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The Simple Social Security Insurance plan is the one originally introduced in 1935, without the retirement return on investment portion. The original plan called for a safety net against poverty - period. Anyone upon loss of ability to work, or death during their work lives, or upon retirement who were facing poverty would receive benefits.

Getting back to that insurance plan is simple, means test benefits - meaning pay benefits only to those facing poverty, and second, ask everyone to pay the same rate on their income, including Bill Gates - meaning eliminate the cap on the amount of income which FICA premiums are deducted and paid. These two simple steps will put SS back on a sound financial footing, even possibly result in reductions in FICA withholding down the road, and end the confusion between retirement investments and the SS Insurance Program.

Bush’s plan will greatly increase the national debt eventually ending the SS Insurance portion of the plan by diverting needed revenues for benefits into the private sector and closing the door on deficit spending decades from now to cover the shortfall.

The Choice is simple - Bush’s plan ends the insurance against poverty but, provides a private investment vehicle with no guarantees. My plan saves SS Insurance and keeps it financially sound, and eventually reduces FICA taxes paid.

Americans who want to retire in the higher wealth status areas will need to also invest in 401K’s, IRA’s or equity and bond markets and hope the economy does not go bust due to the spiraling national, trade, and personal American debt loads. But even if it does, with my plan SS will be there to prevent you from dropping into poverty in your retirement even if the markets do bottom out.

There is no such guarantee under Bush’s plan. Every dollar you put into his PSA’s comes out of your SS insurance benefit should you retire poor, and in addition, removes a dollar from the revenues that will be needed to keep the insurance portion of SS solvent.

Posted by: David R. Remer at February 4, 2005 05:40 PM

There is a long-term problem with Social Security, and I do think it’s wise to address it now; small changes now make big differences later. However, it is hardly a ‘crisis,’ and no question ‘privatizing’ Social Security is a terrible idea.
This quote from Bill Gross, Manager of the largest bond fund in the US, is from an article today on cnn.com It summarizes the problem rather nicely:

“… the problem has more to do with demographics than the lack of ownership,” Gross wrote.

Gross argued that it will take more than individual Social Security accounts to correct a projected shortfall and suggested the government should focus on cutting the budget deficit instead.

“Production can only come from employed workers and so the basic solution is to produce more workers, either through immigration or postponed retirement for the existing work force,” he wrote.

“By reducing budget deficits now, and especially that portion of the deficit owed to foreign governments, we would be able to keep more of our domestic production within our borders and therefore available to senior citizens.”

Addressing the demographic problem through immigration & employment is a much more preferable solution.

Posted by: phx8 at February 4, 2005 05:46 PM

phx8, the problem with the deficit reduction plan is our foreign policy. Bush has already begun proposing across the board CUTS in domestic spending in order to support his huge foreign policy initiatives and giveaways. Bush can’t have it both ways, Economics 101 says you must prioritize wants and needs to match available resources….

We can’t afford to bring down the deficits and keep our foreign policty initiatives, without gutting domestic policy and spending which the GOP will not do for fear of losing their elections in 2006. There is a political reality here. Saving SS through deficit reduction is not in the that reality during this administration.

Posted by: David R. Remer at February 4, 2005 05:53 PM

Fixate, David, I think both of your proposals are reasonable. I think there’s lots of room for reasonable fixes, because the problem’s just not that bad. In his column today, EJ Dionne pulls out the statistic that “rolling back Bush’s tax cuts just for those Americans who earn more than $350,000 a year would come close to covering the shortfall”.

Another statistic I worked out on my own: with that worst-case demographic of two point something workers per beneficiary that gets bandied about, Social Security’s income/expense ratio is just about what the government had last year - so if SS is going flat bust, bankrupt, then Bush has made the US government flat bust bankrupt. And now he wants us to let him “fix” the one part of the government that’s currently running a profit?

Posted by: William Cohen at February 4, 2005 05:57 PM

Wow, that is simple. So simple I have to wonder why we can’t do it ourselves and get more when we retire.
I mean, Charlie gave $1000 a month for thirty years and now gets $1000 a month until dies, thats sweet.
But what if instead, good ole Charlie took that $1000 a month for 30 years and put it into a savings account (not the market) that would in turn earn him even more money.
Instead of $360,000 spread out over 30 years, Charlie would have well over $400,000 available to begin living and enjoying life.
And if Charlie dies at age 66 or something, the money HE paid into it would go to his family and they would be able to continue on with their lives.

Ah, its just a question I had. Nice post.

Posted by: kctim at February 4, 2005 05:57 PM

Great example kctim.

But, let’s correct a few figures shall we? Charlie currently puts $325 (more realistic figure) per month into SS, so Charlie opts out of SS and invests that $325 per month.

If the investments go up, Charlie will have more at retirement. On the other hand, they could go down, and he could lose it all or a substantial part. No question.

But, let’s say Charlie is 25 years old and earns an average of $65,000 per year over his career. Now, Charlie will need to purchase a disability insurance policy to make up for the lost disability insurance of Social Security. Since SS would provide disability insurance for life, his premium for comparable insurance would be about $120 per month.

Then SS provides life insurance in the event Charlie dies for his spouse and children until they are 18 or out of school. Comparable private insurance would add another $104 a month premium ($65,000 policy) which would increase as he got older.

OK, Charlie is all set. He has a savings plan for retirement which is not guaranteed against corporate bankruptcy, fraud, or market downturns, (remember the Savings and Loan debacle - millions of Americans lost savings). Charlie is saving $325 per month out of his paycheck. Then to make up for the lost SS Insurance benefits, he shells out another $224 per month for comparable death and disability insurance for which he receives nothing in return if he doesn’t die, or become disabled.

So, Charlie had a choice. He could have chosen SS and and saved $224 a month to put into a 401K or IRA and had guaranteed benefits against poverty for the rest of his life. Or he could opt out of SS which will cost him $224 more a month with no guarantee his benefits will be there when he retires, but, he got the opportunity to bet that his investments would grow and be there. However, he will have lost the benefit of having an extra $224 per month insurance premiums for to live on, which amounts to (12 mos. x 40 years work life x $224 =) $107,520 (the price of a modest house).

Now, that is Charlie. There are other opportunity costs. Assuming Charlie likes to go to work and come home without having to wade through a sea of beggars and thieves like in India (though it is improving there), Charlie, by opting out of SS, helped eliminate the safety net that would keep millions of low wage Americans from falling into poverty over the next few decades and beyond. Because low wage earners will not be able to afford the insurance premiums Charlie will pay for private death and disability insurance. So as Charlie ages, he will face living in a society with a growing population of poverty stricken elderly and beggars, not to mention the increased crime such poverty will produce in the offspring of those low wage earner families.

Likely, Charlie will see his taxes increased significantly over his lifetime to 1) Pay for the 2 to 5 trillion dollars Bush’s plan will add to the national debt, and 2) Pay for welfare programs to keep our routes to work and home free of cardboard shelters and alms seekers on the streets as well as larger local taxes to beef up policing the increased criminal elements from the increased poverty created by the ending of the SS Insurance System.

So, there you have it. Charlie has a choice.

Posted by: David R. Remer at February 4, 2005 06:56 PM

If Bob gets in a train in Chicago with his $1000 and heads to LA traveling at 50 mph, while his son Charlie wires the $1000 to his dad Bob, and boards a train to Chicago traveling at 60 mph, when do the trains collide and who paid for Charlie’s ticket? And, if Dorothy is shorter than Bob but taller than Charlie, what can we say about Charlie’s height compared to Bob?

Darn SAT questions.

Of course, since Social Security is a wealth-redistribution scheme, the component missing is investment. People who retired in 1935 never invested anything, yet received benefits. So that’s where the problem began, and that’s how it differs from traditional savings.

The best approach, would be to reform the system to be more like a savings program. Instead of transferring current dollars, cash would grow and compound over the long term. Yes, this would leave the issue of how to get over the hump of transferring money to folks who have never invested (since their money was just transferred.)

But, that’s what has to be done. Because eventually, there won’t be enough money to transfer around.

Bob will want his $1000, but Charlie only put $700 in.

Posted by: muckdog at February 4, 2005 07:24 PM

Hmmmmm…. So confusing. Let’s see if I can sort through this.

First, what’s the crisis? That one is pretty simple - it’s an identity crisis. Is Social Security insurance or income for retirees? Well, whatever it started out as, it’s become income. In fact, it’s become income that the average American is depending on because they factor it into their retirement planning (or lack thereof). If it were just insurance against poverty, I would be (hopefully) paying far less every month.

Next, is it privatized or not? True privatiztion would mean that I can take my money and invest it as I see fit. The quasi-privatization means that the government is going to manage my money for me? I guess if I were irresponsible with my finances, this forced-investment strategy might work. It’s kinda like when my Dad made me save a dollar from every lawn I mowed when I was a kid. He knew it would just go to candy and video games otherwise. Okay, so that’s cool, but now I’m a responsible adult - if your going to syphon off some of my money to private accounts, why don’t you let ME do it and reduce the beaurocracy?

