Tags: laurence kotlikoff | social | security | psa

Laurence Kotlikoff: 3 Ways to Fix Social Security

Image: Laurence Kotlikoff: 3 Ways to Fix Social Security

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By    |   Friday, 09 Sep 2016 01:17 PM

 

Boston University economist and presidential candidate Laurence Kotlikoff is urging that the ‘broken’ Social Security system be immediately fixed before the dire ramifications linger for generations to come.

“Let's set the record straight about Social Security . It's not ‘going broke’ in 50 or 75 years … it's broke today,” he recently wrote for CNBC.com.

“Social Security's $32 trillion in red ink is 32 percent of the present value of the system's projected taxes. This means Social Security is 32 percent underfunded. In comparison, Detroit's pensions were only 20 percent underfunded before they helped drive the city into bankruptcy,” explained Kotlikoff, a registered write-in candidate for president in the 2016 election (www.kotlikoff2016.com).

“Being 32 percent underfunded means that perpetuating the system in its current form requires an immediate and permanent 32-percent hike in the system's 12.4 percent combined employer-employee payroll tax rate. This means we all need to pay 4 cents in extra taxes for every dollar we earn up to the covered earnings ceiling, now $118,500. The longer we wait to raise taxes, assuming we don't intend to cut benefits, the larger the requisite tax hike will be. And that is something our children will bear,” he warned.

He offered 10 tips to fix the system. Let’s highlight a trio of his solutions:

  • "Grandfather in current Social Security beneficiaries (people who have already paid into the system). That is, pay them the Social Security benefits they've already earned over time. Finance these payments from Social Security Federal Insurance Contributions Act (FICA) tax proceeds, which will be expanded under my tax plan by eliminating the ceiling on taxable payroll."
  • "Freeze the current Social Security system by filling zeros in workers' earnings records for years after the reform begins. This means just consider the earnings records of workers during the year before the reform."
  • "Require all workers under 60 to contribute 10 percent of their wages to Personal Security Accounts (PSAs). This 10-percent compulsory personal saving contribution is in addition to the 12.4 percent FICA tax."


“But we can't start Social Security from scratch. We can simply freeze the existing system, pay off all benefits owed under the existing system as they come due and run the PSA system in parallel,” wrote the co-author of "Get What's Yours – the Revised Secrets to Maxing Out Your Social Security Benefits."

“How will this reform help reduce the country's fiscal gap? First, payroll tax revenues will continue over time even though the old Social Security system is being phased out. Indeed, since I eliminate the payroll-tax ceiling as part of my tax reform, payroll tax revenues will be substantially higher. Second, no one will accrue additional benefits under the old system. These two features — higher taxes and lower future benefits — will more than wipe out the System's current $32 trillion in red ink.”

However, retirees may be doomed anyway if Newsmax Finance Insider David Stockman's gloomy prediction comes true.

"Measured by the only thing that matters — hard cash income and outgo — the Social Security system has already gone bust. What’s more, even under the White House’s rosy scenario budget forecasts, general fund outlays will exceed general revenues (excluding payroll taxes) by $8 trillion over the next 12 years," Stockman recently wrote. 

"Stated differently, the OASDI (Old-Age, Survivors, and Disability Insurance) trust funds could be empty as soon as 2026, thereby triggering a devastating 33% across the board cut in benefits to affluent duffers living on Florida golf courses and destitute widows alike." 

(Newsmax wire services contributed to this report).

© 2017 Newsmax Finance. All rights reserved.

 
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Boston University economist and presidential candidate Laurence Kotlikoff is urging that the 'broken' Social Security system be immediately fixed before the dire ramifications linger for generations to come.
laurence kotlikoff, social, security, psa
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2016-17-09
Friday, 09 Sep 2016 01:17 PM
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