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Strong Families Act idea Part 2

jstepp590

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This thread is the third of a three part series on specific ideas for solving our national debt problem. I am a grass roots activist who has come up with specific ideas to solve our fiscal problems and I need input and constructive criticism on the ideas to help me develop them. I am non-partisan, am very well educated on these issues and would not waste your time with anything that wasn't a politically and economically viable solution to these problems.

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Now to cover how this would provide two ways to help us stabilize Social Security and pay off our debt.

Based on those figures, to determine the value of the first method of paying down the national debt through those grown children paying into Social Security, if one million children of the almost four million born in this country every year switched to the new program we would use the following formula.

Starting when the children came of age and started working, with Social Security payments just as an example but not far from reality. A simple rule of thumb to calculate what someone’s Social Security payments would be simply multiply every $1000 in income by 0.124.

1,000,000 grown children x $40 a week x 4.3 paychecks a month x 12 months = $2.6 billion a year for one year worth of children in the program. At 5yrs the program would generate $13 billion a year. At ten years it would generate $26 billion a year. At 20yrs it would generate $52 billion a year and at 30yrs $78 billion. It would help to keep Social Security stabilized and then goes directly to paying down the national debt. It would start in 18yrs from the first account established and continue to grow until those children are retired.

At the 80yr mark, the deferred taxes will start to kick in. 1,000,000 grown children x $20 million taxable x 10% tax rate = $2 trillion. Every year after that would be another $2 trillion of the debt paid off so at ten years we would pay off $20 trillion, at 20yrs $40 trillion etc. I estimated it at a 10% tax rate but that could go up or down as needed.

The money left after taxes stays within the family, and if/when this member passes away their assets in the account go to their beneficiaries.

The reason this would work is that we would be eliminating a serious efficiency problem in our current retirement system. The problem is that a significant percentage of our population does not even start planning for retirement until they are around 30yrs old or so, if then, except for what they have already put into Social Security. What that means is that at 30yrs old we couldn’t pay $5000 one time and have our retirement paid, we would not have enough time left to invest. However a child could, if someone was to have set it up for them. Wealthy people do this all the time via trust funds and other generational wealth vehicles, because it is an effective and efficient method to accrue wealth. However simply by expanding on that capability already built into our government and social structure we could do this systemically for the rest of us as well in a way that is beneficial for everyone globally. No need to reinvent the wheel, it is already part of our legal and financial system. Only one ingredient is still necessary for this to work, tax deferment.

Tax deferment means that you pay tax at the end of a set period, in this case retirement age. See, if taxes are taken out a little bit every year based on taxation of profits then there isn’t enough of an initial growth spurt to reach retirement money in the time frame of someone’s life when starting from a low principal investment like $5000. Instead, these funds would need to be tax deferred until retirement and when these funds are withdrawn the government taxes at that time. This will be a massive windfall for government coffers and should be enough to cover our entire national debt starting at the end of 65-80yrs. We could pay off our debt while minimizing austerity and do it by growing our middle class.

The people coming into the new system would be paying for the $5000 out of pocket so the solution pays for itself without adding to government debt or deficit. The money they pay into it will be used to first stabilize Social Security, because all these millions of people will still be paying but never expecting to receive anything from it, and once it is stabilized then that money gets used to pay off the principal of our debt. That is very long range but should serve to keep the interest to carry our debt low because we have a viable plan to pay the debt in full. Republicans want to balance the budget in 10yrs, and even then their math and methods are shaky. It would probably cause recessions to cut government spending that quickly, and that wouldn’t even touch the core debt, that is just to balance the budget. I think these two methods would pay it off totally in 80yrs.

Once the $5000 is paid for it is self-perpetuating system for generation after generation of our families because this option will be paid for the next child from their families and friends already established accounts. Family and friends who do so will then be allowed to make up that money taken from their accounts if they wish.

Government would offer citizens the ability to have the payments to the finance company taken directly out of their checks just like taxes to be paid to the bank or finance company the citizens got the loan through. This will guarantee that only taxpayers can use the system without paying cash up front and should keep the interest rates low for the consumer because it is an almost guaranteed repayment on the loan. It will also allow the financial institutions to pay less attention to the credit history of the person and focus on their job history, which is important considering the stressing financial times we have had lately. Disproportionate levels of bad credit are attributed with poverty levels so this could open up the opportunity to more families. A five year monthly payment for $5000 is under $100 I believe so it is pretty affordable if parents can get the loan.

