Disclaimer: The Retirement Choice Act is not a true piece of legislation, but it should be. I present my ideas with legislative titles, because it gives a name for people to rally behind.

We can all agree that Social Security needs some help. There are a handful of debatable ways to handle this time bomb of fiscal catastrophe. First, we need to deal with the fact that it’s not sustainable. According to current projections Social Security will run out of funds by 2037. We also need to make sure Congress doesn’t use the money for anything other than our retirement. Third and last, we should be given a choice as to what happens with those funds. It’s our money after all.

How To Pay for It

One of the few ways to deal with the issue of Social Security not being able to pay for itself is to eliminate the cap on the amount of earned income which is taxable. It appears like we have a regressive tax system for Social Security capped at $110,100. Any income over that amount isn’t taxed for Social Security. Why should the lower tax bracket pay more in taxes relative to their income than the rich? It doesn’t make sense.

The Income Cap on the Social Security Tax

Some clarity is needed here. I really wish we could just get rid of the cap and the budget shortfalls in Social Security would magically disappear. They won’t. The reason being is that by adding high income earners to the tax pool you are also required to pay them benefits down the road. Therefore, the multimillionaire paying more in Social Security taxes gets more in his Social Security check when he or she retires. The money he is putting in doesn’t go towards making sure the program doesn’t go bankrupt, it actually makes the situation worse, because they now have to pay out more. It all comes down to the formula used for deciding how much benefits to provide based on taxes taken in and they don’t add up. I’m feeling an inclination to get into the history of how this happened, but I’ll refrain (you can find that in the links below). How can we fix the formula?

The Bowles-Simpson Commission

Well we have a good start here. There was a lot going on with President Obama’s commission to deal with the deficit by Alan Simpson and Erskine Bowles, but we are going to only look at their proposed changes to Social Security. They dealt with long-term solvency by increasing revenues and trimming benefits in the years to come. Most of it I would cut, but there are a few gold nuggets in the proposal including a change to the formula.

• They suggested by 2020 state and local employees start paying into Social Security. This doesn’t help since it only adds more people to the problem. More taxes and more benefits, while we still have a bad formula.
• They do suggest changing the progressive benefit allocation percentages (part of the formula) in such a way to create more revenue and add more benefits for the poor. Without getting into the math this part would be very helpful, but isn’t a fix-all.
• After 2012, the retirement age would be linked to the average life expectancy of all Americans, which tends to rise, thus reducing the cost of benefits. This roughly equates to about a one month increase per year. Not much.
• They also suggest changing the benefit allocations from being connected to the Consumer Price Index (CPI) to a chained CPI. As you can imagine this reduces benefits for everyone and gets worse as you get older, thus saving money. I’m not a fan of this part and would axe it. What’s the point of fixing the system on the back of your aging grandmother?
• It increases benefits for people who have been in the program for more than 20 years offsetting some of the issues with the chained CPI. The two combined would reduce benefits across the board saving money in the long run. Unless someone can show me an additional benefit, I don’t see why we should resort to these mechanism to cut costs when you can do it in a much simpler fashion such as raising the retirement age gradually like with indexing the retirement age to the average life expectancy.
• It would also gradually increase the cap on taxable income to include 90% of wage earners. This only adds more taxes and more benefits and more problems. I’m not opposed to this, since more people would get benefits, but it doesn’t solve much. Even with the formula adjustment these high  income earners being capped at 90% of the populace doesn’t help enough.

The Bowles-Simpson Commission helps with the long-term costs of Social Security. I would accept it over nothing, but I’m not suggesting nothing. Read on.

The Alternative Minimum Tax Exemption

The Alternative Minimum Tax exemption, which reduced the Social Security tax to 4.2% instead of 6.2% on household income under $110,100 (2012 caps) and saved people a lot of money should be made permanent, but capped at a household income of around $50,000 (This number is a suggestion based on the Forbes article.). This makes the tax more progressive.

