President Bush's Double Speak - again.

It's a place where even the very rich can barely afford to buy a house.

Based on comments you've made in the past, of course.

Such places are not exactly like the other 98% of America.

Cycloptichorn

That much is true. I rent my home. The unemployment rate here is also very high, close to 10% right now. Many have given up looking for jobs and moved away, or gone into philanthropy.

Speaking of Groundhogs. Maybe Bush will see his shadow and go back in his hole for six weeks or longer. :wink:

au, figuring you out is like trying to nail jell-o to a wall.

cjhsa
Always leave them guessing.

cjh, I see why you're so frustrated; too much imagination~! Nail jello to the wall? LOL

Frustrated? About what?

Bush's plan to save social securuty

What he "really" means is to do away with social security.

So, you make the connection between Social Security and "wealth redistribution" by asking how it isn't connected, cjhsa?

Okay. I don't know how to not make a connection. That's why I asked you to explain yourself.

What I do know is that you'll be getting that 10% of your salary back with interest.

That is not wealth redistribution.

Why Bush is wrong

His Social Security reforms are neither 'social' nor 'secure'



Social Security is the cornerstone of life for nearly 48 million people - retirees, dependents, survivors of deceased workers, and the disabled - all of whom receive a check like clockwork every month. Millions more will come to rely on those checks in the years ahead.
Many don't think much about that fact, and few realize just how much of a nest egg they're going to need. An American reaching the retirement age of 65 today has an average life expectancy of 18 more years, which means that roughly half of those who reach 65 can expect to live longer than 18 years. Four out of 10 have no nonwork-related retirement savings. Six out of 10 haven't even tried to estimate what they'll need. They rely vaguely on Social Security, but how far will it carry them? How serious is the "crisis" they hear about? What are the implications of "reform?"

Social Security pensions were indexed to the rate of inflation in the 1960s and 1970s, dramatically diminishing poverty among the elderly. Now only 10% of those over 65 live in poverty - 2 points lower than the national poverty rate. Roughly two thirds of people age 65 and over depend on Social Security for at least half their income, and roughly 20% rely on it for their entire income.

Currently, the payroll tax brings in more dollars than it pays out in benefits. The surplus, roughly $180 billion a year, is invested in treasury securities and deposited into a trust fund, which holds more than $1.5 trillion of these notes. As baby boomers begin to retire, the system will go into deficit around 2018, requiring drawing down on the fund. By that time the fund will exceed $3 trillion, so it will be in the black until around 2042, using the Social Security Administration's conservative economic and demographic assumptions, or 2052, using the assumptions of the nonpartisan Congressional Budget Office. Even if the system exhausts its reserves, payroll taxes will roll in, enabling at least 73% of scheduled benefits to be paid out.

In other words, there is no current financial crisis. So, what's with all the hand-wringing? Well, if you make pessimistic predictions about economic growth, immigration and wage inflation, projected revenues may not be enough to pay benefits. Social Security actuaries, for instance, project that growth will average only 1.6% after 2010, about half the rate we have enjoyed in the past century. But if the economy grows at anywhere near the levels that Bush's own budget experts project, the surplus, in effect, would never run out.

Most important, to the extent that there is a deficit, it could be covered by a variety of modest combinations of tax hikes and benefit cuts - each of them quite manageable.

A careful study by AARP estimates that 43% of the Social Security deficit projection would be met by raising the cap on taxable wages from $90,000 to $140,000; 38% would be covered until 2083 by raising to 70 the retirement age for full benefits; a quarter-percentage-point increase in the payroll tax for employees and employers would cover 24%; requiring state and local government workers to join would cover 9%. Yet another approach implicit in the President's program is to decelerate increases in benefits by raising them in line with prices, not wages.

This readjustment would eliminate the 75-year projected deficit of Social Security, but it would have a major impact on low-wage earners who depend almost entirely on Social Security, and it would reduce benefits for middle-income workers by as much as 25% over 30 years. It would thus preclude many seniors from enjoying the benefits of rising standards of living.


A solution here is to protect workers at the lower end of the income spectrum by retaining benefits according to wage rises for them but lowering benefits to price indexing for the higher levels. Or some mix of the two.

President Bush has a different answer to all of the above. In pursuit of his "ownership society," he wants to move Social Security toward "greater individual opportunity, risk and reward" by allowing individuals to carve themselves private investment accounts out of Social Security payroll taxes, much like a 401(k) plan. This raises a whole host of problems.

