What's your position on Social Security?

[DaedelusNemo]

I wonder if there's any agreement on it here, and i also wonder if any of ya'll have a good plan. I'm assuming you're mostly opposed to Bush's proposal, or what is known of it.

Are you entirely against any form of privatization?

(It seems to me to violate the entire point of SS in the first place: the guarantee of some minimum retirement. And the notion of the government, or a government-selected few, investing that much money in the market gives me the centralized economy willies.)

What about benefit cutting? Does the current scheme extrapolate to more than is appropriate for SS?

( I thought the argument that benefit should be compared to prices, not average wage, was a good one; but it was pointed out to me that standard of living rises faster than prices. But does it rise as fast as average wage? Do we want SS to be pitched to standard of living? Is it a political mistake to take anything but the hard line: no benefit cut whatsoever?)

What about increasing pay-in, and how?

(Lifting the wage cap seems reasonable to me, and feasible politically. If not, setting the wage cap to include 90% of income, as was the idea in the first place when the fund was set up by Greenspan, is surely politically feasible. They've been letting that cap go up with average wage instead of with the 90% inclusion point - and high-end wages have been increasing more than low end. So now we are at considerably less that that point - putting us back to it would set the cap at 110,000 and solve roughly 40% of the projected shortfall. On the other hand, lifting the cap entirely would reportedly require us to lower the tax rate all around, which is probably a political winner.)

What social security plan do you think the democrats ought to put forward as an alternate vision to Bush's?

(You've seen most of mine already; shift to a standard of living - based benefit, set the cap back to 90% and have it increase with that point hereafter, or else eliminate it entirely. That pretty much does it, as far as i've been able to tell. It also seems like some good ways to encourage individual retirement savings would be a good thing to include in the proposal.

Here's a couple more notions that i would like correction or confirmation of: raising the minimum wage would diminish or reverse that shortfall, and help with Medicare too. And what about auctioning off rights to invest some portion of the fund money in exchange for some guaranteed return to us, so long as it is more than bonds? If nobody wants to do it, that would certainly kill the arguments about low return. That may be a nutty idea, or it may be already done all the time, i'd appreciate any info.)

[GR]

1. It's Not In Crisis...Bush Is Lying...Bush Wants To Destroy It Not Reform..

it...Start with the truth and work from there...It's fully solvent until 2042 at the earliest and after that will pay more in real dollars than today's retirees get WITH NO CHANGES WHATSOEVER...

It could be easily strengthened by removing the cap or raising the cap on earnings from $90K.

The so-called unfunded $10T is based on projections to infinity. If we do that, the sun will burn out and the earth will die...Not a very good model...

[jandrok]

6. I agree with what GR said.....

One estimate has the system paying full benefits for 10 years longer than the 2042 forecast. The nonpartisan Congressional Budget Office has projected the program will be solvent until 2052.

Worst case scenario if absolutely nothing is done is that people now in their 20's will get benefits at 70% at full retirement age. That's absolute worst case, and it's based on some pretty gloomy predictions on projected economic growth. If the economy performs better than the projections, the system will stay solvent even longer.

Any statements that the system will go bankrupt are just lies. Pure lies.

GR had the right ideas. One could also make a case for simply raising the social security tax to maintain pace with the forcasted shortfalls.

Social security is one of the great success stories of government getting it right.

Thing about all of this that makes me angry is that the financial services companies have been trying to get SS reform on the agenda for years. I have been told by more than one financial advisor and/or broker that social security will not be around when I retire. The groundwork for "reform" has been playing out in lobbyist's messages for years now. Anything to collect a fee or a commission. That's the message that we need to get to people. Who really stands to benefit from privitization? Not you or me, that's for sure. It'll be the brokers and financial advisors who collect YOUR money as fees and commissions.

[DaedelusNemo]

12. I agree with both of you, but

I think that if the democrats have nothing to say about this but 'no' and 'there's no problem' then they're going to be painted as obstructionists without any useful ideas. What i want is "No, but if you really want to adjust for your projected problems in 2043 or 2053, here's the best way to do it. And if what you really want is to increase retirement savings, here's how best to do that."

It is amazing to me, i have to admit, that the Bush plan cuts benefits more harshly than would be necessary to entirely eliminate the shortfall even if done entirely by cutting benefits. In the same category goes the fact that Bush wants to borrow 17 trillion to deal with an expected shortfall of 10 trillion (at a time when Bush's own commission projects interest payments to be a far large 'unfunded liability' than SS already!) 'Privatization' sure is expensive, and we lose in every other category.

I'm certainly agreed that the only people who benefit are the financial industry (and government deconstructionists.)

[bemildred]

2. In order

Yes.

No.

No cap at all. In the unlikely event more than that is necessary,
screw the corporations, and use no vaseline.

Leave it the hell alone.

[DaedelusNemo]

13. "No wage cap" solves so much of it we'd have to lower tax rate /nt

[bemildred]

19. Yeah. maybe we could do something about a national health-care system. nt

[ohtransplant]

3. My two cents

1) yes. *'s privatization proposal is to line the pockets of wall street

2)Lift the wage base. Simple and relatively painless although it effects the rich so don't hold your breath waiting for rethugs to support it.