I guess what I’m trying to say is - having a safety net for seniors that would otherwise fall into poverty is a good, compassionate idea. Having me pay money into a system so that I, as someone who probably will have a decent retirement portfolio, will get paid back by it later doesn’t make sense to me. The idea that I should trust the government to invest my money for me doesn’t make much sense either. Investment is not a “one-size-fits-all” scenario. Each person needs to balance investment and debt as appropriate to their situation.

If your going to give me a private investment account, then just reduce my FICA payments, and let me be responsible for my own retirement. I probably will never need social security payments, and if you let me keep more of my money, my chances will be even better.

Or, better yet, focus on the part that’s most likely to leave me destitute in my old age, and fix the problem of medical costs spiraling out of control.

Posted by: TadS at February 4, 2005 07:32 PM

muckdog is touting the standard Bush line with the premise that everyone should take care of themself and if economic hard times hit, well, there tough luck, should have starved in order to save for that rainy day you low wage scum.

It is called Social Security Insurance for an outstanding reason and it has produced and sustained a large middle consuming class of Americans for 69 years which has made a large number of American corporations and their stock holders quite wealthy along the way.

muckdog fails to see the necessity for the government to insure the general welfare of all Americans from the wealthy to the unemployed by insuring as little poverty as possible so as to maintain a large consuming class for small businesses to large corporations. Without the middle class, conservatives can kiss their trickle down theories goodbye.

Posted by: David R. Remer at February 4, 2005 10:42 PM

The reason we have a problem is the baby boomers.

In 1935, you had about 4 or 5 people for every retiree. In 2040 (or whatever the date is). You will have 1.2 people for every retiree.

One solution is to keep the ratio, by upping the retirment age.

Another solution is to increase return on investment. (Bush’s solution). The problem is that Social Security funds are part of the foundation of the way our financial markets function, and no one knows what putting that kind of money in the market will do. It’s risky.

The third solution is to recieve less money.

The fourth solution is to continually immigrate, causing a 4% population expansion a year, which contains its own problems.

The fifth solution is to promote cigarette use and obesity, so that people die young and quickly.

I wonder though, if the ratio was so high back in 1935, and the ratio got skewed because of the baby boomers, is the problem only going to last through the baby boomer generation? (2040-2080 roughly). By 2081 should we have returned to the old ratio? Anyone know?

However. Medicaid and Medicare are in much bigger trouble, and need to be reformed first.

Julia

Posted by: Julia at February 4, 2005 10:45 PM

I do not understand why it has to be individual accounts. Why can’t it be invested in one large pool account? Less fees, no big pay off to Wall Street? Or is that why it has to be individual accounts.

Here is an idea, keep screwing up the flu vaccines. Sooner or later a real nasty virus will sweep through the retirement and nursing homes. Problem solved, instant solvency.

I know, sick sick sick. Sorry, having a bad day!

Posted by: wisevil at February 5, 2005 12:49 AM

Social Security is not an investment program. It is a safety net. You pay into it from the first day you work until the last. It assures you that if you become disabled that you will receive a monthly check. It assures you that your children will get a monthly check if you die before they are 18. It guarantees you that you will receive a monthly check from the day you retire until the day you die.

Maybe 5% of us could do better with the money than Social Security does. But it is a good safety net for society. The peace of mind it gives you is worth a lot.

If people opted out of Social Security and didn’t buy the life and disabilty insurance that they get under social security, then they became disabled at an early age, they would end up on the welfare dole. Say they had invested their money for 5 years. Maybe they made 10 percent a year. Without figuring it, at the very most they would have accumulated $30,000 to $50,000. That would not last but a year or two. If they died their young children and spouse will be poor.

If they buy the insurance they won’t have a lot left to invest. Insurance is not reliable either. Some ends when you lose your job and some premiums go up as you age. Most disabilty is for one year and if longer it works with Social Security.

Social Security gives you freedom to invest your other money knowing your basic retirement is paid for.

If the republicans want to help the young invest they should raise the minimum wage.

The average life span is 74.5 for a white male and 79.9 for a white female. It is not fair to make people work to age 70 for full benefits. It is set up now to where you get more if you work until 70. That is CHOICE. No one should have to work until they die or are ready to hobble into an old folks home. The elderly need to retire to open up jobs for the younger workers.

There are only 2% that live to be a hundred years old. That has been over hyped.

If Social Security ended today, then the government would raise your taxes by 6.2 and your employer’s by 6.2% to pay the government expenses. You would still pay the same money out without receiving the benefits.

Posted by: Ann at February 5, 2005 05:13 AM

“The reason we have a problem is the baby boomers.” by Julia

No,the reason we have a problem is the government.

The baby boomers have paid in extra since 1983 because the government foresaw the problem of not enough workers to support them. That is what the trust fund is. It is the extra money we have paid in to prepay part of our retirement. It is in US bonds.

The problem is the government has issued the bonds and spent the money to pay expenses. In 18 years the money will be needed for the baby boomers.

The baby boomers have done our part. We shouldn’t have to work longer, be means tested, or have our cost of living index changed or have our benefits cut. The government needs to do their part and figure out a way to be ready to pay it back as it is needed in eighteen years.

Raising the cap on payroll or taxing everyone won’t do any good as long as the government spends it as fast as we put it in. We could add a million to the social security tomorrow and it would be spent by the government and we would have a million dollars more in bonds. That would be a million dollars more that the government would need to come up with when the boomers need it.

Cutting benefits now won’t help either because we are paying in extra money for the next 18 years. The government will just spend the savings to pay government expenses.

Most economists agree the best thing to help social security is to pay off the deficit, especially the foreign deficit. The interest on the deficit is billions of dollars a year. Clinton paid off the deficit and had a surplus and dedicated 60% of that to Social Security when he left office.

If our country is debt free when the baby boomers retire then it would be easy to pay the money back to them as it is needed out of the general fund.

You are right Medicaid and Medicare are bigger problems. Bush says he fixed Medicare. We had a large surplus in part a or b. It is gone since he fixed it. I heard he gave the surplus to Doctors to buy computers. I don’t know if that is true. I know he took out some of the competetive bidding immediately, but the other parts of the progam don’t start until next year.

Medical costs are too high for almost everyone. They are privatizing even insurance. We need to focus on that like we have Social Security.

Also the Republicans are going to rush in and hit hard for a flat tax. The Democrats need to be prepared for that too.

Posted by: Ann at February 5, 2005 05:52 AM

Correction: I said “The average life span is 74.5 for a white male and 79.9 for a white female.” It should say “The average life span is 74.5 for males and 79.9 for females”.

Posted by: Ann at February 5, 2005 09:35 AM

I believe that you’re erroneously oversimplified.

Once, the average lifespan for a male was 65 years and 8 months. He retired at 65, and most of his social security payments went to his widow after he died. Now, the average age is around 79-82, which is over a decade of time spent making social security payments than it was before. Many of today’s elderly are retiring, collecting pension and social security, and then getting a part time job since they are still healthy enough to work. But shouldn’t social security be for when you’re unable to continue working?

The biggest flaw in your simple security example is that it has never been one working person supporting one retired person. There used to be a total of 16 workers per 1 retired, so there were 16 people working to help support the 1 one was retired. With the baby boomer generation set to retire, that changes to 2 workers per one retired person.

Try to understand that a retired person is someone who is being supported. So, if a married couple is supporting one retired person with their taxes, but also raising three children, they are supporting a total of 6 people (including themselves) with their work.

One way or another, social security funds will be inadequate by 2018. For the baby boomers and older - who cares? They’ll be retired, entitled to their payments, and all of the workers will have to work to support them. For my generation, the younger one, the burden will be great, and no social security will remain for us. I think if you truly studied the history and the system you’d see that your example of how social security works is only a theory, and a total departure from reality.

Posted by: Psyche at February 5, 2005 10:30 AM

Julia - is the problem the baby boomers? Maybe, maybe not. It depends on what you believe about the trust fund. I blogged that a few weeks ago. The point of THIS posting is that privatizing social security will not help the boomers.

TadS - should people be allowed to opt out? Maybe, but that’s complicated since your SS taxes are paying for the previous generation, not for you. It’s kind of like opting out of welfare payments because you’ll never be poor, or opting out of liability insurance because you won’t have an accident. Can I opt out of paying for the war in Iraq because I’m not scared of WMD?

kctim - would Charlie have been better off if he’d saved, instead of paid into SS? Well, one thing’s for sure: Charlie might be better off, but Bob would certainly have been worse off, and you’ve got to factor that in. As for savings vs SS: maybe, maybe not. Remember he’s paying in 1930 dollars and recieving in 1960 dollars: and in real SS, the payments are based on WAGE increases, not cost of living. I haven’t seen a comparison between wage increases and stock returns, so I can’t tell which is better. But certainly the usual “2% versus S&P500” the Red Team discusses is meaningless.

muckdog: “the issue of how to get over the hump of transferring money to folks who have never invested” is exactly what I’m talking about here. You either need to shaft them, or borrow enough to pay them. And if you slog thru the SAT problem I gave, you can see that amount X the country borrows is the same as the amount Y that the new generation saves. So the real savings is X-Y which comes out to what, md? choose either

(a) nothing
(b) zero
(c) nil
(d) d/dt(IQ of average republican voter)

Posted by: William Cohen at February 5, 2005 10:52 AM

I found the figures on life expectancy at this link:

Life expectancy

I have never made a link before so if that doesn’t work, here is the address to copy and paste into the address bar. Or maybe Andriene can link it for us.
http://www.cdc.gov/nchs/data/nvsr/nvsr53/nvsr53_06.pdf

There are some good postings on this website about Social Security in the archives under “The ‘Future Of Social Security’ Focus Group ” and A Kinder, Gentler Bush. If you want to read those it would be better than me repeating myself.

