The federal government did not go belly up in 2000 thru 2003. However, many lost their shirts in the stock market.
What worries this administrsation is that they will have to pay down the debt to social security out of general tax revenues starting in about 2020. Monies that because of Bush's tax cuts for the rich they US simply will not have.
The Plan
Participants Would Forfeit Part of Accounts' Profits
By Jonathan Weisman
Washington Post Staff Writer
Thursday, February 3, 2005; Page A13
Under the White House Social Security plan, workers who opt to divert some of their payroll taxes into individual accounts would ultimately get to keep only the investment returns that exceed the rate of return that the money would have accrued in the traditional system.
The mechanism, detailed by a senior administration official before President Bush's State of the Union address, would hold down the cost of Bush's plan to introduce personal accounts to the Social Security system. But it could come as a surprise to lawmakers and voters who have thought of these accounts as akin to an individual retirement account or a 401(k) that they could use fully upon retirement.
"You'll be able to pass along the money that accumulates in your personal account, if you wish, to your children . . . or grandchildren," Bush said last night. "And best of all, the money in the account is yours, and the government can never take it away."
The plan is more complicated. Under the proposal, workers could invest as much as 4 percent of their wages subject to Social Security taxation in a limited assortment of stock, bond and mixed-investment funds. But the government would keep and administer that money. Upon retirement, workers would then be given any money that exceeded inflation-adjusted gains over 3 percent.
That money would augment a guaranteed Social Security benefit that would be reduced by a still-undetermined amount from the currently promised benefit.
In effect, the accounts would work more like a loan from the government, to be paid back upon retirement at an inflation-adjusted 3 percent interest rate -- the interest the money would have earned if it had been invested in Treasury bonds, said Peter R. Orszag, a Social Security analyst at the Brookings Institution and a former Clinton White House economist.
"I believe you should be able to set aside part of that money in your own retirement account so you can build a nest egg for your own future," Bush said in his speech.
Orszag retorted: "It's not a nest egg. It's a loan."
Under the system, the gains may be minimal. The Social Security Administration, in projecting benefits under a partially privatized system, assumes a 4.6 percent rate of return above inflation. The Congressional Budget Office, Capitol Hill's official scorekeeper, assumes 3.3 percent gains.
If a worker sets aside $1,000 a year for 40 years, and earns 4 percent annually on investments, the account would grow to $99,800 in today's dollars, but the government would keep $78,700 -- or about 80 percent of the account. The remainder, $21,100, would be the worker's.
With a 4.6 percent average gain over inflation, the government keeps more than 70 percent. With the CBO's 3.3 percent rate, the worker is left with nothing but the guaranteed benefit.
If instead, workers decide to stay in the traditional system, they would receive the benefit that Social Security could pay out of payroll taxes still flowing into the system, the official said. Which option would be best is still unclear because the White House has yet to propose how severely guaranteed benefits would be cut for those with individual accounts.
The administration official explained that the "benefit offset" merely ensures that those who choose personal accounts are not given an unfair advantage over the traditional system.
"In return for the opportunity to get the benefits from the personal account, the person forgoes a certain amount of benefits from the traditional system," the official told reporters. "Basically, the net effect on an individual's benefits would be zero if his personal account earned a 3 percent real rate of return. To the extent that his personal account gets a higher rate of return, his net benefit would increase."
Robert Pozen, a Massachusetts investment executive who served on the president's Social Security Commission, said the mechanism makes sense. Workers who draw money out of the Social Security system for their accounts should have to pay that money back with interest.
But critics of the Bush plan said the proposed "claw back" renders the whole idea of "personal retirement accounts" virtually meaningless. Indeed, the system would ultimately look something like a proposal made by President Bill Clinton, in which the government would have invested Social Security taxes in the stock market.
That idea was criticized by conservatives because the federal government could end up choosing winners and losers in the financial markets. But under the Bush system, the government is still choosing the stocks and bonds to be bought with Social Security money, said Jason Furman, a former Clinton administration economist. Individuals would get a limited choice, and the government would still keep most of the returns.
