The Numbers Case For SS Reform

Discussion in 'Economy' started by Bonnie, Feb 14, 2005.

  1. Bonnie
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    Bonnie Senior Member

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    You don't have to be a financial wizard to know that Social Security is a lousy investment. Unlike the money you deposit in a bank or salt away in an IRA, you don't own the money you pay into Social Security. You have no legal right to get those dollars back, and when you die you can't pass them on to your heirs. Nor can you use your Social Security account before you retire -- you can't borrow against it and you can't cash it in. You aren't allowed to put the money into a balanced portfolio. You can't even watch as the interest accumulates, since your Social Security nest egg doesn't earn any interest.

    Your nest egg, in fact, doesn't even exist. Because Social Security is financed on a pay-as-you-go system, the dollars withheld from your paycheck today aren't being saved in an account with your name. They are immediately paid out to retirees. The benefits you receive when you retire will be funded by the payroll taxes then being collected. But because the ratio of workers paying in to retirees taking out is steadily shrinking -- it has plummeted from 16 to 1 in 1940 to 3 to 1 today -- Social Security is headed for a crisis.

    Within 15 years, the system will be paying out more in benefits than it collects in taxes. Its shortfalls will grow larger and larger. Bankruptcy will loom. To save Social Security, Congress will have no choice but to sharply raise payroll taxes, go even more deeply into debt, or slash the benefits paid to retirees.

    This of course is the background to President Bush's campaign to create personal investment accounts, which for the first time would allow workers to own and invest -- really own, really invest -- part of the Social Security tax taken from their paychecks. With personal accounts many of the features that make Social Security such a crummy deal for today's workers would be transformed into a package most of them could support. A social-welfare program created in the age of gramophones and the Model A would be updated for a world of iPods and superhighways.

    But to many Democrats, such talk is heresy. Letting Americans own some of their Social Security would be too risky, they argue - another way of saying that Americans are too dumb to be entrusted with their own money. Much better to continue entrusting it to Washington, which has managed Social Security so skillfully that workers younger than 50 know they will never get back in benefits what they are paying into the system now. (Perhaps that explains why 58 percent of Americans under 50 support personal accounts, according to a new poll by Zogby International.)

    Social Security wasn't always a sucker's game. As with all Ponzi schemes, players who got in early made out like bandits. For many years, Social Security deductions were minuscule. Until 1949, the combined employer/employee tax rate was only 2 percent, and it was imposed on just the first $3,000 of income, for a maximum payroll tax of just $60 a year. The first Social Security recipient was Ida May Fuller of Ludlow, Vt., who retired in 1940 after having paid a grand total of $44 in payroll taxes. By the time she died in 1975, she had collected $20,933.52 in benefits -- a return on her "investment" of more than 47,000 percent.

    It wasn't really an investment, of course. It was a forced transfer of wealth from younger persons to an older one. And as the number of Ida May Fullers grew, and the value of their benefits increased, the amount of wealth that had to be transferred kept climbing. By the time I entered the workforce in 1975, the Social Security withholding rate was 9.9 percent, applied to wages of up to $14,100. Maximum tax bite: $1,395 a year -- more than 23 times the $60 of a generation earlier.

    And a generation later? Today Social Security skims off 12.4 percent of the first $90,000 earned - one-eighth of every paycheck. There are no exemptions, no deductions. It kicks in from the very first dollar of income. It is the biggest tax the average American household faces -- 80 percent of us pay more in Social Security taxes than we do in income tax.

    One tiny notch at a time, payroll taxes have been ratcheted up to a level that would have been unthinkable in Franklin Delano Roosevelt's day. No wonder Social Security is so unpopular among the young. It provides no security for their retirement, while it impoverishes them in the present. In exchange for an eighth of their earnings today, it guarantees nothing but higher taxes tomorrow. That there are politicians who defend so regressive an arrangement wouldn't have surprised FDR. But how shocked he would be that they call themselves Democrats.

    www.townhall.com/columnists.jeffjacoby/jj20050214.shtml



    ©2005 Boston Globe
     
  2. nakedemperor
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    nakedemperor Senior Member

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    This paragraph is kind of misleading; it implies that "within 15 years...Congress will have no choice but to sharly raise payroll taxes, go even more deeply into debt, or slash benefits paid to retirees". While *eventually* these measures could be taken to save SS, they sure won't happen in 15 years. Its true that the money paid out in benefits will begin to exceed the amount collected in taxes ~2018. However, even under conservative estimates, social security's surplus can be tapped to cover all benefits until 2042 (at which point, 4 decades and 10 presidencies from now, the "sharply", "deeply", and "slash" alternatives apply...gotta love the author's ominous word choice).