A couple more simple points;

a)Hands off the SS surplus! Pass a law. Leave it alone.

b) Create a new class of gov't securities the SSA would invest our SS surplus into. Similar to the G fund of the Thrift Savings Plan for feds. Constant return of 4 -6 % and little or no risk.

[DaedelusNemo]

14. questions for each penny

Regarding the SS surplus, it seems to me to not be a bad thing for it to be in the form of bonds, giving SS some return, and in addition helping to cheaply finance the rest of the government - but of course that money does have to be paid back.

On your new class of gov't securities, i don't know enough of what you're talking about, but i muchly like the sound of it. Could you explain a bit for the uninformed? How is that return possible without risk (and if so, why haven't we done it already? What's the downside?)

[punpirate]

4. Actually, the business about shifting...

... wage-based indexing to price indexing is a red herring. SS now actually does both. One's initial rate is tied to wages (higher initial stipend for higher total wages, since one has put more into the fund), and in successive years, the initial retirement rate is increased periodically by a formula based on the CPI.

The simplest way of guaranteeing benefits at or beyond a point where one can reassess economic growth isn't really necessary at the moment--current estimates (from the CBO, I think) are that the fund doesn't go negative until 2052--almost fifty years from now, and by then, virtually all of the baby boomers will be gone.

Therefore, the simplest way to guarantee funds is to incrementally increase the withholding cap every few years and reassess. The big stumbling block to that is the Repugs will scream tax increase, and Bush will remember the "read my lips" routine of his father. Therefore, the best thing to do at the moment is nothing. Let Bush finish his four more years and make sensible changes in the cap when the Repugs don't have the control they have now.

As for an auction for partial privatization rights, that money will come back to the auction winners in higher fees. Fees are one of the biggest reasons to resist any privatization scheme, since, as the experiences of the UK and Chile show, poor stock performance combined with fees can ruin a fund. It's not reported much here, but it was not long ago that the UK's fund manager backed out due to losses (after almost twenty years) and the government was forced to re-accept people who'd been in the privatized plan into the government plan. The terms were horrible--in order to get back into the government plan, the participants had to pay back the $1400 incentive they were given to leave the government plan, and most didn't have it any longer, plus they lost accrual benefits for the years they were out of the government plan. Beyond that, "guaranteed returns" sounds nice in theory, but if the plan management goes bust, you can't get blood out of a stone.

And, plan management costs are one of SS's strong points now, averaging less than 1% of benefits paid.

Here's the real truth about SS. It works fine. It's significantly reduced the number of elderly living below the poverty line. It costs next to nothing to administer. The overall rate of taxation could go down quite a bit (maybe 30%) if there were no cap on withholding. But, nobody in Congress in the last forty years has had the balls to increase taxes the wealthy by any degree which approaches the rates the wealthy paid in the `50s and early `60s.

Cheers.

[idlisambar]

10. What price-indexing means

I didn't know until I read about it here...

http://www.cbpp.org/12-17-04socsec.htm

Philosophically, the change from wage to price indexing means that seniors' benefits will no longer increase along with the average standard of living. In other words it means they do not share in society's progress over their remaining years -- that's no way to treat grandma. :-(

[punpirate]

16. But, still...

... the system now works pretty much as I described. The Bushies are proposing, in effect, to reduce both the initial benefit rate and the accrual rate for cost-of-living over time.

Your comment about Grandma is exactly correct--widowed, divorced and single women comprise the largest part of SS recipients beyond the age of 70. They're the ones who will be hurt by this the most, since they generally live longer.

[DaedelusNemo]

18. What do ya'll think about some kind of standard-of-living index?

Both in terms of policy and politics.

[punpirate]

24. If you mean...

... standard of living based on the median wage in the country, rather than cost of living increases, for indexing SS payments, these days, I'm not sure that would be a good idea simply because wages have been lagging behind the actual cost of living. Looking long term from about 1979, real wages have been flat, or declining slightly, depending upon income group.

Cheers.

[DaedelusNemo]

31. That was my impression

Which is why i'm not sure why people want the standard to be tied to the average wage anyway.

What i was thinking of as a standard of living index - i don't know if any such thing currently exists - would be something like a CPI, except that things that became an accepted part of the standard of living would be added into it as time goes by. The debate now might be whether broadband internet belongs in it, for example.

According to the Bush commission, something like that would be less benefit payout than going up with average wages; clearly it'd be more than CPI as it now stands. We probably agree in disputing that wages will increase more rapidly than standard of living, but it's their math and we can use it against them. According to them, it's a cut in benefit; according to us, it's an increase.

I'm still trying to reconcile the information you're giving me on the benefit increase levels with my previous information. I went back and looked at it, and i'll just quote it and ask for help. It wouldn't surprise me if it is misleading, or if i'm just not reading it right, but what's going on here? (this is from the link i gave earlier.)

