POL: Social Security

[SackAttack]

Without passing judgment either way....this was an interesting read:

http://www.techcentralstation.com/020305H.html

[Young Drachma]

I bitch about Social Security a lot these days.

I blogged about it the other day. Here

[CentralMassHokie]

There are a bunch of issues with the President's attempt at SS reform.

The most salient is that it will lower the guaranteed payouts for workers who take the investment route, which will in some percentage of cases, lead to elderly people who do not have enough money to get by.

At that point, it is very likely that the government will simply step in and make up the difference anyway, since no President is going to stand for being the administration that brought pack poverty for the elderly. That money will need to come from some where.

It won't come from the SS trust fund, as the President refuses to talk about not defaulting on the bonds owed into the trust fund (by defaulting on the money owed the trust fun, he can pay down the debt without raising taxes or cutting spending).

There are other issues. Under the President's plan, the annuities you are forced to buy when you choose the privitization method are not-inheritable. If you die before the annuity is paid out, that money reverts back to the government.

The President (through his advisors) has admitted this program doesn't nothing to fix the potential problem of SS insolvency. Instead, it's something he's been talking about since he first ran for Governor in Texas -- when he was then predicting that insolvency was just 10 years away.

There is no SS issue, other than for people who have issues with the government taking money out of your paycheck at all. That's what the issue is, and it'd be at least a more honest argument if the proponents of privitization would admit that.

Ironically, the President has most of his current net worth tied up in government bonds. I highly doubt he'd be willing to default on those -- yet he refuses to guarantee that he will not default on the ones I have invested in via Social Security.

[Glengoyne]

Interesting article. Albeit hardly an unbiased opinion. I can see fiscally conservative Republicans and Democrats opposing Bush's plan, or what we know of it, because it will cost a good sized sum to get the ball rolling. Other than that, I can't really see an argument against it. It will be a better retirement option than Social Security as it exists today, that alone should be enough to get this passed.

[Glengoyne]

Originally Posted by CentralMassHokie

There are a bunch of issues with the President's attempt at SS reform.

The most salient is that it will lower the guaranteed payouts for workers who take the investment route, which will in some percentage of cases, lead to elderly people who do not have enough money to get by.

At that point, it is very likely that the government will simply step in and make up the difference anyway, since no President is going to stand for being the administration that brought pack poverty for the elderly. That money will need to come from some where.

It won't come from the SS trust fund, as the President refuses to talk about not defaulting on the bonds owed into the trust fund (by defaulting on the money owed the trust fun, he can pay down the debt without raising taxes or cutting spending).

There are other issues. Under the President's plan, the annuities you are forced to buy when you choose the privitization method are not-inheritable. If you die before the annuity is paid out, that money reverts back to the government.

The President (through his advisors) has admitted this program doesn't nothing to fix the potential problem of SS insolvency. Instead, it's something he's been talking about since he first ran for Governor in Texas -- when he was then predicting that insolvency was just 10 years away.

There is no SS issue, other than for people who have issues with the government taking money out of your paycheck at all. That's what the issue is, and it'd be at least a more honest argument if the proponents of privitization would admit that.

Ironically, the President has most of his current net worth tied up in government bonds. I highly doubt he'd be willing to default on those -- yet he refuses to guarantee that he will not default on the ones I have invested in via Social Security.

Couple of things. The president is "refusing" to guarantee that the government will not default on those bonds, because the only people proposing such idiocy are the far left bloggers that have been feeding that particular fire. No truth to it. None whatsoever.

Also it wasn't just the President predicting the insolvency of the Social Security system back when he was running for governor. A number of groups that forecast the health of the system have predicted the demise of the system in the past. These predictions get revised over time, as new economic data is analyzed. There was just a revision made within the last year or two.

The biggest misstatement you made was dealing with the annuities. The uninheritable annuities. You see that just ISN'T part of any plan being proposed by the President. That was plainly stated in the State of the Union, and is right in line with the "ownership society" he is advocating. Plain and simple the money in these accounts will be inheritable.

