NYT op-ed on SS Priv Accts:No Pain, No Savings(pro-addon 401k)-Choose/lose

[papau]

http://www.nytimes.com/2005/01/05/opinion/05sperling.html?oref=login

OP-ED CONTRIBUTOR
No Pain, No Savings
By GENE SPERLING senior fellow at the Center for American Progress

Washington — IF President Bush truly wants a bipartisan agreement on Social Security reform, he should recognize that he can keep the system solvent, increase savings and promote his ownership agenda without dividing Washington by carving Social Security into private accounts.

The president can promote the individual ownership he wants and protect the guaranteed Social Security benefits Democrats insist on with a new universal 401(k) that offers all Americans a private retirement account in addition to Social Security, and uses government funds to match contributions made by moderate and lower-income workers.

A universal 401(k) would increase savings far more than partly privatizing Social Security. Privatization that simply allocates part of the current 12.4 percent Social Security payroll tax for employees to invest in private accounts does nothing to increase national savings: it's like taking $1,000 a year from your parent's 401(k) and putting it in your own individual retirement account. Allowing people to invest some of their Social Security payroll taxes in the market simply adds risk to the one risk-free leg of the retirement stool. If instead people could invest in universal 401(k) accounts - in addition to Social Security - that provided new incentives to those families having the hardest time putting money away, America would actually leverage new savings, not just shift existing savings around.

Such accounts would also help remedy America's upside-down tax incentives for retirement savings. Taxpayers in the highest income bracket, 35 percent, not only are more likely to get a matching contribution for their savings from a 401(k) at work, but also get to deduct 35 cents from their taxes for each dollar saved in their 401(k). Meanwhile, most working families in the 15 percent bracket do not get matching contributions from an employer-sponsored pension - and when they do save they get only a 15-cent deduction for each dollar.<snip>

http://www.nytimes.com/2005/01/05/opinion/05schwartz.html

Choose and Lose
By BARRY SCHWARTZ professor of psychology at Swarthmore College

warthmore, Pa. — THERE are three arguments being made in favor of privatizing part of Social Security. First, the Social Security Trust Fund needs money and privatization will, in the long run, increase the amount of money available to retirees. Second, privatization will give people choice, and choice is good. And third, "it's your money," and you ought to be able to do with it as you wish.

Each of these arguments is dubious, or disingenuous, or both.

Though experts differ on the urgency and the severity of the problem, most everyone agrees that the trust fund will eventually run out of money unless we do something. Two obvious and painful things we can do are decrease benefits or increase payroll taxes. Privatization, it is argued, solves the problem without the pain. Equity investments return about twice as much, historically, as Treasury bills. So by allowing people to put some of their payroll taxes into equity investments, we will increase the value of that part of their retirement account so we can then decrease the benefits paid out by the standard Social Security program and still leave retirees better off.

There are several problems with this argument, however. For starters, there is no guarantee that equities will return more than Treasury bills. One of the reasons that equities have a higher rate of return than other types of investments is that investors have to be compensated for taking risks. Perhaps equities will outperform Treasury bills in the long term but that doesn't mean that they will be outperforming Treasury bills at the specific moment you retire.

For example, a person who retired in 2000 after a lifetime of investing half in stocks and half in bonds would have had 50 percent more in his account than a person making the same investments who retired in 2003. A difference like this could mean that the lucky retiree can afford both food and medicine while the unlucky one must choose between them. The risk inherent in equity investments is unavoidable unless you can leave the investment alone indefinitely, which, of course, most retirees can't do.

What's more, the administrative costs of keeping track of these private accounts, according to President Bush's Commission to Strengthen Social Security, will be 10 to 30 times the cost of administering the current system, eating up almost all of the hypothetical gains that equity investments could provide.

Finally, even if we grant the advantages of putting trust fund money into equities, this is something that the government could do without privatizing anything by doing the investing itself. The government as investor can ride out risks better than any individual investor, and administrative costs would be vastly reduced. Only brokerage houses would suffer - from lost commissions. Thus investing in equities, which might be a good idea, is logically independent of privatization, which is a bad one. The Bush administration is deliberately conflating them.<snip>

[KoKo]

1. Interesting. Particularly the Schwartz comments.

I worry that our Dems have somehow accepted the From line that SS needs to be "modernized."

It's ripe for "boondoggling" by both Dems and Repugs. Leave it alone...and let's stop the schemes designed to give "flexibility" to the
top earners who hate paying the SS and it's "they" who want the Privitization because they know they will be wealthy enough not have to rely on SS. Even Bill Gates is forced to pay SS along with our top CEO's and Board Members and they dislike it..because they feel they should be able to opt out.

It's the rest of us who will need it who will be used by those who want the death of SS or their money to go into the Investment pool. Dems are being lobbyied heavily by Investment Banks and Wall Street. They need to be told: "Lock Box for SS" stop using it to fund deficits and we will be fine. And if the system needs a bailout because of some catastrophe...well then increase taxes on the wealthy back to where they were under Clinton.

[papau]

2. Eliminate the wage cap and all is more than well

I do not care if the rich get an additional 150,000 per year Social Security check for every additional million of wages they report each year - as long as they pay the additional payroll tax each year on that additional million.

Indeed the payroll tax rate -that affects all of us -could be cut if that were to be enacted

[justgamma]

3. Our generous company

"Meanwhile, most working families in the 15 percent bracket do not get matching contributions from an employer-sponsored pension "

We were offered $1.00 for every $10.00 We saved. Big Whoop. They were contributing $5.00 a day toward out pension plan. We turned them down flat. Maybe if they would have offered matching funds, we would have bought the idea.