worst of all states (WA) where a low income worker has 16-times the tax burden relative to income when compared to high income earners.

The disparity in tax burden relative to income was bad enough under crony capitalism in federal taxed when I figured out that I had 2-times the tax burden relative to income when compared to Mitt Romney and he had $22 million in income and I was barely "upper middle income" level. When we look at state taxation where the tax burden relative to income is up to 16-times more for low income workers compared to high income individuals that's simply mind-boggling IMO.

Basically the low income workers ARE contributing to the country by funding of the State governments through taxation. They're doing what they can so let's leave the funding of the federal government to those that can afford to fund both the State governments and the Federal government. We have to fund both and the taxes paid to either or both are all supporting the Country. All taxes fund government and everyone pays taxes.

But the exemption from federal tax liability is certainly open to debate but I would suggest that logically it would be somewhere between $30,000 and the $50,000 I proposed. Certainly those with over $50,000 can afford the taxation but is questionable if we lower it that those affected would be able to afford the federal taxation because of the high state tax burden they carry. So when addressing this let's actually address the total tax burden that we impose on the People and it is logical that the more income a person has the more in taxes they can afford to pay without negative consequences. We want to make it as fair a possible though though so that in the end no one really has a higher tax burden relative to income and that everyone has a chance to achieve the American Dream.

 

See, we can agree on some things and I agree on this part of your post. But I am not looking for an alternative to a progressive tax system. I want to fix the current system in order to have that progressive tax system. Yes, I believe that part of its function is to distribute the wealth.

Capital gains - yes. The $50,000 threshold is more beneficial for some over others. An individual would benefit more than those with more obligation (e.g. children, even a not-working partner, serious illnesses in family, other dependent relatives). We want people to take on some responsibilities that help our societies and some deductions encourage people to do just that. Our problem is more about the myriad deductions that functionally benefit only a few and/or have no reason for their existence. A flat tax rate on taxable income would defeat the value of wealth distribution.

Only for income up to $113,700 in 2013 and 0.9% above $200,000/$250,000.

I am not sure what you are saying here. Is it the first $50,000 that an individual sets aside for retirement? If so, how do you force anyone to set aside retirement money? Reading the rest of your plan, I would say that the answers to my questions would be 1. yes, 2. payroll rates.

Then our debate would be about your method. What would happen if you retired at a time similar to the end of 2008? Who would govern how these investments would be made and who would oversight to insure proper investments? That is a lot of power over money and we know many people would make bad choices on their own. I am not against other methods of investing SS funds but I worry about predictability for each individual. We can see the historical trends in general but we cannot see an individual trend for each individual. Some are born with disabilities reducing the earning capacity. Some may have unforeseen problems during their lives. Not every person can be expected to work a 45 year career.

FICA (Federal Insurance Contributions Act) is an insurance plan set up to ensure elderly have a minimum income at retirement. It is a plan more for those who, for what ever reasons, can't set aside enough money to retire. The benefits go to everyone right now but the plan (including the added Medicare plan) was to ensure that everyone has some means to live on after they can't work.

People who maintain a good income throughout their lives have the ability to augment their retirement income. The benefits were universal to "sell" the programs. Today we cannot sustain the programs based on that. We really have to look at the programs for the real reasons that they were set up. Many people did not have the means or the wisdom to prepare for life after work. We should look at these programs with that in mind. If you don't need SS, you should not get it. Healthcare is a little different. No matter what others think, Medicare is the most efficient and least costly way to cover seniors and disAbled. If you believe that it doesn't cover what you want, you can pay for better benefits. Medicare should be given full negotiating tools like any big insurance company and it would also have a bigger clientele for its negotiations.

Eliminating the wage cap for SS would also improve the solvency of SS. Maybe the cap elimination has to be phase in similar to the 0.9% in 2013. Really making over $200,000 can still afford that increase.

Your plan eliminates the insurance aspect of SS and Medicare in ''hopes" that everyone has enough money when they cannot work anymore. The programs were set up because people didn't have enough and even with a possible different method of investing many will still not have enough.

