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Healthcare and Social Security Modernization

Over 80 million Americans currently have 401k or IRA retirement plans.  Over 60 million Americans utilize FSA and HSA options for as part of their healthcare.  These are not failed solutions but rather the preferred methods of providing for retirement and health benefits for hard working Americans, especially our younger generations of workers.

Currently, all workers pay 6.2% taxes into the Social Security fund.  In addition employers pay a matching 6.2% as well.  Allowing workers to take their 6.2% annual contribution and place it in a private account while forgoing some percentage of future social security benefits will begin the long process of restoring financial stability to the program.  Taking age 50 as the starting point, and working backwards to age 20, we can reduce future benefits in 3.33% increments in exchange for the ability to privately invest these funds.  This still maintains the 6.2% employer contribution to pay for current obligations, now and in perpetuity.

Under this model, a 50 year old worker would still receive 97% of their defined benefit while having 15 years to save their social security contributions in a private account.  Even a conservative private investment results in gains much higher than the 2% that the CBO estimates as the current rate of return on social security taxes.  A 25 year old worker would receive 16.75% of the defined benefit while being able to securely invest 6.2% of their salary for the next 40 years.  Think of this as a mandatory 401k.

How do we solve the revenue shortfall that this shift in payroll tax might cause?  Great question, but the answer is simple.  Remove the caps on Social Security taxes on the employer side.  Currently taxes are capped around $127,000 in earnings.  Removing the caps will increase the contributions to the social security fund, but only impact businesses employing high salary workers.  Those companies are the ones that can most afford to bear the burden and also restructure their compensation packages to adjust to this higher cost to employ high salary workers. 

Similarly, current and future Medicare benefits can remain secure while allowing workers to begin saving in private Health Spending Accounts, allowing them the flexibility of reducing payroll contributions now in exchange for forgoing guaranteed benefits in the future.  A comparable scale can be used as in the case of Social Security.  Currently, workers pay 1.45% in payroll tax and the employer pays an equal 1.45%. 

Over the next 30 years we can phase out dependency on government for future American retirement and medical security, while maintaining revenue streams to fund existing commitments.  The solution is simple, the political will of our supposed leaders is all that has been lacking.

The American Dream is one created based on the concepts of Freedom and Liberty, and citizens should be given the ability to choose for themselves how they provide these essential needs for their own future.  Modernization of our core entitlement programs is a necessary step towards securing a debt-free future for our kids.

Paid for by Tom Phillips for Congress
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