*******************
II. Model 2 Specifications: CPI Indexed OASDI Benefits and 4% (up to $1,000) Personal Account with Benefit Offset

Model 2 includes three basic provisions, an optional personal account with benefit offset, and a provision for additional transfers from the General Fund of the Treasury to the Trust Funds as needed.

a. Basic Provisions--Modification of OASDI Benefits

1) CPI-Indexed Benefits: Modify the primary insurance amount (PIA) formula factors (90, 32, and 15) starting in 2009, reducing them successively by the measured real wage growth in the second prior year. Modified PIA factors would be applicable for OASDI beneficiaries becoming eligible for benefits in 2009 and later. This provision would result in increasing benefit levels for individuals with equivalent lifetime earnings across generations (relative to the average wage level) at the rate of price growth (increase in the CPI), rather than at the rate of growth in the average wage level as in current law. Calculation of the average indexed monthly earnings (AIME) used in computing the PIA would be unaffected by this provision. This provision alone would increase the size of the long-range OASDI actuarial balance (reduce the actuarial deficit) by an estimated 2.07 percent of taxable payroll.

[punpirate]

33. I'd have to look at the whole proposal...

... in more detail, because I think there's something buried in it that arbitrarily reduces the initial benefit percentage formula as time goes by. My feeling from a first reading is that there's some smoke and mirrors in this, in part because it avoids addressing the up front costs paid out of the general fund to be transferred to later generations. That would have ramifications for the general fund tax rate, which can offset any benefits to those selecting a partially-privatized account.

The other issue about depending solely on the CPI is that, in the way it's calculated today, it excludes volatile real-world sources of increasing prices, such as energy costs. Those, whether we like it or not, are going to become much more substantial parts of everyone's budget in the coming years. Since the CPI doesn't track all real-world costs accurately, it's a way of reducing benefits without seeming to do so.

Cheers.

[DaedelusNemo]

35. So any standard-of-living measure would need to be at least monthly?

I really should have thought of that... i'm learning, thanks.

[punpirate]

37. Maybe not monthly...

... but the way the CPI is computed would have to be altered. Long-term trends in food, energy and housing costs show them increasing at higher than CPI rates.

Housing costs were fairly predictable, until the Reagan adminstration began reducing rent subsidies and funding for affordable housing (which are still well below previous funding levels in real dollar terms).

Food costs are often calculated on staples which do not fluctuate to the degree as processed foods, which account for an increasing part of the cost of living, since processed food costs are middleman-driven, and are an increasingly large part of any shopping basket.

Energy costs, as we've seen in the last couple of years, are very volatile and dependent upon other government policies, including war, as well as being outside the control of US government (OPEC changes in production levels to influence prices, for example). Energy costs are likely to increase dramatically in future without considerable government action (such as devoting more tax dollars to renewable energy and less to wars of acquisition), and yet, volatility in the energy market isn't reflected completely in the CPI.

That's why we're all feeling more price pressure than the CPI indicates, and using debt to maintain standard of living.

Cheers.

[DaedelusNemo]

42. Let's see if we can put this together...

that is, the amendations to the CPI that would be necessary at minimum to create a standard-of-living index.

- New products and services that become part of the accepted standard of living over the years would need to be added to the cost index regularly.

- include fluctuation in rents and housing costs (shelter)

- Adjust the foods indexed to reflect the shift to processed foods

- include fluctuation of energy/utility prices

Do you think that would do it, or do you think there are other factors that would also need to be included? For that matter, i don't suppose you can recommend a source for info on the makeup of the CPI.

What about updating it quarterly, sort of a seasonal approach?

[DaedelusNemo]

17. Could you salt that red herring for me?

In proposal 2 put forward by Bush's Committee on Disemboweling Social Security, they claim that shifting to the CPI index will save "2.07% of taxable payroll." What are they talking about doing that's different from what they're doing now? (My info on this is from the site below.)

Estimates of Financial Effects for Three Models Developed by the
President's Commission to Strengthen Social Security
http://www.ssa.gov/OACT/solvency/PresComm_20020131.html

"Therefore, the simplest way to guarantee funds is to incrementally increase the withholding cap every few years and reassess."

On incrementing the cap, what about simply setting it to rise annually to include 90% of national payroll, rather than rising with average wage as it does now? Apparently average wage hasn't been keeping up with the top 10%. This would simply be reasserting the original intent of the trust fund when it was set up by Greenspan in '83. loindelrio below claims that the cap has slipped to 85%.

I agree that the problem doesn't seem so much to be coming up with a reasonable policy as it is dealing with the politics. But it seems to me that the policy above can be presented as not being a tax increase, but rather as a correction of a minor error that affects no one below the 90,000 payroll level and only minorly affects those above it. On the other hand, that all might be too complicated and it might be easier to simply get rid of the cap entirely and cut payroll taxes to compensate. Then it's a matter of getting rid of the exemption from taxes that the wealthy have been given to deliver a great whopping 30% tax cut to everybody. That sounds to me like a winning message. Is it good policy?

It's possible that the political best bet is simply to hold the line as you suggest. But i have to wonder what box Rove has already set up
for the Democrats when they do that, and i suspect it's a bad one to be in - one that intends to not only make them lose, but to further trash their standing. I think that politically, the democrats have to set up their own box - one that makes Bush lose and democrats look responsibly concerned for the people. The issue of helping induvidual retirement savings may be a way for democrats to do that even if the line is simply to be held on SS. On the other hand that wage cap-removal and massive tax cut combo seems to me like one that would go a long way to revitalizing the Democrat's image, their status in the red states, and the energy of their supporters - and hand Bush a big demoralizing loss.

