1. Retirement.
When you begin working, your employer is forced to pay 1% of your of you income to this. You can choose to add up to 7%, pretax, to this fund. This fund is never taxed income. Ever. You can choose, to have it government managed (mostly US Savings bonds and such) or have it managed by a 3rd party , kinda like a 401k. If you pass away before you retire, it goes to who you designate or next of kin. Tax free. It's YOUR SS, but for you, by you.
The employer's portion of SS is currently 6.2%. So you're slashing the employer's contribution to almost nothing, and yeah there is zero chance that saved employer portion will be passed on to the employee.
We know, from decades of observation, that people will
not save money if it's optional. You can already contribute up to $5500 a year to a tax-sheltered IRA, and most people don't even do that -- not even the people who are worried that SS won't be around when they retire.
We know, from observation of the Aussie plan and from investor behavior in the US, that most people
suck at saving. They routinely get hit with huge fees that erode their savings rate. They pick bad funds. They change funds at the worst possible time.
Plus, Social Security is pay-as-you-go. It is not an IRA. That means that the money collected in payroll taxes today, is spent on beneficiaries today. So every cent that is diverted to any sort of private personal fund? That increases the shortfall that is currently crippling SS.
If we have no restrictions on how the money is withdrawn, then what will happen? People will basically blow through it on retirement; they treat it like a lottery ticket. That's exactly what we see with Australia's system. It's compounded by the need to ensure that the people who do blow through all their savings don't get shafted -- after all, we don't want a system where 85 year olds completely run out of cash, right?
And what happens to Medicare? You do know that is paid for out of the same payroll taxes that fund Social Security, right?
2. Unemployment.
Again, like the retirement fund, your employer pays 1% of your income into this, you can up up 7% of your pretax into this fund. It's a little different than the 1st fund, in that it's government managed, and falls under the same basic rules as Unemployment today. You can't just quit and demand the money. You also have to exhaust this fund before you can receive ANY Government assistance. The good news: It's non-taxable income. It can be handed down incase of death. If you retire, it becomes supplemental income.
Although the calculations are more complex, basically the federal unemployment tax on employers is 7%. So you're deeply underfunding unemployment.
Even at the max contributions, it will take years for younger people to put away enough to last even 6 months. The median income for workers between the ages of 24 and 29 is $30,000 a year; at the max of 8%, they're stashing $2400 per year. That's about 1 month's expenses. Under current laws, you're eligible for unemployment after 1 year of work. So basically, you are screwing employees in a big way.
Again, employers will not pass those savings to employees.
Again, if it's voluntary, people won't contribute.
Worse yet, the incentives are absurdly wrong. The money will be locked up unless you get fired -- and the less you contribute, the faster you receive funds from the government. What moron would contribute to
that fund?
You're now talking about diverting up to 14% of income.
That is not going to happen. Seriously. People with lower incomes cannot afford to save money. People with higher incomes have better and more flexible ways to salt money away for a rainy day.
3. Catastrophic/long term care fund.
Again, Employer pays 1%, you can pay up to 7%. It's nontaxable, can be handed down if you die, and is YOURS. Use of the fund is restricted, you can't fund a boob job, or pay for basic care or non-medical issues. You do have to use it all first before Government assistance can be applied for.
Yet another cluster-****.
Same as unemployment, but with even less of an incentive to contribute. Few people collect Disability, but anyone at any time can need it. No one will contribute, and they will go straight on disability if injured.
These three things would make you own your own future, give you incentive and control over your life.
Your proposals would be complete and utter disasters.
They are based on wishful thinking, a profound misunderstanding of economic behavior, and an ignorance of how similar schemes have worked in the real world. Oh, and a desire to make employers richer at the expense of the employees. They're more complex, less efficient, and won't work.
PASS.
