Social Security Reform Prospects After November
This is a discussion topic I posted on the Capital Ownership Group Social Insurance e-mail list. I am also sharing it here.
The elections are coming up. The next Congress will be President Bush's last try to enact Social Security Reform.
If you would, please assess the prospects of this under the the possible congressional scenarios (both houses Republican, both houses Democrat, Dem House/Rep. Senate and Rep. House/Dem Senate).
I think the election of Democrats actually makes consideration of Social Security reform more likely, especially if the Democrats control the House and can include revenue enhancements at the upper levels of income. This compromise is not possible with the GOP in control of the House (at least under this Speaker). I believe Bush will compromise with the Democrats to get this passed, since this is his big legacy item.
Also, those familiar with the list know that I have a proposal, Norm Kurland of CESJ has a proposal and the President has one.
If you are unsure about any of these, please ask.
Briefly, the President is proposing transferring a portion of FICA withholding to investment in Personal Retire Accounts managed (and presumably voted) by private fund managers. The President is also proposing tax reform to replace many deductions with credits that target lower income taxpayers and much in the way of simplification. A savers credit is included in the package.
CESJ proposes (last I checked) abolishing FICA withholding and funding retirement obligations from the general fund, which will be funded by a flat tax on business and personal income, with exclusion of all income below the poverty line plus direct subsidies for a base level of living expenses. The key feature is the provision of capital credit to each citizen at birth which may be invested in a number of ways, including ESOPs, Community Investment Corporations (economic development), CSOPs (Customer Stock Ownership Plans) (utilities and mass transit) and ISOPs (individual stock ownership plans of a more diversified portfolio). The credit would be repaid from dividend payouts, which will be 100%. New corporate investment would financed by these means rather than through retained earnings or other borrowing schemes, largely because these projects would be backed by borrowing at the discount window for no interest and a .5% service fee. Gifts and inheritances received would be tax free for the first million dollars and taxed after that to limit asset concentration. This structure allows citizens a more direct input in the decisions of utilities and community development authorities and allows workers to gain a voice in the decisionmaking of their firms, at least to the extent of new investment. Parents would vote the ESOP shares of their children. Presumably they would also vote their ISOP shares as well. A management philosophy called Justice Based Management guides firm management.
The Iowa Center for Fiscal Equity plan is to end income taxes on all but the highest earners, who would pay an income and inheritance/gift (received) surtax equal to their current permanent tax rate minus 25%, with their employers paying what was their tax liability through an expanded business income tax (where wages and salaries are no longer deductable). The proceeds of this tax would also fund contributions for Medicare, Disability Insurance and Survivors Insurance for non-retirees. Net, but not gross, income would be reduced by this amount. Employers would receive tax credits to be passed along to their employees for child and dependent spouses of $500 per individual per month and their would be a minimum wage subject to tax of $10 per hour. Health care, mortgage interest, education and charitable contribution credits would also be either transfered to employees or kept by employers if they fund health care, mortgage interest costs and contributions for education and other services provided by charitable organizations in lieu of taxes. Workers would pay 3% of their income to the Old Age and Survivors Insurance fund and 2% of their income into a 401(k) type account (which may be managed by their union or professional association). Employers would pay OASI 3% of employee income and would issue an additional 2% of income to employees in company stock or ESOP shares and shares in utilities and communication firms used by the company and its employees. The issuance of this stock would be direct with no repayment required. It would fund both new investment and the buyback of shares held by non-employee investors. Employees would vote all shares, either directly or through their union or professional association rep. ESOP rules would be changed to require that ESOPs distribute shares on a per capita rather than a percent of income basis. Dividends would be reinvested. Extra income would come from incentive compensation which would be paid by both cash awards and stock grants. Some dividend payout could be channeled to extra income if a longer work life is desired. Retirement is designed to coincide with debt retirement of a house with food production facilities, therefor a smaller cash and retirement income is required and the workday is shorter to account for food production time.
