'I will follow up this post with an editorial from today's New York Times that does an excellent job of outlining the reasons why this idea...is harebrained.'
NYTs Editorial = no problem...leave it alone
For our sakes, I hope, for once, the NYTs is right.
'For the same reasons I prefer not to allow people to choose what uses the government can and cannot make with their tax money.'
Not completely true. We have elections every two years to elect representatives who make decisions how to spend our tax dollars.
But I get your point, somewhat.
neue regel wrote:But I get your point, somewhat.
:wink:
I hope whatever gets done...that the predicament of the common person ends up the better for it.
I know for some...government has no place (or very little place) in the area of safety nets.
I don't agree with that.
I think the government is the best hope we have of providing some kind of safety net for people...some of whom simply cannot compete.
I'd hate to see 60 years of work go down the drain because of this president.
But for what it is worth...I get your point, also...sort of. :wink: :wink:
nueu wrote: "why not allow me the choice of where I'd like to invest my withholdings?"
Theoretically, this sounds great. The problem is: current S.S. benefits have to paid for. Diverting funds creates a shortfall, which will necessarily be made up by borrowing. And this will just further increase the already out of control deficit created by Bush's endless tax cuts for the wealthy and, of course, by his ill-planned, unjustified, no-end-in-sight invasion of Iraq.
S.S. is, as I hear, quite solvent through 2050, at which point it becomes something like 80% solvent. I, too, believe in means testing, and savings from means testing could surely make up the difference at that point.
Some reform is needed, to be sure, but, given the current deficit situation, Bush's proposals make no sense, unless of course you recognize those proposals for exactly what they are: unabashed payback to his corporate investment cronies who are salivating at the thought of getting their hands on these funds.
Bush is laughably predictable, isn't he? Or should I say steadfast, and resolute! His support for his rich cronies at the expense of the average American is utterly unwavering.
And also quite nauseating.
Frank Apisa wrote:
I think the government is the best hope we have of providing some kind of safety net for people...some of whom simply cannot compete.
Oh Frank, you socialist :wink:
I think the $10 trillion is some sort of "fuzzy math" of "junk science" the president always likes to talk about.
Good Krugman editorial on this issue:
The people who hustled America into a tax cut to eliminate an imaginary budget surplus and a war to eliminate imaginary weapons are now trying another bum's rush. If they succeed, we will do nothing about the real fiscal threat and will instead dismantle Social Security, a program that is in much better financial shape than the rest of the federal government.
In the next few weeks, I'll explain why privatization will fatally undermine Social Security, and suggest steps to strengthen the program. I'll also talk about the much more urgent fiscal problems the administration hopes you won't notice while it scares you about Social Security.
Today let's focus on one piece of those scare tactics: the claim that Social Security faces an imminent crisis.
That claim is simply false. Yet much of the press has reported the falsehood as a fact. For example, The Washington Post recently described 2018, when benefit payments are projected to exceed payroll tax revenues, as a "day of reckoning."
Here's the truth: by law, Social Security has a budget independent of the rest of the U.S. government. That budget is currently running a surplus, thanks to an increase in the payroll tax two decades ago. As a result, Social Security has a large and growing trust fund.
When benefit payments start to exceed payroll tax revenues, Social Security will be able to draw on that trust fund. And the trust fund will last for a long time: until 2042, says the Social Security Administration; until 2052, says the Congressional Budget Office; quite possibly forever, say many economists, who point out that these projections assume that the economy will grow much more slowly in the future than it has in the past.
So where's the imminent crisis? Privatizers say the trust fund doesn't count because it's invested in U.S. government bonds, which are "meaningless i.o.u.'s." Readers who ...
http://www.nytimes.com/2005/01/04/opinion/04krugman.html?oref=login
'The people who hustled America into a tax cut to eliminate an imaginary budget surplus and a war to eliminate imaginary weapons are now trying another bum's rush.'
Getting Krugman on record as calling the Clinton budget surplus 'imaginary' is classic...and a point of agreement.
Squinney...you beat me to posting Kruegman's article by an eyelash!
He's gonna do follow ups in his next few columns.