"As for an auction for partial privatization rights, that money will come back to the auction winners in higher fees."

My thought was that those fees would consist of any money above their guarantee of return that they manage to accumulate. I was also thinking that the guarantee would have to be a reliable one - i.e., one that was backed up by guarantee of ability to pay what is owed regardless of the outcome of the delegated investment. In addition, i would not let out too much of it to any individual bidder. Do these considerations improve your assessment any? (I really appreciate your willingness to consider & comment upon novel ideas, btw, and the info on the outcome of privatization in Europe.)

[punpirate]

22. As for eliminating the cap...

... and reducing the payroll tax for everyone, I think that would work nicely, except that Bush would still describe it as a tax increase on people who don't benefit from SS. That's highly political and clearly "perception management," but one has to accept that the Bushies do it well. They could, indeed, make it appear as a tax increase, although, in fact, it would be a tax redistribution. The same thinking applies to re-indexing the cap, which probably should be done every few years, but hasn't been done. Had it been done on a regular basis, it likely would not have been seen as a sudden tax increase.

One of the factors implicit in this is what's going to happen around the time of a final vote on whatever proposal reaches Congress. At present, there's no mention of the employer's share going down if a portion of a wage earner's payroll tax is diverted to private accounts. Given that, one would think that business doesn't really have a dog in this fight, and yet, both the National Association of Manufacturers and the US Chamber of Commerce are lobbying heavily for privatization of SS. Why? Where do either ordinary business owners or manufacturers gain by privatization, especially if the current plan is to put "private" money into four or five managed funds, rather than employer-based stock plans?

Myself, I think the fix is in--in the bill finally signed, there will be an exemption for employers for the privatized portion of payroll taxes. I believe, without much evidence at the moment, that the considerable lobbying by these two groups indicates that their intent is to relieve their constituents of a fair amount of the co-pay, which is pure profit to them, without any need to improve productivity.

It is for that reason that I doubt the cap could be completely eliminated--these groups smell an opportunity to improve their constituents' bottom lines. That's part of the reason why I think the Democrats' best course of action is to delay until Bush is gone. They can't go overboard on the facts and figures, because they'll lose the public, but they can put forward the notion that the Bush administration's wails of "crisis" are a fiction, and that the Bush proposal is ultimately much more expensive than the Bushies are claiming and is necessary.

As for the auction business, it seems you're suggesting that some sort of performance bond is necessary. Even a consortium of the most well-heeled investment banks and brokerage houses probably could not come up with the necessary ready money to ensure a guaranteed payment. The amount for the long term period of such a plan might be two or three times the current GDP. Restricting participation to say, five year terms, to reduce that bond would only open up the possibility of people being dumped out of the plan at the end of the term if it weren't sufficiently profitable for the plan managers (the same general circumstance as has occurred in the UK).

Again, the plan has worked pretty well over now seventy years, and the privatization proposals are a trojan horse--the true intention is to kill Social Security, an aim of conservatives ever since the FDR administration proposed it.

Cheers.

[DaedelusNemo]

28. The political aspects and another proposal

" Bush would still describe it as a tax increase on people who don't benefit from SS. That's highly political and clearly "perception management," but one has to accept that the Bushies do it well. They could, indeed, make it appear as a tax increase, although, in fact, it would be a tax redistribution. "

I think you're right, which is why i think the democrats really have to get their act together, think it through, put together a winning message and strike pre-emptively and persistently. Now, that message might be "It's not in crisis, Bush and his financial sector buddies simply want to play with that trust fund money themselves, even though they have to raise our deficit and cut our benefits to do it."

But if they come out of the gate early and often with the proposal to cut payroll taxes and still fix SS by eliminating a tax loophole, and hold firm to it and keep saying it in the face of the expected Repub assault, i think it's workable. It's not an increase, it's eliminating a special tax exemption for the wealthy. In return, we can deliver a real tax cut for everybody. (According to my hastily scribbled calculations, it's a good deal overall for everyone up to 135,000 payroll income.)

What about something like this? Take that surplus and put it to use matching funds for real individual retirement accounts. "We can fix SS and encourage private investment by eliminating this tax loophole." This one might go some way to assauge business interests, too, considering that it does in fact encourage private savings and investment, unlike the Bush plan.

EDIT/

Here's something to consider: even if these proposals could not be in fact be successfully passed, might they not serve as a useful weapon in the debate nonetheless? They would help to highlight what's wrong with Bush's plan. They don't add 17 trillion to the deficit, they don't cut benefits in half, they don't concentrate market power into the hands of a few individuals. They show it's possible to fix what little problem there is, and come out with a big bonus to boot - without any of the problems Bush would saddle us with. We want people saying "Why won't Bush let me have that?" That would only increase resentment abroad about Bush's plan and give the dems ammo to fight it with. A series of ads should be undertaken. "You can have this... la la fa la la... but Bush wants you to have this instead... dah dah dum." It's a huge opportunity for the democrats to turn things around - to advance, not just hold the line.