Some people are paying 250 million to push the privatization of Social Security. There must be a lot of money in it for some people. A lot of untrue info is getting out there. They are hiring 25 year olds and training them in just what to say to convince others that Social Security is bad and it won’t be there for them. They are sending them to places like the Kiwanas Club where people congregate. They also make speeches where they think it will help….churches… They are lobbiests in disquise.

I believe everything I have said is true. Tell me where you think I am wrong and I will do research on it.

I will say this. We paid extra so as not to burden the younger generation when we need our Social Security.

Who do you think paid your parent’s and grandparent’s social security? We paid long after my hubby’s parents and my parents died.

I would really be interested in knowing what made you think you were supporting others besides your family. Where that is coming from is the root of a lot of misunderstanding.

I am going to repeat this too: If Social Security ended today the government would charge you the same amount you pay into Social Security as taxes to pay government expense like the war. You would still be paying in the money without the benefits.

Posted by: Ann at February 5, 2005 12:40 PM

David R has it right. Why do we cap the SS tax collected from income? Take after the IRS. They sure don’t say that if you make over $80K (or some other figure) you don’t have to pay any more taxes. And if it really is security for society, i.e. as a safety net against povery, then a retiree who is still bringing in a bundle of money due to their good fortune hardly needs to collect a SS check.
Keep it simple…if for no other reason so that we can trust what the politicians are doing.

Posted by: Bob O'Brien at February 5, 2005 12:56 PM

Psyche, as people age, they don’t have as much energy, they get forgetful, they tire easily, their insides wrinkle just like their skin does. They get hard of hearing and their eyesight fails. They don’t think as fast and don’t walk as fast. They really aren’t able to work much. Some don’t age as fast. Social Security gives them better benefits if they work to 70. That is choice. Some people work harder than others. They want a few years of relaxation before they die. They have paid for it and should not have to apoligize for it.

The Bush adminstration and their friends have poisoned the minds of the younger workers against the baby boomers retiring.

Think of your parents and grandparents.They raised you and probably helped with your children. They probably worked hard and did without so you could have things.

Your children and grandchildren will pay your social security and probably my children and grandchildren will too.

Without Social Security parents would have to move in with their children when they get old. Do you want that? Are you prepared to pay their medicare insurance and buy their food? And pay their medicare copay?

If you weren’t paying social security you would be paying welfare for those who couldn’t save for retirement…unless you want them to starve on the streets.

Besides all that you will inherit more if your parents and grandparents get their Social Security without benefit cuts.

I hope you read the other posts.

Posted by: Ann at February 5, 2005 01:02 PM

Bob there is the element of fairness.

Some people save and invest. If they do well, then they should not lose their social security, while others who spent every penny they earned get theirs.

It would be nice if some of the rich would forfeit theirs back to social security, but we should not expect them to do that.

Means testing would be the ruination of Social Security. They would start treating it like welfare and you know how people hate welfare. The reason it has lasted is because it is a program that people fund for themselves. It is a promise from one generation to the next that we will have a dignified old age and retirement. We should not have to grovel for it.

It may be they will have to do something like means test but it would have to be a high income means test and it wouldn’t be fair to do that while the very rich live in luxury now instead of taxing them to pay off the deficit which would then free up tax money to pay social security back as it is needed.

Posted by: Ann at February 5, 2005 01:17 PM

William,

Maybe I wasn’t clear enough on my point. If given the choice of Bush’s plan, where some percentage of the money I currently spend on SS is put in a private fund by the government, I’d prefer that they let ME invest that money. There are a few problems I have with the government managing my investments - needlessly (at least in my mind) bigger government, less control of my own money, and trust.

For example, let say I’m just now getting out of college. I have some credit cards racked up and student loans. Wouldn’t it be smarter for me to pay down the high-interest stuff before I start putting in to my retirement?

I’m not in favor of opting out of SS all together. I agree, it’s a good safety net for those who need it. For those who don’t - well, I’m less sure.

Posted by: TadS at February 5, 2005 02:57 PM

“So, if a married couple is supporting one retired person with their taxes, but also raising three children, they are supporting a total of 6 people (including themselves) with their work.” by Psyche.
I never heard it called a “pay as you go system” until Reagan and Greenspan revamped it in 1983.

Just think of it as a fund that you are investing in that gives you disability, life insurance and an old age annuity. A 25% shortfall that starts in 2052 can easily be taken care of for the younger generation in the next 48 years.

Life is what you focus on. If you focus on the stage of Social Security you are in now, then it does seem troubling. Part of that is because people are spending millions to convince the younger generation that Social Security is bad. You younger ones should talk to your grandparents and ask them about Franklin D Roosevelt. He is the one that started social security. It was a blessing for them then and for the elderly now. Before Social Security old people were at the mercy of the world. Some starved.

The rest of the taxes you pay go to the government who mostly have never done an honest days work their whole life. Their hands are soft and smooth as a womans. It funds a half million dollar an year retirement for the ex-presidents and it is already funding George Bush 1 and will support George Bush 2 in 3 years. They get it as soon as they leave office. The two Bushes together will get a million a year from their retirement. Why don’t we means test them? And Greenspan. We match the money they put in their Thrift Savings Plan at least 5% maybe 10%. We do that because we are hiring them as taxpayers. hmmmm

Other things your tax money goes for is the unecessary war that maims, kills and destroys the minds of many on both sides. It goes to support other programs most of us don’t want.

The money you spend for social security is the best money you will ever spend. We just all have to make sure it is there for you. The democrats will see that it is. The Republicans won’t. You younger need to stop drinking the koolaid of the republicans.

Tad, I know what you mean about paying off your debts before you save for retirement. That is the way it is for most people their whole life. There is always something that we need to pay for before we start saving.

The government never asked us if we could afford to pay into Social Security, they just took it every payday before we got the check. They took it and the other taxes while we were struggling to pay our bills. Sometimes we borrowed from Peter to pay Paul. But, it is hard for most to save money and if left on their own, most would not be prepared for their old age. So down the road the automatic savings is good.

Financial advisors tell people who have maxed out their credit cards to put part of their money in savings and use part to pay off their cards because that way you have cash when you really need it and won’t have to use the card. That is the way Social Security works. They take it every pay day and suddenly one day you are disabled or old and there it is for you just when you need it!

Posted by: Ann at February 5, 2005 08:05 PM

Ann,

I didn’t know that about Baby Boomers paying extra. To be honest, I have not done the type of research I should have done on Social Security. The stuff I do know is old, and from memory (which is working poorly these days). I do remember Al Gore talking about the “lock box” back in 2000. From what you are saying, that would have been a great idea. I do remember that Gore was really angry that the surplus Social Security funds were being spent, instead of being saved.

Are the surplus Social Security funds still being spent? If we saved all the money that is raised by social security for social security, would it be solvent?

All my research time is taken up on Iraq and the pro-life group. It’s nice to meet someone who does their homework on other topics. Thanks for educating me!

Julia

Posted by: Julia at February 5, 2005 09:22 PM

Tonight, on tv, I saw an astounding red banner displayed for over a minute:

“Fox Fact: Social Security will be bankrupt by 2018”

That was displayed right next to the logo, “Fox News.”

It’s simply, flat-out incredible, and I mean do mean in-credible; how can a network display such a gross innacuracy as fact? Not opinion, not a point of view, but fact! Is there some sort of oversight mechanism, perhaps the FCC, to come down on them like a ton of bricks?

Yes, I’m know misinformation from Fox is par for the course, but how can the public even debate social security, when a purported news network gives bad info?

Posted by: phx8 at February 5, 2005 10:15 PM

My question is who oversees the managing of the social security monies that are collected throughout the year and does the pot of dough collect any interest?

Posted by: Bob O'Brien at February 5, 2005 11:58 PM

Although I completely disagree with those who express and defend their support for Bush’s Social Security plan here at WB, I sincerely welcome and encourage their effort!

However, as phx8 has pointed out and Media Matters.org has documented, there is a concerted effort by the White House, The Right and their minions in the not-so-Liberal-media-after-all to deceive the American people, thru distortions and suppressing honest debate.

It is the height of hypocrisy and infuriating, that Bush will continue his campaign practice of inoculating himself from contrary questions and comments on plan, by fully vetting the crowds on his Social Security Tour. I recognize that Bush is prone to stupid remarks, but this confirms that even by allowing him to defend and articulate his position in the most simplest of terms, that still is a recipe for disaster.

I challenge any Bush Apologists to defend this practice, because otherwise being an act of cowardice, it certainly is not the honest debate Bush promised.

Posted by: Bert M. Caradine at February 6, 2005 12:13 AM

You know, I was dimly aware of the Social Security trust fund, but I didn’t realize that it was a trust fund “only in the bookkeeping sense”.

http://en.wikipedia.org/wiki/Social_Security_Trust_Fund

So the surplus social security taxes are spent, and are accounted for as treasury bonds (government debt)? What a nightmare! Whose idea was that in 1983? Was that Reagan? Seriously, am I understanding this correctly?