It discriminates against poorer workers because the lower your income, the less you have to invest and the smaller your return will be. The Bush plan offers nothing close to the financial security of the existing program. Then there's this: Are individual investors sophisticated enough to match the higher returns now being forecast? At least 10 studies analyzed by the Securities and Exchange Commission indicate a disturbing level of financial illiteracy. Only 12% of the investors studied could distinguish between a load and a no-load mutual fund; only 14% understood the difference between a growth stock and an income stock; only 38% knew that when interest rates rise, bond prices fall; almost half somehow believed that diversification guarantees that their portfolio would not suffer if the market dropped, and 40% thought that the trust fund's operating costs would not be deducted from their investment return.

Experience with 401(k) plans shows that many people fail to invest and to diversify sufficiently to maximize returns. Many make mistakes, not because they are stupid but because they live busy, complicated lives, focusing on work and family, and lack the time to become financial experts. Those 50% or more who are not in the stock market presumably have even less knowledge and experience.

Furthermore, historical stock-market returns are not a guide for future performance. If someone retires after the market dives, he or she could lose a good chunk of retirement savings. The market, after all, fell by 45% in real terms between 1968 and 1978 -- never mind the bust between 2000 and 2002. If millions of retirees suffered dramatic losses, there would be enormous pressure to come to their rescue. We would very likely end up privatizing gains and socializing losses.

The macroeconomic consequences of privatization are equally significant. Privatization fails to address the long-term gap in the program's financial resources. It would make things worse because the government would have to borrow the money that otherwise would be paid into the system.

Of course, the idea of Bush's "ownership society" is to change the relationship of Americans to government so they look less to Washington than to themselves (and, just maybe, vote more Republican). No doubt some Americans could build savings and more wealth and have a nest egg for retirement. No doubt there is value in savings and self-reliance, planning ahead and increasing distance from the government. But there are other values in the very title of the program - Social Security. "Social" surely implies a contract to help manage poverty among the old and to know that our society provides a minimum income for all in the retirement years. And "security" means buffering the harshness and cruelty of the markets so the well-being of the elderly is not dependent on shrewd stock picks and hot mutual funds.

Privatization thus gets things upside down. Social Security was not meant to re-create the free market; it was intended to insure against the vagaries and cruelties of the market and to permit Americans to count on the promise that the next generation will take care of them in their old age.

Read the Fine Print


Published: February 6, 2005

The more we learn, the worse it gets.

Last Wednesday, as President Bush prepped for his State of the Union address, a White House official gave reporters a background briefing on some of the details of Mr. Bush's Social Security privatization plan. Almost point for point, whatever the president said that sounded good sounded bad when the details were filled in.

For instance, Mr. Bush said, "Personal accounts are a better deal," because "your money will grow, over time, at a greater rate than anything the current system can deliver." But the privatized system actually contains hidden costs that could leave retirees with less. Your Social Security benefit would be reduced, dollar for dollar, by the amount of money you deposit into your private account and an additional charge amounting to 3 percent plus the rate of inflation. All the money that is drained off would presumably go to pay for the enormous upfront government borrowing - $4.5 trillion over the next 20 years - that privatization would require.

That means people whose private accounts steadily earned three percentage points over inflation throughout their working lives would wind up with exactly what they would have gotten if Social Security remained untouched. Anyone who earned less than that would end up with less than is offered by the current system. When asked what would happen to the people who would not have enough income to avoid poverty, the administration official said, "I'm not sure if I'm understanding your question."

The benefit cut is only the beginning. There is still the problem of strengthening Social Security's finances. On its own, establishing private accounts does nothing to solve the long-term shortfall in the system. The president alluded to this fact when he said, "We must pass reforms that solve the financial problems of Social Security." He dutifully listed various benefit cuts that would do the trick, without taking the politically risky step of endorsing any of them.

Neither the president nor his aides have been willing to acknowledge the extent of benefit cuts that would be needed. And no wonder: All in all, they would leave the average worker with a government benefit worth only about 10 percent of his or her preretirement earnings. (Currently, Social Security replaces about 35 percent, on average.)

Various proposals to strengthen the current system's solvency via modest tax increases and benefit cuts - without resorting to costly private accounts - could guarantee a government benefit that replaces about 30 percent of preretirement income on average. But for all his talk about "an open, candid review of the options," the president refuses to consider any plan that excludes private accounts or includes tax increases, no matter how small. His stance makes severe benefit cuts unavoidable.

Even the feel-good tidbits in the president's speech really fail to stand up to close examination. Mr. Bush assured listeners that the government would prevent people from making bad decisions by restricting their investments to a conservative mix of stocks and bonds. But the more restrictions there are, the harder it would be for people to achieve the outsized returns that the administration has generally promoted to sell the public on private accounts.

