Bush plan to cripple SS

Thomas Hayden wrote:

Save Social Security? Why should we do this? Yeah, it is a way to share out wealth...the riches pay the retirement of the rags... but is a very risky plan. When FDR decided to create SS, it was thought to be a temporary fix... Then other Democrats decided to make this fix permanent...It has worked properly for 40 yearsbut nowadays there is little problem: I am NOW paying the CURRENT pensions, just as other millions of people. By the time I was old enough to get an allowance, there will be almost nobody to pay it. But I will have spent my life savings because I was told to do so by the Government. And then, I will not be able to claim... I will have died in a short while (just two terms, more or less) who cares about me? Can the Federal Government increase public spending? Does somebody realize how much will SS cost in 20 years? Here are some statistics: the sum of Pensions, Medicare and Medicaid will account for the 18% of US GDP by 2040. If the present system continues, it will mean bankruptcy for an entire generation of Americans.

You are right, Tom...Social Security is a progam badly in need of a fix.

But what George Bush is proposing is not a fix....it is a disaster.

If he wants to spend some of that highly vaunted political capital to actually do some fixing...(there have been many reasonable solutions suggested)...he should do it.

If he intends to destroy a program that is universsally recognized as one of the most successful programs ever enacted...and an incredibly important safety net for millions upon millions of people...we all should fight him with every means at our disposal.

And if you are worried about bankruptcy for an entire generation of Americans...you must be positively terrified of the possibility that our entire country is heading toward bankruptcy because of the incredibly stupid economic policy of this incometent administration.

Welcome to A2K.

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Did I misunderstand? I was under the impression that we were discussing Social Security. Social Security has been supporting many of the government's functions with it's surplus for years. And even left as is it will be solvent for at least the next 40 years. That is if Bush does not succeed in mucking it up.

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As au points out, the system isn't broke. Don't change it. I would amend to say, restore much of what's already been taken from the system and stop using the incoming cash for unrelated purposes.

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I'm sorry, did you just say the sytem (social security) isn't broke? Shocked

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If the president said Social Security was abosolutely A-OK and 100% solvent for the next 100 years, they'd be screaming like banshees.

This isn't about Social Security. Nothing is about the issue, any issue.

This is about hating the president.

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What a stupid comment.

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edgarblythe wrote:

I thought all Texas Republicans were bought and paid for Bush supporters, which they generally are -

No, no vitriol in that statement at all.

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JustWonders wrote:

If the president said Social Security was abosolutely A-OK and 100% solvent for the next 100 years, they'd be screaming like banshees.

This isn't about Social Security. Nothing is about the issue, any issue.

This is about hating the president.

But it is about Social Security.

It is about the most successful safety net programs ever enacted in this country...and about an incompetent president attempting to dismantle that program.

Sorry you cannot see that.

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DIsmantle it? How about fixing it.

Read what Thomas Stowell has to say about it.

Quote:

The latest liberal spin on Social Security is that there is no problem. Of course, there is no problem with any obligation if you are willing to welsh when it comes time to pay it.

Politically, the bottom line of this approach is that President Bush's plan is "not a magic bullet," in the words of Businessweek magazine. When people start talking about how this or that policy "is no panacea" or "not a magic bullet," then you know their argument is not serious.

Why don't we all stipulate, once and for all, that no policy on any subject, anywhere or anytime, is a panacea or a magic bullet. Then we can start talking sense like adults.

If we are serious, we can compare one alternative to another, instead of comparing one alternative to perfection. What is different with the private retirement accounts that the President is proposing, compared to the Social Security system as it exists now?

The biggest difference seems to get the least attention: With private accounts, money is invested in the economy, creating additional wealth, from which pensions can be paid. With Social Security, the money is spent as soon as it gets to Washington.

Is it better to invest for the future or to keep spending the Social Security taxes now and leave it to someone in the future to figure out what to do when today's young workers retire and there is not enough money to pay them what they were promised?

Many people are unaware that the money that is taken out of their paychecks for Social Security is not -- repeat, not -- being put aside to pay for their retirement. That money is paying for people who are retired right now, and anything that is left over is being spent by politicians in Washington for anything from farm subsidies to Congressional junkets.

There is a legal and accounting fiction called the "Social Security Trust Fund." All that this means is that the Social Security system gets government bonds in exchange for the Social Security tax money that is being spent today instead of being saved. But you cannot spend and save the same money, no matter what accounting gimmicks you use.

