Richest Americans Can Help Fix Social Security: Perry Golkin
The debate on Social Security reform has reached an ideological stalemate, pitting collective responsibility to provide for the less fortunate against an individual’s right to one’s earnings and entitlements.
There is a way of dealing, at least partially, with the funding shortfall for Social Security that draws on the country’s best traditions. That would be to encourage a voluntary waiver of benefits by affluent Americans.
To avoid the cynicism of those expecting government to waste the funds, all waived benefits would be deposited into a trust fund and passed on to future generations of retirees. The mechanism for making this contribution would be simple and inexpensive, a single line on Internal Revenue Service Form 1040, annually indicating a waiver of next year’s benefits.
Many wealthy Americans, who know better than anyone the opportunities this country has provided, would respond to this appeal. In my informal polling of friends who are fortunate enough to be well-off, every one of them replied either “absolutely” or “probably,” when I asked if they would be willing to forgo their Social Security benefits in an effort to reduce the federal debt. While my sample isn’t numerically significant, it does suggest a sensibility that is encouraging and worth exploring.
Making a Pledge
Last year, Bill Gates and Warren Buffett challenged 400 of the richest Americans to pledge half of their fortunes to their favorite causes either during their lifetimes or in their wills. It established a new cultural standard for the wealthiest Americans. A similar one could be created in this case, but it, too, would have to be voluntary -- encouraged by peers rather than demanded or required by others.
Social Security was conceived as a means of providing financial assistance to “aged needy individuals,” not as a monthly stipend for the rich. Today, there are millions of Americans who would be considered high-net-worth individuals, and they will live, on average, well past the age of retirement. According to Boston Consulting Group, in 2011 the U.S. had “by far the most millionaire households (5.2 million)” in the world this year. At 70 years of age, even the wealthiest of them will be entitled today to payments in excess of $38,000 a year.
Held in Reserve
I estimate the impact of a voluntary program at $1 trillion over three decades. Here’s the calculation. If 1 million of the rich waive their Social Security benefits for one year, the annual reduction in payments, net of taxes, would be at least $20 billion. If this occurred each year for the next 30 years, the trust fund would have $600 billion. If the funds were held for 30 years and earned 3.5 percent annually over this period, the interest earned would result in an additional $400 billion. A total of $1 trillion of cash would be available for the next generation if we had the discipline to wait 30 years. The Social Security Administration couldn’t pay out benefits from this fund until a specified date, for example, 2040.
As compelling as the economic rationale might be, the moral imperative is equally important. This proposal can bridge the ideological gap because people aren’t required to violate their principles. Many wealthy business people already give away far more than $38,000 annually to charity, and were this proposal adopted it could become part of their voluntary giving while helping to solve our nation’s debt crisis. This program will allow the best of the American spirit to shine through and perhaps tone down the rage against the rich and against bloated government.
Volunteerism and generosity have long been part of the national character, and virtually everyone cares about the well- being of the world that their children and grandchildren will inherit. The question I would pose to policy makers is: How much faith do you have in the American people?
(Perry Golkin is an advisory partner at Kohlberg Kravis Roberts & Co., where he was previously a partner or member for 24 years. He is also a lecturer at the University of Pennsylvania’s Wharton School and law school. The opinions expressed are his own.)
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