It's Now or Never, Privatize Social Security

It's undoubtedly one of the most sensitive issues in politics, whether it be in the national spotlight or casual conversation at the dinner table, the topic of social security is a soft-spot, particularly for the elderly or those who are soon looking to retire. It is a federal program that the once-hopeful GOP nominee Rick Perry called a ponzi scheme, where he was greeted with much criticism. But I couldn't agree more.

We've all heard that social security will be broke in the near future, but let's take a look at some real numbers that will bring the issue a little closer to home. When social security was first created in 1935, there were 40 workers for every one retiree. In 1950, that ratio drops to 16 workers for every one retiree, whereas today, the ratio is a dismal 3 workers for every one retiree. You don't need to be a statistician to understand that the trend is a decreasing worker:retiree ratio. Estimates indicate that the social security trust fund will be broke by 2037, and retirees will not be able to receive full benefits. If a federally funded (taxpayer funded) system were to work, there would need to be a combination of increased payroll tax rate, increased retirement age, and possibly decreased benefits. In the words of economist Dan Mitchell, keeping this system would be like "paying for a steak and receiving a cheeseburger." Senators Rand Paul (who I am quite fond of), Lindsey Graham, and Mike Lee created a proposal titled "Social Security Solvency and Sustainability Act," which attempts to accomplish the salvation of social security. I disagree with this because of one of the provisions of the act is to gradually raise the social security retirement age to 70. I believe it is more important to phase out the taxpayer funded ponzi scheme, and allow citizens to privately invest their own money to pay for themselves in the future, rather than supporting an irresponsible pay-as-you-go model.

Think privatization of social security is crazy? Almost 30 countries have at least in part privatized social security and the ones I have looked into have all seen great success, including Chile, Australia, and even socialist-favored Sweden. Chile, for instance, had privatization accomplished in the early 1980's by a man named José Piñera, who created a system that includes: no social security tax, no government-funded pensions, and ten percent of the worker's paycheck is automatically transferred into a personal savings account (PSA) that the government is not allowed to touch because it is the worker's money protected by property rights. These accounts are unable to be accessed until the worker turns 65. Not to mention workers in Chile have had a rate of return of nine percent above inflation. José Piñera said himself that when Chile adopted this system the Dow Jones was at 900, whereas today it sits at roughly 10,300. But even if the individual worker decides against the stock market due to higher volatility, he/she is more than welcome to diversify his/her portfolio and include more stable (although less potential for return) options such as bonds or treasury bills.

My suggestion? Allow younger workers to opt-out of social security and start paying into a PSA. I'll even go one step further than Chile and allow the workers to decide for him/herself what percentage of income he/she would like to donate to the PSA every year. This allows the workers to take their expenses into their own hands. After all, I am positive that the individuals know more about their financial future than do the bureaucrats in Washington, and a one-size fits all model is bound to face opposition from freedom-loving Americans. Eliminate the social security tax and public pensions (as Chile did), granting more liberty to Americans to do with their own money as they please. With an average higher rate of return, total solvency, and more financial freedom, why wouldn't you support privatization of social security?

More Taxes=More Revenue, Right?

Wrong. However those on the left, particularly President Obama often use rhetoric such as, "the rich need to pay their fair share," and continually cites the example of Warren Buffett as an individual who actually wants to be taxed more and believes the wealthy are not taxed enough. Mr. Obama even went as far to claim that Ronald Reagan himself was the originator of the "Buffett-Rule" and should so aptly be named the "Reagan-Rule." This is just an attempt to trick Americans into thinking that current conservatives are right-wing radicals, as if to say that not even Ronald Reagan, arguably the most cherished conservative of the 20th century, is too moderate for current-day republicans. Contrary to any left-wing hooplah, this is simply not true. Mr. Reagan wanted to make the tax code more fair by lowering taxes across the board, not by making the rich pay more. It started in 1981, when he cut the capital gains tax rate from 25 percent to 20 percent, and wanted to further reduce it to 17.5 percent in his 1985 proposal, but conservatives in congress agreed that the only way to lower the income tax rate, they would have to negotiate to raise the capital gains tax rate.


Onto the original question. Now, I think it's obvious (at least to those of us who can do simple math), that raising the taxes of millionaires does not justify for more government spending, nor can raising the taxes of the millionaires keep our runaway spending even close to afloat. That point aside, we can at least all agree that increasing taxes will increase revenue for our benevolent government, right? Wrong, wrong, wrong. The wealthy have worked hard for their money and know how to divert capital to other areas, including taking advantage of subsidies or using tax havens. General Electric for example took advantage of green-energy subsidies to hold on to shareholders and escape excessive taxation. Economist Dan Mitchell, a man I frequently cite states:

In 1980, when the top tax rate was 70 percent, rich people (those with incomes of more than $200,000) reported about $36 billion of income; the IRS collected about $19 billion of that amount. So what happened when President Ronald Reagan lowered the top tax rate to 28 percent by 1988? Did revenue fall proportionately, to about $8 billion?

