In Ads, AARP Criticizes Plan on Privatizing

Above all? That's a bit of wishful thinking.

People over the age of 60 didn't go from controlling less than 15% of this country's assets to controlling in excess of 65% of them because of Social Security.

The rate of seniors in poverty dropped because they had a whole lot more in assets when they became seniors - not because of the monthly checks they got afterwards.

What privatization alone can't do

There may be a lot to like about personal accounts, but they don't resolve Soc. Sec's solvency.
January 5, 2005: 11:07 AM EST
By Jeanne Sahadi, CNN/Money senior writer


NEW YORK (CNN/Money) – Many who say Social Security is in crisis suggest overhauling the system by partially privatizing it, allowing workers to invest some of their Social Security taxes in personal investment accounts.

But even proponents of privatization acknowledge that personal accounts alone won't resolve Social Security's long-term solvency issues. Rather, changing the way initial benefits are calculated could. And that's a feature of key reform proposals that promote personal investment accounts.

"Personal accounts are neither necessary nor sufficient," said Olivia Mitchell, a professor at the University of Pennsylvania's Wharton School, who served on both the President's Commission to Strengthen Social Security and the Congressional Budget Office's advisory board on Social Security.

That may be why President Bush, who is making a heavy push for privatization, is reportedly leaning towards changing the formula by which initial Social Security benefits are determined. That idea is a major feature of "Plan 2," the leading privatization proposal put forth in 2001 by the President's Commission to Strengthen Social Security.

Here's the crux of the proposed change: Instead of linking -- or indexing, as it is known -- initial Social Security benefits to wage growth, the starting benefits would be indexed to inflation. Since inflation tends to rise less quickly than wages, it's a reduced measure by which to set starting benefits.

It's that formula change that would bring the system into actuarial balance, but it also would result in a cut in future retirees' benefits.

"The proposed switch from wage to price indexing under Plan 2 would reduce benefits relative to current law," according to a report by the Congressional Budget Office (CBO).


What a formula change means in dollars and cents
Here's an example of how a change in indexing under Plan 2 may reduce future retirees' benefits, even after taking into account the gains of a personal investment account:

The CBO estimates that when a worker earning the median income born in 1990 retires, he would receive $14,500 a year in today's dollars. That includes the money he'd draw from his personal investment account – assuming a 4.9 percent annual return -- and his Social Security benefits.

Under the current system, that worker is promised a benefit of $23,300. But even critics of privatization acknowledge that the current promise can't be met since the system won't be taking in enough revenue when he retires to pay out all its obligations.

But even if the system only paid out what it could afford to -- about 80 percent of the current promise -- the worker in this example would receive $18,100, which is $3,600 more than he'd get under Plan 2.

Still, proponents of privatization point to other benefits of personal accounts. "There is a value above and beyond the expected dollars," Mitchell said.

For example, Mitchell explained, one might argue that it is less risky to have a personal investment account in which one can diversify and own one's investments rather than to rely solely on a pay-as-you-go system in which your Social Security benefits are "entirely reliant on the willingness and ability of the next generation to pay those taxes."

Under Plan 2, creating a personal investment account would be voluntary and only a portion of your Social Security payroll taxes could be invested in it.

Also, Mitchell noted, for those workers who never make it to retirement, Plan 2 would allow them to leave the money in their accounts to their heirs.

And having personal accounts in combination with a change to price indexing is expected to give future retirees a higher benefit than they'd receive if only price indexing were adopted. "Individual accounts offset some of the benefit reduction you'd otherwise see," said Michael Tanner, director of health and welfare studies at the libertarian Cato Institute.

Whatever changes are made to Social Security, President Bush has made clear that the benefit levels of current and near retirees would not be affected, although he has not specified what ages define "near" retirees.  

For the Record on Social Security


Published: January 10, 2005

Late February is now the time frame mentioned by the White House for unveiling President Bush's plan to privatize Social Security. The timing is no accident. By waiting until then, the president will conveniently avoid having to include the cost of privatization - as much as $2 trillion in new government borrowing over the next 10 years - in his 2006 budget, expected in early February.

