Third Party & Independents Archives

December 23, 2004

Bush Has a Brooklyn Bridge to Sell

President Bush’s touting of a Social Security Crisis has been somewhat successful in deceiving a majority of the public. According to the Washington Post Americans accept the crisis by about 74%. (Why Bush’s touting a crisis is a deception is discussed in the article entitled, Bush Selling S.S. Same as Iraq War). The Washington Post however states the public is not entirely sold on his stock market options. So, Reuters reports the President and conservative groups are going to launch a media blitz selling campaign.

The Washington Post reports:

The president also has at least general support from 53 percent of the public for the concept of letting people control some of their contributions to invest in the market.

It is on the specifics that Bush faces problems. Support dropped to an even split when people were told that the cost of the transition to a new program could reach $2 trillion over time, as some forecasts project. And 62 percent said they would not participate in such a program if it meant their retirement income would go up or down depending on the performance of their stock picks -- which is the essence of Bush's plan.

And herein lies the essential rub between Bush's plan to privatize up to 1/3 of the Social Security Program's revenues and public expectations. Under the current system, if you paid in you were guaranteed Soc. Sec. checks would be there by the Federal Government. Under Bush's plan, there are no guarantees to be obtained by playing the stock, bond, or treasury markets.

The President's media blitz sales campaign for privatizing Soc. Sec. is an absolutely necessary step toward pulling off his revamping of the program, since, opposition by the AARP, a host of consumer advocate groups, Democrats, and even a fair number of Republican Congress persons is a safe bet. But, with the bully pulpit and a lead in the media in touting his plan, one has to ask if opposition is going to appear as fearfully reactionary or just plain anti-Bush? Opposition has to convince the American public of two facts if they hope to nail Bush's privatization plan in its coffin. First, they must convince the public that there is no present tense-crisis save for the one privatizing will cause by punching as much as a 2 trillion dollar hole in the near term federal budgets. Second, they must extol and sell the public on the merits of saving the system through a combination of 1) means testing benefits and 2) raising or eliminating income caps on deductions.

The hard and realistic number crunching for both Bush's plan and saving the current system via the options listed above, has not been done yet, or at least, not publicized. The number crunching, despite media blitzes and opposition hyperbole should be the American people's deciding factor. They already know they want some guarantee that if they pay in to the system, the money will be there when they need it. The question is which plan can they afford to pay for today and for the rest of their working lives, which will most likely return what you paid in when withdrawal time comes? This is likely to be the overshadowing issue and debate of 2005, leaving the escalating costs of Iraq, diminishing federal discretionary budgets, and deepening American debt in the background, to be dealt with another year, or four.

The President is going to try to sell the American people on a retirement investment plan to replace the Social Security Insurance plan which currently exists. He won't put it that way. Because insurance implies a guarantee of payout, while the investment markets offer no guarantee whatsoever. If the American people want a guarantee for their payroll deductions, they ought to look very closely at the Brooklyn Bridge the President is trying to sell. Specifically who owns it?

The authors of the President's Social Security reform plan are the banking, investment, and asset management companies and corporations who bankrolled his reelection, as well as conservatives of a libertarian bent who believe people should not be helping other people through the government. It would be wise of the American people not to forget the boondoggle of a Medicare Bill the pharmaceutical corporations authored for the American people.

That Medicare Bill passed last year denied the public competitive bidding to lower the cost of Rx drugs under the plan, which in turn increased both current deficits and future payroll taxes to pay for them. And don't forget the donut hole in the Medicare Prescription drug plan which was icing on the cake for the Pharmaceutical companies. They knew Congress wouldn't get reelected if the price tag of the bill got too high. So through the Whitehouse, they low balled what it would cost to get it passed, and then gouged the elderly directly from their pocketbooks via the donut hole in the coverage.

The President's Brooklyn Bridge Social Security reform plan has very similar authors. The American people should be very, very leery of buying this bridge, because once bought, the sale cannot be revoked, and Social Security as an insurance plan against a low wage working life, or economic downturns will no longer exist.

Posted by David R. Remer at December 23, 2004 09:06 AM
Comments
Comment #39226

as I have repeatedly written on this very forum, social security harms poor people the most- by forcing them into an inefficient (by all measures) retirement system with their very limited resources. Since well-off people have plenty of money to invest after the government raids their paychecks to throw into the sink-hole of social security, they dont have to suffer the same pennies on the dollar retirement that those who are forced to have all of their retirement money in social security are. All Bush’s plan does is allow ALL people to have a shot at the better (on average) returns that people of greater means currently get on most of their retirement investments. Even if you are right, David, and social security is not on its way to going broke- its still a terrible system. It basically says that people are so stupid and irresponsible that we are willing to force them into an admittedly bad investment. It is the most obvious and sickening kind of paternalism.

Also, i think its interest how the AARP is opposing this. I thought that Democrats had decided that the AARP had sold out to Bush by support his bloated medicare plan?!! This just backs up the point i made then- their support for his medicare plan was because they saw it for what it was- a huge give away to seniors. And the Democrats, who tried to start a defection from the AARP because it was now in the pocket of the Bush administration, where just angry because Bush had delivered the perscription drug plan that they had always wanted to give out. After all, the person who gives out the goodies generally gets the votes from those to whom he gives goodies to!

Posted by: Misha Tseytlin at December 23, 2004 11:06 AM
Comment #39228

Your comment, Misha completely disregards the millions of Americans who benefit from the insurance aspects of Soc. Sec. You must not be close to anyone who has been disabled after contributing to SS, or who has lost a bread winner and is trying to raise the kids on one wage instead of two, and often a lower one.

Is SS without its flaws? No. Is privatizing going to be a panacea? No. Privatizing however will end the socities insurance policy with its citizens and familes who fall victim to misfortune like disability or loss of a bread winner. Come up with a replacement insurance policy which SS currently provides that is affordable to the working poor, and we can find common ground for discussion. Till, then, we have none on this issue.