I hope every columnist in the country gets on this one...because of all the ideas Bush has ever advocated...this is one of the scariest.
btw, it is good to hear we don't have a crisis. Here I was thinking it was going down the toilet.
http://www.ici.org/issues/ret/arc-leg/99_pres_soc.html
Just wondering, were you guys biting your nails (presumably from being 'scared' as frank says" when Clinton was throwing this idea around...or is this politics as usual?
From that article:
Quote:Clinton Proposal
The President's proposal, while not yet fully detailed, is composed of two parts. First, the President proposes transferring 62 percent of projected budget surpluses over the next 15 years to the Social Security system. A portion of those assets (less than one-fourth of the transferred surpluses) would be invested directly in the stock market. According to the President, this funding would keep Social Security solvent through the year 2055. Additional reform would be needed to assure solvency through 2075.
Second, the President has proposed using an additional 11 percent of the projected surplus to create new "Universal Savings Accounts" or "USAs." Under the USA program, most Americans annually would receive a flat dollar amount from the federal government that would be deposited in a USA to be invested and saved for retirement. In addition, the President proposes permitting individuals to voluntarily make additional contributions to these accounts, which, depending on income level, would be matched by the government. Precise detail about account size, contribution limits or matching formulas, permitted investments, and the mechanics of how accounts would be established and administered have yet to be proposed. Administration officials have suggested, by way of example, that accounts would be established with $100 annual payments and that eligible individuals would be able to save up to $1,000 per year, including the annual payment, voluntary contributions, and government matches. The Administration, however, also has indicated flexibility with regard to program details.
It's clearly not like the Bush proposal. Clinton proposed putting extra money into SS. The personal savings accounts mentioned were not intended funded by deferred SS tax, as the ones currently proposed by the Bush admin would do. Nothing Clinton proposed would have removed funds from the SS system.
'proposes transferring 62 percent of projected budget surpluses over the next 15 years to the Social Security system. A portion of those assets (less than one-fourth of the transferred surpluses) would be invested directly in the stock market.'
Since we all agree that the surplus was 'imaginary', per Krugman, where do you suppose those monies would come from that would be 'invested directly in the stock market?'
I still can't quite figure why we wouldn't want to slowly transfer money from the government, where it goes down the proverbial black hole, to investing that money over a very broad range and getting better return....similar to a well diversified 401K plan.
I'm not sure I agree that the surplus was 'imaginary', but I do agree that it was only 'projected'. It may be that it is because the surplus did not exist that his proposal never seemed to get very far.
I could agree that doing something with the money in the fund to get a better return on it would be a good idea. I'd be happy if they just quit letting Congress borrow from it.
On antoher note, and as per Krugman's article, if the idea is that the trust fund doesn't count because it is invested in government bonds, isn't that an indicator that there isn't much faith in our economy, or at least, in the solvency of our government.
neue regel wrote:btw, it is good to hear we don't have a crisis.
So you're ok with leaving S.S. alone ? ...... because there will be many disappointed Bush buddies who were looking to cash in for their "loyalty".
I'm not an expert on investing so this might sound naive but why doesn't the gov't run social security like the lottery? Can't it be fixed by allocating money to buy zero-coupon bonds (annually) so by 2042 the ones bought now would mature by then and so on every year after?
RfromP wrote:I'm not an expert on investing so this might sound naive but why doesn't the gov't run social security like the lottery? Can't it be fixed by allocating money to buy zero-coupon bonds (annually) so by 2042 the ones bought now would mature by then and so on every year after?
The funds are in something better....Government Securities.
What if the money had been invested in Enron bonds?
From today's New York Times Op-Ed page:
January 5, 2005
OP-ED CONTRIBUTOR
Choose and Lose
By BARRY SCHWARTZ
warthmore, Pa. ?- THERE are three arguments being made in favor of privatizing part of Social Security. First, the Social Security Trust Fund needs money and privatization will, in the long run, increase the amount of money available to retirees. Second, privatization will give people choice, and choice is good. And third, "it's your money," and you ought to be able to do with it as you wish.
Each of these arguments is dubious, or disingenuous, or both.
Though experts differ on the urgency and the severity of the problem, most everyone agrees that the trust fund will eventually run out of money unless we do something. Two obvious and painful things we can do are decrease benefits or increase payroll taxes. Privatization, it is argued, solves the problem without the pain. Equity investments return about twice as much, historically, as Treasury bills. So by allowing people to put some of their payroll taxes into equity investments, we will increase the value of that part of their retirement account so we can then decrease the benefits paid out by the standard Social Security program and still leave retirees better off.
