Daniel J. Mitchell wrote this before Tuesday’s election:
President Trump thinks he can boost Republicans next Tuesday by promising a new round of tax relief for the middle class. …
But then I saw that Tom Giovanetti of the Institute for Policy Innovation wrote a column for the Wall Street Journal explaining how reforming Social Security would be great news for lower- and middle-income taxpayers.
…44% of Americans no longer pay any federal income tax at all, and many more pay very little. …On the other hand, low- and middle-income workers do send the government a large share of their earnings in the form of payroll taxes. That same family of four pays $12,240 at the 15.3% combined rate for Social Security and Medicare. If you want to cut taxes for middle-class and low-income workers, that’s where you have to do it. …instead of…a payroll-tax cut of 4% of income, why not redirect that same 4% into personal retirement accounts for every worker? …With no decline in disposable income, American workers would suddenly be investing for retirement at market rates in accounts they own and control, instead of relying on Congress to keep Social Security solvent.
Not only would personal retirement accounts be good for workers, they also would help deal with the looming entitlement crisis.
America’s entitlements are on a path to collapse, and few politicians—including Mr. Trump—have an appetite to do anything about it. When the crisis comes, no tax increase will be big enough to solve the problem. Knowing the U.S. government is eventually going to fudge its commitment to retirees, policy makers should at least give workers a fair chance to amass the savings they will need to support themselves. The back-door solution to the entitlement crisis is to make workers wealthy. Will you worry about Social Security’s solvency or a Medicare collapse if you have more than enough money in a real retirement account to buy a generous annuity and cover your health insurance?
At the risk of stating the obvious, this is the right approach. Both for workers and the country.
I’m not sure when we’ll have a chance to address this simmering crisis. But if you’re wondering whether changes are necessary, check out this chart I put together earlier this year showing Social Security’s annual shortfall (adjusted for inflation, so we’re comparing apples-to-apples).
P.S. This video has more details on the benefits of personal retirement accounts.
P.P.S. And this video shows why the left’s plan to “fix” Social Security would be so destructive.
The retirement age for people born the year I was born is 67. Four years from now, though, Social Security will start paying out more in benefits than it collects in taxes. By 2034, Social Security’s asset reserves will be completely used up, according to the Motley Fool. According to the Social Security trustees, a 23-percent benefit cut will be required to keep Social Security supposedly solvent.