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View Diary: Don't cut Social Security, expand it (105 comments)

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  •  Change how funded and how benefits computed (0+ / 0-)

    I actually believe that one of the reasons why Social Security is so hard to modify is the funding and payout model. The image is that of a kind of individual insurance account that pays back what each individual puts in. Yet, that is not even a reasonable approximation of what happens, and it interferes with rational management of the plan.

    Here's an example: a lot of people (me too!) are convinced that removing the cap on taxable income would benefit the system. Yet, according to the individual account model, that would have a net zero effect, because only those who would have paid in more would get back more. In fact, what people want is a heftier cap on payments and no cap on taxes, but that doesn't fit the standard model.

    If the entire program were handled as just another welfare program, that supported those who needed it, and paid for by ordinary taxes on businesses and individuals, then it would be much more possible to create a fair system that would not be so vulnerable to being held hostage or used as a sledgehammer by politicians.

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