Julia

Posted by: Julia at February 6, 2005 01:39 AM

I mean, if Social Security is going to be partially funded by the government paying off Treasury bonds in 2018, essentially doesn’t that mean that if we have a defecit in 2018, we’ll have to borrow to pay off what we’ve borrowed?

I guess we’re doing that now though, huh? We pay off the defecit by borrowing to pay off the defecit? I mean, how else can we be paying our interest payments on the national debt when we are running such a gigantic defecit? Borrowing right?

Julia

Posted by: Julia at February 6, 2005 01:47 AM

Thanks Julie for the nice words. If you will Google “Social Security” you will find many blogs and articles on Social Security. I am no expert, I have just been interested in it for awhile. There is a lot to wrap your mind around when discussing it.

Our Social Security surplus that we paid in extra to help pay for the baby boomers are in US bonds. They are backed by the full faith of the US government.

The deficit needs to be paid down or off in order for the government to pay back those bonds as needed. The billions in interest we are paying on the debt would then be used to pay the bonds.

When a country runs a deficit, they are spending too much or not collecting enough taxes or both.
That is what the hallaboo is all about. The republicans would rather cut our benefits and privatize Social Security than come up with a fairer solution. They want the the elderly to lead a grim life while the rich live a lavish life tax free.

Millions are being spent to makThanks Julie for the nice words. If you will Google “Social Security” you will find many blogs and articles on Social Security. I am no expert, I have just been interested in it for awhile. There is a lot to wrap your mind around when discussing it.

Our Social Security surplus that we paid in extra to help pay for the baby boomers are in US bonds. They are backed by the full faith of the US government.

The federal deficit needs to be paid down or off in order for the government to pay back those bonds as needed. The billions in interest we are paying on the debt would then be used to pay the bonds.

When a country runs a deficit, they are spending too much or not collecting enough taxes or both.
That is what the hallaboo is all about. The republicans would rather cut our benefits and privatize Social Security than come up with a fairer solution. Their plans would cause the elderly to live a grim life, while the rich live a lavish tax free life.

Millions are being spent to make the younger generations think Social Security won’t be there for them and to pit the young against the old. They have some of the younger ones hoping an epidemic will wipe out the old. Sad, isn’t it?

A whitehouse aid told Bush’s plan and now it is being denied, so I guess it didn’t fly when others learned the private account would be managed by the government and they would keep 70 to 80% of the money to pay for their old age.

John Corzine NJ democrat said on Bloomberg last night that they would consider investing some of the SS surplus as group. That might help satisfy some of the younger ones who think investment is the answer and shore up Social Security. That and dedicating some of the taxes that will be charged anyway to paying back the bonds for SS as they are needed.

We need to watch them very closely. They are back to saying “those who are near retirement”. “Those 55 and older will get their benefits unchanged” may be lost in the battle.

They just showed Cheney on Fox saying they had to do something or Social Security won’t be there for the younger generations.

The middle class Republicans need their Social Security as much as the middle class Democrats. That is our salvation. If it wasn’t for that, they would take their majority vote and make us work until we are 70 for less benefits and gradually dismantle it by privatizing it.

phx8, you are so right. We can’t make informed decisions if the news skews the facts. We did have regulations but they have been so weakened that the news is just a propaganda tool for the rich. Right now we have the internet, but I hear the rich are buying it up.

Posted by: Ann at February 6, 2005 11:20 AM

I give up. The phone rang just as I was ready to preview so I clicked post instead. Can someone fix the last post for me? Delete down to the 6th paragraph to where it starts “Thanks Julia.” then delete this?

I have been online too much yesterday and today. I promise I will be more careful from now on.

Posted by: Ann at February 6, 2005 11:31 AM

Ann said:

Clinton paid off the deficit and had a surplus and dedicated 60% of that to Social Security when he left office.

That’s rhetoric. High taxes in a booming economy created an artificial “surplus”, much of which Mr. Clinton tried to spend before he left office.

Maybe 5% of us could do better with the money than Social Security does. But it is a good safety net for society. The peace of mind it gives you is worth a lot.

More rhetoric. If SS wasn’t here, a lot more than 5% of people would be learning how to invest their money, and they’d be getting good at it. In fact, our economy would be doing much better, and we probably wouldn’t have a trade deficit! Oh, and if most people knew anything about the current state of SS, they’d have a lot less “peace of mind” over it.

Without Social Security parents would have to move in with their children when they get old. Do you want that?

In India, extended families actually live together instead of spreading out all over the country and avoiding Mom & Dad. Now isn’t that nice? Everyone say “Aaaawwwwww!”

Seriously, this is playing with liberal scare tactics. Older people are in general much better off than younger people. Statistically, they’re more likely to be the ones helping to pay for your kids’ tricycles, braces, and college education. You may ending up changing Dad’s diapers someday, but chances are that you won’t have to buy them for him (unless his driver’s license is revoked and he can’t drive to the store, like my grandfather). Maybe we should have social security for kids instead. Heck, how about a welfare state?

Social Security gives you freedom to invest your other money knowing your basic retirement is paid for.

Social Security takes away 12.4% of your money that you could otherwise have invested in something with much better return. And your degree of “knowing your basic retirement is paid for” is your measure of trust that the sytem will still exist when you retire.*

If the republicans want to help the young invest they should raise the minimum wage.

Not unless they want to raise unemployment levels! Bad, bad idea. I know lots of young people who would have gotten jobs last summer if there hadn’t been a minimum wage.

There are only 2% that live to be a hundred years old. That has been over hyped.

That is, 2% of the people who are dying NOW are 100 years old. It is a misleading statement that the “average lifespan” is 74.5/79.9 for males/females; that’s the average age of the people listed in the U.S. obituaries - not the mean age at which today’s median-aged American will die. I expect most of my generation will live at least into their 90s.

They are hiring 25 year olds and training them in just what to say to convince others that Social Security is bad and it won’t be there for them… I believe everything I have said is true. Tell me where you think I am wrong and I will do research on it.

I wonder if this is a reference to me? :) Not to worry though, I’m only 22, paying myself through college, and no one paid me to figure out for myself that Social Security is one of the worst ideas of retirement investment that’s out there. (Nonetheless, rich folks in retirement are still getting plenty of money from the system now because they were forced to pay into it. Maybe that’s one of the reasons the program got so bloated and out-of-control?) And Re: this all being true, I’d like to see your research on this vast conspiracy, not that I doubt it - I just think it’s pretty funny that this has created such a scare among liberals.

They just showed Cheney on Fox saying they had to do something or Social Security won’t be there for the younger generations.

A lot of Republicans genuinely want to fix Social Security - including both Mr. Cheney and the President. Although I’m a Republican, I don’t think the program is worth preserving in anything resembling its current form. If you’re afraid that people are trying to kill Social Security, it’s not the Republicans you should be afraid of. It’s people like me, who know what a bad idea it is for people to depend on the government to take care of their retirement investments.

The way things are today, the younger you are, the more likely it is that you will get screwed over by the system right before you retire. Read through my models in the other SS discussion forum that Ann mentioned, and you’ll see how mathematically unsound the system is. The good news is that this is America, and nearly anyone who chooses to can get rich with hard work and proper investing strategies. By the time I’m 40, I will be rich, and will hopefully helping other people figure out how to do it as well. Without Social Security.

The Republicans are going to rush in and hit hard for a flat tax. The Democrats need to be prepared for that too.

HAHAHA! Yeah, maybe if we elect GARY BAUER for our party candidate in 2008! A flat tax isn’t a bad idea, but it will probably never get enough support - not even from Republicans.

I have been online too much yesterday and today.

Yup, me too. I’d respond to the rest of Ann’s comments, but that would keep me up to 4am, and I’ve had too much fun for one night already. Goodnight everyone. Glad to see that Watchblog is back online after our little fiesta with disgruntled Portuguese high-school geeks.

*Note: if you’re wondering why that’s 12.4% instead of 6.2%, it includes the other 6.2% that your employer would be able to add to your paycheck if he didn’t have to pay it to Social Security.

Posted by: Gandhi at February 8, 2005 01:00 AM

I would like to clear up some misconceptions that have been posted here. The president’s proposal does not eliminate the insurance aspect of SS. Participation in the Privately Directed Accounts in voluntary. The government will not “manage” your money, you will be given a choice of stock and bond funds to choose from just like in an IRA or 401K program.

FICA Tax is a combination of a 6.2% social security tax and a 1.45% Medicare tax. The social security tax is assessed on wages up to $87,900; the Medicare tax is assessed on all wages. Employers and employees are both liable for FICA Taxes at the rates given below.

Self-employed individuals pay a self-employment Tax which is the equivalent of FICA Tax. For 2004, they will pay a 12.4% OASDI Tax (the old age, survivors, and disability insurance Tax) on the first $87,900 of self-employment income. A 2.9% Medicare Tax is imposed on all net self-employment income. Fifty percent of the self-employment Tax paid is deductible.