Whatever the changes are they should be revenue neutral. If this means reducing the cap on the AMT or eliminating it all together (except during a recession) than we need to do it. If we need to raise the retirement age by a year or two in order to maintain solvency, then so be it. I would rather retire later and pay higher taxes than not have Social Security at all. We cannot buy something with money we don’t have.

What’s Left

If eliminating the cap on income doesn’t help, the Simpson-Bowles Commission only does a little, and the AMT makes things worse, what’s left. Below are my proposals (actually I stole these from well known economists such as Charles Biahous and others).

• Adjust the benefit distribution percentages to create more income and provide more help to the poor as suggested in the Simpson-Bowles Commission.
• Link the retirement age to life expectancy, an adjustment of approximately one month a year increase at the moment.
• Prevent Social Security surpluses from being spent and require the government to pay back what it has already taken. Surpluses will be used for projected future shortfalls on tax income relative to benefit payments. Surpluses created due to election choices based on the options (Option 2 specifically) below will be paid to beneficiaries spread out over an average life-span index.
• Beyond all my hesitations, I would completely eliminate the cap on income which is taxed. The reason being is with the implementation of an adjusted benefit distribution the high income earners contribute more to the plan than they get back in benefits. This would be even more effective with the following addition.
• With the Simpson-Bowles Commission they suggested  changing the current spread of benefit contributions from 90% of AIME (Average Indexed Monthly Earnings) for low-income earners, 32% for middle-income, and 15% for high-income to a four tier progressive spread of 90%, 30%, 10%, and 5% of their AIME. I would add a fifth tier of 3% on the highest income earners say households making over $1,000,000 a year or more would be taxed at the 6.2% Social Security tax and receive 3% of their AIME in retirement, with a benefit (not for purpose of taxable income) cap of $6,500 no matter their AIME benefit allotment. In a single year someone making a million dollars would be taxed at 6.2% ($62,000) and receive in retirement income of 3% of AIME ($30,000). The numbers don’t quite work out like this, but it gives you an idea how we can produce a bit of revenue here.
• I would only continue the AMT Exemption during times of economic crisis or if they project surpluses justified the loss revenue.

It’s My Money

I believe in freedom. I believe we should be given the choice to act stupidly or wisely. Deciding whether to go to a fast food restaurant or cook a beautiful healthy meal at home should be a choice. The same stands for Social Security. Each tax payer should be given three choices in regards to his or her benefits with the default option being Option 1 below. Once per year during tax time a person can elect one of the following choices to either make his or her first selection or adjust future contributions. You can even decide if you want fifty percent to go into one option and fifty percent in another (You cannot do partial distributions to Option 3. Its all or nothing). The point is you have a choice.

Option 1: Hands Off

Can it be any simpler? With this choice everything stands as it was. Think in terms of your money sitting in a zero interest account till you reach the golden age of retirement. It’s what we have now and it’s not that much fun, but you can keep it if you want it.

Option 2: Government Invests

With this option our government would invest in foreign treasuries (which they do anyways) and the like administered by the Federal Reserve with oversight by the Senate based on an annual review. The Senate would not be able to veto investment decision by the Federal Reserve except with a super majority. The Senate cannot submit recommendations either, eliminating political influence in the investment allocations. If investment allocations are vetoed the Federal Reserve would have to submit a proposal for new allocations to be passed by Congress requiring only a majority vote in both houses. With this choice, you get all the earnings at time of retirement as an increase in your standard benefits spread out over the average life-span of an individual. You should also be able to see the growth of your Social Security account online throughout the years.

Option 3: Self Managed

This one is my favorite. With each paycheck the amount of Social Security taxes taken out of your paycheck will automatically be deposited into a retirement account of your choice similar to a Traditional IRA, but with no caps and you cannot remove the funds until you reach the age of retirement. These can be managed by a broker or by you through something like an Etrade or Scottrade account. These accounts are not insured by the Federal Government. With choices are consequences, good and bad.