Posted by: David R. Remer at December 23, 2004 11:17 AM
Comment #39234

David,
Wouldn’t the irony of Bush’s be that the folks that invest their 1/3 of Social Security truely need S.S. because they lost their shirts investing in their own retirement.

Posted by: Rocky at December 23, 2004 12:14 PM
Comment #39243

As I wrote in the very similar thread below, I have experience with the government sponsored Thrift Savings Plan. (www.tsp.gov) This is probably the kind of “privatization” the Bush plan would entail. It is a very easy to understand and useful option. I stuck with the stock fund through the dot.com crash of the late 1990s and past the 9/11 downturn. I regret that I could have made more by timing, but the bottom line is that my TSP has more money in it than I put in - and after about 15 years of contributions it has enough to pay out greater sums that SS promises every year almost onto the end of the world if we assume a modest 5% average growth. Even at zero growth (something that never has been the case for a diversified portfolio any extended time in U.S. history) it could pay out the average SS benefit for more than 25 years. This is the kind of risk I can easily live with. I will also point out that government workers don’t make grand salaries, so this kind of return is available to most people.

To steal a phrase and use it in an entirely different context, I have seen the partially privatized future … and it works.

There is a story about a clever union boss, who got his employer to agree to all his demands for salaries and benefits. When the negotiation was almost finished, he made one last demand. “Guarantee me that you won’t go out of business because of these benefits,” he demanded.

The moral is that you can get someone to agree to a lot of things, but ultimately nobody can agree that they will be able to live up to their agreements. This is what proponents of the status quo in SS are asking. They are asking the USG to promise to continue to keep its promises in 2045 and beyond. This generation of government officials can make the promise. They can even intend to keep it. But it will be up to the next generation of officials and taxpayers to make good on it.

When the ratio of workers to retirees falls too low, as it will unless we vastly increase immigration (it is already too late to have more babies) and/or retirees in 2045 choose to slip this mortal coil a lot earlier, that generation will renege on the promises that this generation made to itself with their money. I will support that duplicity. I don’t think it is fitting or proper to ask young people to pay the bills to pay all the bills for us old guys, who refused to fix Social Security when we had the opportunity. John D. Rockefeller knew something about money. He said, “save when you can, not when you must.” Let’s take his good advice.

Posted by: Jack at December 23, 2004 01:55 PM
Comment #39286

Jack, I fail to see how your plan could have generated such large returns in light of your having left the investments in place through the tech bubble downturn years. Are you sure you are including ongoing contributions to the plan from your payroll and company matching contributions to your earnings?

I avoided the worst of the bubble transferring most funds to the bonds and fixed interest options, thus minimizing much of the losses. However, the earnings for 2000 and 01 came to only 2.1% and I took a small loss in 2000. What you describe does not make sense considering the markets trend lines those two years unless ongoing payroll and employer contributions exceeded your losses.

Posted by: David R Remer at December 24, 2004 07:46 AM
Comment #39288

Rocky, given the ever growing nat’l. debt and trade deficits, that could turn out to be a very realistic irony indeed.

Posted by: David R Remer at December 24, 2004 07:57 AM
Comment #39295

David, your argument assumes that people are either too stupid or too lazy to purchase insurance on their own (or even if they are, that you have the right to cure that stupidity or laziness)… A private system that copied social security’s insurance aspect would quickly arise (given demand) if social security were abolished. I, for one, believe people have the right to make the choice whether to spend their hard earned money on such insurance. I do not believe that I know better for someone and their family how to aportion their limited resources that they earned through their own hard work. Advocates of social security do.

Posted by: Misha Tseytlin at December 24, 2004 08:48 AM
Comment #39296

Misha, what my argument assumes is if millions of elderly are forced into homelessness and poverty for whatever reasons, American tax payers are going to pick up the tab to prevent them from starving and freezing to death on our streets and alleyways.

SS insures that masses will not face that kind of end to life. Whether they are stupid, infirm, disabled, or just committed by circumstance to low wage jobs all their lives, they will die inhumanely if they are poverty stricken. Is it not better to require them to pay an insurance premium from their own earnings than to face decades of rescue work for millions after bankruptcy and homelessness have destroyed any vestige of dignity in aging and dying?

Your assumption is either that they should die inhumanely if they had not the wit or means to save, or, that the tax payer should rescue them later at higher cost then to insure them today at lower cost, or that the Elymosenary system of Charles Dicken’s years is sufficient. I simply cannot and will not accept any of those assumptions, nor will the majority of Americans if put to them.

Posted by: David R. Remer at December 24, 2004 09:31 AM
Comment #39297

What you are missing is that your social security system is one major reason why these low-wage earners cannot save for their own retirement. It is a way to keep people beholden to the system and the government ratherthan allowing them men and women of their own means.

My argument does assume that some people will end up with nothing at the end- but if you are correct about the American people, they will not stand for it and give to charity to help the few who fall behind from starving. That is their right, and I think Americans, giving more than any other people to charity (#s wise) will take up that challenge. But these will be exceptions- and the rule will be that working poor will have more money to retire the more we move toward a market system and away from the horrible inefficiency of social security. The fact social security advocates simply refuse to face is that the average person is made worse off under their system- a fact that ought not be ignored in the paternalistic quest to take care of those who are, apperantly, too stupid to take care of themselves.

Finally, you completely fail to address the rights argument I put forth. I believe people have the right to plan for their lives as they see fit- i see no justification for to intrude into their lives, take from their pocketbooks, and put it into a system that you deem “worthy.” We a country founded upon principles of individual rights (see the decleration of indepedence), and no ammount of your belief that government knows better for people how to save for their retirement can rightful take away someone’s right to pursue happiness with the money they earned as long as they harm no one else… just as the majority cannot take away my freedom of speech, so they have no right to take away my freedom to plan for my retirement as I see fit. Once they do, they are substituting their will for my rights- and undermining what this country was built to stand for.

Posted by: Misha Tseytlin at December 24, 2004 09:40 AM
Comment #39307

Misha,
You’re right, we should give S.S. to another level of bureaucratic level of baloney.
Why should the Feds be the only ones to make a profit off of S.S.?
Lets let Wall Street run wild.

