by Charles Blazer

Created on: April 22, 2008   Last Updated: October 04, 2010

Mixing Apples and Oranges - Social Security and Estate Taxes

We all know that Social Security is broken and headed for bankruptcy. There are two traditional ("simple") ways to fix underfunded entitlement programs: 1) raise taxes, or 2) cut benefits. And, in the case of Social Security, it is political suicide for anyone to suggest either (or both). Thus, the Social Security problem has festered and gotten worse, and I fear that in our short-attention-span, debt-ridden, instant-gratification, five-second-soundbite, sensationalist society, the Social Security problem will not be seriously addressed until it has reached crisis proportions sufficient to grab daily headlines. Right now, simply knowing that it will eventually collapse is not enough to get people motivated to make the tough choices. Until it actually collapses, America apparently has better things to do.

I, like most sensible people who are not politicians, would rather not wait for that to happen. I would rather suffer small pain now to prevent the big pain later. But I must also admit the political reality - that the traditional two solutions (raise taxes or cut benefits) are so politically toxic that they are simply not on the table today. We must find another solution. It's time for wild ideas. It's time to think outside the box.

So here's my wild idea: Give people a choice. You can choose to collect Social Security, or not collect it. If you choose to collect Social Security, you would be subject to a much higher estate tax upon your death. If you choose not to collect Social Security, you would be subject to little or no estate tax upon your death.

Apples and oranges? After all, what do estate taxes have to do with Social Security? Let's think about it...

Who needs Social Security? Answer: Retirees with insufficient investments, pensions, and retirement savings to get them through retirement alone. These people have been paying into the system their entire working lives with the expectation of relying on it, at least in part, during retirement. These people also likely have relatively small estates, perhaps because they've chosen to invest in their children's education at the expense of their own comfort in retirement. With the rising cost of college, this is a difficult but very real choice that many Americans have faced. These people are likely not very concerned about estate taxes, because they've already given away most of their legacy. And they were happy to do so, I might add, because

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