How will this work based on the current formula of benefit distribution using the Average Indexed Monthly Earnings, which uses a 36 year spread? Each year the Federal Reserve will calculate the percentage of participants selecting Option 2 and allocate that percentage of funds into their investment program and the rest of the funds will continue as normal. As for Option 3, you can only elect this choice if you are in the bottom three income brackets. This will prevent the top earners from leaching away the savings proposed in the formula adjustments. The years you select Option 3 will not be counted towards your AIME if you decide to select one of the other options at a later date.

Ultimately, the problems of Social Security stems from sustainability and choice. Both of these issues are solved in the fictitious Retirement Choice Act.

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Links: Forbes: Revenue Neutral 2012 Fixes to the Social Security Tax and the AMT | Social Security Changes | Why Raising Social Security’s Tax Cap Wouldn’t Eliminate Its Shortfall | Chained CPI | Analysis of the Simpson-Bowles Commission’s Effect on Social Security | Benefit Formula Adjustments

Sources: http://www.forbes.com/sites/matthewcampione/2011/11/29/revenue-neutral-2012-fixes-to-social-security-tax-and-amt/

The Distortion

Take for instance, between my wife and I we spend about $50 a week on groceries. This comes out to $2,400 a year. Therefore, if this cost was the marker for the cost of groceries at poverty based on the formula used by the DHHS then the poverty line in this scenario is $7,200. So are we eating beans and rice everyday? On most nights yes, but we do well by ourselves. As for our bills on a whole, well let’s not talk about college loans and such for the moment. Just let it be known things are tight. To reiterate, the national poverty line for a two person household is $15,130. My wife and I make much more than that, but we are still forced to spend less in food than the poverty line suggests in order to survive. I didn’t point this out to emphasize our frugal nature, but rather to show how distorted this calculation is.

Census Bureau

Also, keep in mind I’m advocating adjusting the current cost of groceries to maintain a healthy life, which comes to about $105 a week for a family of two at poverty. According to the Census Bureau groceries should only make up 13% of your income, not 33%, which the Department of Health and Human Services uses. If we adjusted the minimum grocery standard to the Census Bureau expense ratio we get a poverty line of approximately $38,833 not $15,130 for a two person household. This throws the calculations off a bit doesn’t it? Is a two person household really in poverty when they make almost forty thousand a year? Can we also say the same house, making fifteen thousand a year is doing just fine and they can meet all of their basic needs?

The Fix

I suggest we use the Census Bureau standard of 13% for groceries along with a recalculated cost of groceries based on regional prices, which could still use the Consumer Price Index if need be. Even if we went with how much I spend on groceries as the poverty line it sets annual income at $18,480 for a family of two. Much more realistic than $15,130. Ultimately, the discussion comes down to whether or not someone making $18,480 needs public assistance in order to survive. My answer is yes. Support the fictitious TIP Act and help those in need survive these hard economic times. Comments are welcome.

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Links: Department of Health and Human Services | 2012 Poverty Level Chart | Wikipedia “Poverty in the United States” | Poverty Guidelines DHHS | Census Bureau Cost of Living Index | Further Reading

Take for instance low-fat milk. Based on weight, this product is only 2% fat. They get this by taking regular milk and adding water. Yummy. Also, consider all food is eaten for its calories or units of energy, not how heavy it feels on your stomach. The additional water doesn’t give you much in calories and as a consequence you end up with about 40% of all your calories coming from fat in the 2% milk. Interesting isn’t it.

Now take a burger. Based on weight you might have 10% fat or 90% fat-free. Sound great right? Who could pass up a low-fat burger? What this labeling doesn’t tell you is that out of all the nutrition (calories) in that burger you are getting probably 60% of it from fat. Not fun. Deceptive labeling such as this is one of the reasons why we have an obesity epidemic in America. Would I eat the low-fat burger? Of course (as long as it was a veggy burger, but that is another story). But, would I eat the burger made of 60% fat? No. It is about what will make you buy that low-fat product, not whether or not it is in your best interest to do so.

