Where to invest the FICA taxes

[Michael Jones <powderfinger99@yahoo.com>]

If there was one goal of privatization reform movement, it 
would probably be to start dialogue on where FICA taxes should
be invested. By law, excess FICA taxes are invested in government
bonds.

Why does this matter?

First, it helps to understand what an investment is. An investment
is an instrument for wealth creation. Investments typically 
take two forms: bonds and equities. A bond is a loan with a promise
of payback of principal + interest. An equity is ownership of
the enterprise, which entitles the owner some part of the
future earnings.

Now, the next question to ask is, are government bonds investments?
They are in fact bonds, similar to what can be found in the 
private sector. However, few people would call these government
bonds investments.

When anyone loans money to the government, they are expecting
future repayment of the principal + interest. Where does the
government get the money to pay the interest? The government
can only pay the investor back through taxation or more borrowing.

Therefore, since all excess FICA taxes are invested in government
bonds, it follows that future tax increases would be required
to pay back the bonds with interest. It should not come as a
surprise that the government would come around every so often
to raise taxes or reduce benefits because this is the only way
that it can hope to pay back the bond holders.

It doesn't matter whether the bond holder is a taxpayer or
the Social Security Trust Fund. The interest must be paid
since it was promised to the bond holder.

Since there are currently FICA tax excesses, the overall debt
of the government continues to increase as well as the interest
payments. When the the debt increases, the future tax liability
will increase to pay all the bondholders interest.

Ask yourself which of these options would you prefer?

* Invest FICA taxes in government bonds. The bonds are
paid off from future taxes. The money loaned to the government
would pay for increased government programs.
* Invest FICA taxes in the private sector. The money loaned/invested
in the private sector would create more businesses. The private sector
investments would pay the owners/bond holders back through 
wealth creation.

It is possible to do either of these options and still have
a Social Security system that remains solvent. But what option
(or combination) is best for the country?

Michael