Posted by: Rocky at December 24, 2004 12:24 PM
Comment #39312

No, Misha, it is low wages that prevent them from saving for retirement. Even if you ignore the volume of research and literature regarding saving behavior, common sense dictates that the poor and lower middle class in this society have far more wants than resources to satisfy them - hence, little or no savings. Love of self and family dictates poorer folks spend what they have on necessities and as much improvement in the lives and opportunities for their children as possible. Hence, they sacrifice their retirement for the needs and opportunities of the present.

Raising children is very, very expensive in America. Aside from health care, braces, after school activities like gymnastics, karate, soccer, basketball, there are the cultural opportunities, school trips to Washington, summer camps, theater, concerts, — all of these can and do consume any and all discretionary income in a poor or lower middle class parents earnings. It is a sacrifice by the parents when they spend on the quality of the present and future of their children via improved housing in improved neighborhoods.

It is very expensive to raise children. Would you have the poor and lower middle class sacrifice the opportunities, security, and enrichment of their children’s lives in order to save for their own retirement so you can get out of Social Security? That is what you asking.

Posted by: David R. Remer at December 24, 2004 02:24 PM
Comment #39318

I am saying they have the right to make that decision with the money they earned. You didnt earn that money, so you have no right to tell them in what way to spend it. Without social security taxes they would have more money to save- whether they save is no business of mine or yours.

Posted by: Misha Tseytlin at December 24, 2004 06:14 PM
Comment #39321

Misha, they can’t and won’t save. Then when they retire they will become a liability upon the tax payers anyway. Best they be forced by law to contribute to their own retirement, which they otherwise would not do in deference to the needs of their families. Thus preempting their liability upon society en masse when that generation retires.

Misha, take a look at the numbers. 10’s of millions of Americans earn less than $14 per hour. NY Times ran an article earlier in the week stating the numbers show the average American must now make a minimum of $15 per hour just to afford a 2 bedroom apartment in America. This number of millions of low wage earners will not save if given the choice. But, given the insurance aspects of SS, they won’t vote against SS. Most of the low wage earners want SS to remain solvent. So, it is a good deal for the less wealthy and a great deal for society since as a whole since when they retire they won’t be such a burden on other’s tax dollars since the law reqired them to make their premium payments during their worklives.

Their simply isn’t a better arrangement. You advocate anarchy, let each fend for himself. This society is greater than that and SS takes care of the children of dead wage earners, the disabled, and the low wage earner retirees.

You have yet to offer a plan that effectively deals with dying with dignity in America amongst the poorer of its members. You stick to your libertarian to each his own philosophy but, offer nothing better in the way of a plan to fulfill the same social needs that SS does and improve upon it.

Posted by: David R. Remer at December 24, 2004 07:17 PM
Comment #39327

David

Ten year compound returns on the stock fund from 1994 – 2004 were 10.99%. This included the three down years 2000, 2001 and 2002. You can check the figures at http://www.tsp.gov/rates/monthly-history.html. So anyone who made biweekly contributions throughout the period and stuck with fund did well. Of course, it would have been better to know the future and get out in 2000 and come back in 2002, but even without the benefit of such foresight, people did fine. A lot of the grumbling comes from people who were counting their chickens before they were hatched.

Markets go up and markets go down, but over the period of 80 years from 1924 – 2004, they have gone up and gone up a lot. This period includes World War II, the Great Depression and many other shocks. If we only measure the most recent twenty year period started under Ronald Reagan, the returns are even better. Unfortunately, mostly the rich have benefited up until now. President Bush’s plan would extend the possibility of ownership to more Americans.

Posted by: Jack at December 24, 2004 11:47 PM
Comment #39331
So anyone who made biweekly contributions throughout the period and stuck with fund did well.

And anyone who made a wrong choice lost money. That’s the difference between Social Security insurance and playing the market, isn’t it.

If we only measure the most recent twenty year period started under Ronald Reagan, the returns are even better.

How about if we only measure the period from 2000 to 2003? How about 1929 to 1932? 1987 to 1989?

If you invest money during a downward trend, you’re just throwing it away. Anyone who thinks Bush’s private accounts are a good place to invest money through up AND down trends is a fool.

Unless you can micro-manage your account full-time like some Warren Buffet-type investment guru, you’re better off with the current Social Security insurance system. From my pathetic attempts to manage my 401(k) and play the market, I know I am.

Posted by: American Pundit at December 25, 2004 04:05 AM
Comment #39337

You describe the bad years for the market. In a forty year working life, you would live through some bad times, but the good times would more than make up for it. And remember, you are investing in good times and bad times. When the market dropped in 2000, it was a buying opportunity. Of course, it is unpleasant to be buying into a falling market, but nobody knows when it will turn. Actually better advice would be not to buy into a fast rising market. A lucky investor would have sat out 1998 and 1998 and returned to the market in 2002, but if we were all that smart, we would all be rich. The fact is that there are no examples of successful market timers in the long run.

Warren Buffet is not a market timer. That, in fact, is his claim to fame. He holds onto the stocks in his portfolio for a long time. A modified buy and hold strategy works for most investors. You buy the same (or a growing) dollar amount of stocks on a regular basis, through up and down markets. You don’t get the satisfaction of making big money, but you make money.

Most investors should base their portfolios on index funds and make no attempt to “play” the market. When they have a comfortable cushion in index funds, they can explore individual stocks. A portfolio that includes index funds for large cap U.S. stocks, small cap U.S. stocks and some international index funds will do well. Smart people also invest in real estate (usually by owning their own homes) and keep some liquid investments for emergencies. I would not dare to guarantee the performance for the next year, but over the course of a working life, I would be willing to be my entire fortune that such a strategy would pay off.