We have a right to clear concise non-deceptive information. We have a right to make knowledgeable choices. Why wouldn’t someone support the True Fat Labeling Act (love this titles)?

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Some people cannot afford the time and money to go to the gym and their insurance tells them they have one choice or die, surgery. Now let’s think about this in context. The cost of gastric bypass surgery can reach $30,000. That is the value of a really nice car, a down-payment on a house or the cost to send one of your kids to a local college. Your insurance company will pay this, with possibly drastic results such as gaining the weight back, blood clots in your legs, a leak of one of the staple lines in the stomach to name a few of the short-term complications.

What if you could choose between a gym membership along with a personal trainer versus surgery? Personally, I would like to be able to choose between alternative to the scalpel. I believe we should be able to have a choice. The current system doesn’t allow for it.

Cost Comparison

Let’s look at costs, a personal trainer it will run about $50-$100/hr and the gym membership about $30/month. If you meet a personal trainer once a week for two hours at $100 that’s $800 a month on top of the $30 a month for the membership. Add this all up and the insurance company would pay $9,960 for the whole year! Let’s just say it takes the average obese person three years to get in shape with a personal trainer guiding them along. Only then will it cost approximately the $30,000 it takes to pay for gastric bypass surgery. After the three-year threshold, these people will look like models and will probably be out of the danger zone within a year.

I’m fine with the insurance company cutting off the free privileges of a personal trainer and gym membership after a year. Make it based off of the same system of eminent mortally the gastric bypass surgery is. People’s lives are at sake. Should we be able to choose the healthier more permanent option?

It’s About Choice

As for long-term possible complications from gastric bypass surgery include the inability to absorb certain vitamin and minerals, the Mayo Clinic has given us a full list of potential problems here. Now I’m not going to advocate whether or not a person should get surgery to help with his or her weight loss, but I do believe is ridiculous and promotes the obesity epidemic in America that insurers will cover these surgeries, but they won’t cover the natural and more permanent way to deal with these problems.

If an insurance company OKs a person for surgery to cure obesity, they should also pay for alternatives such as a personal trainer and gym membership. Frankly, it is in the insurance company’s best interest to get these people healthy in the most affordable and long-term method possible.

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Simple answer: Make it illegal for employers to reject unemployed applicants by passing the Fair Employmentk Opportunity Act of 2011.

With unemployment hovering around 9%, what these companies are doing is vile. These counterintuitive practices do nothing more than ensure we swell the ranks of the poverty.

To give some context, you know that lovely online job board Monster.com, well they recently became monsters. Sorry about the pun. They are allowing job advertisements that will not accept the unemployed. Even after a petition with upwards of 60,000 signatures asking them to stop they only sent a letter to the petition creators threatening defamation.

Help end this terrible practice. Call your senator and ask them to support the Fair Employment Opportunity Act of 2011, share this article with your friends, and subscribe to Political Verve to promote progress and the American dream.

That aside, I would like to see the chose to block credit card over-limit transactions before you apply for your credit card, along with the ability to change/update your decision online. You shouldn’t have to jump through hoops to save money and prevent fees.

Think about it? How irritating is it when you pass your limit by fifty cents and get slammed with an over limit fee. At least, the Credit CARD Act prevents companies from increasing your interest rate unless you’re over 60 days late (I just skimmed the Credit CARD Act to confirm this).

This is about giving consumers more control over their finances. Sweet and simple. Options.

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This is contrary to say using a credit or debit card online which requires that your name, billing address, and security code match up. With ACH there is nothing. Yup, you heard it. As stated earlier, all a company needs are the routing number and check account number to pull any amount of money from your account.

