Entitlements - Social Security:

America has a significant, current and growing problem with both the absolute amount of entitlement spending, as well as the portion of total Federal governmental spending represented by this spending category. In this Commentary I will discuss only Social Security, and will take up the other "entitlements" separately. I chose Social Security to start with as I believe it is the easiest to permanently fix (the low hanging fruit.)

Definitions:

1. Entitlements include Social Security, both retirement and disability payments, Medicare, and Federally funded unemployment and welfare, as well as, aid and assistance to the poor. I include only Federal the portion of each program in this definition, as it is my belief that the primary governmental responsibility lies with state and local agencies.
2. FICA or Social Security contributions like Medicare contributions are taxes, essentially flat, regressive taxes and since the 1960’s true Trust funds have not existed, will not be restored and are not needed.
3. Basic Medical Services include only (a) emergency care, (b) care of and for critical injuries and illnesses and (c) where necessary to prevent the spread of infectious disease.

I propose the following comprehensive solution to this issue (I guarantee no one, right, left or center, will like this but it is a serious problem and demands a serious and unfortunately painful solution):

SOCIAL SECURITY

1. Raise the minimum eligibility to 20 years (80 quarters) from the current 10 years (40 quarters), with pro-rata benefits to be paid to those, otherwise qualifying but who have more than 40 but less than 80 quarters to their credit. For example at 15 years (60 quarters) benefits paid would be at 3/4 ths of the otherwise calculated full benefit level.
2. Raise the age for early retirement for all participants presently under age 55, to 95% of the new indexed regular retirement age and provide, at early retirement, benefits at ½ the otherwise calculated full benefit level, as an intentional penalty for an early election in order to discourage same.
3. Raise the regular retirement age to 70 for all participants and index retirement age for all new claimants to be adjusted annually for life expectancy gains. This recognizes that in 1935 when passed into law life expectancy was less than 65 and today it is 78.
4. Raise the employer and employee contribution (tax) rates each, by 1%, effective immediately, on all employees and employers.
5. Remove the limit or “cap” on earnings subject to the tax, similar to and parallel with the Medicare tax. Yes, this is essentially a flat tax.
6. Means test benefits to three times the federal poverty level with 100% of benefits being phased out between the Federal poverty level and 300% of the federal poverty level, effective immediately for all benefit recipients. Yes, this is confiscatory but if everyone paying the payroll tax thought there really was a trust fund they had been paying into, sorry.
7. Provide a lien on all assets held by a benefit recipient at death (or to be gifted during life) in the amount of the future value of all payments received during the participant’s life, for that amount to be repaid to the Federal Treasury from the decedents estate, if any. Enforce the lien by allowing a civil bounty of 20% to any person or entity successfully recapturing funds for the Treasury. The purpose of the benefit is to help the needy not to preserve family assets.

All of this recognizes the fact that Social Security, although originally sold as social insurance, is and has been a tax and that ultimately we are each individually responsible for our own retirement, as well as that of our families and a portion of the cost of helping those who cannot help themselves.

-- Ronald C. Lazof is the Managing Director of Prism Advisors LLC.