    And the reality of the situation is that the "moment of truth", when the SS surplus won't be able to cover all its obligations, is further away right now (2042, or 38 years from now) than it was a DECADE ago (2029, 35 years from that point). I mean, I'm still a lay-person in terms of this social security debate, but I really fail to see where the crisis lies.

    Not only that, but as someone not at all well-versed on the issue, how do private investment accounts stop that "moment of truth" from coming? As I understand it (according a Time piece), it you divert payroll taxes from current retiree benefits and borrow trillions of dollars to pay for the stopgap, you're bringing that "moment" even closer. Sure you're giving people the chance to *marginally* improve their retirement benefits (not to mention the chance to reduce their retirement benefits), but it doesn't fix the "crisis" the president is touting.

    Moreover, there is a legit crisis, and its Medicare! IT'S surplus is supposed to run out ~2020, and as compared to the 6.6% of the GDP its projected to be by 2078, SS is only going to be 6.6%...how is this not a significantly more important problem? I think the government needs to re-prioritize here...
     
  3. Bonnie
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    Bonnie Senior Member

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    There is nothing but positive that can come from people investing their money more effectively for their own retirement. The plan only takes 4% of what people normally put into the SS funds and allows them to invest themselves. The return on just that money is jaw dropping.

    It's much more of a slow phase out, then just immediatley stopping or cutting benefits to those already collecting or due to collect.

    The Democrats are simply scaring people into rejecting SS reform because they love dependency on government.

    In Texas, there is a trial plan in effect to see how workable this could be to people. Right now on those that would normally be getting 1,500 a month, are now going to get 4,000 a month instead just by investing a small portion of that money normally slated for SS.


    Highlights on the President's proposal.

    Under the President's plan, personal retirement accounts would start gradually. It will not effect individuals 55 or older.
    Personal retirement accounts would be phased in. To ease the transition to a personal retirement account system, participation would be phased in according to the age of the worker. In the first year of implementation, workers currently between age 40 and 54 (born 1950 through 1965 inclusive) would have the option of establishing personal retirement accounts. In the second year, workers currently between age 26 and 54 (born 1950 through 1978 inclusive) would be given the option and by the end of the third year, all workers born in 1950 or later who want to participate in personal retirement accounts would be able to do so.
    Yearly contribution limits would be raised over time, eventually permitting all workers to set aside 4 % points of their payroll taxes in their accounts.
    Annual contributions to personal retirement accounts initially would be capped, at $1,000 per year in 2009. The cap would rise gradually over time, growing $100 per year, plus growth in average wages.
    Note: Our calculator does not account for the phase in process included in the President's plan. Our calculator assumes the plan has been fully phased. The phase in process will vary based on your salary.
    Personal retirement accounts offer younger workers the opportunity to build a "nest egg" for retirement that the government cannot take away.
    Personal retirement accounts could be passed on to children and grandchildren. The money in these accounts would be available for retirement expenses. Any unused portion could be passed on to loved ones.
    Personal retirement accounts would be voluntary. At any time, a worker could "opt in" by making a one-time election to put a portion of his or her payroll taxes into a personal retirement account.
    Those workers who do not elect to create a personal retirement account would continue to draw benefits from the traditional Social Security system, reformed to be permanently sustainable.
    Personal retirement accounts would be protected from sudden market swings on the eve of retirement.
    Hidden Wall Street fees would not eat up personal retirement accounts. Personal retirement accounts would be low-cost.
    Personal retirement accounts would not be emptied out all at once, but rather paid out over time, as an addition to traditional Social Security benefits. Any unused portion of the account could be passed on to loved ones.
    See the rest of the points on the President's plan
    Read the details of the plan at GOP.com
     
  4. nakedemperor
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    nakedemperor Senior Member

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    No I agree that the potential for larger nest eggs is definitely there; nest eggs that are 150% larger, though? That's not likely. At any rate, the virtues of larger retirement accounts are certainly there, but it does nothing to solve Social Security's funding problem. SS is going to still be paying out almost all of the benefits its paying out under the current system, and private accounts to nothing to stop the day from coming where Social Security won't be able to pay those benefits (2042, remember). Bush's strageic initiatives director Peter Wehner said, "for all their virtues, private accounts are insufficient for that task".