This system would protect the retirement funds through the use of legal trust. These trusts are already in use so it works within our legal system, no changing of laws. The money in the trust is protected from government seizures and other behavior we see today, creditors, divorce or any other claims. They will be used exclusively for this one purpose and protected from all outside interference. This way we decide when and how to retire, not some government bureaucrat, and we can be relatively sure that the purpose of the funds will be achieved.

I expect roughly 1/4 to 1/3 of the people coming into working age at 18yrs old would be enrolled in this system because it is a better deal for their families than the government run program.


The essential elements of this system are as follows:

· It has to be a system that citizens can trust. In order to facilitate this proposal, the financial advisors will work under a fiduciary agreement and for straight commission on profit. We will not tell them what their commission is, but it will be straight commission, with no other fees or charges. Their commissions will be determined by the citizens based on performance. Performance data per license should be required and misrepresentation of performance will be considered fraud and punishment is no less than 5yrs loss of license.

· All investments must be thoroughly diversified based on the most sound investment practices. Each individual accounts assets should be split up between 5-10 financial advisors.

· The financial advisor that is determined by the parent or guardian of the minor may be changed after the investee is legally of age to represent themselves. Neither parent nor recipient will have direct control of funds.

· All funds will be protected through legal trust. This will protect them from divorce, creditors, government seizure or any other reason until retirement age. There will also be allowed no liens or other charges against them recognized as legitimate by law.

· The grown children will still pay into the traditional Social Security program in order to protect current recipients even though they will never receive anything back in return. Once Social Security is stabilized, all monies go directly to paying down the principle of the national debt.

· When an original investee becomes a parent, the funds accumulated may be used to create a separate account for their child for the $5,000 adjusted for inflation. The parent or person using their accounts to fund the child’s will have the right to make up for those funds in their personal accounts. Family and friends may use their accounts in this manner.

· All funds may be withdrawn after 65 years, but no later than 80 years.

· All investment profits are tax-deferred during the life of the investment vehicle. That will supersede any state or federal taxation system.

· Initial investment may be provided by a banking institution and facilitated by government through payments being removed from the paycheck prior to the paycheck being issued. This is to ensure interest rates remain as low as possible, and allows the financial organization providing the loan to look more at work history than credit. A small fee for processing is permissible to help the government pay to set up this system to ensure it isn’t a budget burden.

· It is illegal to place any undue pressures that the financial advisor determines are not in the best interest of their client.

· Investor performance must be accurately stated and transparent. Anything else will be considered fraud and taken seriously because this is a vital tool used in our decision making process on investment adviser commissions and whom to employ.

· Any form of wealth may be held by the account, from life insurance policies to gold to antiques, as long as they are purchased and maintained from within the account’s funds.

· There should be a sharp cap on how much of the trust fund is allowed to be used in the financial markets and how much has to be used in real business that makes things and employs people. I do not want this to turn into a stock market bubble followed by a crash.

· Financial advisers are not allowed by law to differentiate between their separate accounts or face fraud charges and civil penalties for breaking their fiduciary agreements. All assets must be pooled together and treated as one; all efforts to improve the performance of one account must be applied to all equally. They are also banned from creating separate class of accounts within their holdings or any accounts under their or separate licenses that compete with the fiduciary agreements of the other. This is necessary to create a system people will trust and that is fair to everyone.

· An investment firm that hires people to handle these types of accounts will do so under the umbrella of their license and not under the licenses of their employees. If their license if abused then the entire company can be banned from the market.


Conclusion: Through the use of these presented policies, it is my intention to create a system that citizens can trust and will utilize. It should alleviate our debt and place our families on a sound financial path toward the future. It will work to stabilize our current system, and there will be minimal government involvement. Everyone in the country could see the value of this change and should support it regardless of political affiliation. It is entirely voluntary for the citizens and does not take anything away from anyone. With this plan outline, I believe it will be possible to create a great deal of positive change from tough economic times. Everybody wins, nobody loses.

It could also be used to help with Medicare but I am loath to do that if they are not allowed to bargain for lower prices. That’s right, they are barred by law from negotiating better health and drug prices. As long as that is the case I cannot see this program being used to facilitate what I see as corruption. I have no desire to reward this kind of behavior with even more of our money. However, a remedy for this could be built into the Political Performance Act pretty effectively.

Thank you for wading through all of this with me, I know it was a lot to read. I also apologize that I have not had the advantage of a working group to help me to condense and hone the idea. I am a non-linear thinker and some of this may be disjointed so I hope the idea made sense. I sincerely look forward to working with a team in the future to develop it as long as the idea stays true to its original purposes. If anyone has any questions, comments and suggestions please feel free to reach me using my contact page. Thank you for your patience and time.
 
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