Tuesday, December 4, 2012

We Need An 'Enrichment Society' to Replace The 'Entitlement Society'

Live like the 'Beverly Hillbillies'!
Our many discussions over the past 4 years have led us to conclude the following things:

1) Our current tax code and federal budget are messed up.
2) We can do a whole lot better, on an individual basis and government basis.

We propose the following to aim at for the future majority, whoever it may be. We think it will be the growing numbers of millions of registered Independents across the nation.  They tend to be more socially-libertarian and more fiscally conservative than either of the major parties today which stands to reason because:

'If the Democrats or the Republicans were 'doing such a great job', no one would ever register as Independent, would they?'

We think the cornerstone of this new 'majority' should be this: 'The Enrichment Society'

This will put to shame the 'Great Society' put forth by LBJ or even the 'New Deal' of FDR based on the concept of giving 'entitlements' to everyone.

Putting the name 'entitlement' on anything doesn't seem to be very 'American', does it?  The very word 'Entitlement' gives off a sense of English royalty or something, doesn't it, at its very core?  We think there are Constitutional words against such designations of entitlement in Section 9 of Article I of said sacred document.

On the other hand, 'enrichment' connotes a very American sense of self-reliance, industriousness and understanding of what Albert Einstein allegedly called 'the most powerful force in the universe': compound interest.

Here's what we think can and should happen in some sort of logical framework going forward:
  1. We should move to a pure consumption tax nationwide to fund the federal government.  (States can do whatever they like in accordance with the states' rights intentions of the Founders)
  2. The consumption tax should be enough to only cover the following parts of the current federal budget: Defense. Discretionary social programs. Interest on the national debt. About 47% of the current $3.7 trillion budget. Or about 12.5% of current GDP
  3. That would mean that a national consumption tax on every purchase, excluding food bought at a grocery store, would be subject to approximately a 12.5 % consumption tax at point of purchase or signing of contract. (Yes, homes and cars would be included since they represent 'consumption' of the use of steel and wood and plastic for the most part in order to get shelter and mobility)
'Hey!  Wait a minute!  What about my Social Security and Medicare benefits?  I paid into those programs you know with my hard-earned money!'

That you did, my friend, that you did.  Except it went into the pockets of people who long-ago retired and have now since died.  Your current payroll taxes are now being paid into the bankrupt (literally) SS and Medicare programs that can not even meet the costs and demands of the current retiree generation.

How in the heck do you think you are paying into a private fund that will provide any benefits for you down the road?  If you believe that, then you have most certainly been lied to and cheated by politicians for decades now.

There is a solution.  It will take a lot of guts and a lot of nerve to propose, advocate and then pass into legislation.  But it will lead to an 'Enrichment Society' unlike the world has ever known.  It will make every past recipient of Social Security and Medicare green with envy that FDR and LBJ didn't think far enough ahead in time to do this for them...and their families...and their children's children.

You will notice that we have deliberately limited the 12.5% consumption tax to only cover defense, discretionary items and interest on the national debt.  Most people we know would pay a 12.5% federal tax today in a split second and go home screaming with delight and joy to the world.

The rest of what you currently pay in payroll taxes for SS and Medicare would be converted into tax-deferred savings plan that can be used for future retirement and medical needs when you retire. The entire amount.  7.85% of your salary plus the employer match of 7.85% if you work for someone, 15.7% if you are self-employed.  All of it.

Where would this be?

Well, if we are smart about it, it would be directed to the nation's financial services sector to manage along with the current trillions of dollars now under management in current IRA and 401k plans.  It could still have the guarantee of the federal government to provide a floor for benefits for anyone who retires during an economic downturn such as the one that started in 2008 and just doesn't seem to want to go away.

We already have the case of Chile which has moved to such an 'enrichment' society in 1980.  Most of the top-ranked nations ahead of the US in terms of retirement all have a large component of their national retirement programs in some form of self-directed, individualized IRA or 401k model.

Today, we have nothing of the kind as part of our Social Security structure.  Nada. Nothing.  The blind adherence by many in the Democratic Party today to the 86-year old format of the current SS system is preventing you from retiring with far greater wealth and security than you will ever get from SS in its current form.

Would you buy a used 1935 Packard today and expect it to perform as well as a 2013 Nissan for example?  Doubt it very much. But that is what we are doing by relying on the old SS/Medicare format instead of moving to a more modern version that will yield far more in benefits than a measly monthly stipend of about $1700 can ever afford anyone.

On top of that, part of the current payroll funds could be invested into a 'health savings account' starting at age 18 when people start to work.  Once again, through the miracle of compound interest, each person would have more than enough to pay for high-end catastrophic health coverage for the bulk of their lives; long-term health care insurance and basic medical coverage once they retire.

Huge amounts of resources are spent in the last year of life, predominately for the roughly 5% of Medicare patients who pass away each year.  These could be covered by the institution of these new health savings plans as long as they are instituted at the beginning of a person's work life, not at the end of it.

These are not pipe-dreams or pie-in-the-sky musings by a crazy person (we hope).  We have the technology and financial instruments now in place in America to set up a retirement plan for every citizen such that when any person, rich or poor alike, reaches their golden retirement age, he/she can provide for their own needs and take this burden off of a centralized government in Washington that currently can not meet the demand and is bankrupting our country as we speak.

As an added golden egg bonus, if you happen to be one of the millions of people who will die suddenly of a heart attack, stroke or accident at any age, all of the money in these tax-deferred savings accounts can and should be willed to your spouse and family so they can use them for their purposes later.  Today, if you die of a heart attack 1 minute before you become eligible for SS or Medicare, you get nothing back from all of that money you complain about putting into the system in the first place.

Imagine that.  An 'Enrichment Society' where each successive generation leaves the next generation better off.

Instead of the opposite as we are doing today. Bankruptcy and despair.

Which will you choose?

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