Fellow wants a 10% national sales tax to replace payroll tax,and End to SS [View All]

[papau]

A "generationally equitable, but highly progressive" solution? FROM: http://www.boston.com/news/globe/editorial_opinion/oped/articles/2004/11/21/dont_reform_it_replace_it/ The end of Social Security?
Don't reform it, replace it By Laurence J. Kotlikoff | November 21, 2004

"Rather than substitute consumption for income taxation, I favor substituting consumption for payroll taxation. We should do this as one of nine steps needed to properly reform Social Security, albeit in ways that are very different from those the commission proposes. My plan, which has been endorsed by 150 of the nation's leading economists, is called the Personal Security System.

Step 1 shuts down, at the margin, the retirement (Old Age Insurance, or OAI) portion of Social Security. Current retirees continue to receive their full retirement benefits, and current workers receive all the retirement benefits now owed to them, but that's it. There is no further accrual of Old Age benefits.

Step 2 eliminates the employee FICA taxes (7.65 percentage points of the total 15.3 percentage point employer plus employee tax), directing these contributions to individual Personal Security accounts. The employer FICA contribution continues to finance Social Security disability, survivor, and Medicare benefits.

Step 3 uses a roughly 10 percent federal retail sales tax to replace employee FICA taxes and pay off all accrued Old Age benefits. Over time, the sales tax rate falls as more and more of the accrued benefits are paid off.

Step 4 has married workers split their contributions 50-50 with their spouses/legal partners leaving each with an equal sized Personal Security account. This protects dependents who are secondary earners.

In step 5 the government matches the Personal Security contributions of low-income workers, making the new system as progressive as it wants. It also contributes on behalf of the disabled and the unemployed.

Step 6 invests all Personal Security account balances in a global, market-weighted index fund of stocks, bonds, and real estate securities. "Market-weighted index" means buying assets in proportion to their share of the financial market. The allocation of the portfolio is thus determined solely by the marketplace, not the government.

Step 7 limits the risk of market downturns by having the government guarantee that at retirement Personal Security balances will equal at least the sum of past contributions adjusted for inflation.

In step 8, each participant's holdings of the global index fund is gradually sold off between ages 57 and 67. The proceeds from the sale are used to purchase inflation-protected annuities (pensions). These annuities are paid out beginning at age 62. Between ages 62 and 67, participants receive additional annuities based on the sale of remaining balances. Participants dying prior to age 67 bequeath their nonannuitized account balances.

Step 9 has the Social Security Administration administer all Personal Security transactions at very low cost. It collects the contributions, manages the accounts, buys and sells the global index fund, and handles the annuitization of account balances at retirement. Wall Street plays no role and collects no fee. The Social Security trustees determine which foreign financial markets to include in the global index fund."