There are several problems with this argument, however. For starters, there is no guarantee that equities will return more than Treasury bills. One of the reasons that equities have a higher rate of return than other types of investments is that investors have to be compensated for taking risks. Perhaps equities will outperform Treasury bills in the long term but that doesn't mean that they will be outperforming Treasury bills at the specific moment you retire.
For example, a person who retired in 2000 after a lifetime of investing half in stocks and half in bonds would have had 50 percent more in his account than a person making the same investments who retired in 2003. A difference like this could mean that the lucky retiree can afford both food and medicine while the unlucky one must choose between them. The risk inherent in equity investments is unavoidable unless you can leave the investment alone indefinitely, which, of course, most retirees can't do.
What's more, the administrative costs of keeping track of these private accounts, according to President Bush's Commission to Strengthen Social Security, will be 10 to 30 times the cost of administering the current system, eating up almost all of the hypothetical gains that equity investments could provide.
Finally, even if we grant the advantages of putting trust fund money into equities, this is something that the government could do without privatizing anything by doing the investing itself. The government as investor can ride out risks better than any individual investor, and administrative costs would be vastly reduced. Only brokerage houses would suffer - from lost commissions. Thus investing in equities, which might be a good idea, is logically independent of privatization, which is a bad one. The Bush administration is deliberately conflating them.
This brings us to the second argument in favor of privatizing Social Security: giving people options makes them better off. There is now accumulating evidence that choice isn't always good. Whether people are choosing jam in a grocery store, essay topics in a college class, or even potential partners in an evening of "speed dating," the more options they have, the less likely they are to make a choice. In other words, increasing options induces people to opt out of choosing altogether, and this comes into play when people decide how to invest their money for retirement.
A study by Sheena Iyengar, a psychologist, and Wei Jiang, an economist, has shown that when employers increase the number of funds available to employees for voluntary 401(k) investments, the rate of participation goes down by 2 percent for every 10 funds offered. And this is true even when participating employees get free money - matching money - from employers.
So whereas there is no denying that choice is sometimes good, a case must be made for the specific benefits of choice in each particular context, rather than just assuming that the more choice people have, the better off they are. The appropriately abysmal early public response to the administration's Medicare prescription drug choice plan provides ample reason to suspect that many people will not regard being able to choose their Social Security investment instruments as a blessing.
This brings me to the final defense of privatization: the payroll taxes you pay are your money, and you ought to be able to do what you like with your money. This, I suspect, is the real justification behind the move to privatize, and it is the worst reason of all. The payroll tax is not "your" money; it's our money. Social Security was created as an insurance scheme, not a pension scheme. It was meant to provide a safety net, to protect the unlucky from immiseration in old age. The benefits we get are not payouts from accounts in which we have accumulated our own private stash. What we get is largely determined by what we earned, but we keep getting it even after we've taken out every penny we put in. And if we happen to die early, someone else reaps the benefits of our contributions.
The Bush administration should be honest with the American people and ask us if we want to do away with Social Security, without pretending that privatization will solve the problem of financing the trust fund without pain. I suspect that the American people would reject this effort to transform their "old-age insurance" into another opportunity to roll the dice in the investment casino.
Barry Schwartz, a professor of psychology at Swarthmore College, is the author of "The Paradox of Choice: Why More Is Less."
Here's another one...same source:
January 5, 2005
OP-ED CONTRIBUTOR
No Pain, No Savings
By GENE SPERLING
Washington ?- IF President Bush truly wants a bipartisan agreement on Social Security reform, he should recognize that he can keep the system solvent, increase savings and promote his ownership agenda without dividing Washington by carving Social Security into private accounts.
The president can promote the individual ownership he wants and protect the guaranteed Social Security benefits Democrats insist on with a new universal 401(k) that offers all Americans a private retirement account in addition to Social Security, and uses government funds to match contributions made by moderate and lower-income workers.
