The latest Insane Shrub Plan for Social Security

[seasat]

Here's what we get if we reelect Bush...the destruction of Social Security. The cheerleader article below gives away its bias with the bolded portion at the end.

(Link to article)

From Cheeleader Article:
LAST APRIL, I had the opportunity to sit across a table from President Bush (news - web sites) and discuss his plans for the economy. I asked him what his most important policy priorities were, and he gave me a refreshingly simple and direct answer: "In the first term we're going to cut taxes. And in the second term we're going to save Social Security (news - web sites)."....
The latest step in the master plan was the floating of an important trial balloon in the form of a proposed roadmap for Social Security reform by Peter Ferrara, director of the International Center for Law and Economics and adviser to the Club for Growth, an influential conservative political-activism organization.
...
Ferrara's proposal is a bold one. About half the taxes currently paid by workers into the Social Security system would be directed to individual accounts that would operate much like a 401(k) plan. Taxpayers would have a choice: to either opt out of the old system in favor of the new individual-account system, or to stay just as they are today.

Those who choose the new system — and play by prudent asset-allocation rules that would be specified — would be guaranteed that their results at retirement would be no worse that under the current system. You'd have the option to take more investment risk in an individual account, but if you do that then you'd lose the government guarantee.

When you take money out at retirement, it would be entirely tax-free.
Donald Luskin is chief investment officer of Trend Macrolytics, an economics consulting firm serving institutional investors.


Social Security Insurance, IMHO, is not a retirement plan but an insurance plan. It insures the worker against spending their retirement years living in poverty. If it were a profitable enterprise then private industry would have already offered an alternative. SSI provides protection by placing the individual's dollars in the most secure of savings accounts (well at least before the current administration), the US government. For those willing to take more risk or who can afford to invest more, we have IRAs, 401Ks, and tons of other savings vehicles. I know that SSI needs to be reformed but you don't reform something by eliminating it and that is what Shrub will ultimately accomplish. I support measures such as increasing the age of eligibility, eliminating the income limit on SS tax, and means testing for benefits. The Brookings Institute economic gurus offer a much more reasonable plan http://www.brookings.edu/comm/op-ed/20031210saving.htm">(Link) that require hard choices but doesn't kill the insurance aspect of SSI. The Center on Budget an Policy priorities points out the problems with Ferrara's plan and the accounting they used Link.

From CBPP article:
The plan requires net general revenue transfers (with interest) totaling $68 trillion over the next 75 years, measured in 2003 dollars.

Economists generally prefer, however, to express sums that cover long periods such as 75 years in “present value.” In present value, the actuaries reported, the assumed transfers total $6.9 trillion over the next 75 years. The Social Security actuaries also have reported that the entire Social Security shortfall over the next 75 years equals $3.8 trillion in present value. In other words, the Ferrara plan relies on general revenue transfers equal to nearly twice the entire Social Security shortfall.

The actuaries also reported that if these massive general revenue transfers did not materialize, the Ferrara plan would accelerate the point at which Social Security is projected to become insolvent by 28 years — from 2042 to 2014 — and would make Social Security’s long-term actuarial imbalance nearly 50 percent larger than it currently is.

Social Security Insurance has cut senior poverty in half since its inception. To follow the Shrub plan would mean an increase in poverty and nearly infinite budget deficits.

[opihimoimoi]

1. The Foxes appear ready to take control of the chicken coops

Us chickens are gonna be KFC sooner than You can say Quack Quack

[papau]

2. Did not realize CATO/AEI now write the SSA newsletter! - Huge General

Fund transfers, major guarantees giving birth to liabilities we know will be unfunded and unrecognised, SS tax cut back (NEW WORKERS)with new 400 billion annual general fund transfer - meaning annual 1 trillion deficit because we know Bush is not about to raise FIT taxes.

Blue smoke amd mirrors as to transfers from better than expected now FIT taxes.

I know Steve Goss from his days as a new Associate of the Society of Atuaries in 1980 - he never was smart enough to get the upper exams and make Fellow of the Society - but he was political enough to get ahead of Steve McKay - a 76 FSA and excellent actuary.

I am sure that Steve McKay gave him correct numbers - and I am equally sure that Steve Goss made the decision to not explain the implication of those numbers to the overall budget of the US.

WOW


http://www.socialsecurity.org/index.html

http://www.forbes.com/columnists/forbes/2003/1013/029.html

http://www.townhall.com/columnists/GuestColumns/Grossman20031208.shtml

http://www.aei.org/publications/bookID.426/book_detail.asp

http://www.ipi.org/ipi/IPIPublications.nsf/eb6b58c80993aa18862567da00686d4c/6a4e621bf0a5826786256d3600799829?OpenDocument

http://www.ipi.org/ipi/IPIPublications.nsf/813c0981060bc223862567da0066ea06/f302303fb391540686256de900668e10?OpenDocument

http://www.ipi.org/ipi/IPIPublications.nsf/PublicationLookupFullTextPDF/96D64101B034A62B86256DE90066F54C/$File/FerraraPROP-120103Final.pdf?OpenElement

[seasat]

5. They've been in it from the begining.

Papau wrote: Did not realize CATO/AEI now write the SSA newsletter!

