Investment Politics: Jobs And The Economy

Who wants to be a president; the President of the United States?  Social Security reform is the winning ticket. Research supports the  thesis that Social Security reform would provide all the lubrication  necessary to get our economic ball bearings rolling in the right  direction. Economies do not grow, or increase employment, when job  providers are taxed and regulated unmercifully, throttling their  energy, creativity, and profitability. Consumer spending pushes the  economy; we need to do more than hand out a few hundred bucks.

The objective of the exercise, Barack, is to permanently place more  disposable income in consumers' wallets while providing incentives  for employers to hire more workers. There are three areas where the  impact of reforms would be beneficial to all, irrespective of  political sentiment. Social Security reform would benefit the most  people, most quickly. Next on the list, Hillary, would be  elimination of income taxes (federal, state, and local) on: (a) all  forms of retirement income, and then, (b) all forms of investment  income. Third, and particularly important for job creation, John,  would be the elimination of all income taxes and nuisance fees on  businesses. Who wants to be President?

Social Security will be the easiest to implement quickly while  producing unprecedented increases in disposable income, business  cost reductions, and job growth. Here's a rough outline of a  brainstorming plan. Throw out the politics and focus on the  program--- phase one deadline, January 1,2010. Change Social  Security funding to a mandatory, private program, for all employed  persons, and add a voluntary program for those who are not employed.  All employees would contribute to deferred fixed annuities, purchased from new divisions of qualified financial institutions.  Existing Social Security credits would be the initial deposit to the  contracts for all participants under age 60.

Employer matching contributions would be eliminated and participant  contributions would be cut to a mandatory 3% of total compensation  (including deferred comp, stock options, etc.). Both changes would  be phased into the system by participant age group over a five-year  period, youngest first. The five age groups would be 13-year periods  starting at zero to thirteen (obviously for voluntary accounts) and  ending with ages fifty-two through sixty-five. Phase one would  involve qualifying providers, assignment of workers, issuance of  contracts, elimination of employer matching contributions, and  elimination of income taxes on social security payments. Employers  would be required to appoint at least one person to coordinate the  transition. Contributions to the annuity contracts would begin upon  issue; the Social Security Administration (SSA) would have five  years to move credits to participants, starting with the youngest  group, and would be responsible for shortfalls to retirees for five  years.

Under the new system, there would be no penalties for early  retirement, but tax free annuity payments would begin at age  sixty-five whether or not the person continued to work. Participants  could voluntarily establish retirement accounts for non-working  spouses and children, and could elect to deduct an additional 1% of  salary for each account. A new Federal Administration for Social  Security (ASS) will select, qualify, and monitor provider companies  and their investment portfolios to assure that only high quality,  income-generating securities are used to fund benefits. Companies  showing a surplus would be able to invest up to 25% of the surplus  in stocks that qualify for the Investment Grade Value Stock Index  (IGVSI).

Only fixed life annuities would be available, but there would be 50%  of cash value, family-only, death benefits up until the time of  retirement. After age 65, the death benefit would be reduced 10% per  year for four years. There would be no loans, withdrawal privileges,  etc.

The ASS would be represented on provider company boards, would  monitor annual Audits of firm financial statements, and would  supervise the selection of all non-company directors (60% of the  board). Each provider company would be encouraged to use non-market  value portfolio assessment techniques, such as The Working Capital  Model, to monitor income portfolios. Retiree associations would also  be represented on company boards of directors, and board member  compensation would be capped at a reasonable number, plus 45% of ASS  related expenses.

Annuity providers would be assigned a fair share of the huge Social  Security Retirement Income Account (SSRIA) participant pool; every  dollar contributed would be invested. All providers would use the  same mortality tables and base interest rate guarantees in their  calculations and would be precluded from any form of advertising.  Companies would be required to focus 100% of their efforts on the  SSRIA.

Annuity providers would be allowed a .5% investment management fee  so long as the Annuity Investment Portfolio generated no less than  the 3.5% income level needed to fund a guaranteed 3% contractual  cash value growth rate. 50% of any excess realized income would be  added to retirement accounts in the form of dividends. The remaining  50% would be apportioned between three separately managed accounts  for: retirement benefit support contingencies (20%), universal  health care and disability benefits for annuitants (50%), and post  retirement death benefits (10%). Half of the remaining 20% would  become "surplus." The balance would accrue equally to the employees  of the insurance company--- the mailroom staff receiving the same  dollar amount as the CEO.

These changes would produce: a whole new sub-industry of jobs,  increase disposable income, reduce the Federal budget deficit,  provide universal retirement benefit eligibility, stabilize the  market for plain vanilla corporate and government debt securities,  reduce corporate expenses and product price levels, and subsidize  health care for senior citizens. Annuity providers would have  significant incentives to minimize costs, but their investment  portfolios would be closely supervised to prevent
excessive risk.

Politicians at all levels just love for us to hate big business, and  have no compunctions about taxing and regulating employers in every  manner imaginable. The impact is higher prices, lower job creation  rates, and the need to move many operations to lower cost  environments. Many small businesses simply refuse to hire additional  employees. Regulatory procedures and company defense measures add  billions to the costs of goods and services.

Social Security benefits are grossly inadequate yet we continue to  tax all forms of retirement benefits. Politicians ignore the simple  solutions to these problems and no one seems to care about Social  Security reform. It's just too big an issue to be so shockingly  ignored, but the last politician with any courage--- well, I can't  remember who that was either.

Steve Selengut
http://www.sancoservices.com
http://www.valuestockindex.com
Professional Portfolio Management since 1979
Author of: "The Brainwashing of the American Investor: The Book that  Wall Street Does
Not Want YOU to Read," and "A Millionaire's Secret  Investment Strategy"