A universal 401(k) would increase savings far more than partly privatizing Social Security. Privatization that simply allocates part of the current 12.4 percent Social Security payroll tax for employees to invest in private accounts does nothing to increase national savings: it's like taking $1,000 a year from your parent's 401(k) and putting it in your own individual retirement account. Allowing people to invest some of their Social Security payroll taxes in the market simply adds risk to the one risk-free leg of the retirement stool. If instead people could invest in universal 401(k) accounts - in addition to Social Security - that provided new incentives to those families having the hardest time putting money away, America would actually leverage new savings, not just shift existing savings around.
Such accounts would also help remedy America's upside-down tax incentives for retirement savings. Taxpayers in the highest income bracket, 35 percent, not only are more likely to get a matching contribution for their savings from a 401(k) at work, but also get to deduct 35 cents from their taxes for each dollar saved in their 401(k). Meanwhile, most working families in the 15 percent bracket do not get matching contributions from an employer-sponsored pension - and when they do save they get only a 15-cent deduction for each dollar.
A universal 401(k) would give the greatest matching tax incentives to those who need the most help saving, with a dollar-for-dollar match by the government for initial contributions by moderate-income workers and even more for the working poor. A universal 401(k) could further promote savings if financed in a fiscally responsible manner - say, by raising the estate-tax exemption to $5 million per couple from today's $3 million, but avoiding the outright repeal scheduled under current law. For every wealthy estate that faced higher taxes, more than 5,000 Americans would get a tax cut to help them save and someday build an estate of their own.
To win Democratic support for a Social Security fix, President Bush must also commit to mutual sacrifice. The administration's tax cuts already save the richest 1 percent of Americans nearly $100 billion a year, an amount that over time would keep Social Security solvent for 75 years. Before President Bush can ask Democrats to go along with any tax or benefit changes that affect average Americans, he needs to ask this most fortunate group to help bear the burden of reform.
The president should propose a 3 percent surcharge on all income over $200,000 - whether from earnings, dividends or capital gains - and use the money to increase national savings now and help keep Social Security solvent. He could make the deal contingent on a bipartisan agreement to find equivalent savings to shore up Social Security through measured revenue and benefit changes.
This strategy would require real compromise. But if the president wants to strengthen savings, promote his "ownership society" and keep Social Security solvent, he could use these measures to light the way to the bipartisan agreement he needs.
Gene Sperling, a senior fellow at the Center for American Progress, was national economic adviser to President Bill Clinton from 1997 to 2001.
I like the government matched 401k idea.
The 'Other America' May Be Coming Back
By Harold Meyerson
Wednesday, January 5, 2005; Page A17
Once upon a time, in a land that stretched from one great sea to another, half the elderly were poor. When their work life was done, they retreated into their rented room or their trailer, or their room at their children's home, or even the county poorhouse. Their rulers looked at their plight and concluded that, "at least one-half of the aged -- approximately eight million people -- cannot afford today decent housing, proper nutrition, adequate medical care . . . or necessary recreation."
And the name of this nation, and the unimaginably distant time when half the elderly lived this way? The United States of America in the year 1960.
We have come so far in such a short time that's it's hard for people who aren't seniors to imagine an America in which old age was all but synonymous with desperation. In 2003 just 10.2 percent of Americans aged 65 or older lived in poverty -- a figure two points lower than the national poverty rate of 12.4 percent. Once the age group with the highest rate of poverty, seniors have become the age group with the lowest rate.
There's no great mystery to unravel here. Above all, what changed the lives of America's senior citizens were the significant increases in Social Security benefits enacted in the 1960s and '70s, and the indexing of those benefits to average wage growth. But since the Bush administration is reportedly soon to propose ending that indexing, and replacing it with a different formula that would greatly reduce benefits, it's worth taking a moment to look back at senior poverty as it existed in the year of John F. Kennedy's election as president.
In 1960, when the Senate Subcommittee on the Problems of the Aged and Aging issued its report -- which is the source of the quotation in the first paragraph -- poverty among the elderly was pervasive. Two years earlier the Census Bureau had concluded that almost 60 percent of seniors had annual incomes under $1,000 a year, at a time when the government estimated an adequate yearly budget for a retired couple to be roughly $3,000. Family members and friends helped support seniors, of course, but the 1961 White House Conference on Aging concluded that that assistance amounted to just 10 percent of seniors' incomes -- and less than that, of course, among poorer families. The elderly received their Social Security checks, too, but they still amounted to chump change. In 1959 the average monthly check came to just $70.
