Modify Social Security so that Americans invest in America

Today I received my Social Security Statement. My employer and I each pay into Social Secuirty taxes 6.2% of my salary, up to an annual limit of $106,800, an amount which increases each year. In 2008, these taxes collected about $800 billion.

Compare this number to the $500 billion worth of U.S. Treasury debt purchased by foreign countries from October 2008 - October 2009, and you see that we "save" about as much for our elderly as we borrow from other countries.

I propose a modification to restore Social Security as insurance, rather than entitlement.

1. Set Social Security Taxes at 12% (6% each from employee and employer) up to $120,000 annual income, but do not adjust the income limit each year.
2. Add a 4% deduction (2% each from employee and employer) onto annual income above $120,000, which goes into a Personal Retirement Account (PRA), which exists in the name of the employee and invests automatically into 10-year inflation-indexed U.S. Treasury bonds
3. Upon death, disability, or retirement, the PRA money can be withdrawn (at a limited rate) by the account owner to use for living expenses
4. Once the PRA account is depleted, Social Security kicks in, if needed (Note that the longer you wait to receive Social Security, the higher your monthly payment is.)
5. If the account holder dies with a PRA balance, that money passes to heirs

If you are fortunate enough to not need Social Security Insurance then good for you, but when you do need it your payout will be higher since you waited longer to start collecting.

By not raising the Social Security income limit, over decades more Americans will transition into PRA levels due to inflation and wage growth. Gradually, we will modify ourselves into a nation of self-supporting savers who have insurance against calamities, rather than an entitled population of older retirees paid by younger workers.

By placing all PRA funds into Treasury bills, we eliminate market risk, remove the inevitable lobbying establishment that would flock to PRA funds invested in private securities, and establish a large, reliable source of buyers for U.S. Government debt. While government debt in general should be avoided over the long term, when we need it we should have American debtors. That way Americans are funding the government's debt programs, rather than relying on foreign investors who may dump our debt or use it as leverage against us in international politics.

The details of this plan will need thorough analysis, in order to validate that it accomplishes the goals of (1) gradual change toward a more financially sustainable future (2) solvency for the existing social security insurance program (3) establishment of a solid personal retirement savings program, and (4) reduction of our reliance on foreign-owned government debt.