The earnings limit for retirees under age 65 is $11,640. Social security benefits will be reduced $1 for every $2 of earnings above this limit. There is no earnings limit for individuals aged 65 and above.

The president proposed

starting personal retirement accounts gradually, and raising the yearly limits on contributions over time, eventually permitting all workers to set aside four percentage points of their payroll taxes in their accounts.

So based on the above the actual impact of the voluntary transfer of 4% of the FICA Tax to privately managed accounts at the most impacts the overall FICA Tax collection 32.25% Once again that is if every worker who pays FICA Taxes opts to participate in the privately directed savings accounts. Every worker opting to participate is highly unlikely considering the rate at which 401K eligible workers currently participate.

A recent study shows that only about 66% of workers eligible to contribute to a 401K plan do so. If you assume that the rate of workers voluntarily participating in the privately directed accounts mirrors that of 401K participation, the impact to current FICA Tax collection drops to 21.29%.

The 78.71% balance of the FICA Tax would go to pay for the insurance aspect of SS. Far from eliminating it as stated by some above.

Galveston, Brazoria and Matagorda Counties in Texas opted out of SS in the early 1980’s based on a provision of the original FICA Laws. The law allowed local governments to set up their own plans to replace SS. Read the article at the link below to see how it has benefited citizens of the county.

http://www.prince.org/msg/105/59618

Unfortunately, the government saw the great success that these counties were having with their new investment plans and the number of other local governments looking to follow suit and quickly removed the provision allowing local governments to opt out of the system.

Some facts on SS that you may not know.

The average worker can expect a rate of return of less than 2 percent on his or her Social Security taxes. Source: Social Security Administration

You can get that kind of return in CDs, why should we settle for returns that are below the rate of inflation?

The Social Security payroll tax rate has grown from just 2 percent in 1949 to 12.4 percent today. Source: Social Security Administration

As the number of workers supporting current retirees has fallen the FICA Tax percentage has had to increase. Without changes in the system further tax increases should be expected.

Social Security taxes have been raised more than 40 times since the program began. Source: Social Security Administration

That is 40 tax increases in the 70-year history of the program.

The maximum original Social Security tax was just $60. Today it is more than $11,000. Source: Social Security Administration

This amount increases each year by law as the cap on SS wages increases.

Nearly 80 percent of Americans pay more in Social Security taxes than they do in federal income tax. Source: US Congress, Joint Economic Committee

Unbelievable isn’t it?

Posted by: Kirk at February 8, 2005 02:48 AM

Nearly 80 percent of Americans pay more in Social Security taxes than they do in federal income tax. Source: US Congress, Joint Economic Committee

Unbelievable isn’t it? by Kirk

**********************************************
Reply: Not only unbelievable it is sad. It is sad that the wealthy in this country are using our Social Security to pay the expenses and are already trying to get out of paying us back.

That could be called welfare for the rich.

That statement is skewed too. You have the employer’s part in there. If those who make $90,000 are paying more into Social Security than they are income taxes, then raise their taxes. They are not paying 10% if that statement is true. That would work for me.

If Social Security hadn’t been raided several times we have paid in enough to where our baby boomers would be fully funded and probably our children and grandchildren’s Social Security would be paid up too. That is, if we had been given the same rate of interest as Japan. We need to receive a better interest rate.

Please read the latest blog on this site about taxes. I just posted there about the tax situation.

The Social Security payroll tax rate has grown from just 2 percent in 1949 to 12.4 percent today…..The maximum original Social Security tax was just $60. Today it is more than $11,000. by Kirk
===========
Reply: You could probably buy an acre of land for $10 when the maximum of Social Security was $60. You can’t buy a car for what you could back then either. Besides, wages have went up more than that. Again, you are counting what the employer paid too.

The 78.71% balance of the FICA Tax would pay for the insurance aspect of SS. Far from eliminating it as stated by some above. by Kirk

Reply: That is the money that is left in to pay the guaranted basic benefits. They would be lowered by what you take out to invest. You would get less disabilty, your children will get less if you die, and you will get less when you retire from that 78.71 balance. It would be up to you to make up for the 21.39% you take out.

Of course, you hot shots will get rich so don’t worry about it.

************************************
The government will not “manage” your money, you will be given a choice of stock and bond funds to choose from just like in an IRA or 401K program. by Kirk

Reply: You will be given a choice from what they pick, which will be ultra safe funds. I call that managing your investments. Bonds are a bad idea for that investment. You will pay fund fees on bonds. Of course they will leave them low until they ruin Social Security.
********************

Who is going to pay the income tax they will charge to fund the trillions Cheney is going to borrow because of this plan?

Who will pay the bills for the government when the last surplus is paid into Social Security? When they have to pay us back?

Posted by: Ann at February 8, 2005 07:58 AM

I said “Clinton paid off the deficit and had a surplus and dedicated 60% of that to Social Security when he left office.”

Gandhi said: That’s rhetoric. High taxes in a booming economy created an artificial “surplus”, much of which Mr. Clinton tried to spend before he left office.

Reply: Call it what you want. It is the truth. If Gore had been elected and had the lock box where Social Security could not be used for government expenses, that would have worked. You have to admit we were in better shape before Clinton left office.

Gandhi said: Older people are in general much better off than younger people.

That is because Social Security keeps them from becoming poor. Are you prepared to pay for their medicare and prescriptions and co-pays? And take care of them when they are penniless? Pay all the expense they have?

You will inherit less too. All the old people and those who are getting cheap wages will go belly up at the same time. Houses will deflate. An Ayn Rand and Greenspan dream.

Gandhi said: Nearly anyone who chooses to can get rich with hard work and proper investing strategies. By the time I’m 40, I will be rich, and will hopefully helping other people figure out how to do it as well. Without Social Security.

Reply: Thank you Gandhi, I have maxed out my 401k. I am just waiting for the trillions to hit the market from your privatization. I will be rich! Good luck with the bubble.

Posted by: Ann at February 8, 2005 08:26 AM

Gandhi,

Before the market crash of 1929 my family was among the wealthiest 10 percent of America. They were well diversified and still it nearly brought them to their knees. Don’t count your chickens before they hatch! Wealth can evaporate in a matter of days.

Posted by: wisevil at February 8, 2005 12:47 PM

Kirk - excellent post.

Ann - here we go again:

You could probably buy an acre of land for $10 when the maximum of Social Security was $60.

Really? Are you suggesting that we’ve experienced 183-fold inflation since we began Social Security? Let’s do some research.

Social Security started in 1935 (source: SSA.gov).

Inflation since 1935 has been about 1300% (read: 14-fold inflation). What cost $1 in 1935 would cost around $14 today. Sources: “>The Inflation Calculator (added in the last two years manually) and InflationData.com.

According to your assertion, an acre of land should have cost $140 in today’s dollars in 1935. Go find some articles on land selling for that price in 1935. Maybe somewhere in Nevada?

On the other hand, look what’s gone up since 1935:

-The NASDAQ index has gone from around 6 in the late 1930s to over 2000 today - 2300% growth factoring inflation. And that’s only a 4.5% annual return (roughly) above inflation. I’m not sure what Social Security returns were exactly - you can look them up - but let’s say it was a fixed 2% above inflation. Over 70 years, that’s a paltry 300% increase.

How about CD rates over 70 years? At 8% above inflation, that’s a 218-fold increase. Not bad for a middle-class invesment.

People who really know how to invest should be able to get at least 25% a year above inflation. That’s a 6 MILLION fold increase over 70 years.

I have maxed out my 401k. I am just waiting for the trillions to hit the market from your privatization. I will be rich! Good luck with the bubble.

If you think your 401k is a good investment, you’re missing the boat. You need to buy real assets that won’t be affected by future bubbles. Smart investors win some and lose some - but mostly they win. People need to take control of their own futures.

You have to admit we were in better shape before Clinton left office.

I’m not even going to touch that one. But just remember, the stock market started going down in spring of 2000. The economy took a few months to follow.

Posted by: Gandhi at February 8, 2005 01:17 PM

Wisevil said:

Before the market crash of 1929 my family was among the wealthiest 10 percent of America. They were well diversified and still it nearly brought them to their knees.

Clearly they were not well diversified. Was all their money in the stock market? I doubt that most people who invested in real estate got destroyed in the Great Depression.

You’re right - wealth can evaporate suddenly. Greed knows no bounds, and might tempt people to throw all their eggs in one basket. But fear keeps them from taking their eggs out of the fridge. Those are the people who are trusting Social Security and Big Brother government for their future.

Posted by: Gandhi at February 8, 2005 01:25 PM

I screwed up the link for the inflation calculator; here it is.

HTML FOR DUMMIES

Ann, this is how to create a link:

1) Type this:

2) copy the hyperlink (no space after the open quotes for step #1)

3) Type this: “>

4) Type the text you want people to see for your link. You can have spaces in this text; you can’t have spaces anywhere else. (This is the bit that is underlined).

5) Type this:

If you look up in the upper-right-hand-corner of the text editing window (the window I’m typing in right now), you will see an example of a hyperlink.

Posted by: Gandhi at February 8, 2005 01:55 PM

Sorry, let’s try that again. Steps 1 and 5 didn’t display correctly.