I've culled these mournful numbers from Michael Harrington's 1962 classic exposé of destitution amid affluence, "The Other America," a book that dared to propose that the nation could eliminate the poverty in its midst. "The Other America" was one factor that led Kennedy and Lyndon Johnson to initiate a war on poverty -- a major component of which was a war on senior poverty that included the establishment of Medicare and a vast expansion of Social Security. Forty years later the war on senior poverty stands as a stunning success.
Today, however, the United States is governed by a president who is affronted by the very idea of a successful government program. According to a story in yesterday's Post, President Bush wants to change the Social Security indexing formula in a way that will reduce monthly payments by 32.5 percent by 2052 and 45.9 percent by 2075. Today a retiree receives a Social Security check that equals 42 percent of the average worker's wage; if Bush's plan is enacted, that check will shrink to just 20 percent of that wage.
Having tossed America's future seniors 100 feet overboard, the administration then proposes to toss them a 50-foot rope: They can invest a portion of their incomes in the stock market. Problem is, as a retirement system, the stock market offers nothing close to the security that Social Security offers. The lower a worker's income, moreover, the less he has to invest and the smaller his return will be. Social Security, by contrast, deliberately distributes its benefits to provide extra income to those recipients whose earnings were low.
Worse yet, the shift from Social Security to the stock market parallels a shift in employer-provided retirement plans. In 1980, 39 percent of American workers had defined-benefit pension plans; today just 21 percent do, as employers have shunted their employees into 401(k) investment plans. If Bush gets his way, both the government's retirement plan and employers' will be supplanted by plans based on stock performance. If Bush gets his way, his chief domestic achievement will be to have turned "secure retirement" into an oxymoron. And to have taken some sizable number of our seniors and plunged them back into an almost forgotten Other America.
http://news.yahoo.com/news?tmpl=story&u=/nm/20050106/pl_nm/bush_socialsecurity_dc_4
Bush Memo Seen Favoring Social Security Cuts
Thu Jan 6,11:00 AM ET Politics - Reuters
By David Morgan
Quote:WASHINGTON (Reuters) - The White House, in memo on Social Security (news - web sites) to conservative allies, has suggested it favors reducing benefits for future retirees as part of a plan to overhaul the retirement system, memo recipients said on Thursday.
The memo, sent Monday by Peter Wehner, President Bush (news - web sites)'s director of strategic initiatives, voices support for a proposal that would change the way Social Security benefits are adjusted each year from a formula indexed to wage increases to one indexed to price increases, recipients said.
Because price inflation tends to lag wage inflation, analysts say such an adjustment would bring deep benefit reductions over time.
Some conservatives have lobbied for the White House to avoid benefit reductions and instead alter Social Security simply by adding personal accounts that would allow workers to invest a portion of their payroll taxes in stocks and bonds.
The memo's designed to head off criticism from some who have been attacking the price-indexing idea. That's a pretty clear indication the White House has decided to go this route," said Michael Tanner of the Cato Institute, a main Bush ally on Social Security.
"I don't think a final decision's been made on that, but it's as close as you can get," he added.
The White House emphasized that President Bush, who has made changing Social Security a top priority, has made no decisions on how to approach the task.
"The e-mail that was sent lays out the problems that we confront with regard to Social Security, and the president has not made any decisions as to which reform proposal he'll support," White House spokeswoman Claire Buchan said.
The president campaigned for re-election on what he contends are needed changes in the Depression-era retirement program, which is projected to run out of money in 2042. Benefit payments are expected to begin to outstrip payroll tax receipts in 2018 as the huge postwar baby boom generation retires.
Opponents say he is exaggerating the system's difficulties.
Part of Bush's strategy has been to assure current retirees that benefits will not change for them.
"Once you assure the seniors that nothing will change, you're really speaking to people that don't believe they're going to get a check at all, and that is the younger generation coming up," Bush told a White House economic conference last month.
Bush was scheduled to discuss Social Security later on Thursday in a meeting with Republican congressional leaders.
People who saw the memo quoted Wehner as saying: "There is a small number of conservatives who prefer to push only for investment accounts and make no effort to adjust benefits ... that is a bad idea."
