Thursday, October 27, 2011

Social Security Reform…Through Student Loan Reform?

Raise your hand if you’ve ever looked at your paycheck stub and let out a groan. Social Security payroll withholdings are so depressing. We can’t spend the money on food, rent, and car payments now. We can’t borrow from this imaginary life savings account and repay it later. Worse yet, we’re coerced into contributing to the common pot with no guarantee that we’ll ever have a chance to eat from it.

The mainstream view of Social Security seems to be that it’s been a tremendous flop. Beneficiaries are living longer than they imagined as youths, collecting more than they initially contributed. The Federal government is tempted to use designated funds for other welfare projects, an action which, if committed by a non-profit organization, could result in serious legal trouble. With a track record like that, it’s no wonder that the current labor force generally distrusts the system. Americans constantly are told to take charge of their retirement savings with the expectation that Social Security won’t be around much longer.

Try as some may, no movement to eliminate or privatize Social Security has been successful. Legislators are reluctant to change, obviously because senior citizens and near-retirees make up the largest voting demographics. Stop collecting the Federal Insurance Contributions Act tax, and who’ll feed the “Baby-Boomers” who’ve contributed so faithfully to the cause? Yes, we might agree that the system is overdue on a major structural overhaul, but we need a feasible solution…that is, one that doesn’t cost anything to our elders who rule the voting booth.

As of now, what does the younger generation of workers do in face of a pending Social Security crisis? Work. Pay necessities. Repay college loans. Try and fail to save privately for retirement. And continue to pay for someone else’s retirement. No wonder most give up and party instead. No wonder few are interested in settling down and raising a family. Something must be done.

My suggestion? Allow one particular deduction from future payouts: student loans. Right now, “Gen-Xers” are too busy scrambling to pay for their post-secondary education to save for their own retirement. Eliminate that atrociously large debt burden that’s squishing a significant percentage of the young working population, but don’t change their tax contributions. Workers would be free to begin saving privately earlier. Retirees won’t feel threatened by a loss of payments.

I do recognize that the system can’t be changed overnight. This would require some serious coordination among the Department of Education, the Internal Revenue Service (IRS), the Social Security Administration (SSA), and possibly other government agencies. And the Federal government, like private creditors, isn’t going to jump at a chance to lose interest payments on loans. However, as a potential means for Social Security reform, I think that it might have some promise.