[CentralMassHokie]

Originally Posted by Glengoyne

Couple of things. The president is "refusing" to guarantee that the government will not default on those bonds, because the only people proposing such idiocy are the far left bloggers that have been feeding that particular fire. No truth to it. None whatsoever.

Do you see how that makes no sense? The administration gets asked about, refuses to answer, because it's ridiculous? Why not say "that's ridiculous, of course we're not going to default on the bonds"?

The biggest misstatement you made was dealing with the annuities. The uninheritable annuities. You see that just ISN'T part of any plan being proposed by the President. That was plainly stated in the State of the Union, and is right in line with the "ownership society" he is advocating. Plain and simple the money in these accounts will be inheritable.

Except for the fact that the President made a host of statements in the SOTU that are contradictory to what he has said in the past and contradictory to what his administration has come out and clarified in the days since then.

The annuity bit was in the information that was released about the administration's SS plan. The White House plan is extremely similar to that which Senator Graham proposed, at least thus far.

This isn't an attempt to fix SS -- the administration has admitted it won't help the projected insolvency (which, of course, really isn't an issue anyway). This is an attempt to outright end SS, but in bits and pieces. So far, there are few (if any) Democrats who've come out and outright supported the plan, and a good number of Republicans who have come out against the plan, or by saying that the President needs to do a better job explaining the benefits. Both the GAO and CBO have produced data disputing the President's claims on SS. Those are pretty heartening facts to me.

[Surtt]

Originally Posted by CentralMassHokie

This isn't an attempt to fix SS -- the administration has admitted it won't help the projected insolvency (which, of course, really isn't an issue anyway).

How is this not an issue?

[Greyroofoo]

i'm only 20. So unless I live to 90 I won't be seeing and social security money anyways.

[SunDevil]

Two Articles
http://money.cnn.com/2005/02/04/mark...ex.htm?cnn=yes

http://www.cbpp.org/2-2-05socsec4.htm

Three More
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As pretty much all the sensible articles on Social Security have made clear, to the extent that we have a problem, it is not a Social Security problem, but an accumulated national debt problem. And this isn't just a looking at one side or the other of the coin issue, but a category difference.

There are various ways to illustrate this point. But the following, I think, is the best.

The United States has a bit over $7 trillion in accumulated national debt. You can say that's been built up over the history of the country. But overwhelmingly it was borrowed over what happens to be the span of my lifetime -- the last thirty-five years -- and especially over the last twenty-five years.

After 1980 we started borrowing money big-time to finance our deficits -- in large part because of tax cuts on high-income earners. However you want to slice it, we started spending substantially more than we were taking in in tax revenue.

So where'd we borrow the money?

This is from memory, so I may have the numbers a bit off. But I believe about $4 trillion of that debt was borrowed on the open market -- individual Americans have them in their investment portfolios, or pension funds hold them, or the Chinese, Japanese and the Saudis and others have them in bonds.

But about $3 trillion of those dollars we needed to fund the 1980s and 1990s deficits we managed to borrow closer to home. We borrowed it from the Social Security (and a few other government) trust fund(s).

Almost the entirety of President Bush's Social Security phase-out plan comes down to a simple proposition: finding out how not to pay it back.

Now, admittedly, this is an approach that the president is rather familiar with from his own business career at various failed energy companies. But it is, in so many words, a straight up con -- one of vast scale, and one which virtually no one in the media ever frames in just these terms.

Before discussing that aspect of the question, consider a hypothetical. Let's say there'd not been a Social Security -- President Bush's dreamworld. We'd still have had the same deficits. The difference would be that we'd have had to borrow from private borrowers in the US and abroad.

Think we'd just be able to decide not to pay them back? Not likely. The Joneses and the Smiths with their 401ks probably wouldn't like that. And the Japanese and Saudis probably wouldn't like it much either. Of course, defaulting on our entire national debt would also certainly trigger a seismic international financial crisis. So you can probably figure that no one would be a huge fan of it.

