Employers would be mandated to facilitate these”MyRA” accounts, and the money collected would be invested in “guaranteed” government bonds.
There are some good features to the MyRA plan, most notably the fact that money in the accounts would be protected from double taxation. Workers would put after-tax money in the accounts, but there would be no additional layers of tax on any earnings, or when the money is withdrawn.
In other words, a MyRA would be akin to a back-ended (or Roth) IRA.
But there are some bad features, including the fact that taxpayers would be subsidizing the earnings, or interest, paid to account holders (though this would be a relatively benign form of government spending, at least compared to Obamacare, ethanol, etc, etc).
My biggest complaints, though, are the sins of omission, which I discuss in this interview for Blaze TV.
Simply stated, if Obama was concerned about low returns for savers, he should be directing his ire at the Federal Reserve, which has artificially pushed interest rates to very low levels as part of its easy-money policy.
But more importantly, MyRAs will be very inadequate for most workers with modest incomes. If the President really wanted to help ordinary people save for retirement, he would follow the successful example of more than 30 other nations and allow workers to shift their payroll taxes into personal retirement accounts.
This video explains why reform is so desirable.
Critics say it would be very expensive to make a transition to this modern system, and they’re right. If we let younger workers put their payroll taxes in a personal accounts, we’ll have to come up with a new source of revenue to finance benefits being paid to current retirees and older workers.
And we’re talking lots of money, as much as $7 trillion over the next few decades.
But that’s a lot less than the $36 trillion cash shortfall that we’ll have to somehow deal with if we maintain the current system.
In other words, we’re in a very deep hole. But if we shift to personal retirement accounts, the hole won’t be nearly as large.
P.S. The video mentions that Chile and Australia deserve special attention. Click here if you want to learn about Chile’s successful system and click here if you want to see how Australia’s “superannuation” system has been a big winner.
P.P.S. Some people already have asked me whether I was too Pollyannish in saying that there’s no risk for several decades that Washington will default. I could be wrong, of course, and I have shared BIS, OECD, and IMF data that reveals the United States has gigantic long-run fiscal challenges. But as I said in the interview, I think most other welfare states will collapse first, and that will lead to “flight capital” coming to America, which will help prop up our system.
P.P.P.P.S. You probably don’t want to know how Obama would like to “fix” the Social Security shortfall.