Step 1: type <a href="

Step 5: type </a>

Posted by: I'm a moron (Gandhi) at February 8, 2005 02:02 PM

One more rebuttal for Ann:

Clinton paid off the deficit and had a surplus

This is poor writing; I don’t really know what you meant to say, but you’re either writing redundantly or you MEANT to say that President Clinton paid off the National Debt, which is not true. Under Clinton, deficit spending started to level off because of high tax receipts; when factored for inflation, the National Debt actually started to go down slightly. But over his the span of eight years in office, Mr. Clinton increased the national debt - not decreased it - and spending never went down.

President Bush is dedicated to cutting the National Debt in half over the next four years. Possible? Yes. Likely? That depends on whether the economy continues to recover. Cutting subsidies is a good start.

Posted by: Gandhi at February 8, 2005 02:56 PM

Ann,

That statement is skewed too. You have the employer’s part in there. If those who make $90,000 are paying more into Social Security than they are income taxes, then raise their taxes. They are not paying 10% if that statement is true. That would work for me.

Even if the employer’s portion is included it does not change the fact that the taxes are being paid. Also the employer reduces your gross pay by an amount equal to the FICA Taxes they have to pay in your name. You don’t think they go ahead and pay your taxes out of their own pocket just because you are a nice guy do you?

We need to receive a better interest rate.

I agree 100%. Unfortunately we will never get there with the Treasury Certificates. As shown by the information from the SS Administration the current rate of return is 2% which in almost every year is below the rate of inflation. This is exactly the issue that will be addressed by the individual accounts.

That is the money that is left in to pay the guaranted basic benefits.

Yes.

They would be lowered by what you take out to invest.

Yes.

You would get less disabilty, your children will get less if you die, and you will get less when you retire from that 78.71 balance.

Yes.

It would be up to you to make up for the 21.39% you take out.

Yes, and that is precisely what would happen by placing the money into equity or bond funds. Is there a gamble? Not much, if you put your money into the funds for an extended period of time. There have only been 2 periods of 7 years where treasuries slightly outperformed securities.

You will be given a choice from what they pick, which will be ultra safe funds. I call that managing your investments. Bonds are a bad idea for that investment.

Yes, your choices will likely be in line with those currently offered federal employees in their retirement savings plan. They are have a total of 5 funds to choose from three equity funds and two bond funds.

According to the Congressional Research Service of the Library of Congress these funds consist of the following with the average annual rate of return.

“C” Fund is an S&P 500 Index Fund – from 1988 to 2003 the rate of return was 12.1%

“F” Fund is a Bond Fund of Municipal and Corporate Bonds – from 1988 to 2003 the rate of return was 7.9%
“G” Fund is a Government Securities Fund – from 1988 to 2003 the rate of return was 6.8%

“S” Fund is a Small Cap Fund – from 1988 to 2003 the rate of return was 12.4%

“I” Fund is an International Stock Fund – from 1988 to 2003 the rate of return was 5.3%

With all these choices they outperformed the current 2% rate of return stated by the SS Administration and all exceeded inflation.

Who is going to pay the income tax they will charge to fund the trillions Cheney is going to borrow because of this plan

July 21, 2004
(Updated September 30, 2004)(1)

Bill Summary

The President’s Commission to Strengthen Social Security (CSSS) described three reform plans. This analysis considers Plan 2.(2) The plan would introduce individual accounts (IAs) and switch from wage indexing of initial benefits to price indexing. It would also introduce a new minimum benefit for workers with many years of low earnings, increase the survivor benefit for some widows and widowers, and transfer some funds from the federal government’s general fund to the Social Security trust funds. More information can be found in the analysis of each provision.(3)
Participation in IAs would be voluntary, but there is an unambiguous incentive for individuals to participate. In this analysis, CBO assumes 100 percent participation.

So, the estimated 2 Trillion-Dollar cost of PSA’s over the next 10 years as calculated by the CBO that you reference is based on 100% participation. This is an unrealistic expectation. Many people like you will choose to remain in the current system. As stated above if the participation follows the pattern of 401K participation it will be only about 66%. So CBO’s estimate of 2 Trillion is greatly overstated.

Posted by: Kirk at February 8, 2005 04:50 PM

I think the democrats have a good perspective on this issue. But this is why I am so frustrated with the democratic party. You see, I am a social conservative, but concede that republicans don’t have all of the answers on domestic issues like this (democrats don’t either). But the democratic party spends so much time defending abortion doctors and other far left issues that they can’t win an election and have therefore silenced themselves. It would be nice if they showed some leadership on issues like this, but they can’t because they sold themselves to a small part of the population at the cost of a large part.

Posted by: jacktruth at February 8, 2005 04:54 PM

Gandhi,

Do you think when I use the words “well diversified” I’m clueless to their meaning? Stocks, bonds, real state, commodities and the businesses they owned all took a hit in the years following the 1929 crash. I said it nearly brought them to their knees, nearly. My point being, if one of the wealthiest families in America, being well diversified, can take as big of a hit as we did, what happens to the average Joe? When the next crash comes, and it will, it will encompass far more than the stock market! That crash 75 years later, still effects how my family deals with money matters. You may think you have nothing to worry about but the reality is, you may.

Posted by: wisevil at February 8, 2005 06:24 PM

I agree jacktruth. We give them the bullets to shoot us with.

One thing I have noticed about the Republicans is they are silent about some of their base and their plans.

If Bush had said he was going to do all the things he has done, he would never have been elected.

Fox and the other media have learned that all they have to do is bring up abortion, gay marriage and gun control to work against the democrats.

Now they have found a new weapon in Christianity. They have the preachers passing out check lists to help the congregation decide who would be the most moral of the candidates. That is one reason that they bashed Clinton and made such a moral issue out of everything. This has been in the works for years. They have it down to a fine art. They have made it almost embarrassing for a Christian to be a democrat.

Christmas displays were the new weapon in December and prayer in school. I don’t know why they hung that on the Democrats. I suppose it is because they could.

Plus they are hiring young 20-30 year olds to go out to influence others on issues like Social Security. They train them first in exactly what to say like “it won’t be there for us” and “we could be rich if we had the Social Security money in the market”.

They will use the voting record against any Democrat too.

The Democrats need to become moderate on the social issues but liberal on the bread and butter issues.

They may have to re-emerge as a new animal. Some of the New Democrats go right on all issues. They may as well be Republicans.

We may have to get some new candidates. Some that are closer to the workers, coming from positions such as plant managers, small church preachers college professors, and high school teachers.

Democrats care more for the workers and the poor. The Republicans care for the rich and business.

Democrats have to get their own media because the Repubicans own most of the media. Have you noticed how Fox puts democrats on to debate that aren’t really democrats or good at debating. Zell Miller comes to mind.

Posted by: Ann at February 8, 2005 06:25 PM

Jacktruth - I don’t believe in worrying. I do believe in planning. There will be a big crash someday, and people need to study up on it and plan for it accordingly. That doesn’t mean that people shouldn’t invest their money. My point is that people who think Social Security is safe, and that the government will take care of them, are making a far bigger mistake than those who are investing their money in something - anything - with a better rate of return.

Ann, your latest post sounds like a witch hunt! It’s great! Christmas displays, the new superweapon of the Right Wing Conspiracy!

Democrats care more for the workers and the poor. The Republicans care for the rich and business.

No actually - you’d like to think that though. You liberals don’t realize that businesses are what keeps the poor afloat, by giving them jobs. Your attacks on businesses, your great ideas like the Estate Tax, your minimum wage, your dubious social help programs - these are what have destroyed the middle class and added to the ranks of the poor.

My dad is a businessman. Between Social Security, state taxes, federal taxes, corporate taxes, and the estate tax (paid in the form of insurance), the government took 85% of his profits under the Clinton Administration. Please read this open letter that he wrote to our Democratic representatives during the Clinton Administration’s tenure in the mid-90s.

What you do see in this letter is that my family’s manufacturing company struggled through the late 90s with high taxes, and had difficulty growing beyond the 50 employees it had then. What you don’t see is that in the last four years under President Bush, growth has skyrocketed; with lower taxes, the company is now over 120 employees in the U.S. and hiring 30-50 new local employees every year.

My family is well-off now, but we were poor once. The Democrats didn’t help us when we were poor, and they haven’t helped us bring other people out of poverty here or abroad. It’s the Republicans, which lower taxes, that have made it possible.

Posted by: Gandhi at February 8, 2005 07:56 PM

Let me just set the record straight. I’m not a democrat in any sense. I’m conservative on most issues. I don’t think democrats care more about the poor. My main point is that this country works better when different ideas come together. But our government has become a struggle for power rather than a effective means of finding concensus. The republicans happen to be more on the side of moral integrity and that is important to most people in this country. Democrats drop the ball by catering to the far left and the only thing they have to offer on most issues is “Bush is an idiot.” Well, this idiot is kicking the democrats from coast to coast. Who’s the idiot now? The democrats, thier moral liberalism, and thier obstruction politics are holding this country to a one-part system. They need to reach the middle if they want a voice, and they aren’t doing it. Is killing innocent unborn children really worth all of that?

