Monday, December 03, 2007

A New Foundation

I am so glad we're putting things on the table.

If the cap became a shield, relieving people making less than 97K of the "burden of the tax", it would certainly be popular. However, it wouldn't solve the problem. I don't know the numbers, but the mean income is about 45K, so we would be leaving out probably around 2/3rds to 3/4ths of the workers. This would be as bad to the financing as leaving out the rich. If we're going to leave an economic class out to help them, we should set the shield at the minimum wage, around 12K now that the minimum is $5.85. It should be locked at minimum wage as well, just as minimum wage should be locked to the inflation rate. But everyone who works should have to pay into the system, otherwise it's not a shared sacrifice, it's just something to "stick it to the man". Populist, but not fundamentally fair.

I'd be really wary of plans to put a cap on benefits based on need, either as a means test or otherwise. That would open the door to those who would demand that their "investment" in this insurance program get back a return on their money. That's our entire debate right now, whether Social Security is or should be an insurance or investment program. Too many people are saying either-or, when the answer should be both. I'll get back to that. First, some background just as a reminder.

Remember that the program was changed in the 1980's, when people realized that the Boomers would create a massive strain in the system 20 years down the road. A "lock box" was created, and the tax rates were raised. This was supposed to create a surplus within the Social Security system that would carry the Boomers through their retirement years. It didn't happen because Reagan instead decided to go after the "Evil Empire" and build up our military. (i.e. He succumbed to the pressure of the military industrial complex that was clamoring for profits, just like he had succumbed to the oil companies in his first term.) The money in that lock box exists, but it's in the form of I.O.U.'s because we've opened up the box and taken out all of the real value.

We need to acknowledge that money itself is simply a promise, no matter what form it takes. Money has no value until it is exchanged for goods or services. It is always just a promise until a transaction takes place. The real value in a bank balance, or a trust fund balance like Social Security, is not the large number that most of us hopefully see, but the transactions that are occurring with that money because that money is in a bank or other financial institution. When we deposit money into a bank, or when the bank sells a Bond, the money that we give in exchange for our deposit slip or the Bond certificate is put to work by that bank. They lend it to other individuals or businesses, and charge them interest. They keep a part of that interest and pay us our share as our dividends or interest earnings.

The Social Security Trust Fund is tapped out because the money that we pay into it is used by the government immediately, either to pay benefits with the core principle which is the redistribution of wealth part of it, or by the purchase of goods and services. What is left behind is a promise made by the government to pay the benefits that the money represented. Full Faith and Credit of the United States of America, meaning that our children and grandchildren will somehow pay it off. That's a promise that we can't continue to make without putting a structure into place that can fulfill that promise.

The solution is simple, at least as far as I can describe it. Yes, eliminate the cap, and make everyone making more than minimum wage pay into the system. Yes, create some type of means testing so that the money coming out of the system goes mostly to people who need it. But there is so much more we could do with a national system like this.

How about a National Savings program, sort of a national 401K. People would pay into Social Security at their usual 6.2%, but would have the option of paying up to $15%. The extra they pay above 6.2% would be credited to them as the certificate holder, and the money would be deposited by the Social Security Trust into a bank. Specifically, banks in areas that need secure financial foundations for their community. States like Louisiana, Arkansas and Mississippi, the three states with the lowest household income. An influx of cash into local banks in an area creates extra supply of that cash for personal and business loans, enabling the banks to lower the price (i.e. interest rate) on those loans. A foundation of capital like that would increase the rate of economic activity, create jobs and generate income for local taxes and boost the entire community as a result. The banks would take their share of the interest, and the balance would never go down, as long as the system was set up correctly.

The way I see it, the most important thing that has been stolen from the people of our country is our foundation, and I'm referring to physical, financial and social. The rich fools have charged us with fees and high prices, taken away our money and left us with nothing. Local communities no longer have engines of economic activity because all of the capital has been pulled away to Wall Street instead of being put to work on Main Street. This has resulted in a failure of local governments to keep up with their task of maintaining our physical infrastructure. How old are our water systems? Seattle has pipes that are over 100 years old. And I'm not talking the small pipes, I'm talking about the backbone of our entire system. Bringing our foundations back also means social connections and the sense of community security that comes from knowing our neighbors and knowing that our children are safe playing outside and walking down our streets.

A deal is where I give you something and you give me something in return. We don't need to make a deal, New or otherwise. We need to build a Foundation. A strong foundation under our feet will let us reach for our potential much more than making a deal that we can see eroded by future deals. In the 1930's, we needed a New Deal. In the 21st century, we need a Foundation.

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