I'm going to respond to your other points in their own branches. I have a theory that might be a good idea; we'll see. Thanks for your excellent points & info.

[punpirate]

32. Surplus?

Please note that the surplus is well on the way to being gone. As I recall, before the Bushies came on board, the suplus stood at $1.4 trillion. They have been effectively raiding it for four years--that's the excuse for their argument that SS is in trouble. The budget deficit this past fiscal year was published as $420 billion.

In fact, it was $630 billion--the remainder came out of the trust fund. The same is true in previous years, and is the reason why Bush has not vetoed a single spending bill, and is yet another reason why Bush has encouraged all manner of tax cuts for the wealthy and corporate tax cuts and increased subsidies.

That surplus, on paper, is what guarantees the program for the next fifty years. But, every dollar borrowed from the trust fund must be paid back, with interest (indeed, government agencies borrowing from that fund are required to pay nominal interest on the debt). That requires Congress to allot that money. At the present, there's no requirement to do so because current payments into the fund exceed the outflow. At some point in the future, Congress will have to do that, or the system will go broke. This is why debt of all kinds (publicly-held debt and government-held debt) is a deferral of real, current costs to future generations.

More to the point--is there any reason why the government should use taxpayer money to establish individual retirement accounts, when it already has a retirement system that works? Every scheme devised by the Bushies to encourage private accounts (of all sorts) is an attempt to put risk back onto the individual, when the premise of New Deal and later programs was to spread the risk around the society at large, and to underwrite a basic survival level for those most at risk in society. Additionally, those most able to avail themselves of private accounts are those who are much more secure than those most at risk.

The mere notion of private accounts presumes that the market succeeds where government has failed. In fact, the SS program has not failed. That's the presumption made in all arguments for privatization schemes of all kinds. Despite all the talk about profit motive and deregulation introducing efficiencies and reducing costs, one fact stands out, with very few exceptions--privatization/deregulation of commonly-held assets, water, essential services, etc., has been more expensive for citizens and has made it more difficult for citizens to exert control over the pricing of those essentials than were they held in common, either by regulation or direct government distribution.

The essence of the New Deal program is a sensible one--that the country's wealth is, to some degree, part of the commons, and some of it should be available for the common weal. The only segments of society who are really complaining about this are businesses and the wealthy--those that pay a small percentage of their wealth into the plan and to their minds, receive no value back. The value is there--they simply don't recognize it as such because it doesn't directly come back to them in the same form as it left--money.

There's no intrinsic right of privateers to tax monies, or to usurp the value of the commons. Under the Constitution, government's only obligation is to serve its citizens, as equally as it is able.

If one thinks about the market, it is all paper wealth (as the Enron and Global Crossing collapses more than show). Each and every shareholder of those and other collapsing companies knows this to be true. By contrast, the government program known as Social Security has guaranteed a retirement income for those most in need of one by a simple pay-as-you-go system which has weathered both depression and recession for seventy years. In each privatization scheme that you've proposed, it somehow involves the transfer of tax money to privateers, with varying degrees of governmental involvement.

The Social Security system operates differently. It takes tax monies and distributes them directly to citizens (and remember that the SS system is not simply a retirement plan--it also distributes tax money to others in need, the permanently and temporarily disabled who are left without income prior to retirement age, which private retirement funds will not do under current law), at an administrative cost which is well below that of existing private funds, and without the implicit individual risk.

Many people have voluntary private retirement funds of all types, because they have had disposable income to put into those funds, and they have done so, in part, because SS provided a floor for them in the event of private investment calamity. Any attempt to undo that floor in part will undo the entire system--the numbers show that. The answer to improving savings for retirement is not to disable SS, but, rather, to improve the wage-earning capabilities of those least able to save now.

Privatization of SS is yet one more attempt to put the public's tax money, the public's common resources, into the hands of private business. That's what it's really about. That's a transfer of wealth in the wrong direction.

Cheers.

[DaedelusNemo]

34. I agree with that, and well said

But i probably wasn't clear enough earlier. When i was talking about a surplus, i was talking about the hypothetical surplus that comes from lifting the wage cap, and what would then be done with it. Pile it in the trust fund, or cut the SS tax by 30%, or encourage private retirement planning? The last by, say, matching funds up to a certain amount, or by perhaps by some decreasing amount as the totals stack up - but that would be on top of, in addition to, not instead of social security.

Leave the guaranteed safety net alone, but if you lift the cap, that reportedly gives a total surplus, over and above fixing the projected shortfall in SS, of ~4% of taxable payroll. What would you do with that? My ideas so far are either cut the tax by that much, or to use it to encourage anyone who wants to set up their own retirement account to supplement their SS, which would have the nice side effect of increasing savings and investment and thus being a healthy factor in the economy.

[punpirate]

36. In that case...

... presuming that such a lifting of the cap is possible, one has to decide how to apportion the surplus--simply fatten the rainy-day capabilities, use the money to supplement individual retirement accounts, cut the overall withholding rate, or some combination of the three.

Doing the first, under current law, simply defers debt, as long as Congress continues to overfund defense and expensive wars, since that surplus would be continue to be used for internal government purposes, essentially borrowing from the trust fund surplus to pay for general fund excesses. Some change in the law would be necessary to make that money inviolate (the 1983 law increasing withholding also enabled government agencies to borrow from the fund).