Posted by: jacktruth at February 9, 2005 08:50 AM

“You liberals don’t realize that businesses are what keeps the poor afloat, by giving them jobs. Your attacks on businesses, your great ideas like the Estate Tax, your minimum wage, your dubious social help programs - these are what have destroyed the middle class and added to the ranks of the poor.”

Can you explain the logic here?

A job should keep you out of poverty, not keep you in it. Yet approximately 40% of working-age poor people are employed.

Full-time work is defined as at least 2,000 hours per year. The federal minimum wage is $5.15 per hour. This means that a full-time minimum-wage worker may earn only $10,300 per year. That figure is below the Department of Health and Human Services poverty threshold for all family sizes larger than one. Yeah, you’re right. It’s all those single mothers who have to hold down two full-time minimum wage jobs to make ends meet that are frickin’ destroying America.

Posted by: Ingrid at February 9, 2005 04:33 PM

Ignorance keeps people in poverty, not their employers. $5.15 an hour is better than $0 an hour because no one will hire you. I’ve seen enough people living at $1 a day to know what real poverty is like. But I do sympathize with single moms scrimping to make ends meet - it’s not an easy existence.

Supposing you have a single mom working 55 hours a week at two jobs. Get rid of SS, and she’s up to 5.79 an hour - not a lot, but the extra $0.64 an hour translates into $1760 a year. We’ll assume that her wages stay in line with inflation. Help her to invest that savings at a 8%-above-inflation annual return - easily possible if she waits for the right investments. In 45 years she will have over $680,000 in today’s dollars - enough to cover her retirement, and maybe even college for her grandkids. See, it’s reall oppression from the rich that keeps the poor from escaping the cycle - it’s ignorance and lies from the government.

Now let’s suppose that this same woman decides instead to start a home business. She invests her savings of $0.64 an hour into making this business work. After 45 years, her investment in the business is worth $680,000 in today’s dollars. It’s more than she needs to retire, so she keeps the business running so her kids can make a living with it. Upon her death, the Estate Tax kicks in and takes half of her assets, forcing the business to be sold. (She might have alternately bought an insurance policy and paid the tax in that form, in which case the business would only be worth $340,000 when she retires).

I don’t pretend to defend employers who mistreat their employees and try to squeeze productivity out of them while making them beg for 2% raises. But that’s not most businesses. Taxing businesses always hurts employees more than it hurts employers. The rich know the system and will prevent it from hurting them; the effects of the taxes placed on them will be transferred down to the middle class, whom they employ. Ever heard of trickle-down economics? This is trickle-down taxation.

Posted by: Gandhi at February 10, 2005 12:45 AM

Correction: end of paragraph 2 should read “See, it’s NOT really oppression from the rich that keeps the poor from escaping the cycle”.

Posted by: Gandhi at February 10, 2005 12:48 AM

Gandhi, you are in more serious need of a math course than any political debater I know. Follow this:

$5.15 per hour times 40 hours per week = $206.00. Take away 19% for taxes (income and sales) that leaves $166.86 per week. Ok, assuming 4.2 weeks per month, that makes a monthly income of $700.81.

Rent and utilities for an apartment is a minimum average of $500 per month. That leaves less than $50 per week for food and nothing for health insurance, life insurance, a car and gas and maintenance for it, let alone school lunch money, clothing and Dr. bills for the kid(s), and nothing for books, movies, cable TV, a computer, internet service, school supplies, dental checkups, prophylactics or the pill, or the many other dozens of items the middle class purchase in a month’s time to keep themselves socially, psychologically and physically in a state of well being.

Sorry, bub, but you don’t have the first clue of what it is like to be poor in America. Not the first clue as evidenced by your comments above.

Posted by: David R. Remer at February 10, 2005 01:03 AM

David, you completely missed the point of my comments, which was that anyone who privately invested the same money that goes into Social Security would do much better - hence my use of $5.79 instead of $5.15. “Better off” and “well off” do not mean the same thing. I never said that working a minimum-wage job was comfortable, and that wasn’t my point. I grew up as a poor kid.

No one who earns minimum wage supports a family at only 40 hours a week. In fact, most people anywhere work more than 40 hours a week. My dad probably worked 60-70 hours most weeks when we were poor.

Corrections to your math:

* Recalculate your figures with the 55 hours a week I used in my illustration.

* Recalculate your income tax after taking out the exemption. People earning minimum wage pay virtually no income tax.

* Tell me what state you’re in (there’s no sales tax in my state)

By the way, the lowest math SAT score in my family is a 790. I know my arithmetic. Go ahead and check my figures on all the other posts I made on Social Security.

Posted by: Gandhi at February 10, 2005 01:59 AM

Gandhi, you miss the point of my comment. Someone earning $5.15 or $5.79 an hour, even at 55 hours a week, is not going to be able to afford death or disability insurance which the SS program provides. Low wage earners would not have sufficient savings to equal SS death or disability benefits in the best of stock markets for decades.

The privatization plan just will not provide the same anti-poverty insurance benefits to low wage earners that the current SS program does. A poll just released indicates the majority of Americans, while believing SS is headed for bankruptcy decades from now, DO NOT buy into the President’s plan. Common sense for working Americans dictates that SS be saved, not replaced by a forced 401K plan. The people know SS is an insurance program and given the uncertainty over America’s economic future in the headlines on a weekly basis, they know what is in their best interest. An insurance program insuring they don’t fall into poverty regardless of what the markets do, an insurance plan that pays benefits to a surviving spouse and children if if the bread winner dies or is disabled is just not worth trading in for a retirement plan that may or may not pay off when retirement years come.

Especially if politicians continue along this path of bankrupting our economic future with ever increasing trade deficits, budget deficits as far as the eye can see, and globalization of jobs and business leaning increasingly toward Eastern and South Eastern nations for as far as the eye can see.

The American people may not be very saavy on political philosophy or international diplomacy, but, they do know their are billions in profits to be had by DC lobbyists if their FICA money goes private, and they don’t like to be suckered in this fashion.

They are also right to question the honesty and integrity of a President who tries to sell the American people on a suspect SS reform after seeing how he and his party reformed Medicare from a 350 billion dollar reform into a 780 billion dollar windfall for the pharmaceutical companies and lobbyists, guaranteeing bankruptcy of Medicare long, long before Social Security even begins to experience financial difficulty.

Posted by: David R. Remer at February 10, 2005 02:56 AM

David - I don’t know how many times I have to say it, but I’m not a defender of the President’s specific plan. I’m more in favor of gradually dismantling the program. Want to keep death & disability insurance for the poor? Fine by me - just do it honestly as a verbatim government handout, instead of pretending to the poor that they earned it through “paying into” the Social Security program. The way SS is invested, no average poor person will ever put enough into the system to pay for the benefits they get out. At least the IDEA of IRAs, apart from the logistics, is a more honest way to handle the program. Kirk has already addressed this issue, and I refer to him for discussion on it.

But as far as the actual money that the poor or anyone else are putting into SS, they are being robbed. Give them their money back.

The President has asked for anyone with good ideas to bring them to the table. Once again, I’ll ask you the same question. Do you have a better idea for fixing SS? (If you still don’t think that it needs fixing, I suggest a detailed reading of my earlier posts on SS - which are no longer on the main page of Watchblog).

Posted by: Gandhi at February 10, 2005 10:53 AM

Gandhi,
This is a nice story you have told. Unfortunately, I don’t think it’s most minimum-wage workers’ story. If this mythical minimum-wage worker meets EVERY SINGLE ONE of your conditions and assumptions, she’s laughing all the way to the bank. And we all know that’s how life works, right?

“We’ll assume that her wages stay in line with inflation.”

Minimum wage buying power has dropped 25% since the last increase in 1997. So, it hasn’t been keeping up with inflation.

“Help her to invest that savings at a 8%-above-inflation annual return.”

It’s funny how the Bush administration uses two different economic growth scenarios, depending on what they are talking about. When speaking about SS, an unlikely doom-and-gloom scenario is applied. If the same scenario is applied to private accounts (excuse me, we’re supposed to call them “personal accounts” from now on), they will be an abysmal failure. So of course, the best-case scenario is applied to private accounts. However, if the best-case scenario is applied to SS, then there is no crisis and SS is clearly in the black.

“Easily possible if she waits for the right investments”

IF she picks just the right combination of investments and IF she buys them at the right time (buy low sell high). So, now you’re expecting her to be able to predict the future? I’m just not sure she’ll be able to afford that crystal ball.

“Now let’s suppose that this same woman decides instead to start a home business.”

Boy, she must be some kind of superwoman. Raising her kids, holding down two full-time jobs (which would work out to closer to 70 or 80 hours per week), and still having the energy to start a home business.

“Taxing businesses always hurts employees more than it hurts employers. The rich know the system and will prevent it from hurting them.”

Treasury Department figures show that actual corporate income tax revenues fell to $132 billion in 2003, down 36 percent from $207 billion in 2000. Corporate revenues represented only 7.4 percent of all federal tax receipts in 2003. With the exception of 1983, this represents the lowest level on record going back to 1934.

How does this loss of corporate tax revenue help employees when the money is now going to have to come out of their pockets and when education, Medicare, and other social programs are cut? Over the past few decades, the tax burden has been steadily shifted from corporations to individuals. Audits of corporations and the wealthy are also on the decline, according to the IRS. So many aren’t even paying the historically low rates they’re supposed to be paying. How far can this trend continue? Last time I checked, corporations and the wealthy are still using PUBLIC assets like highways, hospitals, water treatment facilities, and the educational system.