People attribute too much mystery to the stock market. Historically, it has not been hard to make money in stocks. The trend is up. I am not talking about millionaire returns, but enough for an ordinary person. Stock investing has long been the preserve of the wealthy. We should allow ordinary people the option, and that is what the Bush plan will do. I believe that allowing people the option of investing some of their own money in markets is the only way we can keep SS strong enough the take care of those who really need it.

Posted by: jack at December 25, 2004 11:10 AM
Comment #39359

Jack,
At its best, the stock market is a roll of the dice.
Those that can afford to buy blue chip stocks can usualy afford someone to watch them and make the nescessary changes in the portfolio.
I don’t know if the average citizen has either the time or inclination to make the decisions that will make a profit investing their own money.
So, now we turn the public loose with this largesse, to do with as they will. Some will make it, many won’t.
What do we tell the folks that don’t invest wisely, oh well sucks to be you?
So far we have had a system (pilfering aside) that has worked. Congress has had its eye on the S.S. money for a long time. Maybe a slight tinkering is nescessary. Wholesale changes are not.

Posted by: Rocky at December 26, 2004 12:02 PM
Comment #39374

I really don’t understand all the fear of the stock market or of the president’s proposals.

You don’t have to be that very smart or particularly active to invest in stocks. If a person retiring tomorrow had over the 45 years of his working life (starting in 1960) had simply bought some shares of an index fund (indexed to the S&P 500 of Dow) and did nothing but that (no timing etc) he would have earned a compound average of more than 10% a year. If he invested $100 a month, he would have more than a million dollars today.

The stock market has been a place for those already well off and/or economically intelligent to make more money. The problem for ordinary people is that they have been unable to participate in this money factory. One reason is their attitudes and fear, but more important is simply lack of money. The Bush plan would remedy this and give more people a stake in the free market economy.

It is not an either or proposition. Nobody wants to completely privatize Social Security. Even in a winning market, there will always be those unable, unwilling or unlucky. And there are always those who are just too greedy to make money - always looking for the big win. But we need not hold everyone to the lowest common denominator. Beyond that, by allowing those who can to more effectively care for themselves, we free resources to help those really in need.

Posted by: Jack at December 26, 2004 02:05 PM
Comment #39377

Jack,
If we don’t envision the worst we won’t be prepared for the best.
I don’t doubt that there will be those that will be frugal and reap the benefits.
There are, however, those that have never had money before, those below the poverty line, those with the most to lose. These folks wouldn’t know what to do, other than to improve their imediate needs. These are the folks I worry about.
Jack I have had, in the past, to live from day to day. I know what it is like to eat rice and beans because it was all we could afford. Thankfully those times are for me, long past, but there are loads of those folks still out there trying to make it on minnimum wage, who can’t see past today. They have children that will never escape the trap their parents are caught up in.
It has been said that a rising tide lifts all boats, well lets hope some of us have bigger boats to accomadate those that have none.

Posted by: Rocky at December 26, 2004 02:46 PM
Comment #39383

Jack said: “Ten year compound returns on the stock fund from 1994 � 2004 were 10.99%. This included the three down years 2000, 2001 and 2002. You can check the figures at http://www.tsp.gov/rates/monthly-history.html.”

Jack, take a look at the footnote at the bottom of the graph you noted: * The returns shown reflect the actual performance of the S and I Funds for May 2001 and subsequent months. For the first four months of 2001 and for prior years, the S and I Fund returns shown reflect the performance of the Wilshire 4500 and EAFE indexes (without deduction of any administrative expenses, trading costs, or investment management fees), respectively.

This is fancy deceiptful accounting practice as far as I am concerned, apples and oranges. They took out all of the fees etc. for the down years, and left them in the calculations for the up years. Apples mixed with oranges. The losses during 01 to 04 were greater than reported when you add in the management fees, and admin. costs.

So let’s say someone started 1994 with 1000, by 2000 they something like 2000, and then lose all their earnings plus some of their savings from 01 to 04. This is the danger for retirement accounts. If one builds for 40 years market investments of 1,000,000, and then hit a down market the last five, they could easily end up with no earnings and should be thankful is still have all their principle intact. The losses at the end of an investment period are far more catastrophic than losses in the beginning of an investment period. Which is why advisors advise to move funds to less and less risky and lower earnings return investments as retirement approaches. But, Bush has already come out and said the investment options will be low risk in the first place, which means the kind of returns you are talking about are likely not be available as options.

So, we are back to modest growth in the markets vs. COLA adjusted guaranteed for as long as you live SS under the current system. A no risk COLA adjusted SS as we have now is a better deal for low wage earners, hands down.

Posted by: David R. Remer at December 26, 2004 06:52 PM
Comment #39389

If you make one investment one time, you might have the bad luck to buy at a high. But you won’t be doing that. You will be buying stocks throughout your working life. You will have forty years of up and down markets. At the end of that time, you will have made money.

As I understand that current proposal, the Bush plan gives participants the option of investing some of their own contributions in market investments. If people are willing to take the risk, we should let them. It is probably true that some will be worse off, but most will be better off.

The reason the TSP doesn’t include fees for the I and S fund in earlier years is that they were not available as investment options. There is no trick. Look at the C fund, which was available if you want to see the rate of return.

Anyone who invested with the C fund beginning in 1994, made the regular contributions throughout the period and stuck with the program made money at it. There is no exception and no trick. A person who made $43,318 (the medium U.S. income) and invested 10% of his income would have $ 78,526. If you kept it up for a 45-year working life, you would have 5.5 million. Even if you suffered a catastrophic loss of 50% in the last year, you would still do all right. The last ten were better than usual, but we still would do okay with investments.

That is the power of compounding in investments. President Bush wants to make ours an ownership society, where people would have financial freedom from the government, if they chose to save.

Posted by: jack at December 26, 2004 08:15 PM
Comment #39391

But Jack, as I continue to repeat, the opportunity cost of privatizing SS is to end SS forcing everyone into the investment scheme, which offers no guarantees, and when your savings are gone, that’s it, go die! There is no insurance for disability or loss of a loved one, though, I suppose the Privatization legislation would allow for such events and permit the surviving spouse to withdraw the funds early, with the classic GOP penalty of 10% for early withdrawal.