"They hope people will think they will take on these accounts and after 40 years, they'll have this huge windfall, but that won't happen," said Dean Baker, co-director of the liberal Center for Economic and Policy Research. "I think they're trying to confuse people."
Stephen Moore, a conservative supporter of Bush's Social Security effort, said the mechanism would undermine the president's notion of an "ownership society."
In a nod to lawmakers worried about the budget deficit, the White House will also hold down the initial cost of the Social Security plan by phasing it in over three years, beginning in 2009. The administration official said funding the individual accounts would cost $754 billion through 2015. But because of the phase-in, the personal-accounts system would not be fully effective until 2011.
In its first 10 years, 2009 to 2018, the system would cost more than $1 trillion, Furman said. Between 2019 and 2028, the cost would jump to about $3.5 trillion, he said.
Highlights of the Proposal
• ELIGIBILITY: People born before 1950 would not be affected.
• INDIVIDUAL ACCOUNTS: People born in 1950 or later could divert up to 4 percent of income subject to Social Security taxes into individual accounts, up to $1,000 a year -- a cap that would be phased out.
• WHEN: The accounts would be phased in between 2009 and 2011.
• OPTIONS: Workers would be able to choose among several stock, bond and mixed-investment funds.
• LIMITATIONS: Participants would have no access to the accounts before retirement and could not borrow against the balance.
• AT RETIREMENT: Participants would be required to buy annuities to ensure steady payments out of the accounts over a lifetime.
• OVERSIGHT: The federal government would administer accounts.
Quote:social security is an insurance not an investment. calculating rate of return of investment is illogical. Do you expect a return on investment for your house or car insurance?
Dys has it 100% right.
You know the old saying, 'don't gamble or invest what you can't afford to lose?'
It's there for a reason. We should not be gambling with social security funds. That's not why it's there. You people who are paying out more than you would get back using other methods are helping to support the elderly in our society, the poor, the disabled. What's wrong with that? You'd rather people had much less money, had to turn to crime or other activities to get by, so you can afford a new boat? People have to eat.
The claim that the fees of setting up over a hundred million personal retirement accounts is 'negligable' is ridiculous. The fees will be immense, and no doubt compounded yearly. A whole sector of big business will be supported from this; no doubt Bush realizes this, it is consistent with his positions on everything from Iraq to Healthcare reform - whatever makes the most money for businesses.
Social security is designed specifically so that even if the stock market DOES crash, it does not. It's a safety net, people. When you talk about removing the safety net, people are going to get hurt. Period. The fact
you think you're going to do much better means nothing, as I can give you a little hint:
everyone thinks they are going to invest super wisely and make tons of money. Even over the long-term, not everyone will.
And can you imagine the jackassery that many of our citizens will display? Just because you have an ounce of investment knowldege does not mean that 75% of our country does.
In recap:
2 trillion dollars added to debt, no mention of where this money comes from;
Large companies must be set up and perpetually maintained to serve the millions of accounts which must be created;
Much lower payouts for all under the age of 55. The other part of the money is gambled; some will win, some will lose. Let's hope there's no big stock market crash.
Someone pointed out to me that if this system had been put in place in the early 90's, two companies which would most likely be majorly involved in people's portfolios would be
Enron and
WorldCom, which were both considered to be excellent long-term investments at the time. Imagine. Go ahead.
This system is basically nothing more than a way to funnel public money into private investment, with a huge leech set up to profit off of the skim. It's a program set up to give people options, but doesn't mention how it is going to be paid for, or what is going to happen to those who lose out due to this program.
Cycloptichorn
Having social security and medicaid fully funded, for some time, might seem like a better and better idea for the middle class:
Quote:
Half of Bankruptcy Due to Medical Bills -- U.S. Study
Wed Feb 2, 4:29 AM ET
By Maggie Fox, Health and Science Correspondent
WASHINGTON (Reuters) - Half of all U.S. bankruptcies are caused by soaring medical bills and most people sent into debt by illness are middle-class workers with health insurance, researchers said on Wednesday.
The study, published in the journal Health Affairs, estimated that medical bankruptcies affect about 2 million Americans every year, if both debtors and their dependents, including about 700,000 children, are counted.
