As our country readies itself for the upcoming Presidential election, I hope that the candidates will go beyond their usual topics of “affordable healthcare”, “Iraqi war”, and “oil drilling” and spend a greater amount of time debating their solutions for our country’s impending retirement crisis.
With the first baby boomers born in the mid 1940’s now reaching the magical age of 62, our country is running out of time to resolve the expected funding shortage for Social Security for the rest of us and for protecting the millions of workers whose traditional employer pension plans are becoming the responsibility of the federal government when their employers go out of business.
I hope that most of you know that Social Security retirement checks are funded on a pay as you go basis as FICA taxes collected today are used to fund Social Security checks for currently retired workers whose own taxes were used to fund checks for previous retirees. Fortunately, there are still enough current workers to fully fund today’s Social Security checks. However, that is not expected to be the case in the years ahead.
Every few years, Congress holds a series of “blue ribbon commission” meetings to come up with a short term fix for this problem. But we need a long term solution sooner than later. So what plans do our Presidential candidates have for this challenge?
Barack Obama’s latest economic blueprint includes a plan to impose a new 4% FICA payroll tax on those individuals earning more than $ 250,000. But he would not implement this new tax for 10 years! Yes, 10 years from now when he is not even President! And he has a plan to have the federal government give up to $ 500 per year to every worker earning less than $ 75,000 for deposit into their own personal IRA retirement account if they will save at least $ 1,000 per year with their own money. I’ll give him credit for encouraging personal retirement accounts but I am strongly against requiring high income Peter to pay for low income Paul’s personal retirement plan since Peter’s income taxes will be likely funding those government handouts to Paul.
John McCain has no published plan for social security reform other than saying that the current program “is a disgrace”, and that “all options are on the table”. He was a supporter of President Bush’s plan to allow younger workers to self-direct a portion of their FICA taxes into their own managed retirement account which I also favor. President Bush was not afraid to touch the infamous third rail and propose such a plan which the Democrats would not permit to proceed in Congress. I just wish that Mr. Straight Talk McCain would not hesitate from discussing his specific ideas for reforming our failing Social Security program. And post his plan on his campaign website.
Barack Obama also has a plan to create Automatic Workplace Pensions in which all employers will be mandated to either offer retirement plans such as a 401(K) or Simple IRA or be required to set-up a payroll deduction plan for its employees to contribute pre-tax dollars into their own IRA plan. I applaud his economic advisers for proposing such a plan and wish that McCain would propose something similar although his plans for keeping all taxes low will provide Americans with the money to fund their own accounts while Obama’s overall higher income and investment taxes will limit the amount of money that workers will have available to save for their retirements.
Let’s hope that this important Social Security issue will be a topic of the upcoming Presidential debates. It is a known predicament and it needs to be discussed. While Obama has the edge for proposing something, his plan to delay any change in the funding mechanism for 10 years is indicative of his naivety on the seriousness on this and other issues.