In this and other ways, the administration is manipulating information - a tacit, yet devastating, acknowledgement, we believe, that an informed public would reject privatizing Social Security. For the record:

The administration has suggested that it would be justified in borrowing some $2 trillion to establish private accounts because doing so would head off $10 trillion in future Social Security liabilities. It's bad enough that the $10 trillion is a highly inflated figure, intended to overstate a problem that is reasonably estimated at $3.7 trillion or even considerably less. Worse are the true dimensions of the administration's proposed ploy, which were made painfully clear in a memo that was leaked to the press last week. Written in early January by Peter Wehner, the president's director of strategic initiatives and a top aide to Karl Rove, the president's political strategist, the memo states unequivocally that under a privatized system, only drastic benefit cuts - not borrowing - would relieve Social Security's financial problem. "If we borrow $1-2 trillion to cover transition costs for personal savings accounts" without making benefit cuts, Mr. Wehner wrote, "we will have borrowed trillions and will still confront more than $10 trillion in unfunded liabilities. This could easily cause an economic chain reaction: the markets go south, interest rates go up, and the economy stalls out."

At a recent press conference, Mr. Bush exaggerated the timing of the system's shortfall by saying that Social Security would cross the "line into red" in 2018. According to Congress's budget agency, the system comes up short in 2052; according to the system's trustees, the date is 2042. The year 2018 is when the system's trustees expect they will have to begin dipping into the Social Security trust fund to pay full benefits. If you had a trust fund to pay your bills when your income fell short, would you consider yourself insolvent?

In suggesting that 2018 is doomsyear, the president is reinforcing a false impression that the trust fund is a worthless pile of I.O.U.'s - as detractors of Social Security so often claim. The facts are different: since 1983, payroll taxes have exceeded benefits, with the excess tax revenue invested in interest-bearing Treasury securities. (An alternative would be to, say, put the money in a mattress.) That accumulating interest and the securities themselves make up the Social Security trust fund. If the trust fund's Treasury securities are worthless, someone better tell investors throughout the world, who currently hold $4.3 trillion in Treasury debt that carries the exact same government obligation to pay as the trust fund securities. The president is irresponsible to even imply that the United States might not honor its debt obligations.

Mr. Bush's reason for ignoring the far more pressing problem of Medicare while he pursues Social Security privatization is especially tortured. Over the next 75 years, the mismatch between revenues and Medicare benefits for doctors' care and prescription drugs is 3.5 to 6 times as much as the shortfall in Social Security, according to the Center on Budget and Policy Priorities. The Medicare hospital trust fund mismatch is two to three times as big. Asked by a reporter last month why he wouldn't tackle Medicare first, Mr. Bush said that his administration had already taken on Medicare by pushing through the $500 billion-plus prescription drug benefit. Drug coverage, he said, would save money for Medicare by paying for medicine that would prevent the need for expensive heart surgery. "I recognize some of the actuaries haven't come to that conclusion yet," he said. "But the logic is irrefutable."

Logic? That thinking is wishful to the point of being magical. Medicare is not going to fix itself any more than tax cuts will pay for themselves. And Social Security is not a crisis for which enormous borrowing, huge benefit cuts and risky private accounts are a solution. Rather, it's a financial problem of manageable proportions, solvable without new borrowing by a combination of modest benefit cuts and tax increases that could be distributed fairly and phased in over several decades, while guaranteeing a basic level of inflation-proof income for life.

It appears that the president and his aides are trying to sow ignorance to gain support for their flawed privatization agenda. Lawmakers, policy makers and the American people have to let the administration know that they know better.

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Can any of you point out in the Constitution where it guarantees SS? Where it says people have the right to receive payments till they die? I don't think there is anything Constitutional about having to pay SS in the first place. If you can show this being said in the COnstitution of the Bill of Rights, then you have my support!

Baldimo
What do you think we have a congress for. To make laws as necessary. The constitution is not nor can it be the do all and end all. The only way it could have been if those who wrote it had a crystal ball and could look into the future. Your approach is both unrealistic and simplistic.

It is neither and none of the above. It is the way in which this country was meant to be run. If we ran this country according to the constitution then we wouldn't have the pyramid scam known as SS.

It's More Than Social Security

By Robert J. Samuelson
Friday, January 14, 2005; Page A19



"We have a problem, and the problem is America is getting older and that there are fewer people to pay into the system to support a baby boomer generation which is about to retire. Therefore, the question is, does this country have the will to address the problem?"

-- President Bush, Dec. 9, 2004

The answer seems to be "no," starting with the president. Language matters. How we discuss something -- the words and phrases we select -- determines whether what we say makes sense. The fact that both Bush and his opponents have chosen to debate only Social Security, highlighted by the president's "personal accounts" proposal, betrays a lack of seriousness that promises failure. The nation's problem is not Social Security. It is all federal programs for retirees, of which Social Security is a shrinking part. Admit that and the debate becomes harder, but it also becomes more honest and meaningful.