"Our study is frightening. Unless you're Bill Gates (news - web sites) you're just one serious illness away from bankruptcy," said Dr. David Himmelstein, an associate professor of medicine at Harvard Medical School (news - web sites) who led the study.
"Most of the medically bankrupt were average Americans who happened to get sick. Health insurance offered little protection."
The researchers got the permission of bankruptcy judges in California, Illinois, Pennsylvania, Tennessee and Texas to survey 931 people who filed for bankruptcy.
"About half cited medical causes, which indicates that 1.9 to 2.2 million Americans (filers plus dependents) experienced medical bankruptcy," they wrote.
"Among those whose illnesses led to bankruptcy, out-of-pocket costs averaged $11,854 since the start of illness; 75.7 percent had insurance at the onset of illness."
The average bankrupt person surveyed had spent $13,460 on co-payments, deductibles and uncovered services if they had private insurance. People with no insurance spent an average of $10,893 for such out-of-pocket expenses.
"Even middle-class insured families often fall prey to financial catastrophe when sick," the researchers wrote.
Bankruptcy specialists said the numbers seemed sound.
"From 1982 to 1989, I reviewed every bankruptcy petition filed in South Carolina, and during that period I came to the conclusion that there were two major causes of bankruptcy: medical bills and divorce," said George Cauthen, a lawyer at Columbia-based law firm Nelson Mullins Riley & Scarborough LLP.
"Each accounted, roughly, for about a third of all individual filings in South Carolina."
He said fewer than 1 percent of all bankruptcy filings were due to credit card debt. "That truly is a myth," Cauthen said in a telephone interview.
Cauthen said he was not surprised to hear that so many of the bankrupt people in the study were middle-class.
"Usually people who have something to protect file bankruptcy," he said. "The truly indigent -- people that we see on the street -- there is no relief that we can give them."
Dr. Steffie Woolhandler, a Harvard associate professor and physician who advocates for universal health coverage, said the study supported demands for health reform.
"Covering the uninsured isn't enough. We must also upgrade and guarantee continuous coverage for those who have insurance," Woolhandler said in a statement.
She said many employers and politicians were pressing for what she called "stripped-down plans so riddled with co-payments, deductibles and exclusions that serious illness leads straight to bankruptcy."
Cycloptichorn
The only reform you will get in that area will be cutbacks and transfer of costs to the states.
AU - Thanks for posting "The Plan." That's the closest I've seen to actual details of what is being proposed.
Search AP Story Archive Feb 2, 11:29 PM EST
Only One Side Told in Bush Soc. Sec. Pitch
By CALVIN WOODWARD
Associated Press Writer
WASHINGTON (AP) -- The devil was in the missing details Wednesday night when President Bush showcased his Social Security plan and claimed advances on jobs and against terrorism that don't tell the full story.
Bush explained in detail how, under his proposal, younger workers would be able to divert some of their Social Security payroll taxes into private accounts "so you can build a nest egg for your own future."
Nowhere in his State of the Union speech did he give the other side of the equation - that Social Security benefits for those workers would be reduced as a result. He stated "your account will provide money for retirement over and above the check you will receive from Social Security," without explaining that check would be smaller.
Moreover, he seemed to issue a guaranteed return on investment for people putting some of their retirement money in the market, saying: "Your money will grow, over time, at a greater rate than anything the current system can deliver."
Although his plan promises checks and balances to ensure such money isn't frittered away on risky investments, it does not come with a guarantee of performance exceeding benefits of the current system.
Declaring Social Security will go broke if nothing is done, Bush said that by 2042, "the entire system would be exhausted and bankrupt."
In fact, the nonpartisan Congressional Budget Office forecasts Social Security as it is would be able to pay 73 percent of benefits in 2042 and stay solvent for 10 years beyond that.
In a portion of his speech dealing with economic progress in the last four years, Bush trumpeted the addition of 2.3 million jobs "in the last year alone," as if he's delivered a succession of job gains.
His number was correct for the year in question, but he left out that there was an overall job loss in those four years. He remains about 300,000 jobs short of closing that jobs deficit.