Under the privatized plan, if a surviving spouse has the misfortune of being left with little in the privatized accounts due to lack of contributions or down markets, and she or he is just out of luck for the themself and the kids.

The opportunity cost to low wage earners, and there are more and more each year of not having a guaranteed SS survivors and child’s insurance benefit and retiree benefit when all else fails or is gone, is a very, very high cost. NOT to mention the fact that there is little doubt in my mind that the privatized SS will eventually let employers off the hook for their matching contribution, which will cut your savings in half. Earn more in the markets with half the principle. Why does that math not seem to make sense, eh?

You know, if Bush, et. al, are so confident of future earnings, why don’t they just modify the current system to place all SS revenues into the markets managed by private firms for all recipients. That would avoid the 2 trillion dollar hole in our budgets and national debt, provide the future earnings Bush is so confident in, and produce enough to even avoid means testing benefits.

The answer is because they are not that confident, they don’t want insured savings for American workers, and they don’t like government underwriting bad economic times for workers. Philosophically, the GOP wants to end the current SS system and privatize it for those fortunate enough to capitalize off it, and leave nothing in place for those who are not fortunate - they can rely upon the kindness of strangers to paraphrase Tennessee Williams.

What is making politicians look bad is their lack of fiscal discipline. Get rid of SS and Medicare as we know it, and fiscal management suddenly looks rosy again. This is bait and switch. I say we hold them accountable to the responsibilities outlined in our laws and Constitution and put their feet to the fire and force them out of office or make SS insurance work for all Americans by means testing, ending contribution caps, and elevating minimum wages so SS revenues increase dramatically.

Posted by: David R. Remer at December 26, 2004 09:17 PM
Comment #39412

We can’t keep the current system. It is heading toward a brick wall. Just because that wall is some distance away, doesn’t mean we shouldn’t make wise moves now to avoid the collision. The problem is not political will.

At some point in our lifetimes, the ratio of wage earners to SS recipients will drop too low. Raising contributions and raising limits can keep the system solvent, but we have to ask ourselves how much of our national income do we want to devote to supporting retirees. It seems like a cruel question, but there are limits. I will be retired (if not dead) when the SS fecal matters encounters the cooling device. I don’t think it is just that my children and grandchildren pay a large percentage of their incomes so that I don’t have to take steps to help care for myself.

Beyond that, I don’t think the wage earners of 2045 will be willing to support the oldsters in the style to which they have become accustomed. Consider this, many people in our generation have not had any children and our generation as a whole has produced a number insufficient to run the economy in 2045. I hope my own kids will feel some affection for me and be willing to support me. But people who have not contributed workers to the economy will not enjoy those bonds of affection, and I don’t expect an immigrant from a poor country to feel the same sympathy for keeping the old Americans in a style they may consider extravagant.

As we agreed in other parts of this blog, the lockbox is a valuable concept that would help expose the government spending to public scrutiny, but there is no fund and no savings today that could pay for tomorrow’s needs.

SS is a transfer payment system. Current wage earners support current retirees. I won’t repeat what we said before beyond to remind that we cannot save through the government for tomorrow’s retirees.

Social Security reform around the world has been based on three pillars. The first is a government program like we have today. The second is mandatory private savings and the third is voluntary private savings (like TSP or 401K). All three are useful in their own way. The Bush plan does not propose to do away with traditional SS. It will be strengthened and supplemented by letting those who can invest their own money.

I think what people really fear and dislike is that this reformed system will produce equal results. We can take steps to protect everyone, but some people, left to their own will produce better results. While I can understand this objection, we can’t base our policies on envy.

Posted by: Jack at December 27, 2004 11:02 AM
Comment #39514

I remember a similar idea he had a while back. Lets invade Iraq because they have WMD’s . This Social Security plan is just as flawed as the Iraq idea. Time to throw in the towel Bush. Remember Nixon? At least he had the balls to admit when he made a mistake.

Posted by: LLBBL at December 28, 2004 07:11 PM
Comment #39717
Most investors should base their portfolios on index funds… blah, blah, blah… comfortable cushion… explore individual stocks… blah, blah, blah …portfolio that includes index funds for large cap U.S. stocks, small cap U.S. stocks and some international index… blah, blah, blah.

Haha! Dude, most Americans believe angels are real and Saddam masterminded 9/11. You can’t ask every American to be that market savvy. It’s just not realistic.

Posted by: American Pundit at December 31, 2004 04:47 AM
Comment #39744

David / American Pundit

And herein lies the essential rub between Bush’s plan to privatize up to 1/3 of the Social Security Program’s revenues and public expectations. Under the current system, if you paid in you were guaranteed Soc. Sec. checks would be there by the Federal Government. Under Bush’s plan, there are no guarantees to be obtained by playing the stock, bond, or treasury markets.

David, new article same flawed math you used in “Bush Selling S.S. Same as Iraq War.” One more time let me debunk the scare the old folks tactic.

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.

So based on the above the actual impact of the voluntary transfer of 2% of the FICA Tax to privately managed accounts at the most impacts the overall FICA Tax collection 16.129% 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.

Privatizing however will end the societies insurance policy with its citizens and familes who fall victim to misfortune like disability or loss of a bread winner.

Again, this is simply false. If you allow PSA’s and 100% of the eligible Taxpayers participate at most 16.129% of the current FICA Tax collections will be redirected into the PSA’s. That leaves 83.871% to fund the “insurance” portion of S.S.

But Jack, as I continue to repeat, the opportunity cost of privatizing SS is to end SS forcing everyone into the investment scheme, which offers no guarantees, and when your savings are gone, that’s it, go die! There is no insurance for disability or loss of a loved one, though, I suppose the Privatization legislation would allow for such events and permit the surviving spouse to withdraw the funds early, with the classic GOP penalty of 10% for early withdrawal.
Unless you can micro-manage your account full-time like some Warren Buffet-type investment guru, you’re better off with the current Social Security insurance system. From my pathetic attempts to manage my 401(k) and play the market, I know I am.