Folks on the left thought that would happen, complaining that Reagan’s “tax cuts for the rich” would starve the government of revenue and give upper-income taxpayers a free ride. But if we look at the 1988 IRS data, rich people paid more than $99 billion to Uncle Sam. That is, because rich taxpayers were willing to earn and report much more income, the government collected five times as much revenue with a lower rate.

Yet some believe that we should punish businesses for taking capital and jobs overseas, and that leaving is un-American, but moving assets in a way that makes sense for the owner is a basic freedom that shall not be infringed. If the government wants to keep jobs and wealth here, a flat-tax rate with a simple tax-code, free of subsidies and deductions is the most effective way to do so. 

Why America Should Be More Like Sweden

America is like the kid who got straight As in elementary school, a brilliant mind who dedicated time to studies and academic excellence; then middle school hit. America started hanging out with the wrong crowd and started to change its views on life and by high school it went from top of its class to the middle. Sweden, on the other hand, who also did well in elementary school, had a middle school slump, but came back strong by the start of high school and is now headed in the right direction.

Unnecessarily drawn-out analogy aside, I do believe Sweden and the United States are heading in opposite directions. Before everyone jumps this gun on this one, we must recognize that sweden has enormous government spending (almost 50% of economic output according to Dan Mitchell), and a large tax-rate of 56.6 percent for the wealthiest Swedes. However, prior to their status as all-star of the welfare-world, Sweden had low tax-rates, limited government, deregulated industries, and free-market policies in other areas for much of the 20th century allowing them to grow to become a very prosperous nation (Sweden also avoided costly wars, such as World War II, allowing them to retain some spending). Then the downfall (middle school) occurred during the 1970s through 1980s when Sweden started to regulate and raise taxes to feed a public sector and welfare state that grew dramatically. In 1991 through 1993 Sweden suffered both a banking and real estate crash. However, sometime after this, Sweden grew wise, cutting the top marginal tax rate from almost 90 percent to just under 57 percent today, eliminating both the inheritance and death taxes, and a corporate tax rate reduced to 26.3 percent (compared to United States which boasts a 38 percent federal corporate tax rate, not to mention additional state taxes as well).  Sweden enjoys pro-market policies, such as a partially privatized social security system, and a nationwide school voucher program with for-profit schools.

Bottom line: The United States has lost its way in the world, and, although Sweden is by no means the poster-child for limited government and low tax rates, they are at least heading in the right direction, something that I cannot say about us.

The Myth of Underpaid Women Part II

Shortly after writing "The Myth of Underpaid Women," I was messaged by a friend who provided me with a link to "The Mommy Tax" by Ann Crittenden, which discusses the financial toll women take when deciding to have kids--losing out on hundreds of thousands (and in some cases millions) of dollars throughout their lifetime due to maternity leave. The immediate suggestion which came up was a government-sponsored maternity leave to help reduce the income disparity between genders.

I have a big problem with this. Anytime anything is "government sponsored," it actually means "taxpayer sponsored." Every time the taxpayer must step in to foot a bill it means less disposable income for the people. That being said, let's play a numbers game. In 2009, 72,019,000 women were in the civilian labor force, 66,208,000 of whom were employed (U.S. Department of Labor). So let's pretend that the number of employed women hasn't changed, and that it will stay constant forever. In that case, 66,208,000 women are employed and roughly 80% of women have children at some point in their lifetime. 80% of 66,208,000 comes out to 52,966,400 women who would have to be subsidized for having children at one point or another. Now, this can get messy because we then would have to analyze the average number of children that women would decide to have, but for sake of brevity, let's solely analyze the cost for having one child. If we assume paid maternity leave is 16 weeks (as it is in France), and there are 52 weeks in a year, where the average woman with a bachelor's degree age 25 and up is making roughly $40,000 per year, each woman is entitled roughy 12,300 dollars. Throughout a lifetime, the rough total cost for the taxpayers comes out to $6,518,941,538,000. While this is a very, very rough estimate, nonetheless I think it makes a point that it is not a cheap entitlement to run. 


The other suggestion would be a mandate that forces business owners in the private sector to pay for their female employees' maternity leave. This is another terrible idea, that would force businesses to cover more compliance costs, hindering ability to expand and hire more employees, generating more wealth. Since I like numbers so much, here's a little more food for thought. Let's say a small business owner employs 30 people, where 15 are female. Let's say that of these 15 women, 10 were hired straight out of college, and, sticking with the idea that ~80% of women have children, 8 of these women decide to have kids while employed for said business owner. If each is getting paid ~$30,000, using the same 16 week paid leave example as before, it will cost the business $73,845 for eight separate maternity leaves. What does this mean for the other 22 employees and employer? It means each having a shortened pay of $3,210 for these eight leaves. However, if the workers are unionized, I doubt that the union will stand around and take that, meaning the business owner would have to bare all of the costs him/herself. This may mean not taking home a paycheck for a few months, or this may mean limited expansion and investment for a few months, pushing back potential hirings. Not to mention, the women are not obligated to tell their employer that they are or plan to get pregnant. This makes the environment more unpredictable, especially when the owner doesn't know the costs that he/she will have to cover in the near future, and with the tens of thousands of pages of regulatory burden, not to mention compliance costs, taxes, and the constant threat of litigation, this would only add to an already hostile environment for business owners. 


