Ron Paul

Ron Paul (Plan To Restore America)

Endorsement

While we do not agree with the outcomes forseen by Dr. Paul, we applaud his effort.  His approach is infinitely better than the do-nothing approach of the past 20 years.

How Does It Work?

Dr. Paul's budget plan provides the government with the necessary funds to ensure we can meet our obligations to current retirees.  This means that the general tax payer will be put on the hook for the system.  

To address the long-term problems with Social Security, Dr.Paul supports allowing those under 25 to opt out of the system if they agree to forgo any claim to future benefits in exchange for never having to pay payrolltaxes.

Strengths

This plan is an opt-out system, which includes budgetary cuts to make sure that current retirees continue to get paid.  Your taxes may not go up, but you need to look closely at what you are losing in exchange for paying the same thing.

Weaknesses

We do not foresee the same outcomes as Dr. Paul.  Generally we see people who are under 25 fleeing the system.   This may not be a problem for current retirees, but going forward you will see payroll taxes dropping significantly as those who opt-out mature.   We think that adverse selection causes the system to end on an unstable basis.  Basically, if you are going to end the system for those under 25, you might as well end it for everyone.

This plan will shift the some of the burden of Social Security from workers to the general public.  We always oppose using general funds to support Social Security. There are millions of tax payers who are not part of Social Security - and there is no reason that they should be asked to support a failed system.

The problem with all opt-out programs that we have seen is the math of adverse selection.  The economic returns of the system range from negative to more than 9%real returns.   With such wide ranges, contributors will leave in masse.   Drawers will stay in the system.   The system will become even more disproportionally weighted to failure.  Eventually, people who opted-out will be forced to subsidize the system through their general taxes rather than payroll taxes.   

The plan would be more effective if you made people stay until they are 30 before they can opt-out.  In this way, the process mitigates (but does not eliminate) the problem of adverse selection.  People in the system will have to walk from contributions rather than never get into a system which delivers dimes in exchange for quarters.

Distortions

 "As a Congressman, Ron Paul has championed the SocialSecurity Protection Act (HR 219), which ensures that Social Security funds areonly used for Social Security.    As President, Ron Paul willveto any budget that raids the Social Security Trust Fund."

We avoid the word raid because it is unclear.  This bill really changes nothing.  Today excess funds are be invested in US government obligation.  Tomorrow the funds will be invested in US government obligations and FDIC (which is the government) insured CDs.   What the government can't borrow from Social Security, it will borrow at a higher cost in the public markets.  There are aspects of the bill that we like a lot, but any raid that occurs today will continue in the future.

Open Questions

When you say that the person who opts-out must forego " future benefits "?  Are these medicare which is heavily subsidized by the general tax payer.    Will opting-out also force you to concede need-based assistance which is not paid for by payroll taxes?

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