Sunday, December 19, 2004

Personalization Of Social Security

I was reading an interesting article on "privatizing" Social Security (I thought I found it via but can't link it as I can't find it again - Bummer) which made the point it should be called "personalizing" Social Security. Good Point. A major concern seems to be what about the unsophisticated investor?
So here is my back of the envelope idea. Allow the individual to use the "private contribution" allocation of SSI to prepay his mortgage. He continues to make his regular payments plus this added increment. If he makes $30,000 per year and gets 1% from SSI that's $3oo per year or $25 per month. Would you like an extra $25 per month to put toward your mortgage? Prepaying would also begin to decrease the outstanding principal amount. Net result, quicker payback of the mortgage! What had been a 30 year loan would be paid off much quicker (15 years?). Cool Huh!!
And if the bureaucrats are really worried about the deficit, how about eliminating the mortgage interest deduction for income tax purposes? The bottom of the income taxpayer scale has never gotten the full advantages of this deduction. They use the standard deduction. It's the high income people who garner the bulk of the deduction benefits. Whoa! You mean we get government out of the home building business, increase the fairness of the tax system and provide a secure retirement for workers in one fell swoop? WAAAAY COOOOOL!!!!
To sell the plan, you need to point out that those high income bracket taxpayers have just gotten their rates lowered. We make this permanent. So they lose the deduction, but get lower rates. Roughly a wash. They just got a temporary bonus of lower rates plus the deduction during the recession to enable the economy to recover faster. Now they would be right back where they were pre-recession. Except we'd fixed Social Security!


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