I see no real reason to eliminate them but I do think that we have to improve the solvency based on today's situations.

I like that. Of course, you would want a flat tax and I would still want a progressive tax.

I have already mentioned where I do not think everything is accomplished.

No but I thank you for a very thoughtful discussion for a "fix". Instead of philosophical discussion or right/left discussion, you have proposed what you think would work. That is how negotiations should start and neither side should outright reject proposals based on political views. Too bad we can't have real people sitting down and discussing the issue. Instead we have pols more interested in their side winning than in solving problems.

That is why Bowles/Simpson was a good starting point that politicians put so many restriction on to make sure that they were not obligated to start with it.

Whew your post was long but very informative.

 

As long as dividends are taxed as regular income.

 

States could collect the federal sales tax. They collected tariffs and excises for over a century. System seemed to work OK.

 

While I've edited the post to try and address the specific issue of privatization the comments are not lost. I've actually addressed privatization in much more depth on other threads but will cover the jist of it here.

As I mentioned in this thread a "safety net" would still exist. In fact I've proposed dramatically increasing the benefits in other proposals. Today, for example, the average Social Security retirement benefit is only $15,000 per year and a person that only has that to live on generally needs supplemental welfare just to survive. It's rather stupid to have one welfare program (Social Security) that drives a need for another welfare program.

We must acknowledge that the "average" Social Security retirement benefit reflects the income of the person throughout their working years. If they only qualify for the average benefit then they really weren't earning enough to save and invest on top of that. They're not likely to have additional income from investments when they retire. We also know that the average American only has about $100,000 in assets when they retire and that's not enough to generate significant retirement income. Normally that is all spent in just a few years after retirement.

As noted though I do propose a safety net and in other proposals I've set that at a $25,000 (today's dollars) in combined personal investment income and government assistance after privatization begins. Instead of a $15,000 average benefit I would propose a $25,000 benefit but it would be based upon both personal income and a federal "welfare" subsidy.

Remember that even a person that works at minimum wage with a 15.3% investment annually would have over $50,000 per year in income though but, as noted, there are some that due to disability or whatever won't work 45 years and won't have enough personal assets which is why I'd have a safety net but these are actually rare exceptions.

There's really no problem with how the funds are invested because it would be based primarily on the 401K investment model. All the investment firms have to really ensure is that the portfolios are highly diversified and age-adjusted as these types of investment portfolios are always highly successful. They have a historical return on investment above 8% over long terms exceeding 30 years. The government would only need to provide oversight against fraud and to ensure low-load investments but that is minimal government involvement. "Liberals" like to point out that all investments have "risk" but that relates to individual investments. A diversified portfolio spreads the investment broadly eliminating the negative risks of individual investments. Diversified investments always make money. Age-adjustment allows early wealth accumulation with "higher risks" while protecting the person's investments "with lower risks" as they reach retirement age.

Bottom line is that we know investments provide much higher benefits compared to welfare. We also know that Social Security provides poverty level average benefits that require additional welfare programs. My proposal would be based upon private investments where the vast majority of people would have 5-10 times the retirement income while providing a safety net that is triple the minimum benefit from Social Security today. As noted because the average retirement income would be 5-10 times what it is today those people would generally be able to afford private health insurance during retirement eliminating Medicare. For those that still require assistance for medical services they would be covered under Medicaid.

I've left out a lot because this is a long topic to address but the point remains that it is far superior in all aspects to what we have today. Social Security alone is facing a 33% shortfall in revenue by 2085 and Social Security doesn't have a spending problem, it has a revenue problem. Medicare is facing an even greater financial shortfall based upon predictions. The current estimated cost for SS/Medicare is about $75 trillion by 2085 as I recall and the bill just keeps going up after that. My proposal would cost about $40 trillion over 45 years and then the taxes virtually end (with the exception of just enough to provide a safety net for the small percentage that require it). Finally we can note that only 60% of working Americans live to collect any SS retirement benefits but 100% of American workers (or their heirs) would benefit from privatization because the money is vested in the person.