And the much-touted promise that the private accounts could be passed on to one's heirs, as it turns out, is also less than it seems. That works entirely only if you die before you retire. Under a scheme that is going to take a while for the public to digest, the White House wants to require new retirees to use their private accounts to buy annuities large enough to keep them above the poverty line for the rest of their lives. The most they could leave to heirs, then, would be what is left over after the annuities are purchased.

Mr. Bush is expending tremendous energy to sell his plan - daily impairing his own credibility and shredding whatever confidence remains in the country's fiscal outlook. Members of Congress would do him - and their constituents - a favor by reining him in and moving on to more pressing matters.

au, I did the math beginning with the $1,000 max any worker will be able to "invest" in 2009 and calculated by adding $100 every year as proposed by president Bush. If anybody will bother to do the math as I have done, you will find that the $90,000 investment in 35 years will not be enough to support anybody in retirement unless the investment grows every year in unseen growth for the DOW and Nasdaq for the past ten years. Look at it this way; we purchased our home in Sunnyvale for $50,000 in 1971. After 35 years, it's now worth over $750,000. Home prices increased by 15 times in 35 years. That $90,000 investment by workers would need to grow to $600,000 to stay even with inflation, but at 5 percent growth it'll fetch $200,000 which is taxable income, and we don't know at this juncture what the tax rates or inflation will be in 50 years. Do people really think their investment will grow that much? I don't think so.

Here's the indeces for the past five years: DOW Feb 2000 it was 10,700, in Feb 2005 it was 10,700. Nasdaq in Feb 2000 it was 4,500, in Feb 2005 it was 2087. S&P 500 in Feb 2000 was 1,500, in Feb 2005 it was 1,200. How many of those that wish to invest in personal accounts are savvy enough to invest in the stock market? I'd say exactly zero.

C.I.
But consider the profits that Bush's friends on Wall Street will reap. Screw the peasants if they don't have bread let them eat cake.

That's about the size of it; the commissions and fees earned by the Wallstreeters will be in the billions.

If we're talking about "potential," I guess Bush might be right. The only thing he doesn't consider is the possibility that the personal investments might return much less than their investment. Not surprising that most those in support of the Bush plan doesn't understand there's no guarantee.
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Figuring a Social Security Benefit Under Bush's Plan
By EDUARDO PORTER

Published: February 6, 2005


n presenting its plan to let working Americans divert part of their payroll taxes into private retirement accounts, the Bush administration now says the proposal will do nothing to solve Social Security's financial problems. But at the very least, the president indicated during his State of the Union address on Wednesday, it may offer workers a better deal.

The accounts are intended to provide potentially higher rewards to help offset the lower guaranteed benefit workers would receive after they had carved a private account out of their Social Security contributions. But weaker investment returns or higher management fees could erode those expected benefits.

Take somebody who will be 19 this year and will enter the workforce in 2011 - the first year in which younger workers will be allowed to open personal accounts - earning $38,566 in today's dollars, what the Social Security Administration calls the "medium wage." That is the figure, annually adjusted to reflect the rising cost of living, that the Social Security Administration uses to calculate the effect of Mr. Bush's plan on the typical American worker.

This employee - who currently faces a 6.2 percent wage tax, matched by his employer - would be allowed to place as much as 4 percent of his wages in a personal account. A ceiling for contributions would be set at $1,000, rising each year by at least $100. By the time he retired at age 65 he could accumulate a substantial nest egg to add to the standard Social Security benefit.

To reflect the substantially lower contributions to the standard Social Security system, though, the standard benefit would be considerably lower than under current law. The basic benefit, said a White House official, who briefed reporters on the plan last Wednesday and requested anonymity because he did not want to upstage the president's speech, would be cut by the amount contributed to the personal account, plus a sum that reflected the gains from investing it at a rate of return of 3 percent above inflation.

The worker could still come out ahead under these terms. If the account were to earn an average 4.9 percent a year after inflation, minus 0.3 percent in fees - the figure often cited by White House officials based on estimates by the Social Security actuaries of the expected returns of a mixed portfolio of stocks and bonds - the worker's piggy bank would grow to more than $188,000 in today's dollars if he invested the maximum allowed, according to calculations by Dean Baker of the Center for Economic and Policy Research.

Taken as an annuity payment that would last the rest of his life, that money would generate $11,270 a year, or $940 a month, Mr. Baker found. Even after the offset carved out of the standard Social Security check, this worker's retirement benefit would add up to $24,530 in today's dollars, or $2,044 a month. That would be substantially more than the $21,220 a year - or $1,771 a month - that Social Security currently promises a medium wage worker after a similar career ending in 2050.