    There's also the inconvenient fact that is rarely mentioned: if workers start investing payroll taxes in individual accounts, the government is going to need ~$2,000,000,000,000 to cover benefits for retirees. And these options include borrowing heavily, cutting benefits, or both.

    Anyway, I'm really, really against the delayed reaction spending of this administration. The deficit is sky-rocketing, and this plan shifts costs, costs that could add $2 trillion to the debt that Bush is already piling up for future generations to pay off (that's me)...its a quick fix, and one that adds risk to a succesful social program, adds debt to a heavily indebted country, gives more reason to devalue the dollar, and shifts the responsibility to the unborn. The personal investment accounts are a plan, but they're a weak one, one which doesn't address the root of the "crisis" that doesn't even exist.
     
  5. rtwngAvngr
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    rtwngAvngr Guest

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    Which one is it:
    this:
    or this:

    is there a funding problem or does the crisis not exist?
     
  6. cptpwichita
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    cptpwichita Member

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    You want to make this country great?here's what we need..

    1.limited government
    2.personal responsibility
    3.personal ownership

    here's how..

    1.privatize social security- (similar to chile)

    2.national retail sales tax and abolish income tax-(fair tax plan)(90+ percent of IRS is eliminated)

    3.healthcare savings accounts (also allow more foreign imports of canadien drugs)

    4.privatize the school system and go to a voucher program

    5.privatize the post office and allow competition in the free market (900,000 government jobs eliminated)

    6.secure our borders (border wall and military)

    7.end foreign aid (international welfare)

    8.end all subsidies (corporate welfare)

    9.end all domestic welfare programs (food stamps,wic,government housing,etc.)

    10.get out of the u.n. and the u.n. out of the u.s.

    11.close most overseas bases and stop funding other countries armies and border security.

    12.base representatives and senators pay on mathmatic formula
    average median family income x5 minus the top and bottom 10% adjusted yearly

    13.term limits

    14.balanced budget amendment with fair tax (consumption tax)adjusted yearly.a judicial review board to examine 13 spending bills and their constitutionality.a government waste and fraud dept. to monitor all spending.

    15.legalize prostitution-taxes go to state,regulated by state

    16.legalize gambling-as above

    17.legalize marijuana-as above
     
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  7. nakedemperor
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    nakedemperor Senior Member

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    I wouldn't expect a conservative party line parrot repeater to be immune from the progaganda machine, so I'm not surprised that you don't see the difference between a "problem" and a "crisis". Here's help.

    prob·lem** *n.
    A question to be considered, solved, or answered: math problems; the problem of how to arrange transportation.

    A situation, matter, or person that presents perplexity or difficulty:

    cri·sis
    A crucial or decisive point or situation; a turning point.

    An unstable condition, as in political, social, or economic affairs, involving an impending abrupt or decisive change.



    Remember, words mean things. And different words mean different things. Go get 'em tiger.
     
  8. rtwngAvngr
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    rtwngAvngr Guest

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    Oh, so we're bickering about the difference between a problem and a crisis? You're pretty funny. I believe government should deal with both problems and crises, so your questionable distinction is irrelevant anyway. Wouldn't you agree?
     
  9. nakedemperor
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    nakedemperor Senior Member

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    But labeling a "problem" as a "crisis" to garner public support for unnecessary drastic action is unethical and deplorable. And we see it all the time from the Bush administration. Why aren't they talk about the legitimate medicare crisis, and instead making the social security problem into a crisis so all the rats will jump ship?
     
  10. rtwngAvngr
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    rtwngAvngr Guest

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    I don't care what you call it. Get your bloomin' head out of the minutia, man. It's something that needs to be dealt with asap. A ponzi scheme by any name smells as foul.

    but you're on point as usual. Say something stupid and change the subject, the liberal m.o.
     

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