I'm sure you remember the first commission that Shrub came up with that reccomended smaller accounts. I don't remember who first pointed it out but wording in the introduction for report came verbatum from CATO's website. A member of the commission and one of the people assisting were both from CATO. They pulled exact paragraphs from their website for the report.

[rapier]

3. notes

That's funny. I like the part especially about how the returns in the 401K type plan would be guaranteed to equal the returns in the SS system. That is so funny because soon enough SS will be broke, in so far as to keep current payment amounts would require taking it from the budget every year which is impossible so payments would drop and more would leave and payments would drop further till there was no SS so you would be guarantedeed zero return.

The whole trojan horse about this is a further massive transfer money to Wall Street and their clients, corporations. Already the IRA and 401K thing have played a vital role in cementing the corporate government marrige we now see.

At this point people buying stocks is like buying your own rope for a hanging. Forget about returns on your 'investment'. With this sort of thing trowing hundreds of billions at Wall Street ever year could guaranted stock market inflation forever. This would do two things. It would lead to more malinvestment and would further destroy what little deomcracy we have left.

[cosmicaug]

4. Questions

rapier wrote:

That's funny. I like the part especially about how the returns in the 401K type plan would be guaranteed to equal the returns in the SS system. That is so funny because soon enough SS will be broke, in so far as to keep current payment amounts would require taking it from the budget every year which is impossible so payments would drop and more would leave and payments would drop further till there was no SS so you would be guarantedeed zero return.

Let's assume for the sake of argument that they're not being sneaky about it in this way. What they are saying then is that if we ever hit a stock market plunge which drastically lowers the rate of return (in theory the stock market trends upward but, in practice, periods exist where it takes decades to regain lost value), these individual accounts will be funded from that fictitious entity known as the Social Security Trust Fund or from general funds (translation raise taxes, decrease other services or increase federal debt). The way I see it, that is a way of saying that, at least over the short term, the system will have failed and in fact would be worse than what we presently have now. Of course, over the long run, the system should come up ahead but if this sort of occurrence comes together with a huge budget deficit, it could either precipitate some sort of fiscal catastrophe or lead to exactly the sort of thing you are suggesting (where benefits are drastically cut to keep Social Security solvent).

Other questions:

• I quote:

  You'd have the option to take more investment risk in an individual account, but if you do that then you'd lose the government guarantee.

  Who gets to decide what is appropriate investment or not? Does it have anything to do with who has hired the best connected lobbyists?
  
  
• I quote:

  When you take money out at retirement, it would be entirely tax-free.

  Presumably this means no one gets taxed on Social Security income even (specially?) at higher income levels. This is a semi-separate issue, but isn't this going to have an adverse effect on the federal budget. Doesn't it constitute another tax cut (or is no SS income ever taxed nowadays?)?
  
  
• I quote:

  For starters, every Social Security participant who opts in to the new system is, at the same time, opting out of the old one. That makes the old system far, far smaller.

  This is true but it doesn't make money magically appear out of nowhere. Or does it? And where does the money come from to fund guarantees if things go south; wouldn't it have to come from the "old system"?
  
  
• I quote:

  Then the new system puts tax dollars to work in America's capital markets. Individual accounts would be invested in stocks, bonds, mutual funds, variable annuities and so on — all of which can be expected to earn a far higher return over time than the Treasury bills that currently make up the Social Security Trust Fund.

  But is this assumption even known to be true for certain? Sure this is going to be the greatest thing since sliced bread for mutual fund managers, etc.; but, with so much money being directed towards the stock market, could it actually depress the average rate of return (for strictly supply and demand sorts of reasons) to the point where the old system actually begins to look competitive?
  
  
• I quote:

  Sure, there are lots of messy details about how we'd have to manage the transition. I won't go into them here, but Ferrara and Goss have them all figured out — and they will work.

  In the present system, the working generation supports the retirees. In the privatization proposal, it's every retiree for himself. Where does the money come from for the current crop of retirees? Presumably from the Social Security Trust Fund. Again, privatizing doesn't magically do away with this money requirement (but if Ferrara and Goss say so, perhaps I should take their word for it?).
  
  
• I quote:

  There are other benefits. They're intangible, but they're important, too.
  
  First, the opportunity for Social Security participants to earn more than the current system's paltry 1% or less will make a real difference in the lives of every American who is counting on Social Security income in retirement.

  This is potentially true. It ignores the fact that the privatization scheme does not divorce these potential gains from risk (risk of not doing so well --despite the "guarantees").
  