An option for this program change is to allow firms to opt out of paying any FICA Old Age and Senior Survivors taxes provided they fully fund all retirees, former employees and current employees with stock grants as if they were participating all along at 5% of average income - as stated in the Average Wage Index calculated by the Social Security Administration. Any firm that does that will be matched by a stock fund representing 5% of individaul wages procured with monies from the general fund for those same individuals for the time they worked at any employers who do this. Some employers are not for profits or non-corporate. These employers would continue in Social Security, which would essentially become a pension fund for small employers - although some of these may be able to opt out if they fully fund a robust pension fund.
In your assessment of each of these plans, mention the likelihood of each of these proposals passing or even being debated and who would have to be signed up to do so. How would organized labor figure in. Will it continue to obstruct debate? Is there a way to make the concept attractive to organized labor? Has Labor gotten too much in bed with the Democrats to do anything but obstruct while George Bush is president? If so, is this in the interest of their members?
Here is my take on the issue.
Organized labor would need to give its go ahead for any debate to take place, or at least not decide that this is an election issue. If the Democrats win big in November they may allow something through, especially if they are allowed to manage and vote the funds of their members. The key is getting them to listen - or getting their members to force the leadership to do so.
I think organized labor has more to gain from the ICFE proposal than any of the the other two.
Look at each proposal (Bush, Kurland, Bindner) and assess in terms of wealth expansion and workplace democraticization, as well as globalization.
The Bush proposal would expand the power of management and would have a small effect on wealth generation for the middle class. It likely would not do much for the poor. It would certainly be beneficial to wealthier taxpayers. It would inhibit workplace democratization by shifting more power to money managers who traditionally support management. It depends on globalization to solve the aging crisis, meaning less old societies will generate the profits and produce the goods used by American consumers and owners. In effect, they are paying taxes into social security without getting benefits. When they figure this out, look for a Marxian reaction if this option passes in its pure form.
Clinton's USA saver account proposal and its democratic varients rely on the building of savings in addition to Social Security, rather than as a part of that. In the long term, this leads to the same result - that workers in less developed countries will subsidize their retirement as if they were paying taxes into Social Security without getting the retirement benefits. Foreign workers won't stand for this for long.
CESJ calls for a new Breton Woods to address this problem, but its solutions are country specific, as they rely on each country's central banking system to create capital.
ICFE calls for a more integrated supply chain, with the foreign subsidiaries part of the same firm and getting wages and benefits at the same standard of living as American workers (and receiving the same level of training and equipment so that they and their machines are as productive). These conglomerates will use an internal transfer pricing schema that accounts for this and will work to have currency rates reflect such a scheme.
Both CESJ and ICFE have ESOPs or other forms of employee ownership as a key feature, as well as a more enlightened management style. I have put the ICFE management plan on our web page, while CESJ provides a bit less detail regarding their Justice Based Management. For example, ICFE deliniates all of the factors it will use in equalizing wages, which I don't believe is a goal of CESJ. Of course, wages won't be absolutely equal and the average worker in a CESJ/JBM system and a ICFE system will likely not notice much difference, with the exception of elections for managers (an ICFE feature). Additionally, in the ICFE system, each worker gets the same base share payout each month, regardless of salary - with cash and share bonuses for measurable accomplishments. Under the CESJ system, the worker gets his shares through his or her Captial Homestead Account and then receives a profit distribution for both extra income and repayment of the CHA principal. Additionally, each worker gets shares only for him or herself, rather than control over the shares of their children so that each worker similarly situated (in longevity and accomplishment) votes the same number of shares. Under CESJ a worker with five kids with similar tenure would have more voting power than one with none. Norm and I have agreed to disagree about the justice of this.
The impact on product cost between the CESJ and ICFE plans is likely nil in the aggregate, although the breakdowns are different with the ICFE plan paying more in direct distribution of shares while CESJ pays more in dividends.
ICFE also throws more into the benefit mix, like home finance and consumer credit through the employer. It also has the employers buy any shares in local development corporations (or local government bonds) as well as public utilities. These would then be transfered to the employee on retirement or resignation - unless the employer continued to pay electric and telecom bills for retirees. The key is to purchase these services and own these stocks in bulk.