Government bonds are not an investment that adds to the country's wealth. They are a claim on future taxpayers. Without those bonds, future taxpayers would still be on the hook to provide the money to cover future Social Security pensions that are not covered by future Social Security taxes. The bonds change nothing.

The other big difference between privatized pensions and Social Security is that the individual owns the pension he has paid for. This is not a fine philosophical distinction but a major practical difference.

No matter what the law says or promises when you pay your Social Security taxes, Congress can pass a new law changing all that any time they want to. They have already done it and those who say that there is no problem with Social Security also say, as Businessweek does, that "tax hikes" and a "reduction of the benefit" can fix the Social Security problem.

Of course it can. If you owe a million dollars, that is no problem, if you can decide to pay it off for whatever amount you can comfortably afford. It is just that most creditors take a much narrower view of the situation.

If I tell the bank that I can't afford to make the mortgage payment because my income is not as high as I thought it would be, they are going to throw me out in the street and take the house.

But no matter how much money you have paid into Social Security over the years, and no matter what you were promised when you paid it, the government always has the option to pay you back only what future politicians decide they can afford, given all the other things they might prefer to spend the money on.

Owning your own private pension plan means that those who owe you have to pay you what they promised. It also means that if you die without ever using it, you can leave it to your family, instead of having the government keep the money.

Liberals are desperate to keep Social Security the way it is, because that means they can keep spending your money as they see fit and keep you dependent on them. That's what the welfare state is all about.

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OP-ED COLUMNIST

The Free Lunch Bunch

By PAUL KRUGMAN

Published: January 21, 2005
Did they believe they would be welcomed as liberators? Administration plans to privatize Social Security have clearly run into unexpected opposition. Even Republicans are balking; Representative Bill Thomas says that the initial Bush plan will soon be a "dead horse."

That may be overstating it, but for privatizers the worst is yet to come. If people are rightly skeptical about claims that Social Security faces an imminent crisis, just wait until they start looking closely at the supposed solution.

President Bush is like a financial adviser who tells you that at the rate you're going, you won't be able to afford retirement - but that you shouldn't do anything mundane like trying to save more. Instead, you should take out a huge loan, put the money in a mutual fund run by his friends (with management fees to be determined later) and place your faith in capital gains.

That, once you cut through all the fine phrases about an "ownership society," is how the Bush privatization plan works. Payroll taxes would be diverted into private accounts, forcing the government to borrow to replace the lost revenue. The government would make up for this borrowing by reducing future benefits; yet workers would supposedly end up better off, in spite of reduced benefits, through the returns on their accounts.

The whole scheme ignores the most basic principle of economics: there is no free lunch.

There are several ways to explain why this particular lunch isn't free, but the clearest comes from Michael Kinsley, editorial and opinion editor of The Los Angeles Times. He points out that the math of Bush-style privatization works only if you assume both that stocks are a much better investment than government bonds and that somebody out there in the private sector will nonetheless sell those private accounts lots of stocks while buying lots of government bonds.

So privatizers are in effect asserting that politicians are smart - they know that stocks are a much better investment than bonds - while private investors are stupid, and will swap their valuable stocks for much less valuable government bonds. Isn't such an assertion very peculiar coming from people who claim to trust markets?

When I ask privatizers that question, I get two responses.

One is that the diversion of revenue into private accounts doesn't have to lead to government borrowing, that the money can come from, um, someplace else. Of course, many schemes look good if you assume that they will be subsidized with large sums shipped in from an undisclosed location.

Alternatively, they point out that stocks on average were a very good investment over the last several decades. But remember the disclaimer that mutual funds are obliged to include in their ads: "past performance is no guarantee of future results."

Fifty years ago most people, remembering 1929, were afraid of the stock market. As a result, those who did buy stocks got to buy them cheap: on average, the value of a company's stock was only about 13 times that company's profits. Because stocks were cheap, they yielded high returns in dividends and capital gains.

But high returns always get competed away, once people know about them: stocks are no longer cheap. Today, the value of a typical company's stock is more than 20 times its profits. The more you pay for an asset, the lower the rate of return you can expect to earn. That's why even Jeremy Siegel, whose "Stocks for the Long Run" is often cited by those who favor stocks over bonds, has conceded that "returns on stocks over bonds won't be as large as in the past."

