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Tuesday, March 08, 2005

Personal Accounts at birth

Tod Lindberg writes in The Washington Times about private accounts and Social Security. For the most part it is a lot of stuff we have heard before, and it will make sense to the proponents and be meaningless to the detractors of private accounts. He does however include something that I think is very interesting:

You might, for example, fund the kid's account with $1,000 per year from mom's or dad's Social Security taxes for the first five years of the life of the kid. Now, if you managed to do that, by age 67, the $1,000 dollars from year one would amount to, back of the envelope computation, $48,116 (more if compounding is computed more frequently than annually); from year two, $45,392; from year three, $42,823; from year four, $40,399; from year five, $38,112. That's a total of $214,842 — which is a superb funding base for future liability. For those making less than an amount that would fund $1,000 a year, government could step in to equalize the playing field. Or, you might fund the account with the full maximum Social Security contribution of the parent the year the child is born: $5,580 from year one. That alone turns into $268,488 at age 67. There are about 4 million babies born each year. If the whole cost was a dead loss in revenue to government, you could do it for $22 billion a year.
I think that this is a great idea in general. I would add in a few alteration to it however. First off, I would have the funding for the babies initial accounts be taken from the general fund, not the Social Security system itself. As I think I have mentioned before, while I oppose transfers of wealth from one class of worker to another in general, I think that a transfer of wealth from workers to children has a lot more merit. One of the downsides for anyone who espouses a libertarian/laissez faire view of society is the acknowledgement that we do not all have equal opportunities. I don't think government can totally rectify that, but I think it can help out, and a program like this is one way to do that. I addition, I would support a similar program for a child's higher education fund. This would be another $6,000 or so that would be available for higher education. For those who didn't pursue higher education, or spent less on it than their account contained, they should be able to withdraw the balance at age 25 or so and use it however they desired. Hopefully, they would be wise and use it in some manner to promote their future economic well being.


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