Doing the second still acts as a direct transfer of tax monies to the private sector, and to a segment of the private sector which would likely use that additional wealth to consolidate the power of multinational corporations, which, to my mind, is not a good thing, if only because it will buy additional lobbying power to convince Congress to give it even more tax breaks and tax subsidies, which further erodes the possibility of correcting the deficit in the general fund. To avoid that eventuality would require law which would certainly fail Constitutional tests. Additionally, this money still faces all the pitfalls of the market, of which I've spoken previously.

Doing the third has direct benefits, and is politically defensible (in more normal times, anyway).

Ultimately, however, so many of these issues are tied directly to the main problem, which is that, ever since the Reagan administration, the wealthy have had the run of Congress. Few people remember the history of progressive taxation in this country, and the amazing changes that took place during the Reagan years, and have accelerated during the Bush years. The change in law at that time was dramatic. From the time of FDR until Kennedy, the top nominal rate, which only affected the extremely wealthy, was 91%. Kennedy, as a sop to the conservatives, dropped that top rate to 70%. That rate existed intact for twenty years, until Reagan dropped the rate to 32%. Once that rate dropped, the conservatives set their sights on reducing all non-wage income, such as capital gains, often by using the disingenuous excuse that short-term capital gains were taxed more highly than the 32% rate.

That has created a perpetual shortfall in the general fund, which necessitated the 1983 change in the law which increased the payroll tax and enabled government borrowing from the SS trust fund. Bush's additional tax cuts have added insult to injury.

Progressive taxation has been badly undercut, and for that reason, there's been a massive redistribution of wealth upwards. That's helped create the conditions for the so-called SS "crisis."

One can see the effects of this redistribution everywhere, especially in the amount of government and private debt being accumulated now. But it is the accumulation of internal government debt which now threatens SS. At some point in the future, that debt will have to be paid, or the government itself will have to default on its own internal debt, which I think is the means that will be used to ruin SS. Any stored surplus will only exacerbate this problem.

If that surplus were to be used for private accounts, the best way to use it would be for investment in one's local community, in infrastructure and new local business, but, as I've mentioned, that would not likely pass a Constitutional test, and yet, handing that money to Wall Street inevitably will increase the power of the very companies which desire to undo the democratic processes in the country for the purposes of profit. Not a good thing.

So, I think the only course of action, if such a surplus were to be available, should be payroll tax redistribution, possibly using a portion of that redistribution to increase the income power of the poor, enabling them to save, as they might choose, where they previously had no opportunity to do so.

Cheers.

[DaedelusNemo]

45. Agreed on all counts - cheers /nt

[DaedelusNemo]

29. What is going to happen with the employer's share of the tax?

Hm, will employers be opening private accounts too? :P And where would that money go?

That's a very good point, i had completely missed the question of the employer share. Maybe i need to go back over those proposals - where is that money being included - or is it? Your scenario seems all too plausible to me. I'll let you know if i find out anything. Maybe someone else will fill us in.

[DaedelusNemo]

30. Auctioning off performance bonds

Regarding what you said about the necessary structure to guarantee the return, do you mean to handle the entire fund? What i was thinking was that you would only auction off as many, and as much, as people wanted to bid for, and could show themselves good for. The money not successfully bidded (that is, guranteed a better return than the bond)for would go to bonds as they have previously. The idea is that you're picking up as much additional revenue as can possibly be milked out of it while still maintaining at least the revenue that the bonds would bring in, and without government-controlled incestment. If not many people wanted to go for it, that would be a rather good argument that there's not much to be gained by investing the fund money anyway - "the market says no." It seems to me that the scheme would actually extract whatever good there might be in any scheme to increase revenue by investing, but of course i'm ignorant so i'm glad you're willing to talk about it.

Hm, reading back over i find i put 'incestment' instead of 'investment', but that's just too good to correct.

[stray cat]

5. Eliminate the wage cap for paying SS

[Ganja Ninja]

7. As long as it won't effect my benefits I wouldn't care if ...

people had an option to privatize their accounts. If people want to put their faith in the stock market then it's their ass. They should get the benefit they deserve based on their contributions. If they lose out in the market they shouldn't come crying for money they haven't contributed.
On the other hand what happens to the under age dependents of people that have privatized accounts and die before they reach retirement age? What happens to people that are disabled and have to go on social security? There are a lot of people that are covered by the system that aren't retirees. Where's the money going to come from to cover them?

This whole argument is really just another ruse. Think about it. We are paying an additional tax that is used to support the general fund. If we privatize then the big investors and brokerages will make out. If we don't privatize and instead raise taxes to cover future shortfalls then we the little people are getting a tax increase when we already pay a disproportionate amount of taxes based on our incomes. That increase will increase the percentage of the general fund we pay for and allow the GOP to cut taxes for the rich again.

[DaedelusNemo]

21. But we have to pay for it anyway

Unless we're willing to pitch helpless elderly folk into the street, it's going to be a lot more expensive to then set up shelter and so forth for them than it would be to have simply provided for a minimum guaranteed retirement in the first place.