  
• I quote:

  Second, as every American worker with a 401(k) plan has learned, the challenge of making personal-investment decisions — and seeing your balance go up and down every quarter — makes you a stakeholder in American enterprise (news - web sites). Yes, it can be a source of anxiety. But it's also a source of great satisfaction and pride.

  In this case there would be no anxiety since the privatization scheme is actually promising a free lunch. One should be weary of free lunches. I get the impression that the writers want us to think simultaneously that there will be no risk associated with this scheme and that it will cost the government nothing (because these are private retirement schemes). And, of course, if one is in this for the "satisfaction and pride" one can always go at it alone.
  
  
• I quote:

  Third, today's Social Security participants are, in essence, at the mercy of the state. Your Social Security account is not your property (you can't, for example, leave it to your heirs). Benefits aren't contractually promised; they're at the whim of some future Congress. Under an individual-account system, your account is your personal property while you're alive, and part of your estate when you die. And the benefits are whatever your investments have earned, no matter what the politicians may say.

  One sad fact about the current system is that one can pay into the system throughout one's working career and never collect Social Security if one never reaches retirement age. As a safety net, this makes a lot of sense (safety nets are wasted on the dead). One thing they are glossing over with regards to the privatization scheme is the fact that when you get rid of this feature, the system will cost yet more money!

I hope I made some sense. Looking forward to explanations or clarifications of misunderstandings on my part.

[seasat]

6. I think that it will be winning issue for us Democrats,

to make a big deal of their Social Security privitization program. The CATO institute honestly admits that this is thier goal. I'm sceptical that the stock market will continue to do well in the coming year and that will lower people's faith in it as an investment vehicle. That is what killed Shrub's first attempt at privitization and that is what can kill this second attempt.

Here's Tim Noah's take on Republican's use of privatization. We need to remind them of this in the coming capaign.

(Link)

[rapier]

7. notes

It is vital to understand that this plan and ones like it are designed to boost the stock market and they do just that. One must realize that is what the IRA's and 401K's did as well. The result has been devastating. If this would come to pass and the soon hundreds of billions a year in new money went into stocks then stocks could continue to inflate.

Most think in terms like you of the market rising, and more importantly falling in normal cyclical ways and causing losses in peoples 'savings'. Stocks are not savings nor investment, they are a speculation. These tax incentivized plans to boost stock buying are a ponzi scheme which does nothing for the economy, or nothing good. Stocks inflate while real investment lags and or the investment is malinvestment. As more people become dependent upon stock prices the government more and more targets rising stocks as the be all and end all of economic policy. Not to mention that the government becomes more and more enmeshed in manipulating the markets.

It is a dog chasing it's tail scenario. In a real sense already the tail, the stock market, is wagging the dog, the economy. One might say the stock market is the economy.

Every trend we hate socially, culturally and politically is being driven by this mania for stocks. Absent any consideration of the effects of such a plan on SS this idea will continue our disasterous fall into corpratism.

The idea that rising asset prices creates wealth is a new creation in the story of capitalism. Formerly such was seen as heresy. Heresy has now become orthodoxy.

[seasat]

9. I agree Rapier.

The other thing that bothers me about the spin on investment in the market is the myth that it is primarily creating capital for business. The average person tends to view buying a stock as investment in that corporation providing funds for that corporation to expand business. Unless they are buying into an IPO or new stock offering, they are paying another individual or corp for ownership and not investing money into the coffers of the company whose stock they purchase. While this approach does offer inflated prices for when this company needs cash, mostly it results in inflation of stock prices above a fair market value with no real gain in money for the company to use as capital. You and others on this forum realize this but the average Joe doesn't and the Shrubs are always willing to promote this myth.

[modrepub]

8. Trojan Horse

Yes this is a trojan horse. I would love to see these people admit that they have no intention of paying back the SS surplus they've collected since Saint Ronnie increase the SS witholding in 1983. Sad part is we're defeated and won't ask for any of it back. Unbelievable how we can let our government walk away from a $3-4 TRILLION obligation.

[lotteandollie]

10. You can sign me up.

The present SS is a disaster. I vote to change a losing game.

[rapier]

11. notes

The question in this case is not changing a losing game but rather should the government subsdize stock buying. I say no. Stocks will inflate, to no good purpose or end.

Any plan which lowers SS contributions will strongly accelerate the day when the SS 'surplus' ends the the 'crisis' comes. Argue if you will that is necessary but don't fold these corrupt plans to inflate stocks into the arguemnet.

I say if you want to kill SS then just lower the tax and let people keep the money. That would be a REAL tax cut for people who work. Redirecting that money into Wall Street to people who don't work would be the final chapter in the greatest transfer or wealth in world history.

I have not the time or patience now to desribe how tax incentive retirement plans have been an unmitigated disaster for the country. FUck stocks. If your a progressive I say sell all you stock now. Not because they won't contiue to rise, they well may. But because inflation of stock and financial assets is destroying democracy and capitalism itself. I am no enemy of capitalism by the way. Only the kind that exists now that rewards only the greedy pigmen.