Even in a policy-packed address like a State of the Union, nuances are lost and Wednesday's speech was no exception.
Bush called Iraq "free and sovereign," an arguably premature definition in light of the relentless violence from insurgents and the overwhelming presence of U.S. troops.
He also said Iraq was "a vital front on the war on terror" and Americans "are fighting terrorists in Iraq so we do not have to face them here at home."
The terrorist link that the United States most worried about when it invaded Iraq - an alleged relationship with the al-Qaida network behind the Sept. 11, 2001, attacks - came to little.
Close to home, Bush credited the No Child Left Behind law with improving school achievement and test scores, but many educators say they are struggling to meet the law's requirements because of a lack of money and because some requirements are inflexible.
The law demands yearly progress from all groups of students and penalizes many schools that fall short. Bush also talked about increasing Pell grants; the administration has not explained in detail how it will find the money to make that happen.
Cycloptichorn wrote: You people who are paying out more than you would get back using other methods are helping to support the elderly in our society, the poor, the disabled. What's wrong with that? You'd rather people had much less money, had to turn to crime or other activities to get by, so you can afford a new boat? People have to eat.
Why don't you just roll out the pity party here? Explain why I should countinue to pay into SS at the current rate so that Bill Gates and thousands of other millionaires who are significantly better off then I am can collect? The majority of people collecting SS aren't poor or disabled. The fact is that those collecting SS control over 65% of the total assests in this country and are more likely to be in the top 20% of wage earners than those in any other age group.
Cycloptichorn wrote:Social security is designed specifically so that even if the stock market DOES crash, it does not. It's a safety net, people. When you talk about removing the safety net, people are going to get hurt. Period. The fact you think you're going to do much better means nothing, as I can give you a little hint: everyone thinks they are going to invest super wisely and make tons of money. Even over the long-term, not everyone will.
It's a safety net? Then why are millions of people that don't need the safety net collecting from it? The poverty rate for those over age 65 is 9.9%. (It's 11.5% for the rest of the population.) Disability only accounts of 15.1% of SS payouts (and that's for people of all ages). The other 84.9% goes for retirement benefits. Even if you asumed that none of the entire 9.9% of those over age 65 and below the poverty level are collecting disability (highly unlikely!) that means 73% of the people that are collecting are neither poor nor disabled.
Why is it that EVERYONE is entitled to collect from it if it's a safety net?
Cycloptichorn wrote:Someone pointed out to me that if this system had been put in place in the early 90's, two companies which would most likely be majorly involved in people's portfolios would be Enron and WorldCom, which were both considered to be excellent long-term investments at the time. Imagine. Go ahead.
Ok. I'm imagining. So what? Someone told you something and they have absolutely no idea whether it's true or not. Where is there a published list of stocks that people would be able to invest in under a privatized system? There isn't one so what you were told is nothing but pure speculation.
OP-ED COLUMNIST
Gambling With Your Retirement
By PAUL KRUGMAN
Published: February 4, 2005
A few weeks ago I tried to explain the logic of Bush-style Social Security privatization: it is, in effect, as if your financial adviser told you that you wouldn't have enough money when you retire - but you shouldn't save more. Instead, you should borrow a lot of money, buy stocks and hope for capital gains.
Before President Bush's big speech, a background briefing by a "senior administration official" made it clear that the plan calls for exactly the "borrow, speculate and hope" strategy I described - not just for the system as a whole, but for each individual.
Here's the money quote: "In return for the opportunity to get the benefits from the personal account, the person forgoes a certain amount of benefits from the traditional system. Now, the way that election is structured, the person comes out ahead if their personal account exceeds a 3 percent rate of return" - after inflation - "which is the rate of return that the trust fund bonds receive. So, basically, the net effect on an individual's benefits would be zero if his personal account earned a 3 percent rate of return."
Translation: If you put part of your payroll taxes into a personal account, your future benefits will be reduced by an amount equivalent to the amount you would have had to repay if you had borrowed the money at a real interest rate of 3 percent.
Peter Orszag of the Brookings Institution got it exactly right: "It's not a nest egg. It's a loan."