That's a good point about the non-retirement aspects of SS, though. Those folks won't even have the option to have 'private accounts' - so they will get the full brunt of the benefit cuts with no padding whatsoever.

I agree with your last paragraph. What do you think of taking out the tax exemption for the wealthy and cutting all payroll tax rates by a third?

[burn the bush]

8. if you let the people invest their own money into whatever they feel is

right, you will end up with everyone being flat broke when it's time to retire and the gov will still have to take care of them or deal with them roaming the streets.
that's my present (though not well informed) opinion

[Name removed]

9. Deleted message

Message removed by moderator. Click here to review the message board rules.

[solarspa]

20. I highly doubt this

I am starting to do some research on these private accounts. The proposed models offer very few choices in how you invest the 2%. All of the funds look like your typical fund investment. You will not be able to take the money out--ever...until you retire. Upon retirement you will be forced to turn your investment into an annuity. This will be a lifetime monthly income. When you die your payment stops. Your spouse receives nothing unless you buy a joint annunity greatly reducing your income. Everyone needs to start doing some research about what these private accounts actually promise. There will be a slightly greater return on the investment with risk. Possibly your monthly check might be higher...maybe. The risk is that the markets tank before you retire. Probably no one will inherit your money unless you are rich on the side. The whole thing is starting to sound exactly like social security with risk.

Read up at this site:

http://www.socsec.org/commentary.asp?sort=2003-2004

[DaedelusNemo]

23. Nice link!

It's a lot of stuff to look through, though, any recommendations as to which to read first?

You make good points. These accounts are not by any means 'private accounts' with people 'doing what they want with their money'. The proposals i've been seeing only offer a choice from a short list government-approved managers, 5 being the number i've seen the most. (Who would of course immediately become some of the most powerful men in our economy, with the power to make and break companies. No possibility of corruption there! Government-corporate alliance nearly complete.)

I've been given to understand that the cost of converting to an annuity alone is often 20% of the total. Also that the funds don't even want these accounts until they get big enough, because otherwise it costs the fund more to maintain them than they can milk from them. That suggests to me that the 1% figure quoted above is unlikely - that would set the bar for their expected return at 1% above inflation. We're already doing better than that having it in bonds. I suspect that the correct figure for fees is dependent on the size of the account, and that people are cherry-picking the ones that sound best to their inclination.

It is also a crucial point worth repeating that the whole idea of Social Security is to eliminate risk. That's the minimum guaranteed retirement in case all else goes bust. You get a little less return in exchange for the elimination of risk. Investing beyond that point is an excellent idea, and to be encouraged, but you don't gamble your nest egg on risky ventures.

[solarspa]

40. From Here To Eternity

that article at:

http://www.socsec.org/commentary.asp?opedid=498

is interesting. Bush is projecting SS infinitely. Thats just ridiculous. So when you hear him talking about trillion dollar deficits, thats what they are projecting: into eternity, i.e. beyond 75 years.

LOL! Like another contributor here said. "Yeah and the Sun will burn out too in the infinite future."

[DaedelusNemo]

43. Worth pointing out it's a new standard - old ones not politically useful?

Previous planning has always been done on the 75-year span (which is after all probably a very optimistic span of time to try to claim any predictive accuracy over). Beware sudden changes in underlying standards and methodology that 'coincide' with sudden announcements of a new 'truth'.

[DaedelusNemo]

25. I question your facts and assumptions

The something from SS would be cut, for that age group, by something like 50%. Do you think that will be enough for those folks who were unwise or unlucky (or lied to) in their investments?

What proposals have you seen that feature privately directed accounts? I haven't found any.

Does your fee quote include both administrative and brokerage fees? what about the financial costs to convert to an annuity?

The low-growth assumptions made about the economy by the Bush SS Commission to derive the projection of a shortfall eliminates the likelihood of any great rate of return overall on those accounts. If the economy's doing good enough that high returns are widespread, there's no shortfall in SS anyway.

[oecher3]

11. why fix it if it ain't broke?

No, really. Do you think, it is fair to take away contributions promised to the generation before, after all this is called the generation contract / promise, no matter if it is just a fraction of your contribution. That is like changing the rules midgame!
But seriously, there is nothing wrong with the current system. There is no crisis or problem.
But privatization means more money and power to WS and co. If you feel SSec is inadequate, invest some ouf your own money aside from it, a little at a time is enough if you start early! Look at all the people who lost 50-100% of their 401K in the bubble burst of 2000! Do you think it is smart to invest retirement money in stocks or mutual funds?
If there is one thing, I admit conservative messures are applicable than it is retirement money. No gamgling there, please.
However, I'd like to look more into the ideas of wage caps removal. Sounds like a good idea, though.

[DaedelusNemo]

26. Democratic strategy: hold the line or attractive alternative?

I'm worried that simply holding the line simply looks obstructionist and old-fashioned. The dems could really energize and renovate their image with the general populace by coming out with a really outstanding proposal that makes people wonder why they can't have it! I think that fixing SS plus a 30% tax cut accomplished by removing the special tax exemption that the wealthiest currently enjoy might could be such a proposal.

[oecher3]

38. you might have a point there...