So why does the president figure he can get away without making good on the debt to the folks who pay Social Security taxes, who are overwhelmingly low and middle-income wage earners (since no one pays Social Security tax on investment income or wage and salary income over about $85,000 a year)?

Isn't it obvious? Because he thinks they're an easy mark.

If anything, the fact that a sizeable portion of our huge national debt is owed (in the aggregate) to ourselves would seem to be a good thing since it gives us in extremis at least some flexibility on repayment. But to the president this is a reason to abolish Social Security so the money doesn't have to be paid back at all.

As I said at the beginning of this post, the challenges we face over the next several decades aren't really Social Security problems but national indebtedness problems, though the issues are clearly related.

One obvious and immediate way to relieve long-term pressures on Social Security financing is to reduce the national debt ... by ending our habit of running huge annual deficits or even better by paying down some of our accumulated debt (there are complicated macro-economic questions related to this second point; but in general it's correct.)

But what has President Bush done? He's presided over the biggest fiscal turnaround in American history, taking the country from modest annual surpluses to the biggest deficits -- at least in non-adjusted dollar terms -- in American history. And that's only one reason why you can make a decent argument that President Bush has done more than any other president and perhaps any other single American ever to endanger Social Security's future.

Across the board, it's just one big scam.

The guy who's the biggest threat to Social Security says he wants to 'save' it by abolishing the program and replacing it with private accounts.
-- Josh Marshall
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(Ed.Note: The following is a guest post from long-time New Republic and Slate editor Mike Kinsley, who now edits the editorial page for the LA Times. He invites your responses at [email protected]. Note too

My contention: Social Security privatization is not just unlikely to succeed, for various reasons that are subject to discussion. It is mathematically certain to fail. Discussion is pointless.

The usual case against privatization is that (1) millions of inexperienced investors may end up worse off, and (2) stocks don't necessarily do better than bonds over the long-run, as proponents assume.But privatization won't work for a better reason: it can't possibly work, even in theory. The logic is not very complicated.

1. To "work," privatization must generate more money for retirees than current arrangements. This bonus is supposed to be extra money in retirees' pockets and/or it is supposed to make up for a reduction in promised benefits, thus helping to close the looming revenue gap.

2. Where does this bonus come from? There are only two possibilities: from greater economic growth, or from other people.

3. Greater economic growth requires either more capital to invest, or smarter investment of the same amount of capital. Privatization will not lead to either of these.

a) If nothing else in the federal budget changes, every dollar deflected from the federal treasury into private social security accounts must be replaced by a dollar that the government raises in private markets. So the total pool of capital available for private investment remains the same. b) The only change in decision-making about capital investment is that the decisions about some fraction of the capital stock will be made by people with little or no financial experience. Maybe this will not be the disaster that some critics predict. But there is no reason to think that it will actually increase the overall return on capital.

4. If the economy doesn't produce more than it otherwise would, the Social Security privatization bonus must come from other investors, in the form of a lower return.

a) This is in fact the implicit assumption behind the notion of putting Social Security money into stocks, instead of government bonds, because stocks have a better long-term return. The bonus will come from those saps who sell the stocks and buy the bonds.

b) In other words, privatization means betting the nation's most important social program on a theory that cannot be true unless many people are convinced that it's false.

c) Even if the theory is true, initially, privatization will make it false. The money newly available for private investment will bid up the price of (and thus lower the return on) stocks, while the government will need to raise the interest on bonds in order to attract replacement money.

d) In short, there is no way other investors can be tricked or induced into financing a higher return on Social Security.

5. If the privatization bonus cannot come from the existing economy, and cannot come from growth, it cannot exist. And therefore, privatization cannot work.

Q.E.D.
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Let's not miss the big news in today's article in the Times about Dick Cheney. The vice president supports putting over 95% of the employee-side contribution to Social Security into private accounts.