Posted by: Ingrid at February 10, 2005 11:15 AM

Gandhi,

just do it honestly as a verbatim government handout, instead of pretending to the poor that they earned it through “paying into” the Social Security program. The way SS is invested, no average poor person will ever put enough into the system to pay for the benefits they get out.

So I guess you think it is fair that the police protect rich neighborhoods more than poor ones, because the poor don’t pay as much in taxes. To actually protect them would be a government handout, and should be labelled as such.

I’ve been accused of being idealistic by David, but I’ve got nothing on what I see in your arguments.

$0.64 an hour translates into $1760 a year. We’ll assume that her wages stay in line with inflation. Help her to invest that savings at a 8%-above-inflation annual return - easily possible if she waits for the right investments.

Who is going to help her find the right investments? How much is that going to cost? Do you think she has time while working 55 hours a week and taking care of her kids to carefully seek out real estate investing opportunities? How about the matching contribution from her employer? Remove social security and you’re taking that away, unless you think that minimum wage-employers will voluntarily pay out the additional money (if you think this will happen, you’re in more of a dream world than I think you are) or increase the minimum wage.

Now let’s suppose that this same woman decides instead to start a home business. She invests her savings of $0.64 an hour into making this business work.

what kind of home business can you start for 0.64 cents per hour? When will she have time to take care of her business and make it flourish between her kids and 55 hour work week? It would take years of saving to get startup capital for something like that. Imagine she gets sick, or her kids do. There goes the savings account!

Throw in all of the other things David mentioned above.

It’s also funny that you insist on specific plans for social security reform from David, when he’s offered several in multiple places.

Social security says that if you do your part to contribute to society (through working), the government will help ensure that you don’t end up on the streets when you retire, or if you are injured or disabled. It promotes work and responsibility. It’s not social darwinist capitalism, which may help you get rich sooner, but it’s a good program, funded by an equal if not greater share of income from the poor, so labelling it as a handout is an insult.

Posted by: brian at February 10, 2005 11:29 AM

Take away SS and people will have the decision to adapt and make better use of their money. If they’ve already been living on minimum wage, then taking that extra $0.64 an hour and investing it doesn’t affect their current standard of living; it remains their choice whether to invest that money, and choose to learn about investing, or to spend it and increase their standard of living.

That’s why my model is intentionally hypothetical and idealistic. You can’t force people to change, nor can you promise to them that everything will work perfectly if they “follow the right plan”. But giving them the choice to change is better, and in fact more compassionate, than dictating their future for them by forcibly putting ther money aside to “invest” in below-inflation-yield bonds. That belief is what makes me a conservative. My family would never have escaped the rat-race if we had let the government manage our future. Government aid out to be dedicated to teaching people how to escape the system, not keeping them in it by doling out “benefits” that they pay for themselves.

Ingrid, you don’t understand what a corporation is. A corporation is not a “thing”. It’s nothing more than a tool used by individuals to encompass assets. No matter what you tax, it will always have an effect on people. And it will be poor people who pay for it in the end. Milton Friedman explains this in his famous book “Free to Choose”.

Posted by: Gandhi at February 10, 2005 12:24 PM

Sorry, that should be “Government aid OUGHT to be dedicated…” (paragraph 2).

Posted by: Gandhi at February 10, 2005 12:26 PM

gandhi,

Take away SS and people will have the decision to adapt and make better use of their money.

There is no way a person living on minimum wage could afford the combination of disability and life insurance, coupled with a retirement program that social security is, on their extra 69 cents per hour.
Everyone except the rich contributes an equal share to social security. It is not a giveaway, and it is a good deal for the poor. It is a good deal for the taxpayer, too. Without social security, our choices are to pay welfare for those without sufficient savings when they retire, to pay welfare for pretty much anyone without insurance when they are disabled, or let those people starve. With social security, people pay in, relieving taxpayer cost. Benefits are distributed according to how much was paid in (I know it’s skewed for the poor, but still better than having no payment come in). It’s hard to imagine a more fair system. If you look at it as an investment system, with the aim of making everyone rich, it is not efficient. If you look at it as an avoiding-welfare system, it’s very efficient, for both those who are avoiding welfare and those who would otherwise be paying for it.

You may say that welfare isn’t the job of the government, that these people are just lazy and should take care of themselves. The great thing about social security is that it is targeted towards people who are not lazy, who have worked and contributed, and who are unable physically to take care of themselves because of age or disability.

Posted by: brian at February 10, 2005 12:54 PM

How about the matching contribution from her employer? Remove social security and you’re taking that away, unless you think that minimum wage-employers will voluntarily pay out the additional money (if you think this will happen, you’re in more of a dream world than I think you are) or increase the minimum wage.

Any intelligent employer would be willing to do that - there is no net change in what they would end up paying out, and they’d probably be happy to be paying the $0.32 a hour to their employees rather than to the government. The government could enforce the new policy by increasing minimum wage proportionately, and no one would protest. It’s not dreaming. It’s simple math.

Posted by: Gandhi at February 10, 2005 12:55 PM

Ingrid,

Taxing businesses always hurts employees more than it hurts employers.

Gandhi is absolutely correct with that statement.

When corporations are taxed do you think that management simply opens their “wallet” and pays the tax out of revenues? Please say no.

What happens in reality is that prices of the product or service produced by that corporation are increased to cover the additional taxes.

Your statement Over the past few decades, the tax burden has been steadily shifted from corporations to individuals is totally false. The tax burden has never been on corporations. As I said above taxes are a cost of doing business that corporations build into the selling price of their goods or services.

IF she picks just the right combination of investments and IF she buys them at the right time (buy low sell high).

Unfortunately with the dismal rate of return on SS she would not have to buy low and sell high to have a better return on investment. Over most any period of five years or more that you want to look at. Since 1928 stocks have consistently outperformed treasuries. The performance of stock compared to treasuries is greater over extended periods. However, even on 1-year periods stock have beaten treasuries 49 times (62%) out of the 79 one year periods returning an 11.51% growth compared to 5.14%.

5-year periods stocks outperformed treasuries 60 out of 73 times or 82% of the time.

7-year periods stocks outperformed treasuries 64 out of 71 times or 90% of the time

10-year periods stocks outperformed treasuries 64 out of 68 times or 94% of the time

12-year periods stocks outperformed treasuries 64 out of 66 times or 97% of the time

15-year periods stocks outperformed treasuries 63 out of 63 times or 100% of the time

A $100 dollar investment in the stock market in 1928 with compounded growth would have equaled $139,308.83 at the end of 2004. That same $100 invested in Treasury Bonds again with compounded growth would have grown to $4,331.30 by the end of 2004.

It does not take a genius to see that we can get a greatly increased return on our money without raising taxes if we allow individual accounts. The president has also repeetadly stated that participation in the individual accounts would be on a voluntary basis. If you do not wish to increase your return and consequently increase your standard of living in retirement that is your decision. However, do not shackle those of us who can see through the rhetoric from the left and want the benefits of individual accounts.

It is difficult for me to understand the diatribe coming from the left concerning individual accounts considering the fact that Democratic Senators Harry Reid, Bob Kerry, Daniel Patrick Moynahan, John Breaux, Chuck Robb, and Democratic Representative Charlie Stenholm all supported privatization in the recent past. Even Bill Clinton considered putting SS money into the market.

Now “Dirty” Harry Reid is all in an uproar over the very thing he advocated just a few years ago. Is it because he is so dead set against the president succeeding that he is willing to let the American workers suffer? Or is it that he has decided to become Tom Daschle Jr. and obstruct everything that comes to the Senate. Daschle paid the price and lost his job for being an obstructionist. Harry better open his eyes or his tenure as Senate Minority Leader will be short lived.

Posted by: Kirk at February 10, 2005 01:06 PM

Brian, I never said anything about people being lazy. This is what I said:

Want to keep death & disability insurance for the poor? Fine by me - just do it honestly as a verbatim government handout, instead of pretending to the poor that they earned it through “paying into” the Social Security program.

Social Security is not a maintainable program in its current form! Although it isn’t yet running a cash-flow deficit, it has been in deficit to itself from the day it started. The only reason SS can possibly be construed as a “good deal” is because it has managed to keep paying out benefits up until now. That will not happen forever.

Posted by: Gandhi at February 10, 2005 01:18 PM

But just remember, the stock market started going down in spring of 2000. The economy took a few months to follow. by Gandhi

At that time, Greenspan started raising interest rates as fast as he dared. (to help Bush win) I am sure some of the “friends of Bush” withdrew their money from the market, plus those who think “when interest rates go high, stocks die” got out of the market at the same time.

Raising interest rates can cause recessions and should be done carefully like they are doing now.

The republicans lowered interest rates too much. Interest was the only extra income most of the elderly and those who save could earn. The low interest rates are propping up the market and have wiped out extra income for a lot of people who save. It has forced people into the market in hopes of making up the loss of their interest earnings.

Republicans are good at wiping out their tax base of the middle class workers.

Posted by: Ann at February 14, 2005 05:51 AM