Romania on the Rise: Private Retirement Accounts
The Cato Institute Blog notes that Romania is joining a growing number of nations that have privatized their national retirement accounts:
Under a new system launched last month, more than 3 million Romanian workers under 35-years-old must opt for one of 14 competing private pension funds before January 17th, 2008. Those ages 35 to 45 can also decide to join one of the private funds. Starting in 2008, 2% of every worker’s general income will be redirected from the state budget to the chosen private fund. This contribution will gradually increase to 6% by 2015, and the current 9.5% social security contribution to the state system will diminish accordingly. “Several million Romanians will become investors, and the private pension system will educate them in the spirit of a free market economy,” says Romanian President Traian Basescu.
How did they get so smart? Or, alternately, why are we so dumb?
Our Social Security system is about to implode. Its been resistant to change because Congress has been able to use the excess funds it generated to cover their ugly, wasteful, boon-doggle spending footprints. But like a college kid with a credit card, the Congress is faced with a mess now that the surplus is gone and payouts will soon exceed collections. But in this case, paying the piper simply means the Congresscritters will raise other taxes.
Every wage earner subject to Social Security taxes (read: nearly everyone) pays not once but twice, from the first dollar of income. That 7.65% taken from even the poorest of wage earners is matched by their employer with another 7.65%, money which would make a huge difference to the working poor. Replacing that 15.5% tax … much of it now going into a rat’s hole in Washington … with a mandatory private account at 10% would still provide an increase of income. And, the private accounts would be inherited by the next of kin, removing one of the hidden racist elements of our current tax system (because the working poor and blacks have shorter life expectancies, they draw less out of the system than those that live longer lives).
