Issue Position: Social Safety Net to Social Spring Board

Issue Position

Of the more than $3.5 trillion the federal government will spend this year, more than 2 trillion dollars worth of that will come out of mandatory spending: these are programs designed to spent upon automatically when people become qualified to receive benefits and services through them, such as welfare, unemployment, Medicare, Medicaid and Social Security. These mandatory programs are often referred to informally as the "Social Safety Net." Since the 1930′s public spending of this kind has become an increasingly important, and relied upon, facet of our society. Today it is estimated that some 128 million Americans receive government benefits of one kind or another. The social safety net is an almost sacred promise of our government, a core element even of our national culture.

But it is a very costly promise of our government and our culture. Social Security, Medicare and Medicaid alone (the three biggest drivers of our deficit) will cost us as much as 1.6 trillion dollars this fiscal year alone. But it is the long term obligations of Social Security and Medicare (referred to as "unfunded liabilities) that make these programs such a threat to our long term economic stability, even to the very financial future of our nation. Currently the U.S. government owes more than $100,000,000,000,000 in unfunded liabilities to Social Security and Medicare. That number is climbing all the time.

This is the obvious problem with the social safety net, but there is a related problem with it that is just as important. The social safety net, overall, has the tendency to take value out of the economy, as opposed to putting it back in. The first woman to receive regular social security benefits paid $25 into the system and ultimately took out $23,000. In 1940, the year Ms. Ida May Fuller began receiving Social Security, there were nearly 160 workers paying into the program for every one retiree taking out. Today that ratio is down to less than 3 to 1. Social Securities' years of solvency are literally numbered (10 years before it pays out more than it takes in, at the current rate). Medicare, the federal health insurance program for senior citizens, is in even worse condition. In spite of recent cuts to Medicare, another generation will not have gone by before the program has long since ceased to take in enough revenue to cover its' outlays. This pyramid model of funding these increasingly expensive programs was always going to lead us to this predicament. We've opened the release valve on our nation's wealth and are having a hard time figuring out how to shut it off.

There are other, more subtle ways in which the Social Safety net takes value out of our society, by incentivizing expensive and inefficient healthcare practices and also by providing extended financial aid to people without also providing a structured path towards self-empowerment (see Standardizing Healthcare and Transforming the American economy). But the sheer, mounting cost of these programs alone is enough to make them as dangerous to the future of our nation as they have been helpful in the past. Yet we have come to depend on them to such a degree that there seems to be no solution to this problem that can make sense both politically and economically.

Nevertheless, there is a way to solve this problem that Americans, Democrat and Republican, can rally behind. The Wood Plan for Entitlements calls for transforming the Social Safety Net into a Social Spring Board, converting these wealth extracting programs into vehicles that actively generate value in the American economy, and security for her retirees that will increase with each succeeding generation.
How does the Wood Plan for Entitlements reverse the devaluing process? By making the following changes in these two programs:

Step 1. Personalization, dynamic value growth and guarantee of security: by transitioning into a system of optional personalization of Social Security accounts and optional adoption of Health Savings Accounts in place of traditional Medicare, and by investing these funds on behalf of beneficiaries in areas of safe growth, we accomplish increased long term security for S.S. recipients and reduced Medicare costs (and general healthcare premiums) for beneficiaries (and all those in need of health care).

Optional personalized S.S. accounts funded by payroll taxes (and voluntary additional contributions) into safe growth areas such as treasury bonds (with guaranteed returns) and general market funds (which historically average between 7-9%). These accounts cannot be touched until retirement, except in extreme circumstances such as bankruptcy.

Optional H.S.A.'s funded by payroll taxes in like manner. Can be accessed for any healthcare purpose.

Accounts are guaranteed by the Federal Government up to $75,000 (indexed to inflation).

Step 2. Diversification of revenue streams to increase funding and prevent reallocation: by safeguarding Social Security funds and by using the dynamic growth of personal accounts to help fund the programs, we can ensure the guarantees of these programs even in times when market growth recedes.

A small portion of the growth of personalized accounts will be diverted to fund the guarantee of Medicare and Social Security. (The value of this portion will increase as markets increase and as accounts are handed down−see below.)

Personalized account puts funds out of the reach of congressional reallocation, which has drained the current Social Security Trust fund.

Payroll taxes paid by those opting into traditional S.S. and Medicare will be locked into a secured trust fund.

Step 3. Economy-wide growth through the heritable growth of the value of the renewed Social Security system:

Personalized accounts will be heritable, meaning that they can be passed on from generation to generation, allowing their value to accrue according to how much is and is not spent by parents (and any leaving an account to an heir). As time goes forward, the value increase of these accounts per generation would be extraordinary, increasing liquidity in the markets, adding value to the economy, and ensuring security to the American people indefinitely, while in time reducing and eliminating Olympic liabilities the current system has accumulated.

The Wood Plan for Entitlements calls for a fundamental transformation of our entitlement system, but one that would grant the growth potential called for by conservatives through privatization while ensuring the stability and guarantees of the programs demanded by liberals. It is a 21rst century model of entitlement reform that can not only save our economy, but can save our future retirees from what is otherwise on course to be a very uncertain future.

Source