For years, privatizers - including Mr. Bush - have claimed that people would do better with private accounts than with traditional Social Security even if they played it safe and invested in U.S. government bonds (which yield 3 percent after inflation).
But the official at the briefing made it clear that his boss was fibbing: if you invested your private account in government bonds, you would face benefit cuts equal in value to your investment, so you would be no better off than under the current system.
The only way to get ahead would be to invest in risky assets like stocks, and hope for higher yields. But if the investment went wrong and you earned less than 3 percent after inflation, your benefit cuts would leave you poorer than if you had never opened that private account.
So people are expected to take a loan from the government and use it to buy stocks, and if that turns out to have been a mistake - well, too bad.
Experts usually tell people to plan for their retirement by investing in a mix of stocks and bonds. They disapprove strongly of speculation on margin: borrowing to buy stocks. Yet Mr. Bush wants tens of millions of Americans to do exactly that.
Meanwhile, what does any of this have to do with the ostensible purpose of the whole thing: saving Social Security?
Here's the senior official again: "In a long-term sense, the personal accounts would have a net neutral effect on the fiscal situation of Social Security." The government would have to borrow huge sums up front to create the personal accounts - $4.5 trillion in the first two decades - but it would supposedly make up for all that borrowing with offsetting cuts in account holders' benefits many decades later.
Color me skeptical: will retirees with private accounts that performed badly really be forced to repay their loans in full? Even if they are, private accounts will at best have a "net neutral effect" - that is, they will do nothing to improve Social Security's finances. Mr. Bush says the system faces a crisis; what does he propose to do about it?
The answer, presumably, is that his plan will also involve major benefit cuts over and above those associated with private accounts. And it's true that you can improve Social Security's finances with privatization, as long as you also slash benefits - just as you can kill a flock of sheep with witchcraft, provided you also feed them arsenic. (Thanks, M. Voltaire.)
Do you believe that we should replace America's most successful government program with a system in which workers engage in speculation that no financial adviser would recommend? Do you believe that we should do this even though it will do nothing to improve the program's finances? If so, George Bush has a deal for you.
AU wrote:
Quote:In fact, the nonpartisan Congressional Budget Office forecasts Social Security as it is would be able to pay 73 percent of benefits in 2042 and stay solvent for 10 years beyond that.
That IS bankruptcy! Inability to pay debts. This is where the accounting gets really cute. There never has been a trust fund or lock box or whatever you want to call it. The sight of all of that money just sitting there was too much temptation for our Congress. Money that goes in to the fed govt gets spent. But, there is an "account" which amounts to a balance sheet that says X dollars have been paid into SS. The other side of the balance sheet is all of IOU's from the general budget. Although, technically it can be said that SS can pay 73% of benefits and stay solvent another 10 years, reality is that the money is not there and would have to come from the rest of the federal budget. In 2018, we reach the crossing point, where the money that SS takes in equals the money it pays out. After that, the deficit has to be made up by the fed budget. When we reach 2042, the fake money that was really IOU's is decreased to the point where even with IOU's from the general budget, SS can only pay 73% (which is bankruptcy - can't pay your bills in total). Then, 10 years after that, total insolvency, even with IOU's.
Those IOU's that have to come from the budget - that's additional taxes that will have to be raised, or money that will have to be cut from budgets, or benefits that will have to be reduced.
If there actually were an account that the fed couldn't touch, you would be correct - minor adjustments would be all that would be required. But, since the money has been spent and the "fund" is an accounting illusion, minor adjustments cannot work. The only way to ensure that money will actually be there is to ensure the fed can't touch it - thus personal accounts.
Idaho
Quote:Those IOU's that have to come from the budget - that's additional taxes that will have to be raised, or money that will have to be cut from budgets, or benefits that will have to be reduced.
They are not IOU's they are govenment bonds that
must be repaid. It is no different than the paper bought by individuals and foreign governments. The money comes from the wage earners of the US. If it requires the raising of taxes for all so be it. The tax cuts that Bush has bestowed upon the wealthy of this nation could be rolled back. Do you think it is equitable to have supported those tax cuts on the backs of the people paying social security?