The major difference between the CESJ and ICFE proposals is that the ICFE proposals aim to eliminate the need for most individuals to deal with most matters financial. The firm would pay the taxes and provide health care, finance and insurance (or self insure). Once the debt is paid off, the company or its bank would go to the Fed Discount window for borrowing for expansion or for monies to underwrite housing finance for its employee owners, rather than forcing the employee to deal with bankers and individual CHA accounts. Additionally, because the ICFE scheme is not confined to new shares, but will also be used to purchase shares from existing owners, most firms will be privately held in a few decades. In order to protect the retirement accounts of the employees, they will contribute shares to an insurance fund made up of groups of employee-owned firms so that if any one firm fails the employees and retirees would be protected with shares in the insurance fund. You could call this an ISOP, if you wish, and the shares would be non-voting. However, they would not be available on the open market. That is the other difference. The goal of the ICFE scheme is to minimize non-employee/non-retiree control.
The last difference is in "education". Under each plan, people would be educated to realize their full potential. Under ICFE, that potential would be linked with their work and most leisure work would be paid.
On leisure work, my bottom line is that if someone is telling me to do something like employment and I am required to be there for and at a specified time (with community theater being the exception), you must pay me or have some kind of exchange of favors (I watch your kid sometimes, you watch mine sometimes).
Coming back to my original point, I believe that what I am offering here, if it receives any publicity, will be what will pass. It actually addresses the main problem with Social Security, demography. It also shifts power from fund managers to employees and, while it eventually replaces the Old Age fund for some in toto, it initially works within the paradigm of the current debate. The CESJ proposal is a more radical departure that I don't think will sell. The ICFE plan tweaks the Presdent's plan in a few places and gets a similar result in the long run.
Discussion anyone?
Please do not inject any other proposals. This is not the forum to trot out Social Credit, the Tobin Tax or Georgism since none of these have any direct impact on the distribution and control of stock ownership. While the proceeds of these schemes may be used to buy stocks, changing stock ownership is not their primary purpose. Of course, if there are other proposals out there you would like to discuss, such as the Clinton USA account or some variation on that, feel free.
Let's get the ball rolling.
The elections are coming up. The next Congress will be President Bush's last try to enact Social Security Reform.
If you would, please assess the prospects of this under the the possible congressional scenarios (both houses Republican, both houses Democrat, Dem House/Rep. Senate and Rep. House/Dem Senate).
I think the election of Democrats actually makes consideration of Social Security reform more likely, especially if the Democrats control the House and can include revenue enhancements at the upper levels of income. This compromise is not possible with the GOP in control of the House (at least under this Speaker). I believe Bush will compromise with the Democrats to get this passed, since this is his big legacy item.
Also, those familiar with the list know that I have a proposal, Norm Kurland of CESJ has a proposal and the President has one.
If you are unsure about any of these, please ask.
Briefly, the President is proposing transferring a portion of FICA withholding to investment in Personal Retire Accounts managed (and presumably voted) by private fund managers. The President is also proposing tax reform to replace many deductions with credits that target lower income taxpayers and much in the way of simplification. A savers credit is included in the package.
CESJ proposes (last I checked) abolishing FICA withholding and funding retirement obligations from the general fund, which will be funded by a flat tax on business and personal income, with exclusion of all income below the poverty line plus direct subsidies for a base level of living expenses. The key feature is the provision of capital credit to each citizen at birth which may be invested in a number of ways, including ESOPs, Community Investment Corporations (economic development), CSOPs (Customer Stock Ownership Plans) (utilities and mass transit) and ISOPs (individual stock ownership plans of a more diversified portfolio). The credit would be repaid from dividend payouts, which will be 100%. New corporate investment would financed by these means rather than through retained earnings or other borrowing schemes, largely because these projects would be backed by borrowing at the discount window for no interest and a .5% service fee. Gifts and inheritances received would be tax free for the first million dollars and taxed after that to limit asset concentration. This structure allows citizens a more direct input in the decisions of utilities and community development authorities and allows workers to gain a voice in the decisionmaking of their firms, at least to the extent of new investment. Parents would vote the ESOP shares of their children. Presumably they would also vote their ISOP shares as well. A management philosophy called Justice Based Management guides firm management.
