SOCIAL SECURITY: IT'S NOT WHAT YOU THINK

The only problem is, where does the money come from? SS taxes can not be diverted to private accounts without cutting benefits for the recipients of today, or adding to the taxburden on todays workers.

Einherjar writes

Quote:

The only problem is, where does the money come from? SS taxes can not be diverted to private accounts without cutting benefits for the recipients of today, or adding to the taxburden on todays workers.

Here's where I think I disagree. Currently, even though the numbers are all on paper because Congress spends every penny of Social Security it takes in, there are many billions more in the fund than are being paid out. The fund won't be in the red for some time yet. So now would be the perfect time to start setting up private accounts.

It would mean Congress would have less money to spend of course or they would have to borrow from other sources, but they would not be able to hide such borrowing any more. That is a good thing.

I am very much opposed to raising taxes because 1) it would hurt today's workers, 2) the rich would just move compensation from wages to stock options or whatever to avoid the extra tax, 3) employers would be hurt and that would cost us in jobs and/or wages, 4) it would just allow Congress to hide more money.

By the way, we invest only in no load funds in families of funds and there are no transaction fees. There is a nominal annual management fee (less than $25/year) for each family and a one fee per year from the brokerage firm we use but our overall costs for fund management are less than $100/year.

No, I'm saying the government should just start the accounts with incoming monies. More is coming into the system now than is needed to pay current benefits. This will not be the case in another 15-20 years so, if we are going to do the privatization thing, the time to start is now. I think since it will start out small with only some workers opting to do that, a small percentage of funds can be diverted without depleting any of the funds needed to pay checks to those currently receiving social security.

The government should just get whatever other money they need from somewhere else and accept the criticism for overspending since they won't be able to hide the overspending as easily.

I am adamently opposed to raising the social security taxes and I am opposed to raising any other taxes. Government is too big and it spends too much. I opt for smaller government spending far less.

It would mean Congress would have less money to spend of course or they would have to borrow from other sources, but they would not be able to hide such borrowing any more. That is a good thing.

I say the American people should be encouraged and empowered to do much more for themselves and the government do far less. That would eliminate the looming crisis in the general fund and Social Security will be left in peace.

ALAN GREENSPAN is just a year or so from retiring as chairman of the Federal Reserve, but he shows a striking lack of solidarity with those of his countrymen also reaching the twilight of their careers. In 2008, the first of America's baby-boomer generation will turn 62, the age at which many can start claiming the state pension benefits, known as Social Security, to which they are entitled. But the state, Mr Greenspan fears, has made promises to future retirees that it cannot keep. In his testimony before the House of Representatives budget committee on Wednesday March 2nd, he said that Social Security?-not to mention Medicare, which provides state-subsidised health care for the elderly?-will probably need "significant structural adjustments"?-Greenspan-speak for cuts.
Only last month, of course, President George Bush proposed a budget for the coming fiscal year that was supposedly full of big deficit-reducing actions. The budget was indeed tough on "discretionary" spending?-expenditures that Congress can adjust each year. But discretionary spending accounts for less than 20% of total federal outlays, and spending is only one side of the government's balance sheet. Federal tax revenues have fallen from 20.8% of GDP in 2000 to an expected 16.8% in 2005. Almost half of this drop-off in revenues is due to Mr Bush's tax cuts, which he proposes to make permanent.
Mr Greenspan thinks that America's budget-setting process is broken. To fix it, he wants Congress to resurrect the so-called "pay-go" rules, which were in force during the 1990s. These strictures forced Congress to offset tax cuts with matching cuts in spending, and to pay for spending hikes with higher taxes. America, says Mr Greenspan, needs a "commonly agreed-upon standard for determining whether the nation was living within its fiscal means."
America's fiscal means will be stretched to breaking point in the decades ahead by its aging population, the Fed chairman said. At present, every beneficiary of Social Security is supported by 3.25 workers. By 2030, there will be only about two workers to support every beneficiary. As a result, if everything else remains equal, the real burden of supporting retirees will increase by over 60% for each worker.
At the moment, the state is the conduit through which Social Security transfers resources between generations: it levies a payroll tax on the 3.25 workers and sends a benefit cheque to the retiree. This wholesale reliance on the state strikes many conservatives in the United States, not least Mr Bush, as outmoded. The president proposes allowing workers to invest a portion of their payroll taxes in financial assets of their choosing (or chosen from a menu of relatively safe assets determined by the government). When workers retire, they can draw on the accumulated savings in these accounts.
In economic terms, the difference between the current Social Security scheme and a new partially privatised scheme is not that stark. Both a benefit cheque and a financial asset, such as a share certificate, are claims on the output of the working generation. In other words, private accounts merely offer a different way of transferring resources from workers to retirees. They do not in and of themselves increase the resources available.
To claim that private accounts will ease the demographic burden, one must argue that they will raise national saving. Mr Greenspan supports private accounts on precisely these grounds. He thinks the public are more prudent than politicians: they will save more in their private accounts than the Social Security system can. As he points out, when Social Security is in surplus?-that is, when the funds flowing into it from payroll taxes exceed the benefits flowing out?-politicians cannot resist the temptation to dip into this surplus and spend it. Private accounts, on the other hand, would be off-limits.
Saving might also be encouraged by reform of America's tax code, Mr Greenspan believes. The day after testifying to Congress, he offered his two cents' worth to the president's advisory panel on the subject. The current federal tax burden falls on income from work and investment, largely sparing consumption: America has no federal value-added tax, for example. Many economists believe this imbalance discourages saving. If you spend your wages as soon as you get them, the Feds tax them only once, but if you squirrel them away, you also have to pay tax on the interest income you earn. Americans might be more thrifty, economists argue, if their savings were better sheltered from tax and the fiscal burden fell more heavily on consumption. Mr Greenspan, it is safe to say, sees merit in these theoretical arguments, though he cautioned against embracing them with too much unworldly purism.

An emperor with no clothes?
In theory, a reform of the tax code and an overhaul of Social Security could complement each other. But it would take a brave president to fight on both fronts simultaneously. A month ago, it seemed clear that Social Security would take priority. Mr Bush was on the march, up and down the country, talking of a pensions crisis that must be averted. But his campaign, Napoleonic in ambition, may already be heading into its Russian winter.
In a New York Times/CBS News survey of public opinion, released on Thursday, no fewer than 63% of respondents said they were "uneasy" about Mr Bush's ability to make the right decisions on Social Security. A small majority, 51%, thought that letting individuals invest some of their payroll taxes in their own private retirement accounts was a "bad idea". When the other shoe dropped, their disapproval grew: an additional 18% disliked the thought of diverting payroll taxes if it meant cutting guaranteed retirement benefits by up to a third?-the essential twin-step of Mr Bush's approach thus far.
"Panic" might not be too strong a word to describe the Republican reaction to these developments. Some conservatives, who see Social Security reform as the defining struggle of their era, are panicked that the battle may never be joined. Other Republicans who were never keen on reform in the first place are panicked that Mr Bush will push it regardless of the opposition. The backlash, they fear, could hit their party across the board at next year's mid-term elections. The "third rail" of American politics, as Social Security reform was once known, still has plenty of potential to shock those who touch it.