President Bush has repeatedly stated that the PSA’s will be on a purely VOLUNTARY basis. No one will be forced into PSA’s.


American Pundit, ff you think you are better off by sticking with the current plan then by all means please do so. But, do not deny those of us who see the current system that is heading for the cliff and want to use a whopping 2% of OUR money to try and salvage something for the years of FICA Tax payments.

Fidelity Investments last month reported that its annual “Building Futures” study shows the percentage of eligible workers participating in 401(k) plans dropped two points from 2002 to 2003 and now stands at 66%. About 25% of 401(k) plans reported that participants contributed an average of 4% of their salary or less, according to a recent study by Mercer Investment Consulting.

I would imagine that the rate of FICA Tax payers electing to participate in PSA’s would not be more than the rate of those taking advantage of 401K plans. That being said, the overall impact to the current FICA Tax receipt of the 2% PSA’s would be only 10.6%, leaving the remaining 89.4% to fund insurance and those of you not electing to participate in PSA’s.

Posted by: Kirk at December 31, 2004 02:31 PM
Comment #39774
I would imagine that the rate of FICA Tax payers electing to participate in PSA?s would not be more than the rate of those taking advantage of 401K plans.

I suspect it will be substantially less. We saw the same effect with the prescription drug ripoff. Nobody wanted anything to do with it.

If the goal of this partial privatization is to stave off a phony Social Security crisis, what will be the effect if very few people sign up?. Disaster, I suspect.

But don’t worry, I suspect we’ll see the pharmaceutical industry lobbying for mandatory participation in the prescription drug scam (if they aren’t already), and financial institutions lobbying for mandatory participation in privatized Social Security accounts. I suspect they’ll get what they want.

In any case, partial privatization by itself is theoretically revenue neutral (except for the initial two trillion dollar loan we take out to cover it), it doesn’t solve the (phony) problem. Only cutting benefits will do that. Good luck.

In a way, I hope Bush pushes really hard for this. Democrats, the AARP, organizations like MoveOn.org, are all going to have a field day running ads showing how Bush’s plan will kill babies and the elderly. It’ll be like the GOP’s reaction to Hillary’s healthcare reforms.

Posted by: American Pundit at January 1, 2005 12:16 AM
Comment #39784

American Pundit,

I hope Bush pushes really hard for this.

Finally something that we agree on.

Maybe that way I will actually be able to get something in return for all the FICA Tax dollars SS has taken from my pay check all these years.

Posted by: Kirk at January 1, 2005 04:06 AM
Comment #39796

Kirk, thank you for telling us your true motivation for ending SS and the insurance aspects of it which keep so many millions of Americans from falling into poverty. It appears from your comment above that you are afraid that if nothing unfortunate happens to you, your FICA deductions will go to someone else less fortunate.

I am proud to be an AARP member supporting the lobby group that understands that the difference between revolutions in Chile and the stability of society in the U.S. is Social Security, unemployment insurance, FEMA and other programs that prevent people from revolting against the government because the government protects and provides for its citizens when misfortune befalls them. Especially when that misfortune could and should have been prevented or lessened by the government.

Social Security is an insurance against a low wage work life or an abrupt end to one’s working life. Private Savings Accounts are a means of higher waged workers who live through their worklives to retirement to keep from paying the insurance premium for their lower wage fellow citizens that preceded them making this country powerful and great.

The only thing wrong with the current SS system is that the benefits are not means tested which means we are paying benefits to those who don’t need them, and that the poorer workers pay premiums on their entire income while the wealthy do not. Change those two factors, and SS can insure Americans against poverty for another century at least.

Posted by: David R. Remer at January 1, 2005 09:27 AM
Comment #39809

David,

Have you actually bothered to read anything I have posted? Or has your vision been clouded by your dislike for Bush?

You continue to use false assertions about the impact of the PSA’s on FICA Tax revenues, even though it has clearly been pointed out to you several times. So all I can assume is that you are following the standard practice of left of, if you say it enough even if it is a lie people will start believing it.

A minimum of roughly 84% of the current FICA Tax would remain for your “insurance” benefits! All that would need to be done then is some minor adjustments to current regulations. Don’t forget that SS paymnets are now taxed thanks to Clinton’s Tax increase. So us who would be more than happy to take the increased earnings potential of the PSA’s would be paying higher taxes in retirement. Helping to support the system.

Stop misleading everyone. If you still want to argue that the 16% of current FICA Tax revenues diverted to PSA will wreck the system then by all means do so. But do it honestly.

The SS system is on a fast track to the edge of a cliff. Many on the left have said exactly this during the campaign. So, this is not something that Bush is conjuring up to divert monies to the rich Wall Street Bankers. This is his attempt to get the current money in the system into interest earning accounts and out of the hands of Congress. Think about that. Any money going into PSA’s will be money that Congress can not get their hands on for the general budget. That means that at least 16% of the SS Funds will be protected which may be the only 16% left by the time I retire.

Posted by: Kirk at January 1, 2005 01:34 PM
Comment #39814

Kirk, I set out the facts. You are the one who is refusing to acknowledge the 2 trillion dollar hole the PSA’s punch out of the funding for the current and near term insureds of SS insurance.

You have failed to answer how SS can be saved for those electing not to go PSA since the PSA funding will draw down available surpluses for the conventional SS.

And until you do demonstrate how the conventional SS system can be saved along with PSA’s, you are unable to deal with the insurance against poverty which the current system addresses but, PSA’s do not for disabled workers not in the system for very long or for the children dependents of deceased workers who also have not been in the system long enough to build up funds to provide for their children until they are 18.

No, Kirk, it is you who appear to obfuscating the real hard questions, because you have no concrete answers for them. At least Bush is smart enough to avoid saying he has a plan, and insists all he has are principles. Since, Bush has said he does not have a plan, it is impossible for you to assert that it will be 2%, 1.5% or 3% that will be permitted to go into PSA’s.