But a very high return on stocks over bonds is essential in privatization schemes; otherwise private accounts created with borrowed money won't earn enough to compensate for their risks. And if we take into account realistic estimates of the fees that mutual funds will charge - remember, in Britain those fees reduce workers' nest eggs by 20 to 30 percent - privatization turns into a lose-lose proposition.

Sometimes I do find myself puzzled: why don't privatizers understand that their schemes rest on the peculiar belief that there is a giant free lunch there for the taking? But then I remember what Upton Sinclair wrote: "It is difficult to get a man to understand something when his salary depends on his not understanding it."

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I read Krugman's article earlier today and the only thing that kept going through my head. He wrote: "The whole scheme ignores the most basic principle of economics: there is no free lunch."

Why doesn't he apply the same question to those that want to keep the system just as it is? The average retiree gets back everything they've paid into SS by the time they've collected for 4.5 years. What about the huge "free lunch" after that point? Was he talking about privatization or the system as it currently sits? They both expect that free lunch to be there.

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New Strategy on Social Security

With Some Risk, Bush Officials Invoke Clinton, Moynihan

By Jonathan Weisman
Washington Post Staff Writer
Monday, January 24, 2005; Page A03

With their push to restructure Social Security off to a rocky start, Bush administration officials have begun citing two Democrats -- former President Bill Clinton and the late senator Daniel Patrick Moynihan -- to bolster their claims that the retirement system is in crisis.

But the gambit carries some risk, Bush supporters say. Clinton's repeated calls during his second term to "save Social Security first" were specifically to thwart what President Bush ultimately did: cut taxes based on federal budget surplus projections. Likewise, internal Treasury Department documents indicate that Moynihan, a New York Democrat who was co-chairman of Bush's 2001 Social Security Commission, expressed misgivings about the president's push to partially privatize Social Security.
Nonetheless, White House officials -- and some Democrats -- say invoking Clinton and Moynihan could help move the Social Security debate beyond the question of whether there is a "crisis" in the system, and on to what to do about it.

"As we move forward with our efforts to talk about the problem and the need for reform, administration officials are talking about what leaders of the Democrat Party have said about the problem," White House spokeswoman Claire Buchan said.

In public speeches recently, N. Gregory Mankiw, chairman of Bush's Council of Economic Advisers, and White House budget director Joshua B. Bolten, both cited the same passage of a 1998 Clinton speech at Georgetown University.

"This fiscal crisis in Social Security affects every generation," Clinton said in the speech.

But neither Mankiw nor Bolten cited another passage from the same address: "Before we spend a penny on new programs or tax cuts, we should save Social Security first. I think it should be the driving principle . . . Do not have a tax cut. Do not have a spending program that deals with that surplus. Save Social Security first."

"The Bush White House should have read Clinton's speeches before they squandered the Clinton surplus," said Bruce Reed, who was Clinton's domestic policy chief at the time of the speech.

The Bush administration distorts the truth again. Honesty and integrety have no place in the current administrations thinking.

Contined

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fishin' wrote:

I read Krugman's article earlier today and the only thing that kept going through my head. He wrote: "The whole scheme ignores the most basic principle of economics: there is no free lunch."

Why doesn't he apply the same question to those that want to keep the system just as it is? The average retiree gets back everything they've paid into SS by the time they've collected for 4.5 years. What about the huge "free lunch" after that point? Was he talking about privatization or the system as it currently sits? They both expect that free lunch to be there.

Those are good points, assuming you math is correct. But how does the Bush plan fix this problem? Even he admits that privatization won't take care of the shortfall.

Yes, the system needs some tinkering, but what he proposes is something else altogether. It's an overhaul base on ideology of a system that has worked well since FDR. This reality clearly irks the Bush team.

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Given the amount of political capital Bush has decided to spend on Social Security privatization, every indication given by the GOP Sunday morning talking heads is that it's DOA :

Quote:

Key Republicans in Congress on Sunday questioned White House assertions that the Social Security system was in crisis, one of President Bush's justifications for acting now on private accounts, and said new taxes should be considered.

House Ways and Means Committee Chairman Bill Thomas said on NBC's "Meet the Press" that Congress should "look beyond" the payroll tax to fund the Social Security retirement system and consider a value-added tax and other changes.

Though Bush said he will oppose tax increases for Social Security, Sen. John McCain, an Arizona Republican, told CBS's "Face the Nation" that a hike in payroll taxes "has got to be on the table" along with other financing options.