Our national government is increasingly a transfer mechanism from younger workers (i.e. taxpayers) to older retirees. In fiscal 2004 Social Security ($488 billion), Medicare ($300 billion) and Medicaid ($176 billion) represented 42 percent of federal outlays. Excluding spending that doesn't go to the elderly, the Congressional Budget Office crudely estimates that these programs pay an average of almost $17,800 to each American 65 and over. By 2030 the number of elderly is projected to double; the costs will skyrocket.

It makes no sense to separate Social Security from Medicare. Most Social Security retirees receive Medicare. Similarly, it is the total cost of these programs that matters for the budget, taxpayers and the economy. By itself, Social Security is almost irrelevant. Indeed, the big increases in future spending occur in health care. The actuaries of Social Security and Medicare project that Medicare's costs will exceed Social Security's in 2024 -- and then the gap only widens. (The projections don't include Medicaid, which pays for some nursing home care. Including Medicaid would widen the gap further.)

Look at the numbers. From 2004 to 2030, the combined spending on Social Security and Medicare is expected to rise from 7 percent of national income (gross domestic product) to 13 percent. Two-thirds of the increase occurs in Medicare. To add perspective: The increases in Social Security and Medicare represent almost a third of today's budget, which is 20 percent of GDP. Covering promised benefits would ultimately require a tax increase of about 30 percent; that assumes today's budget is balanced (dispensing with the issue of Bush's tax cuts). In current dollars, the needed tax increase would be about $700 billion annually.

The central budget issue of our time is how much younger taxpayers should be forced to support older retirees -- and both political parties and the public refuse to face it. What's fair to workers and retirees? How much of a tax increase (never mind budget deficits) could the economy stand before growth suffered badly? How much do today's programs provide a safety net for the dependent elderly, and how much do they subsidize the leisure of the fit or well-to-do? (About 15 percent of elderly households have incomes exceeding $75,000.) How long should people work?

We need a new generational compact to reflect new realities. In 1935, when Congress passed Social Security, life expectancy at birth was 62; now it's 77. In 1965, when Congress passed Medicare, the 65-and-over population was 9 percent of the total; by 2030, it's expected to be 20 percent. The generational compact includes Social Security, Medicare and Medicaid. If this year's debate focuses only on Social Security, it will be an exercise in deception. Unfortunately, both the White House and congressional Democrats have a stake in that deception.

Democrats argue that "the Social Security problem" can be fixed with tolerable tax increases and benefit cuts, imposed mostly on the upper middle class and the rich. True. The long-term gap between promised benefits and present taxes equals 1 to 2 percent of GDP. Though large, the needed changes in taxes and benefits probably wouldn't be crippling. There's no "crisis," say Democrats and supporting pundits. What they omit is Medicare. Adding that, tax increases would be huge -- and hard to limit to the wealthy.

The focus on Social Security also suits the White House. For starters, it avoids the reality that until now many Bush policies have favored the old over the young. In 2030 the new drug benefit raises Medicare spending by an estimated 36 percent. The tax cut on dividends and capital gains (to 15 percent) benefits the old -- particularly the wealthy elderly -- because they own a disproportionate share of stocks. Elderly households with incomes exceeding $100,000 will receive 27 percent of the benefits of these cuts (worth about $6 billion) in 2005, estimates the Tax Policy Center. As for personal accounts, they would involve immense practical problems. Why run the risks if, because Medicare has been ignored, the real problem of federal retirement spending remains largely unaddressed? Good question. The White House isn't asking.

What's discouraging is that, along with most Republicans and Democrats, many "experts" and pundits also evade the hard questions. Their purpose is mainly to condemn or cheer George Bush. The debate we need involves generational responsibility and obligation. Anyone who examines the outlook must conclude that, even allowing for uncertainties, both Social Security and Medicare benefits will have to be cut. We can either make future cuts now, with warnings to beneficiaries, or we can wait for budgetary pressures to force abrupt cuts later, with little warning. That's the problem, and to answer Bush, no one wants to address it.


To this I would add the crisis looming with a national debt and the deficit that is about to devour us.

Void duplicate post.


It was an echo

Au, it's okay to talk to yourself, but when you start answering?