I stipulated the premises for my arguments and they hold true given the premises given. I would mirror your suggestion that you read carefully what has been said and take your pro-Privatization blinders off and see the millions of potential current recipients who will lose out if PSA’s are implemented.

Posted by: David R. Remer at January 1, 2005 03:34 PM
Comment #39833

David,

Once again, at the very most a 16% reduction if everyone elects to use PSA’s. The insurance will not need to be saved, if as you say there is not a crisis.

Posted by: Kirk at January 1, 2005 10:17 PM
Comment #39857
Kirk, I set out the facts. You are the one who is refusing to acknowledge the 2 trillion dollar hole the PSA’s punch out of the funding for the current and near term insureds of SS insurance.

No David, you set out a portion of the facts. You choose to ignore the 6.2% of workers wages paid in FICA Taxes by employers. In this way you can make the 2% (which once again equals roughly 16 of total FICA Payroll Tax revenues) redirected into PSA’s appear to be nearly 1/3 of the FICA Tax revenues. This is at best disingenuous.

Under Bush’s privatizing plan, there is no insurance component.
Since, Bush has said he does not have a plan, it is impossible for you to assert that it will be 2%, 1.5% or 3% that will be permitted to go into PSA’s.

David, both of the above quotes were taken directly from your posts on the subject of Partial Privatization. Which is correct? Bush has a plan with no “insurance” component or Bush has no plan so it is impossible for anyone to know what that plan is? If it is the latter, then both of the strings you have started on this subject and you opposition to it are based on your suppositions and not on any kind of a factual basis.

However, let me assume that we go with the first and I will address once again the supposed lack of an “insurance” component.

The “insurance” component you speak of is exactly what the remaining 10.4% (which once again equals roughly 84% of total FICA Payroll Tax revenues) will be used for. A person who elects to use 2% of their FICA Payroll Tax for a PSA, will still have “insurance” benefits, only at a reduced level.

So that you can understand how I got to those numbers, I have included calculations below.

Current System:

Employee’s FICA Payroll Tax 6.2%
Employer’s FICA Payroll Tax 6.2%
Total FICA Payroll Tax 12.4%

Bush’s Plan
Employee’s FICA Payroll Tax 6.2%
Employer’s FICA Payroll Tax 6.2%
Total FICA Payroll Tax 12.4%

Minus PSA contributions 2.0%
Remaining FICA Payroll Tax 10.4%

2% PSA contributions equal roughly 16% of Total FICA Payroll Tax

2 / 12.4 = 16.129%

10.4% Remaining FICA Payroll Tax equals roughly 84% of Total FICA Payroll Tax

100% - 16.129% = 83.871%

Therefore, even if someone elects to take advantage of the 2% PSA’s contribution the remaining 10.4% of the FICA Payroll Tax will fund their “insurance” component.

I stipulated the premises for my arguments and they hold true given the premises given.

I agree with you on that point. The problem is that the premise you stipulated is seriously flawed.

1) By choosing to base your premise only on the Employee’s portion of the FICA Payroll Tax you greatly overstate any impact that PSA’s may have.
2) By suggesting that the remaining 10.4% of Total FICA Payroll Tax will somehow vanish and not be used to fund the “insurance” component and current retirees.
3) You do not consider that the PSA’s will be elective and not 100% of workers will choose to participate.

The information below comes directly from the CBO’s web site.

Long-Term Analysis of Plan 2 of the President’s Commission to Strengthen Social Security

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 year by the CBO that you reference is based on 100% participation. This is an unrealistic expectation if based on nothing else but the posts here. However, if you look at 401K participation rates of roughly 65% by eligible workers (where by the way employers typically match a portion of the contribution) you must expect the rate of workers electing to contribute 2% of their FICA Payroll Tax will be much less than 100%

Posted by: Kirk at January 2, 2005 01:16 AM
Comment #39858

Kirk, and what gives you the idea that everyone will choose to give up the insurance of SS for the risk of earnings on savings? Prudence and logic dictate that if the country is split down the middle about invading Iraq, there will be no huge majority electing PSA’s. Hence, as I predicted, PSA’s will gut the SS for everyone else. This is the same tactic as vouchers for private schools which has, and will continue, to have the effect of injuring public schools through diversion of funding to private schools.

Bush’s answer is to set SS up as a salvage ship for PSA’s for the mid to upper middle classes, those with decades in the work force, and the wealthy. Every board borrowed from the SS ship to build PSA’s brings the SS ship that much closer to sinking. Hence, it is Bush’s agenda to deprive the people of any choice, in the end. The very first step taken toward PSA’s will condemn SS to cease to be sustainable, and that will deprive as many as half or more of Americans in this country of any choice in the matter.

I don’t pretend to know Bush’s mind, therefore, I do not know if he is relying upon the rosy scenarios of his advisors with an agenda of their own, or if Bush does in fact see that PSA’s spell the death knell for the insurance aspects of Soc. Sec. Either way, wantonly, or through ignorance, his push toward PSA’s will impoverish as many or more than it enriches. It is a case of one size not fitting all.

Posted by: David R. Remer at January 2, 2005 01:21 AM
Comment #39860

Kirk, do you not understand what you quoted? The President said he has no plan, just principles. His words. The commission may have plans, but look at the one you quoted. It assumes 100% participation. That assumption totally invalidates everything said before.

And the quoted plan does not address the hastening of the bankrupting of the system for those who choose not to elect PSA’s, hence giving the people no choice, in the end.

The logic is inescapable, my friend.

Posted by: David R. Remer at January 2, 2005 01:27 AM
Comment #39866

David,

Kirk, do you not understand what you quoted? The President said he has no plan, just principles. His words. The commission may have plans, but look at the one you quoted. It assumes 100% participation. That assumption totally invalidates everything said before.

The quote concerning Bush saying he had no plan was from you, not something I quoted from the President. Franky, I do not know where you got your information. The point I was trying to make in using your two quotes was that first you say Bush’s plan has no insurance and then you say Bush has no plan. You can’t have it both ways. Either he has a plan that you can use to base your complaints on, or he doesn’t which means your complaints are based on your suppositions.