Thomas called the retirement system's finances a "problem" rather than a crisis, distancing himself from the crisis terminology used by the White House in seeking public support for creating private accounts.

"I think 'problem' really is what we're dealing with," said Thomas, when asked if he thought it was a crisis.

In a separate interview, moderate Republican Sen. Olympia Snowe, of Maine, questioned the White House's proposals and strategy, a sign of trouble for Bush in the Senate.

Snowe said she does not object to personal savings accounts "per se," but told CNN: "I'm certainly not going to support diverting $2 trillion from Social Security into creating personal savings accounts."

Bush is off to a rocky start.

His signature domestic initiative is stumbling out of the starting gate (they now claim they never used the word "crisis"). His people are lowering expectations for the Iraqi vote, while our troops continue to return home in body bags, missing limbs, or mentally damaged. We continue to run low on troops, while our allies continue to abandon us in Iraq.

The "Bush Doctrine" -- that rousing call to arms against the world's tyrannies -- fell flat. And then fell on its face when the administration admitted that American tyrannical allies like Saudi Arabia and Uzbekistan need not worry.

Bush's approval ratings are falling -- which is cold comfort at this point. What is encouraging is the congressional GOP's stampede away from Bush, as they start looking out for their own hides in the 2006 elections.

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Social Security crisis? Not if wealthy pay their way

By Kevin Drum

IRVINE, CALIF. – Is Social Security headed for a crisis sooner than thought? Although President Bush says so, not everyone agrees. The system's trustees estimate the Social Security trust fund is in good shape for another four decades. The nonpartisan Congressional Budget Office figures five decades. Many independent economists think Social Security is healthy for more like six or seven decades. But there's a vocal contingent that thinks Social Security has much more urgent problems. For years, Social Security has been amassing surpluses that the system's trustees use to accumulate Treasury bonds in its trust fund.
But as the baby boomers begin to retire, they're going to have to start selling those bonds back to the federal government in order to raise money to pay benefits. This could happen as soon as 2018, little more than a decade away.

To some people, this looks like a shell game, one branch of the government merely redeeming IOUs from another branch. Sen. Wayne Allard (R) of Colorado, for example, told constituents recently, "The money is spent. I don't believe, in my own opinion, we'll be able to raise the funds to pay it back."

This statement betrays a fundamental misunderstanding of how Social Security works. Unlike ordinary government functions, Social Security is funded by its own tax, the payroll tax. In 1983, at a time when Social Security was genuinely facing a crisis - it was mere months away from failing at the time - a commission appointed by President Reagan and headed by Alan Greenspan proposed a series of fixes. Among other things, the Greenspan commission recommended increasing payroll taxes.

But there was a twist: Knowing that the baby boomers would begin retiring around 2010, Mr. Greenspan recommended raising payroll taxes by much more than was needed to pay benefits at the time. The surplus would be used to buy Treasury bonds, which could be redeemed when the boomers retired and payroll taxes were no longer sufficient to fully fund retirement benefits.

This is where the second twist comes in. Because the surplus payroll taxes were handed over to the federal government (in return for Treasury bonds), this meant ordinary income taxes could be kept low. After all, the federal government has a fixed need for money, and if it gets excess money from payroll taxes it can afford to keep income taxes lower than they'd otherwise be.

But the payroll tax is a flat tax, paid disproportionately by low and middle income workers. The income tax is a progressive tax and is paid disproportionately by high earners.

So this was the implicit bargain in the reforms recommended by Greenspan and signed into law by Reagan: From 1983 to 2018, low- and middle-income earners would pay excess payroll taxes. This allowed income taxes to be kept low, and primarily benefited high earners.

Then, beginning in 2018, instead of raising payroll taxes to pay for baby-boomer retirement benefits, Social Security would begin selling its bonds back to the government.

To pay for those bonds, income taxes would be raised - high earners would begin paying higher income taxes.

In other words, the fact that income taxes will eventually need to be increased in order to cover Social Security benefits was part of the Greenspan/Reagan plan from the start.

That's the real meaning of the trust fund: It's an implicit promise that high earners will keep their part of the bargain and begin paying their share of Social Security's costs when the baby boomers retire.

So to suggest, as Senator Allard and others sometimes do, that the trust fund is just a bunch of meaningless IOUs that will never be paid back is more than just a breach of faith between generations. It's a breach of faith among taxpayers.