Unfortunately, the authors construct the sentence in a somewhat murky fashion. But the key passage is this one: "Mr. Cheney is said by associates to favor creating investment accounts into which workers could deposit 4 percent to 6 percent of their earnings that are subject to the Social Security payroll tax."

In orther words, Cheney supports putting 4 to 6 percentage points of each individual's 6.2% contribution into a private investment account and taking it out of the Social Security system.

(Just for maximum clarity, that means about 97% of the employee's payroll tax contribution, which is 6.2% of their salary up to $90,000. And it's about 48% of the total Social Security money going into the program for the given individual since the employer also kicks in another 6.2%.)

So, in other words, the initial 'partial' phase of the Social Security phase-out, turns about to be 50% phase-out. And the only money going into Social Security comes from the employer. How long do you figure that lasts?
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[Barkeep49]

Originally Posted by Glengoyne

Other than that, I can't really see an argument against it.

Well I can. I like the idea that no matter what happens in my life that as long as I work I will have a guarenteed bedrock of money to start my retirement. I can then supplement this with money I've saved on my own, but I like the idea of having an insurance against complete poverty when I retire.

The idea of Social Seurity being in crisis is overblown. For instance looking at the chart shown here the Social Security problem has been getting better not worse.

[SunDevil]

http://www.talkingpointsmemo.com/arc..._06.php#004709

[flere-imsaho]

Well, you can all rest easy now, because Bush has explained it.

THE PRESIDENT: Because the -- all which is on the table begins to address the big cost drivers. For example, how benefits are calculate, for example, is on the table; whether or not benefits rise based upon wage increases or price increases. There's a series of parts of the formula that are being considered. And when you couple that, those different cost drivers, affecting those -- changing those with personal accounts, the idea is to get what has been promised more likely to be -- or closer delivered to what has been promised.

Does that make any sense to you? It's kind of muddled. Look, there's a series of things that cause the -- like, for example, benefits are calculated based upon the increase of wages, as opposed to the increase of prices. Some have suggested that we calculate -- the benefits will rise based upon inflation, as opposed to wage increases. There is a reform that would help solve the red if that were put into effect. In other words, how fast benefits grow, how fast the promised benefits grow, if those -- if that growth is affected, it will help on the red.

Okay, better? I'll keep working on it.

[clintl]

Originally Posted by Glengoyne

Interesting article. Albeit hardly an unbiased opinion. I can see fiscally conservative Republicans and Democrats opposing Bush's plan, or what we know of it, because it will cost a good sized sum to get the ball rolling. Other than that, I can't really see an argument against it. It will be a better retirement option than Social Security as it exists today, that alone should be enough to get this passed.

The argument against it is that if you want to increase the return by investing some of the money in stocks, private accounts are not the way to get the best return. Having the fund managed by professional pension fund managers is. As George Will so conveniently admitted recently, the reason Bush is doing this has less to do with SS solvency than it does with having the opportunity to gut a program the Republicans have always hated, anyway.

[Dutch]

I must admit that I am not very polished on Social Security or SS reform. I'm planning on staying in the military until 20 years and will draw a pension that should pay for a house mortgage after I retire from govt work.

But to me, if 300 million people all of a sudden are putting 3% of their SS money into stocks and bonds, isn't that a huge annual boost to our economy?

And if the economy is doing well, don't stocks and bonds tend to gain in value?

[JPhillips]

Dutch: Not exactly. If we suddenly add 300 billion (300 million * 1000 initial limit) into the stock market that money will be used to pump up stock prices while doing little to increase the profits of the companies purchased. In effect it will act as a quick inflationary bump to the market. Stock prices go up, but so do p/e ratios. The stock becomes worth less than it was previously.

Now this will eventually even out, but its not the same as pumping 300 billion in tax cuts or government spending.