The Iowa Center for Fiscal Equity plan is to end income taxes on all but the highest earners, who would pay an income and inheritance/gift (received) surtax equal to their current permanent tax rate minus 25%, with their employers paying what was their tax liability through an expanded business income tax (where wages and salaries are no longer deductable). The proceeds of this tax would also fund contributions for Medicare, Disability Insurance and Survivors Insurance for non-retirees. Net, but not gross, income would be reduced by this amount. Employers would receive tax credits to be passed along to their employees for child and dependent spouses of $500 per individual per month and their would be a minimum wage subject to tax of $10 per hour. Health care, mortgage interest, education and charitable contribution credits would also be either transfered to employees or kept by employers if they fund health care, mortgage interest costs and contributions for education and other services provided by charitable organizations in lieu of taxes. Workers would pay 3% of their income to the Old Age and Survivors Insurance fund and 2% of their income into a 401(k) type account (which may be managed by their union or professional association). Employers would pay OASI 3% of employee income and would issue an additional 2% of income to employees in company stock or ESOP shares and shares in utilities and communication firms used by the company and its employees. The issuance of this stock would be direct with no repayment required. It would fund both new investment and the buyback of shares held by non-employee investors. Employees would vote all shares, either directly or through their union or professional association rep. ESOP rules would be changed to require that ESOPs distribute shares on a per capita rather than a percent of income basis. Dividends would be reinvested. Extra income would come from incentive compensation which would be paid by both cash awards and stock grants. Some dividend payout could be channeled to extra income if a longer work life is desired. Retirement is designed to coincide with debt retirement of a house with food production facilities, therefor a smaller cash and retirement income is required and the workday is shorter to account for food production time.
An option for this program change is to allow firms to opt out of paying any FICA Old Age and Senior Survivors taxes provided they fully fund all retirees, former employees and current employees with stock grants as if they were participating all along at 5% of average income - as stated in the Average Wage Index calculated by the Social Security Administration. Any firm that does that will be matched by a stock fund representing 5% of individaul wages procured with monies from the general fund for those same individuals for the time they worked at any employers who do this. Some employers are not for profits or non-corporate. These employers would continue in Social Security, which would essentially become a pension fund for small employers - although some of these may be able to opt out if they fully fund a robust pension fund.
In your assessment of each of these plans, mention the likelihood of each of these proposals passing or even being debated and who would have to be signed up to do so. How would organized labor figure in. Will it continue to obstruct debate? Is there a way to make the concept attractive to organized labor? Has Labor gotten too much in bed with the Democrats to do anything but obstruct while George Bush is president? If so, is this in the interest of their members?
Here is my take on the issue.
Organized labor would need to give its go ahead for any debate to take place, or at least not decide that this is an election issue. If the Democrats win big in November they may allow something through, especially if they are allowed to manage and vote the funds of their members. The key is getting them to listen - or getting their members to force the leadership to do so.
I think organized labor has more to gain from the ICFE proposal than any of the the other two.
Look at each proposal (Bush, Kurland, Bindner) and assess in terms of wealth expansion and workplace democraticization, as well as globalization.
The Bush proposal would expand the power of management and would have a small effect on wealth generation for the middle class. It likely would not do much for the poor. It would certainly be beneficial to wealthier taxpayers. It would inhibit workplace democratization by shifting more power to money managers who traditionally support management. It depends on globalization to solve the aging crisis, meaning less old societies will generate the profits and produce the goods used by American consumers and owners. In effect, they are paying taxes into social security without getting benefits. When they figure this out, look for a Marxian reaction if this option passes in its pure form.
Clinton's USA saver account proposal and its democratic varients rely on the building of savings in addition to Social Security, rather than as a part of that. In the long term, this leads to the same result - that workers in less developed countries will subsidize their retirement as if they were paying taxes into Social Security without getting the retirement benefits. Foreign workers won't stand for this for long.
CESJ calls for a new Breton Woods to address this problem, but its solutions are country specific, as they rely on each country's central banking system to create capital.
