[Mb-civic] Who Wants to Be a Millionaire? By PAUL O'NEILL -Very Interesting

[Michael Butler]

Worth reading and thinking about.
Michael

January 16, 2005
OP-ED CONTRIBUTOR 

Who Wants to Be a Millionaire?
 By PAUL O'NEILL 
 

 Pittsburgh ‹ THIS is what we should do about Social Security: At the same
time we acknowledge that it is the most successful domestic program in
American history, we should also admit that Social Security, in its present
form, is unsustainable. And then we should come up with a plan that is
different than what President Bush and most of the pundits are proposing.

We should ask ourselves what would be a worthy aspiration for the financial
security of retired Americans in the years ahead. My answer is that we
should establish a process that will produce a substantial annuity for every
American at retirement age.

By substantial, I mean at least $1 million. In order to create a real, fully
financed annuity of this size, people must begin saving when they enter the
work force. The saving needs to be continuous, and it needs to be left
intact so that compound interest can work its magic.

We can do this. We already have a process in place that requires that we
give the government 12.4 percent of our income in the name of Social
Security.

The problem with the current arrangement is that our contributions are a
tax, not savings. So we should begin by agreeing that we are going to
require all Americans to save, individually, to provide for their financial
security in old age. After all, if we don't save on our own for our
retirement needs, who will do it for us? Our neighbors? Our children? In a
civilized society we have a responsibility to take care of our own needs so
as not to be a burden on others.

Yet we can also recognize that some people may work hard during their
lifetimes, and save 12.4 percent of their income annually, and still not
produce enough for a $1 million annuity when they retire. The federal
government could then make annual, supplemental deposits to their accounts
from its general revenues to make up the difference. Those of us who are
more fortunate can help those who are not. (It is useful to remind ourselves
that the federal government is "we the people" - and the federal government
doesn't have any money unless it takes it from "us the people.")

Let me define what I mean by financial security. Financial security begins
with ownership of real assets; so the money saved each year in this plan
would be the property of the person who saved it. I would use the existing
Social Security collection process because it is already in place, everyone
understands it and its costs are relatively low.

The money would then be invested in broad-based index funds with an
objective of matching the overall rate of return for all investments in the
United States. These funds typically have very low costs because they're not
actively managed. That means there would be no windfall profit for
stockbrokers in this system.

Further to the definition of financial security: it means enough money in
retirement for all needs - food, clothing, shelter - and including medical
needs like prescription drugs.

 If we could work toward this idea, we could reduce our current dependence
on the political process for these necessities. When Congress passed and the
president signed legislation last year expanding drug coverage in the
Medicare program, many politicians acted as though they were granting us
some great beneficence. But they don't have any money (or the benefits they
pay for) to bestow unless they first take it away from us in taxes.

As I write this I can imagine the chorus of pundits saying, "This isn't
politically possible." Why not? Because it is too complicated for people to
understand? Or because the only way to approach change in our society is
through small incremental steps, like the president's tepid notion of a
limited, voluntary diversion of Social Security taxes into small private
accounts?

Baloney, I say. What stands between a truly worthy aspiration for our
society and its realization is political leadership with the courage to
dream big.

The social policy technocrats will have a more legitimate concern: how do we
get from where we are to this new and better condition? While I was
secretary of the Treasury, the Federal Reserve chairman, Alan Greenspan, and
I worked on an idea to jump-start the changeover by borrowing enough money
to put money into individual accounts now, beginning with the youngest
workers. We did some very rough calculations that showed for $1 trillion, we
could transfer the population from age 18 to the mid-30's into this new
arrangement.

The value of doing this is twofold. First, it hastens the transition to the
new program for society overall. Second, the $1 trillion of borrowing now
(to be paid from general revenues over the next 20 years) makes a
substantial dent in the unfinanced liability of the current program.

As to the current program, everyone above the age of 35 could keep their
current relationship with Social Security and their benefits intact. Their
children, though, would have a better life. And that, after all, is the
promise on which this nation has been built.

So there it is. Do we have political leaders who are interested in
surpassing Franklin Roosevelt's achievement of 70 years ago?

Paul O'Neill was secretary of the Treasury from January 2001 to December
2002.

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