This is not being sexist or chauvinist, I feel the same way about paid paternal leave (which is covered in France, no surprise there). Unfortunately those who are anti-business treat employees like helpless puppies and the business owner like the master of the pound, but in reality, a good employee is equally or more valuable than the pay they receive. Any time a woman needs to leave for maternity leave, especially a talented and skilled one, it already hurts the business enough. 

The Myth of Underpaid Women

There has been much talk lately of the Census Bureau date from 2008 that showed that a woman makes only about 77 cents to every male's dollar. So with this statistic in mind, of course bureaucrats in Washington are going to try to make new legislation to ensure equal pay under the law for both men and women (market be damned!). But, let us all not forget what happens when politicians see a statistic without really deciphering the meaning--they misconstrue the data.

Now, it is true that if you were to add up all of the incomes of all of the women in the U.S., then divide by the number of women in the labor force, then did the same for men, you would see that women makes only about 77% as much as men do. But is it because we still live in a sexist country, saturated with discrimination?

I don't think so. I encourage any of my readers to walk onto the campus of Rensselaer Polytechnic Institute (RPI), located in scenic Troy, NY, or any other engineering-focused school and count the number of women. Chances are, it won't be long until you realize that men outnumber the women roughly three to one (at RPI). Men are more likely to go into more lucrative fields such as engineering, computer science, business, or investment, whereas women are more likely to go into fields such as humanities or social work. Although there has been an increase in the number of women graduating with math or science degrees, the women that make up much of the labor force graduated in the 70s, 80s, and 90s--when math/science degrees weren't so popular among the ladies.

Another point that economist Steven Horowitz makes is that many women who graduated from college during the above mentioned decades were less likely to see themselves working a full-time job, and more likely saw themselves working for a period of time before taking time off to raise children, or perhaps taking a job that required only part-time work so that the family could also be looked after, which of course means a lower income.

This isn't to say that absolutely no gender discrimination takes place anywhere in this country anymore, but I believe that it occurs much less than those who like to legislate every little imbalance in our society would like to believe. The income disparity between men and women occurs more through the choices men and women make, including educational choices, the choice to have kids, and the choice to assume responsibility for work in the house. This is not something that can be legislated or mandated, but like I've always said, social changes occur through time or shifting attitudes of the population, not by some government enforced policy. As more and more women start to engage in science and math, perhaps more women will take up fields in engineering, investment, or medicine, which will naturally lower the income disparity. No law will be able to do that, ever.

Walker Wins Recall, Does It Matter?

Wisconsin Governor Scott Walker (R) has won the country's third ever gubernatorial recall election, defeating union-supported democratic challenger Milwaukee Mayor Tom Barrett. Interestingly, this was the first time in the United States' history that a recall has not resulted in the success of the challenger. This speaks a few things to me. The first calls me to question the legitimacy of the recall. Obviously the voters of Wisconsin did not think that Walker has done such a terrible job (with 94% of precincts reporting, Walker lead by a 9 point margin (54%-45%, I think it's worth noting that Walker only won by a 5 point margin in 2010), after all, according to the state Department of Revenue, the state should boast $275.1 million surplus by June 30 of this year and a $154.5 million surplus by June 30, 2013. The other way in which the aforementioned statistic speaks to me is that Wisconsin, like much of the country, is incredibly polarized. Clearly this margin of victory was no landslide; many have strong feelings in both directions on many issues, including the debate over the appropriateness of unionized labor and its power.

Both sides of the political spectrum have been speculating over the importance of this election--what does it mean for November? I've heard many say that this recall election could be a big momentum swing for November or at the very least will be indicative of how the country as a whole feels. We all knew whoever the loser was--the media outlet on his side would surely shrug it off, even if the same person claimed the election was significant prior to knowing the results. Well unfortunately, this recall was primarily about one issue, where the issues that shape the results in November are a melting pot of problems primarily consisting of the economy, gas prices, and unemployment. However, we must also keep in mind that Wisconsin is very much so a blue-collar state, with heavy union influence. It's not much to say that the Boston Celtics beat the Heat in game 5, however it would be noticeable if my high school team beat the Miami Heat. Okay, maybe Walker wasn't that big of an under dog, but the point being is that I think it shows the truth; number don't lie, and his policies (whether you agree with them or not), have helped Wisconsin with a debt problem, something that New York State could afford to take some notes on. However Romney, (to my knowledge) has made no plans to tackle public-sector unions like Walker has, his policies and the policies of Walker are not a perfect match, and in an election atmosphere where independent voters turn the tables, it is important to keep in mind that many independents vote on issues pertinent to their daily lives. My diagnosis: this recall victory for Walker has little impact on the presidential election in November.