ICFE calls for a more integrated supply chain, with the foreign subsidiaries part of the same firm and getting wages and benefits at the same standard of living as American workers (and receiving the same level of training and equipment so that they and their machines are as productive). These conglomerates will use an internal transfer pricing schema that accounts for this and will work to have currency rates reflect such a scheme.
Both CESJ and ICFE have ESOPs or other forms of employee ownership as a key feature, as well as a more enlightened management style. I have put the ICFE management plan on our web page, while CESJ provides a bit less detail regarding their Justice Based Management. For example, ICFE deliniates all of the factors it will use in equalizing wages, which I don't believe is a goal of CESJ. Of course, wages won't be absolutely equal and the average worker in a CESJ/JBM system and a ICFE system will likely not notice much difference, with the exception of elections for managers (an ICFE feature). Additionally, in the ICFE system, each worker gets the same base share payout each month, regardless of salary - with cash and share bonuses for measurable accomplishments. Under the CESJ system, the worker gets his shares through his or her Captial Homestead Account and then receives a profit distribution for both extra income and repayment of the CHA principal. Additionally, each worker gets shares only for him or herself, rather than control over the shares of their children so that each worker similarly situated (in longevity and accomplishment) votes the same number of shares. Under CESJ a worker with five kids with similar tenure would have more voting power than one with none. Norm and I have agreed to disagree about the justice of this.
The impact on product cost between the CESJ and ICFE plans is likely nil in the aggregate, although the breakdowns are different with the ICFE plan paying more in direct distribution of shares while CESJ pays more in dividends.
ICFE also throws more into the benefit mix, like home finance and consumer credit through the employer. It also has the employers buy any shares in local development corporations (or local government bonds) as well as public utilities. These would then be transfered to the employee on retirement or resignation - unless the employer continued to pay electric and telecom bills for retirees. The key is to purchase these services and own these stocks in bulk.
The major difference between the CESJ and ICFE proposals is that the ICFE proposals aim to eliminate the need for most individuals to deal with most matters financial. The firm would pay the taxes and provide health care, finance and insurance (or self insure). Once the debt is paid off, the company or its bank would go to the Fed Discount window for borrowing for expansion or for monies to underwrite housing finance for its employee owners, rather than forcing the employee to deal with bankers and individual CHA accounts. Additionally, because the ICFE scheme is not confined to new shares, but will also be used to purchase shares from existing owners, most firms will be privately held in a few decades. In order to protect the retirement accounts of the employees, they will contribute shares to an insurance fund made up of groups of employee-owned firms so that if any one firm fails the employees and retirees would be protected with shares in the insurance fund. You could call this an ISOP, if you wish, and the shares would be non-voting. However, they would not be available on the open market. That is the other difference. The goal of the ICFE scheme is to minimize non-employee/non-retiree control.
The last difference is in "education". Under each plan, people would be educated to realize their full potential. Under ICFE, that potential would be linked with their work and most leisure work would be paid.
On leisure work, my bottom line is that if someone is telling me to do something like employment and I am required to be there for and at a specified time (with community theater being the exception), you must pay me or have some kind of exchange of favors (I watch your kid sometimes, you watch mine sometimes).
Coming back to my original point, I believe that what I am offering here, if it receives any publicity, will be what will pass. It actually addresses the main problem with Social Security, demography. It also shifts power from fund managers to employees and, while it eventually replaces the Old Age fund for some in toto, it initially works within the paradigm of the current debate. The CESJ proposal is a more radical departure that I don't think will sell. The ICFE plan tweaks the Presdent's plan in a few places and gets a similar result in the long run.
Discussion anyone?
Please do not inject any other proposals. This is not the forum to trot out Social Credit, the Tobin Tax or Georgism since none of these have any direct impact on the distribution and control of stock ownership. While the proceeds of these schemes may be used to buy stocks, changing stock ownership is not their primary purpose. Of course, if there are other proposals out there you would like to discuss, such as the Clinton USA account or some variation on that, feel free.
Let's get the ball rolling.
posted by Michael Bindner at 11:20 PM
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