Obama joins the political mainstream on SSI, he avoids it.

Aug. 14 (Bloomberg) — Democrat Barack Obama would wait at least a decade to impose the Social Security payroll taxes on Americans who earn more than $250,000 a year, a main component of his proposal to keep the retirement insurance system solvent.

The delay is designed to create an influx of cash to the government’s Social Security fund at a time when it is projected to be paying out more in benefits than it takes in from taxes, Obama’s top economic adviser, Jason Furman, said.

“Historically, many tax changes in Social Security have been phased in gradually and usually not effective immediately,” Furman, Obama’s chief economic adviser, said in an e-mailed response to questions. “You have virtually the same impact on solvency as an immediate change.”

Deferring a new levy on higher income taxpayers also would allow Obama, the presumptive Democratic presidential nominee, to largely dodge immediate political and economic repercussions of the proposal. During the campaign, Obama has advocated making incomes above $250,000 annually subject to the payroll tax, though he hasn’t provided specifics of how that plan would be implemented.

Oh how I would love to lay this back tracking at the feet of Obama, but in this one instance I can’t.  The truth of the matter is that every politician runs from this topic, Obama’s mistake was sticking his head into this issue before following in the footsteps of everyone else.  Why is this?  Because the truth of the matter is the cure is going to hurt and no politician wants to be responsible for that.

Social Security is broken, plain and simple.  Fixing it is going to cost probably an entire generation.  By this I mean that people within a 20 year range are either going to have to pay into a system they will get nothing back from or at the very best get less return than they should be eligible for.  Unfortunately fixing something broken has a cost, and the only money the government has to pay that cost is from the tax payers.

My question is, should we fix it at all?  Granted people 45+ have based retirement planning on SSI and should receive it, but people under that age should have options.  Let’s really look at what we get from Social Security. 

The government can’t borrow from it, yet it can.  SSI is allowed to be invested only in government bonds.  Bonds are sold by the government with the funds going into their coffers (BTW outstanding bond issues have another name…national debt), but at least you are now earning money on your retirement, except your not.  Interest on government bonds is paid by the government which gets its money from your paycheck.  In essence you are paying your own interest on money you’re investing for your retirement.  It just doesn’t sound like a winning situation.

I know everyone has heard and scoffed at this but I bring it up again, what is wrong with private investment accounts?  Given any 20 year period in Wall Street history the stock market has averaged 8% or better.  With bond prices floating around 4% why would you rather invest in government debt that pays less than investing in the businesses of America and doubling your money?  One issue I know people had was the amount of money that the investment firms wanted to manage the portfolios, so what.  The government spends .8% managing SSI now to give you the 4%, the investment firms wanted, I believe it was, 1.25% to give you 8%.  Yes the firms may charge more than the government but they are also offering you much more in perspective.

Of course the SSI problem is complex and I doubt one person sitting in front of his laptop will be able to give the final answer to it all but the truth of the matter is plans need to be laid and started now.  We need people in Washington to stop admitting there is a problem and start addressing it.