Keep in mind, fraudulent transactions are closely monitored by banking institutions as well as the Federal Reserve, but it makes no sense that they don’t very information before allowing a ACH withdrawal to occur. The rest of the industry does it with online electric transactions. Just because it is the government doesn’t mean they should be allow to fall behind the times at the sake of consumer safety.

We must demand the Federal Reserve requires confirmation of personal identification information before allowing ACH withdrawals. Currently, no legislation sits in Congress waiting for a vote, so call your legislator and demand they draft one.

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The Kyoto Protocol is a starting point where the world powers have already agreed. I cannot fathom why we don’t use it as the jumping point for continued development and cooperative responsibility.

Difficulties

What is standing in our way? Thee most obvious factor is the economic implications of excessively reducing green house gases. These concerns must be brought to the table and every country must be held to the same standard. Developing countries will need to work closely with developed countries in the sharing of technology so that they can meet the same standards.

The only way this will work is through  shared responsibility, technological collaboration, and flexible methodology factoring the  unique situation in each country.

Ultimately, the agreement cannot be perceived as an impediment to international trade and domestic development. The approach  needs to facilitate the transition to new technologies and industries which will define the future where we praise countries as stewards of creation.

Benefits

Beyond stopping the impending doom of global warming, whether you believe in the science or not we will have a cleaner more advanced society. Think about walking in downtown New  York City and taking in a deep breath of fresh crisp clean air. Think about driving further on a single tank of gas. Think about not having an electric bill, but rather getting an electric company check for the solar panels on your roof. Think about the lush trees and  gardens in your neighborhood. Think about the clean fresh food at your local market. Think about being connected and most importantly owning this Earth we live  on.

If all this can be done without inhibiting our economic future why wouldn’t we? Are we afraid or are we driven?

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External Links: KyotoUSA | Wikipedia | UNFCCC

I firmly believe it should be mandatory for jails to provide some form of job training and placement program. Furthermore, these jails should be evaluated on how many of their inmates find and keep jobs after leaving. Of course let’s not forget to measure them on how many of their inmates return after a short  time.

There are a lot programs in place overseen by the Bureau of Prisons and the Department of Labor enforced by the Workforce Investment Act of 1998, but nowhere do you see mandatory job training requirements. It’s too easy to slip through the cracks when law isn’t explicit. Progress should be rewarded with more federal subsidies and failure should have consequences. If the jail isn’t performing then require staff replacements and new ideas.

The basics:

1. Mandatory job training
2. Results based evaluations
3. Positive results more subsidies
4. Lacking results staff changes and more

When you don’t have or don’t know you have a sellable skill (a legal one that is) many people end up selling their bodies on street corners in order to pay the rent. Prostitution is illegal (except in Nevada) and we should encourage prostitutes to not commit crimes. Why not help these people instead of throwing them behind bars. The hypocrisy comes in that prostitutes are more severely punished then the schmucks who take advantage of them. If there wasn’t a demand for these men, women, boys, and girls prostitution would diminish.

The Shmucks

If we reduced incentive by increasing the fees and jail time for the criminals who are leaving their wife and kids at home to get a blow on the street corner, demand for prostitution would drop significantly. We could also make sure criminals who use prostitutes appear in the local weekly paper. That would put a halt to the mess.

The Prostitutes

Let’s reduce the criminal penalties for prostitutes while making job training and community service mandatory. If we don’t help these people get a job then they will be back on the street doing what they know how. How else are they going to put food on the table. Keep in mind, prostitutes or constantly victims of rape, trafficking, slavery, and murder. It is also heinous that minors who are prostitutes are tried as adults. A sixteen year old girl doing tricks for a fifty year old man on a street corner doesn’t make her a criminal, it is exploitation and frankly rape. Let our laws match what we know to be truth. Fix it.

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Links: CATW | Prostitution Research & Eduction

Pending Legislation: S 596 Domestic Minor Sex Trafficking Deterrence and Victim Support Act of 2011