Washington Whispers

Dick Armey's Social Security Fix: Let People Opt Out

By Paul Bedard

September 22, 2010 RSS Feed Print

Dick Armey, an adviser to both the Tea Party movement and to the Republican Party, is pushing an unusual way to balance the budget and fix Social Security and Medicare: Let people quit the programs. Armey, head of FreedomWorks, predicts it would be so popular that Social Security rolls would be halved within three weeks. "Let it be voluntary," he says. Mostly the wealthy, he reasons, would take their tax money and invest it in their own retirement and health insurance accounts.

Tags:
Dick Armey,
deficit and national debt,
healthcare reform,
Medicare,
social security

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I should add I foresee the "income level" against which my contribution ranges would be established as income before deductions; to do otherwise would permit the wealthy to artificially lower their income, potentially to zero, so as to reduce their opt-out contribution requirement or exempt them from it entirely. With the possible exception of 401ks, no one who can afford to speculate in the stock market should be exempt from the requirement.

I am, by the way, a considerably liberal Democrat. Being a Democrat should not be equated with opposition to balancing the budget, of which this proposal addresses one aspect. My bent is to take care of the poor through the progressive distribution of wealth, including my own middle-class income. At the same time, the solution I propose does not deprive anyone of a social security benefit, but simply introduces another factor in the calculation of the final payout.

fjsteimann of MN 9:30AM November 20, 2010

Over the years, I have proposed to various politicians the following solution to the social security crisis. Mr.Armey was not one of them, but the proposals are similar.

My idea is to convert social security to a contributory system, designed to insure participants against the possibility they will not be able to save enough privately to fund their own retirements, while still providing for the poorest participants. My proposal encourages, but does not require, private investment and, in any event, keeps private investment outside of the social security system itself. Notably, it eliminates the necessity of continuing to raise the retirement age in order to keep the system financially sound.

In a nutshell, my proposal imposes an opt-out contribution requirement after age 50, on top of social security taxes, to maintain a participant’s full social security payout as presently projected. For every year in which the participant opts out of the system and fails to make the contribution, the participant’s projected payout will go down a sufficient percentage that, were the participant to make no contributions, the final payout at full retirement would be perhaps half of the full amount projected at age 50 (Congress may choose to adjust this percentage, depending upon fiscal needs; it could be lower or higher). Should the participant stop, and then resume, paying the contribution, the projected payout would be reduced by the same percentage for the years missed.

The contribution is entirely voluntary. The decision of whether to pay it will depend upon whether the participant believes the participant can make a greater rate of return, investing the contribution amount on the open market, than the guaranteed return the participant will receive by “investing” the contribution amount in the final social security payout.

The actual contribution amount, which I envision as a range, will also be progressive. For those participants who cannot afford to pay, the "required" contribution will be zero. Likewise for the remainder, the range of contribution amounts will be based upon income level. At each level, the question for Congress will be keeping that amount competitive with the market relative to projected returns, though at a slightly higher cost-to-benefit ratio on the social security side.

The anticipated result of this system is that those who have saved a sufficient amount for their own retirement will opt out of making the contribution in favor of privately investing the contribution amount elsewhere. This will drastically and dramatically reduce the draw against the social security fund, while at the same time social security taxes continue to be collected, restoring the integrity of the fund to a positive balance. Eventually, the proposed system may permit the reduction of social security taxes. Implementation would be on a prospective basis, so as not to affect those presently receiving benefits.

Fritz Steimann of MN 1:11PM November 16, 2010

Jim of MI has fallen for the trendy rightwing soundbite calling SS a "Ponzi scheme." As usual, the right is clever at dreaming up slogans, (death panels anyone??) but off in outer space with their analysis of the real world. Ponzi schemes are designed from the get go to make the schemer rich, and to give some early bird joiners a good return to lure in future suckers. No one is ripping off SS contributions. Past, current and future contributions are all being used to pay benefits to participants (less a very small admin cost, which is much lower than the fees and expenses charged by private management firms). Participants have gotten what they were promised for the past 80 years and will continue to get promised benefits for another 25-30 even with no changes. With some changes to account for substantially changed demographics SS should continue to deliver benefits indefinitely.

mel of MD 12:25PM October 26, 2010

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