For more than two decades, low- and middle-income Americans have kept their part of the bargain, paying more in payroll taxes than Social Security needs and helping to keep income taxes low. In return, beginning in 2018, high earners are expected to start paying a bit more in income taxes in order to help keep payroll taxes low.

That's the bargain that was struck in 1983. It's one we should keep.

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The fact that there's no SS taxation above $90,000 is absurd. It's the most regressive tax imaginable: everything taxed on the low end, nothing taxed on the high end, and the same rate for all.

Why not start fixing SS by changing that?

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One thing that I have not seen talked about is how the private accounts would disproportionately affect the benefits of lower income workers. Under the current system's formula, the retirement benefit is heavily weighted to the lower end of earnings. The private accounts would be directly related to what was paid in, thus favoring those of higher incomes. This probably sounds good to those conservatives that favor regressive taxation.

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mesquite wrote:

One thing that I have not seen talked about is how the private accounts would disproportionately affect the benefits of lower income workers. Under the current system's formula, the retirement benefit is heavily weighted to the lower end of earnings.

It hasn't been talked about because there is no information avalaible of what the revised formula might be (if it is even revised at all). As a result there is no basis your your speculation here. The formula could just as easily maintain the current weighting.

Quote:

The private accounts would be directly related to what was paid in, thus favoring those of higher incomes. This probably sounds good to those conservatives that favor regressive taxation.

Being that the proposed maximum annual deposit into the private accounts would be $1000 and it is direct trade-off between putting it into your private acount or paying it into the current system If you consider anyon ethat earn more than $16,000/year to be "higher income" then yeah, it would benefit those "rich people".

A person would be in the income range where they are earning less than $16,000/year to not reach the $1000 mark. If they are in that situation then opting for a personal account would be a bad choice and they should elect not to do it. That's exactly why the proposal is for an optional system. If it doesn't make sense for the individual to do it then they shouldn't.

When you factor in the retirement benefit of the combined government portion and private account the poor could actually make out substantially better. Someone that earns $16,000 year could put their entire SS contribution into their private account and pay nothing into the SS system and still collect both the government share of SS (even though they may never have paid into it!) plus have their private account.

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Dems favor privatized accounts for a few ...

Thanks to the way Social Security was established 70 years ago, state and local government workers in 15 states aren't covered by Social Security. These teachers, firefighters and police officers don't pay a penny into the program, putting money instead into state-run pension programs. And if they spend their entire careers in these state jobs, they get nothing out of Social Security. Their retirement income is financed entirely by these state plans. Groups like the AARP, formerly known as the American Association of Retired Persons, want to force these folks into Social Security as a way to shore the program up. As the AARP sees it, once they start paying 12.4 percent of wages just like everyone else does, a total of $200 billion will pour into the bankrupt system.

The Louisiana State Employee's Retirement System (LASERS) notes that a state worker who earned an average $35,000 a year and retired at age 65 would get more than $2,100 a month from LASERS -- but a paltry $886 per month from Social Security. "LASERS's monthly benefit is almost two and a half times higher," it noted in an article decrying reform ideas like the AARP's. Plus, many of these state workers can retire at age 55 with full benefits, and most provide disability and survivor benefits.

As Kennedy, Kerry, Reid, Boxer and more than a dozen other Democrats and Republicans noted in a 2001 letter to President Bush's Social Security commission: "Millions of our constituents receive higher retirement benefits from their current public pensions than they would under Social Security."How, exactly, do these state and local governments manage this trick? As LASERS put it, the state's benefits are substantially higher than Social Security because the contributions the workers and their employers make into the program are -- gasp! -- "invested in a mix of equities, bonds and other investments whose return far exceeds returns earned under Social Security's fixed income-only approach."

Because it invests in stocks and bonds...

How, exactly, do these state and local governments manage this trick? As LASERS put it, the state's benefits are substantially higher than Social Security because the contributions the workers and their employers make into the program are -- gasp! -- "invested in a mix of equities, bonds and other investments whose return far exceeds returns earned under Social Security's fixed income-only approach."

The director of Ohio's Public Employees Retirement System reported in testimony before the House Ways and Means Committee that "over 80 percent of our benefit disbursements are paid by investment income." Investment income, imagine that!

Seems that if investment in stocks and bonds is a good enough retirement plan for a school teacher in Boston, then it ought to be good enough for a factory worker in Detroit.

http://www.dcexaminer.com/articles/2005/02/08/opinion/editorial/01aaedit.txt

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Bush plan to cripple SS

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