As for the quote from the Congressional Budget Office, you are correct that they assume 100% participation to arrive at their 2 Trillion dollar estimate. I also agree with your statement below.

there will be no huge majority electing PSA’s.

Therefore, you are correct that the assumption of 100% participation invalidates your claim that privatizing will cause by punching as much as a 2 trillion dollar hole in the near term federal budgets The CBO arrives at a 2 Trillion estimate over 10 years by assuming 100% participation which you agree will not happen. So, the estimate is greatly overstated and invalid.

The logic is inescapable, eventually you will see it clearly.

Posted by: Kirk at January 2, 2005 02:12 AM
Comment #39875

You play semantics and avoid the thrust of the argument. That’s fine. We have apparently led each other to water but can’t make each other drink, for our differing perspectives.

Fact is he is selling SS reform in the same way he sold the Iraq war, scare tactics about imminent threat that does not exist and offering a plan that sounds good but will have devastating consequences for the working poor in America, who, under the current system, are kept out of poverty by contributions made by themselves and the wealthy. Under the President’s principle of an ownership society, he seeks to insure the wealthy save for themselves rather than have their premiums support the disabled, survivors of a deceased worker, or the working poor at retirement.

When the President does come up with a plan, look for the economic voodoo that hides the demise of the current system’s insurance aspects under a cloak of everyone own’s their own savings and look for the increase in the national debt which will guarantee an earlier demise of the current system.

Posted by: David R. Remer at January 2, 2005 05:11 AM
Comment #39908

David,

There are no semantics involved on my part. I have shown you the errors you continue to cling to through simple mathamtics, direct quotes from the Congressional Budget Office and the IRS Website.

You continue to follow the “Chicken Little” path and scream the sky is falling based on half truths. Once you agree to look at all the information available rather than only the portion that helps you make your claims of impending disaster, you will have to at a minimum greatly tone down your claims.

The only voodoo I have seen here is the slight of hand you use to hide the employers 50% of the FICA Payroll Tax so that you can make your inflated claim of Bush draining 1/3 of the current taxes.

Posted by: Kirk at January 2, 2005 05:32 PM
Comment #39925

Kirk, I am impressed with your mastering of Bush politics, accuse your accusers of that which they would rightly accuse you of. The President is the one saying the sky is falling on SS, so he and you will now accuse any who critique your proposition as doing that which you already do. It is so obvious as to bring a chuckle. Also, the false premises, (100% participation) and your claim to have shown my errors rests on the false assumption above which is also humorous.

As for the employer’s contribution, there was no deception. It is clearly and accurately stated what is what in the original article. You are again falsely assuming that the employer’s contribution will remain intact, when in fact, there is no concrete plan by the President by his own admission to commit the employer’s matching to SS at all, and if so, whether to the PSA it matches or to the SS insurance plan currently underway.

Very simply, you have no facts at all to counter the article above.

I have to thank you though for helping me elucidate just how the President is going to sell this Brooklyn Bridge, and showing readers why and how foolish it will be to buy into any plan the President proposes for SS reform without doing some very serious fact and number checking. Much appreciated Kirk. This is the kind of dialogue that makes WB so informative.

Posted by: David R. Remer at January 2, 2005 09:21 PM
Comment #39948

David,

You have shown NO backup for your arguments. At the very least, I have provided the basis for my arguments inlcuding quotes from the IRS and CBO websites along with calculations of FICA Payroll Tax.

I believe you would come much closer to convincing someone if you had some / any evidence for your suppositions.

Posted by: Kirk at January 3, 2005 02:04 AM
Comment #40033

Comprehension can’t be taught, only reading words. Oh, well.

Posted by: David R. Remer at January 3, 2005 06:03 PM
Comment #40048

David,

I know what you mean. You have proven that point over and over. Once you have some verifiable evidence or background not just your suppositions and guestimates please post them.

Posted by: Kirk at January 3, 2005 10:05 PM
Comment #40057

You mean agree with you. Please, hold your breath. The facts, arguments, and logic are here. You choose to read or not read into it what you choose. We are all guilty of it at times. That is the nature of political parties and affiliations today. Little to do with facts and a lot to do with seeing what one wishes to see. If the truth in facts were readily viewable and comprehensible to all people all the time, there would be little need for political parties, debates, and competition.

Again, thanks for helping elucidate the opposing side of this issue. WB does actually attract some people seeking information with which to make up their minds on issues, rather than coming for preconceived validation. We have both done a fair job covering the points from opposing sides.

Posted by: David R. Remer at January 4, 2005 12:25 AM
Comment #40076

Kirk, here is some data just released:

Washington Post: Today’s Highlights: “The administration’s proposed social security plan would cut promised benefits by nearly a third in the coming decades, several Republicans close to the White House say.

This is evidence of one the logical conclusions I made in the article.

Posted by: David R. Remer at January 4, 2005 05:48 AM
Comment #40195
Kirk, here is some data just released:

David,

If you read the article which I did over coffee this morning, you will see that by changing to an inflation base rather than wage base retirees in 2025 will still receive the equivalent of 40% more in todays dollars.

Basing benefits on wage increases is what is causing many of the projected problems with SS. Why should someones SS benefits be calculated on a system that increases on a much greater scale than inflation? SS is supposed to be insurance not an investment according to your posts.

Posted by: Kirk at January 4, 2005 06:49 PM
Comment #40200

COLA is built into the current system due precisely because of its insurance qualities - COLA is predictible, measurable, and accountable, and the line of poverty which the current system insures against will change over time. There is a maxim in the investment world which says, past performance is no assurance of future performance. It is a maxim PSA supporters elect to utterly and completely ignore or dispute. Yet the pervasiveness of the maxim and universal acceptance as a sound piece of advise demonstrates PSA supporter’s willingness to engage in denial to furhter their agenda.

Posted by: David R. Remer at January 4, 2005 07:05 PM