... but how do you fix SSec? And a 30%tax cut by removing special tax exemptions, I am all for the exemption disappearing. But how is that going to pay for a 30% tax cut, and for who (everybody, middle class, lower income) ? Sounds a bit utopia to me, which is also the stigma Dems have to get ride off. Can you give me the calculation where the 30% come from?

Better be sure the numbers are sound before going out and suggesting, otherwise this will hurt the discussion as well.

[DaedelusNemo]

41. Lemme clarify...

To quote from http://www.cepr.net/publications/facts_social_security.htm on the subject of raising the salary cap on SS contributions,

"If the ceiling were raised to $110,000 to cover 90 percent of the country's income from wages (the level set by the Greenspan commission in 1983), it would eliminate approximately 40 percent of the projected funding shortfall. Using the CBO projections, this change alone would be almost enough to make the program solvent through the 75-year planning period."

Right now the wage cap has slipped to the point that it contains only 85% of national income - rectifying this, by itself, almost fixes the projected shortfall. If we set policy so that the wage cap automatically went up annually to include 90% of national income, instead of going up with average wage as it does now (which clearly has been falling behind the top 10%), the outlook becomes even better.

If we were to go so far as to simply eliminate the wage cap, which is, after all, a special tax exemption for the wealthy, the numbers i've been hearing is that we would be left with a 30% overall surplus in SS. I read it here at this forum and it seemed convincing at the time, but i can't remember where i saw it right now - i'll try to find it. It cerrtainly seems plausible to me; if raising the cap from 85% to 90% almost makes up for a 20% projected shortfall, including twice as many more wages surely would have a significant impact on top of that - maybe not forty percent as one might immediately think, but the thirty percent quoted to me seemed reasonable.

So anyway, If we eliminated the wage cap there would not only be enough revenue to entirely fix SS, with 30% more - or roughly 4% of all taxable income - left over. We could, if we wanted, simply cut all payroll tax for everyone by that amount.

Thanks for asking for the details. You are exactly right about 'utopian' tendencies being what usually gives liberals a bad name. Before you can do something worth doing, you have to make sure you can in fact do it.

[solarspa]

39. thats a good point

What about a plan from Democrats that addresses the shortfall in the year 2042-2052 by splitting the difference between the retirees and the young folks? This is so far in the future that the respective small increases and decreases would be small. There is no substitute for saving for your own retirement on the side or earning a good pension. That's all you can do.

Under NO circumstances should the American people let Bush STEAL the trust fund--he must pay that back when the trust fund needs it.

[DaedelusNemo]

44. According to Bush's SS commission, only 20% cut would be needed

If you were going to solve the problem entirely with a last minute cut in benefits. Bush's plan, mysteriously, is required to cut benefits by far more than that to 'fix' SS. It does seem like splitting the difference would result in something on the order of a 10% tax increase - that is, say, from 12.4 to 13.6 - along with a 10% cut in benefit. Which is of course a feeble excuse for a 'crisis'. And that's if our growth is as low as the Bush commission had to assume it would be to get their conclusions - in which case corporatization would be a terrible mistake anyway.

If we were going to apply some good solution rather than the Bush plan, there would be something to be said for going ahead and doing it fairly soon, because we can do it cheaper that way, decide which costs we'd rather bear.

[Strelnikov_]

15. If You Want A Private Retirement Account, Go Open One Up

If you are worried about the 25% SS benefit reduction predicted in 2042-2052 time frame, raise the cap on wages that are subject to the payroll tax.

In the early 1980s, 90% of wages fell under the cutoff point for Social Security taxes. However, wage income has increasingly shifted upward to those at the top end of the wage distribution. As a result, the portion of wages that are earned by people who make less than the cap has declined to 85% today.

There, that should fix it. Not that it was broken in the first place.

[DaedelusNemo]

27. Good points! - what about encouraging private retirement? /nt

[krkaufman]

47. You mean like the ever expanding tax code tweaks that have ...

... created 401(K)s, IRAs, Roth IRAs, etc? (In many cases to the detriment of the more stable fixed benefit pension plans.)

[hermetic]

46. MoveOn is sending a petition

to congress which you can sign and add your comments. www.MoveOn.org

[tenseconds]

48. get the Feds out of it

Its the biggest grip the Fed has on the people.It should be administered by the states but without the option of funneling it into the private investment sector.

[German-Lefty]

49. My take

My take used to be: Don't let the government loan out money when it's already borrowing money.

SS is necessary because people are irresponsible (or arguably unlucky). The government won't let geezers starve on the street. So you need to guarantee them a certain minimal level of care. In order to pay for it you have to raise taxes (take SS). If everyone would save what he needed for retirement you wouldn't need SS, but in the real world you need this forced savings plan.

So how should Uncle Sam invest these forced savings? Well if you're Norway and your government has no deficit, the government could loan it out in low risk things like secured debt or use similar restrictions placed on banks (risk weight assets). In the case of the US government whose balance sheet is big black hole that sucks in credit for all corners of the planet the answer is obvious: pay off you debts with it. That's is what SS does now.

If you've got some guy that maxed out all his credit cards asking you for investment advice, tell him to pay off his debts.

I think that's still my take now.