 

The first condition I imposed was the repeal of the the Capital Gains tax loophole and treating all income the same regardless of source. There can never be fair taxation when different tax rates are imposed based upon where the income originates or who receives the income. Every dollar of income is a dollar of income and must be treated the same under the tax codes.

 

My proposal is non-partisan and focuses on the American People as opposed to what is best for the politicans. That was the problem with Bowles/Simpson is that it still focused on what was best for the politicans and did not address the crony capitalism created by the politicans for the benefit of the politicans and the "cronies" that fund their election campaigns.

To look at it one must abandon partisan bigotry and address the matter from a pragmatic standpoint. For example, as a Libertarian, it irks me that people left on their own won't invest in their future but they won't. History has proven this and they ultimately become a burden on other Americans when they can no longer support themself. Unlike "Republicans" I can't just say "Let them starve and be homeless" so I had to address it. The best I could come up with were mandatory investment accounts that are owned by the person and that don't impose any additional expense to them when compared to what they face today. Voluntary investments are better but historically about 1/2 of the people won't voluntarily invest and I had to address that fact pragmatically.

 

Your investment plan sounds like a good possibility. I have some concerns.

1. Today, 2 out of 3 seniors rely on SS for most of the income, 1 out of 3 rely on SS for 90% of their income.
2. I am concerned about the quantity of money going into investing - how much will it distort the rest of the investment market, how can we be sure that such a large amount of money can be trusted to the private industry or even to the government, what happens if in 45 years your projections are off.
3. I think you are talking about individual investment plans. That, to me, seems more risky than investing all or most SS revenue into an investment plan. Your way seems to attach the risk to individuals more than an overall plan would.
4. I believe that you count too much on a 45 year career. I would be interested to see how many really work 45 years full time. I think that it will be a very small percentage.

It seems a big gamble of $40 trillion over 45 years. I think that we could still invest a lot of SS revenue to prolong solvency and still allow the fortunate ones to invest more in their own plans. I keep saying that SS is an insurance plan first and second an investment plan. Financial markets have a tendency to find ways to gimmick the system when it sees a new revenue system. Politicians seem to find ways to look at new revenue and use it for other purposes than for what that revenue was intended. Maybe we need some completely independent entity overseeing all of it.

I do not trust the private sector as much as you don't trust the government sector. There is still an efficiency in one large administration of funds than many individual funds. The private sector has more overhead than one large government administration. We have a case where you want to eliminate large social programs and I still prefer the security of those social programs.

Let's look at Medicare/Medicaid. Eliminating them would throw seniors and disAbled into a market with more overhead and more concern with profits. The overhead and the profits will eat away at seniors/disAbled purchasing power plus the lost of clout from Medicare/Medicaid. I see health care costs going up and affecting all of our economy. Obamacare is an attempt to reduce health care costs in ratio to our GDP - whether you believe that it will or will not. Your method of handling the health care seems to me as increasing the health care costs.

You probably will not agree with this but my proposal would be to find ways to do your investing without losing the security. That will stretch out the solvency years and there are still other ways to extend it more. Fortunate people can still do their own investing to add to their retirement income. If they make bad choices, they still have the SS safety net.

Medicare has been the best system to handle the most expensive health care sector. The private market cannot do better with overhead and profits. The large pool of clients gives the added clout in negotiating prices. Having those people who can get by without it taken out of those programs will help bring down the costs of these social programs until we wise up to implementing a Single Payer system (did your heart skip a beat).

But, Shiva, this is still the discusion that the country should be having.

 

As I already said. I was never knocking your proposal.

I think that you are too harsh on Bowles/Simpson. I referred to it as a starting point - not a finished product. I just wanted the politicians to be forced to deal with it instead of ignoring it or picking and choosing the parts that they liked. The political system is definitely flawed but that is the only tool that we have at the moment. We can come up with the perfect plan but we still have to deal with a President and Congress.

As a liberal, I see the same problems - the public and the politicians.