[SunDevil]

http://www.talkingpointsmemo.com/arc..._06.php#004727

[SunDancer]

Sometimes I wish we were like Switzerland's semi-direct democracy sometimes, then we can vote ourselves.

[flere-imsaho]

Originally Posted by JPhillips

Dutch: Not exactly. If we suddenly add 300 billion (300 million * 1000 initial limit) into the stock market that money will be used to pump up stock prices while doing little to increase the profits of the companies purchased. In effect it will act as a quick inflationary bump to the market. Stock prices go up, but so do p/e ratios. The stock becomes worth less than it was previously.

On top of that, you have to wonder what the effect of taking another $700 billion in debt (I'm using a number Cheney used in an interview sometime in the past few days when describing how they'd "tide things over" in the meantime) would be. There's some concern in international money markets about the U.S.'s deficit spending, to the point where only a handful of countries are now continuing to invest in T-Bills.

[SunDevil]

http://www.talkingpointsmemo.com/arc..._06.php#004788

[Dutch]

If nothing else, it shows just how partisan the "beliefs" are. I honestly did not realize just how partisan of an issue Social Security is. And I did not realize that both sides would fight each other for the right to champion social security.

Clinton tried to privatize it and was rejected by the Republicans. Now Bush is trying the same thing as is being rejected by the Democrats.

Both fight to win, but we all stand to lose. I wish somethings could escape partisanship. But the stakes have been raised too high, unfortunately.

[Glengoyne]

Originally Posted by clintl

The argument against it is that if you want to increase the return by investing some of the money in stocks, private accounts are not the way to get the best return. Having the fund managed by professional pension fund managers is. As George Will so conveniently admitted recently, the reason Bush is doing this has less to do with SS solvency than it does with having the opportunity to gut a program the Republicans have always hated, anyway.

How you could have read the George Will column where he describes Social Security Reform as an opportunity, and gotten out of it that it was an opportunity to "gut" a hated program is beyond me. I know he uses big words and all, but seriously. Read it again.


As for the bit of your post about having professional pension fund managers. What specifically are you describing. The Social Security Admin starts to invest benefits paid into it in the market directly?

[Glengoyne]

Originally Posted by Barkeep49

Well I can. I like the idea that no matter what happens in my life that as long as I work I will have a guarenteed bedrock of money to start my retirement. I can then supplement this with money I've saved on my own, but I like the idea of having an insurance against complete poverty when I retire.

The idea of Social Seurity being in crisis is overblown. For instance looking at the chart shown here the Social Security problem has been getting better not worse.

The deal is, with any proposed reform that has been discussed, the guarantee is still there. The President's talking about increasing your retirement "bedrock". No one has seriously proposed getting rid of Social Security. Well no one outside of the Leftist fearmongering bloggers.

[clintl]

Originally Posted by Glengoyne

As for the bit of your post about having professional pension fund managers. What specifically are you describing. The Social Security Admin starts to invest benefits paid into it in the market directly?

Yes.

[Glengoyne]

Originally Posted by clintl

Yes.

Interesting. On it's face I don't have a problem with it. I think there would have to be a lot of restrictions on what kinds of stock or funds they could invest in. We're talking about control of enough money to actually manipulate the market. I'd say that would be the biggest drawback to that situation, and there are probably ways to mitigate that as an issue. The problem might be that those restrictions would probably be so limiting that they would probably outweigh the benefits of having professional fund managers in the first place.

This wouldn't be an issue under the privatized account option because the investments would be limited to a very select set of "whole market" type accounts. It doesn't seem that you would be opposed to changing social security on principle, and that is, I believe, a good thing.

The way I look at it is that Social Security may not be in danger of insolvency, but it certainly isn't providing much of a return on our considerable investment. I don't think it has to be that way. I'm personally happy that we might see some changes to the program. It doesn't matter to me whether this is championed by a Democrat or a Republican. I just think that we have an opportunity to improve on the status quo. I don't see any benefit in protecting a system from any change at all when it could possibly be improved.