But there are other possibilities. As investors discovered in 2000, stocks can fall in value and stay down for some time. If a poor equity market or ill-timed investments left the average return on this worker's personal account at just 1 percent better than inflation, instead of 4.6 percent, the benefit would add up to only $18,650 a year, or $1,550 a month.

Some economists worry that personal accounts would put the well-being of low income retirees at risk.

"The personal accounts increase the variance in your outcome," said Richard Burkhauser, the chairman of the department of political analysis and management at Cornell University. "But if you are poor, are you in a position to have so much risk in your portfolio?"

Kent Smetters, a professor of insurance at the Wharton School of the University of Pennsylvania who supports private accounts, sees it differently. Professor Smetters says private accounts are a good idea because they will provide lower-wage workers with their first exposure to the stock market. "I buy the idea of an ownership society," he said.

Under the plan, workers are meant to come out even if their personal accounts yield 3 percent in real terms, the expected rate of return on ultra-safe Treasury bonds, where Social Security puts its money today.

The White House is counting on keeping fees low. If the personal accounts paid a 1 percent annual fee, similar to what many workers in Britain have faced for the management of their private retirement accounts, a 3 percent real return would produce a nest egg that would yield an annual benefit of about $19,800, lower than today's promise.

Professor Smetters predicted that fees would be low. The administrative costs of the thrift savings plan for federal employees, on which Mr. Bush is modeling his plan, are even lower than White House estimates for the personal accounts, he said.

Mr. Baker, who opposes the plan, predicts that monthly payouts would be lower than the White House projects because workers who do not expect to live long into retirement will take most of their benefit as a lump sum, leaving less for those who select an annuity.

And, this deal still does not solve Social Security's financial problems. "In a long term sense," the White House official said at Wednesday's briefing, "the personal accounts would have a net neutral effect on the fiscal situation of the Social Security and on the federal government."

Mr. Bush has not yet specified how he would restore the system to balance. Regardless of the method, the best that can be expected from private accounts is that they might cushion the blow of future cutbacks.

Commentary > Dante Chinni
from the February 08, 2005 edition

'Ownership society' vs. social responsibility

By Dante Chinni

WASHINGTON – Admit it, you may be leery of President Bush's ideas on how to fix Social Security, but there's a certain raw appeal to the idea of creating individual private accounts for people under 50. After all, long-term investments in the stock market are pretty safe considering the historical averages. And the chances of earning a little more than the government normally pays out are enticing. Then there is the promise of an "ownership society," which the president says is his goal to create. Who could be against that? Ownership is part of the American dream. It begins with owning a toy, progresses to owning a late-model sedan, and often leads to owning a second home somewhere warm.
You aren't a fan of the "ownership society"? Why do you hate freedom?

But on the way to a brighter, better, more individually owned America there are a few sticky questions. Exactly how would the president's plan work? Where could the individual account owners place the money? How would this solve the long-term money problems with Social Security? And, the always complicated, how would the country pay for it?

The answers (in order): We'll get back to you. That's still to be determined. It wouldn't. And, who knows? All we know for sure about the plan right now is that people under 50 would have the option of creating their own Social Security personal savings accounts with one-third of their Social Security money to invest in government-approved stock/bond funds. In interview after interview, young people say they like this plan because they'll be able to do what they want with their money. They won't. Those funds would have to be confined to very safe investment options to hedge against massive losses by individuals.

The federal government - whatever it looks like in 30 years - is surely not going to let elderly retirees starve because they thought www.thenextbiggestthing.com seemed like a surefire investment at the time. And AARP will still be around in 30 years to make sure that America's seniors - who will comprise an even larger segment of the population by then - are well represented in this city.

OK, so the plan isn't going to make anyone rich - except maybe stockbrokers and money managers (who, by the way, are the big winners under a similar system in place in Britain for 17 years). But it will at least solve Social Security's long-term problems, right?

Actually, no. The administration has quietly acknowledged that the individual accounts won't make the system more financially solid. To do that, guaranteed benefits would have to be reduced or the retirement age would need to be raised, as, probably, would the amount of income taxed (it currently has a ceiling of about $90,000). These are topics much less pleasant to discuss than the wonder of "ownership."

In the end, though, all those issues are only parlor-game fun when one contemplates the real problem hanging over the president's plan: There is no money to pay for it. Right now, when workers pay their Social Security taxes, they aren't putting cash aside for their retirement; they are paying for those currently drawing a Social Security check.

