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Americans Want Improved Social Security and Medicare and less Military Spending

Shifting from Defense to Offense

Clearly, the public and the political parties, including the Democratic Party, are sharply at odds.

Social Security’s critics -- primarily corporate America and the politicians and “think” tanks it bankrolls -- argue that the US “can’t afford” even the current Social Security program. As Peter Peterson, the dour Wall Street billionaire and founder of the Blackstone Group (and who was appointed by Obama to co-head a commission to propose ways to cut the federal deficit!), likes to put it, the program, along with Medicare, is “bankrupting” the country, and unless “entitlements” are cut America will go bust. Some like to point to the 12.4% FICA payroll tax that workers and employers have to pay on a 50/50 basis to fund Social Security, and argue that it imposes an intolerable burden on American business and cannot be raised without further damaging the US economy.

Nonsense. It’s not that high at all.

It’s time to inject some reality here. If a 12.4% FICA tax to fund Social Security is so punishingly high, how to explain countries like France, Germany, Sweden, and Finland, where the social security system taxation levels are far higher, yet the standard of living, and even the competitiveness of the countries’ economies, are better than in the US?

Take Finland, a country I visited just recently. Finland’s workers and employers pay in a total of 23% of payroll towards funding the country’s retirement system -- an amount about double what US workers and employers pay. Workers pay 6%, and employers pay 17%. That money funds a retirement pension that is designed to give all workers a benefit level equal to at least 60% of what they were earning at the time they retired (for the poor, it's a lot higher than 60%). This is called “consumption smoothing,” meaning that people should not have to lower their living standard upon retiring.

As Mikko Kautto, the head of research for the Centre for Pensions, explained it to me during in an interview in his office outside the capital of Helsinki, “In the early 1990s, Finland began preparing in earnest for the large aging population we saw coming.” He explained that studies by the Centre showed that most retirees would need about 60% of their final pre-retirement income to maintain their standard of living in retirement, and that “consumption smoothing” became the stated goal of the program. (Sixty percent replacement is ample in Finland because certain costs are low. Health care, including long-term care, is essentially free, and children who go to college pay no tuition and in fact receive a €450 ($600) monthly stipend for living costs.)

Finland has not suffered overmuch for this decision to have the state be responsible for essentially 100% of retirement costs (Finns have no need to assume the individual risk of putting money into 401(k)-type funds and then playing the stock market in hopes of possibly having enough assets to fund their retirement -- or possibly going bust -- as Americans must do). Its citizens, who get six weeks paid vacation, paid maternity/paternity leave, free health care and free college and who arguably have the best public education system in the world, live better than we Americans do, and their industries -- telecom, automotive, machinery, forest products and paper -- manage to compete quite well on the world markets, giving the country a trade balance the US can only dream of.



story | by Dr. Radut