If the individual account money comes out of the Social Security fund, the government still has to pay for those already receiving their checks. The cost of doing that is likely to run somewhere between $1 trillion and $2 trillion in the first 10 years - and significantly more after that. And this is after a recession, the war in Iraq, and the president's beloved tax cuts have left the nation with a forecast cumulative deficit of $1.3 trillion from 2005 to 2014.

Is the president's plan intriguing? Yes. But it won't solve the long-term fiscal problems with Social Security and it will run up the deficit. So why do it? The true benefits, the president will probably argue, come in furthering the creation of an "ownership society" and giving people a bigger role in their own retirement, and that is a good in itself.

Maybe. But if you agree with that premise, consider this: The national debt is currently $7.6 trillion. That means every man, woman, and child in the United States owns a share of about $26,000 of that debt.

Part of ownership is responsibility. It seems wrong to talk of creating more of the former while we are running from the latter.

The latest news on Bush's social security reform.


Bush and Democrats Take Social Security Debate on the Road
By DAVID STOUT

Published: March 4, 2005


WASHINGTON, March 4 - President Bush and Democratic senators took to the road today to sell their conflicting visions of Social Security's future, with the president pledging to mend a hole in the system's safety net and Democrats urging, "Do no harm."

"I didn't run for office to dodge problems," Mr. Bush said in Westfield, N.J., where he once again promoted the idea of optional private investment accounts within the retirement system for younger workers.

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The president said he had a message for those younger workers: "You better listen carefully to this debate, because you're the ones who are going to have to pay for it. And if I were you, I'd be saying, 'Well, if we have a problem, Mr. President, what do you and the Congress intend to do about it?' "

The Senate minority leader, Harry Reid, Democrat of Nevada, said Democrats had an answer, drawn from the age-old words of Hippocrates: "First, do no harm."

"Democrats recognize that Social Security faces a long-term financial challenge," Mr. Reid said in a statement. "We are ready to work with President Bush to strengthen Social Security, but we need to get it right. That means doing no harm and not cutting Social Security's funding by diverting trillions of dollars."

The Social Security system now takes in more money from payroll taxes than it pays out to retirees. But actuaries project that with the inevitable retirement of legions of baby-boomers, in 2018 the system will begin paying out more in benefits than it takes in through payroll taxes.

From 2018 until 2042, the system would be able to pay all the benefits promised under current law by drawing on its trust fund of government bonds. After that, it would be able to pay about three-quarters of the benefits promised by current law.

"Social Security has provided a safety net for many retirees," Mr. Bush said in New Jersey, before flying to South Bend, Ind., to deliver a similar message to an audience at the University of Notre Dame. "But the safety net has got a hole in it. And we need to make sure we save that safety net for future generations of Americans to come."

Acknowledging that the idea of creating private accounts within Social Security has created concern in some quarters, Mr. Bush said investments within those accounts would be conservative. "I'm not talking about, you know, lottery, taking it to the track," he said.

The audience for the "conversation" about Social Security was a friendly one, with several people praising Mr. Bush's proposals. Olivia S. Mitchell, a professor at the University of Pennsylvania's Wharton business school and a Democratic member of the bipartisan President's Commission to Strengthen Social Security, told Mr. Bush he was on the right track. Alluding to the coming deficit, she said, "This is not Social Security, this is social insecurity, and we have the responsibility to fix it."

Democrats agree that politicians have a responsibility to fix things. But many have also said that Mr. Bush's proposal would just make things worse. Accordingly, several senators set out today on their own two-day, four-city sales trip, scheduling public forums in New York City, Philadelphia, Phoenix and Las Vegas.

Mr. Reid was accompanied by Senators Richard Durbin of Illinois and Byron Dorgan of North Dakota. They were to be joined in New York by the state's two Democratic senators, Hillary Rodham Clinton and Charles E. Schumer, as well as Senator John Kerry of Massachusetts and Frank Lautenberg of New Jersey.

On Thursday, Mr. Reid sent President Bush a letter signed by nearly all of the Senate's 44 Democrats. The senators said they were encouraged by Treasury Secretary John Snow's suggestion that private investment accounts might be established wholly apart from Social Security. The senators urged Mr. Bush "to publicly and unambiguously announce that you reject privatized accounts funded with Social Security dollars."

If diverting a portion of the SS collections to private accounts inorder to be able to get a greater return is such a good plan. I wonder why a portion of the SS collections [the surplus ] could not be invested by the system mgrs. to achieve the same result. It would not require any risk or investment decisions by the individual contributor and would if Bush is correct achieve the same result. The plan that the president presents places the risk squarely on the shoulders of the individual. Whether it achieves the intended result or not the government takes no risk. You could say win or lose under the Bush plan the Govt. can't lose