A Little Perspective On Current SS Program

[Annie]

http://www.opinionjournal.com/columnists/bminiter/?id=110006423

All That Work for Nothing?
A letter from the Social Security Administration makes the case for reform.

BY BRENDAN MINITER
Wednesday, March 16, 2005 12:01 a.m.

The other day the Social Security Administration sent me a letter that upon close inspection turned out to be the most compelling case for reform I've ever seen. The letter, which I get each year, details how much I've paid into the system and what I can expect from the government when I retire. Like many Americans, I typically give the letter a cursory read and promptly file it in the trash. But not this year. With the debate raging over creating private Social Security accounts, I decided to give it a careful look.

Surprisingly, what I found is that the biggest problem with the system isn't that it will run out of money. Anyone who follows the debate knows that Social Security will begin paying out more money than it takes in just 13 years from now. After that, the system falls into decades of deficits. To keep the checks rolling out to retirees, Congress will either raise taxes, cut benefits, cut spending on other government programs, or some combination of the three. Faced with this set of choices, we can be sure that Congress will not make the wisest decision. But we can be certain that the political class will find a way to keep sending checks to retirees, one of the most politically active cohort of Americans.

It should be noted here that this letter was not a form of political propaganda peddled by the administration. Rather the letter made the case for reform unwittingly by simply detailing how the system works now. It showed that for the past 16 years I've paid tens of thousands of dollars into the system--money that was used to fund my grandmother's retirement and, now that she is gone, the Social Security checks of other older Americans. This is what is called the "intergenerational compact": We pay into the system today to support those who are already retired with the expectation that when it comes time for our own retirement, the next generation will support us. Although I was never asked to join this compact, there is a certain logic and fairness to it. It's also the closest thing we have to a guarantee that the system will be there for us after spending a lifetime paying into it.

Looking over the letter, however, it became clear that there is a fundamental flaw in the arrangement. Although, I've already paid enough into the system to "qualify" for benefits, not a penny of that money is likely to be counted in determining the size of my retirement benefits. What's more, whatever I pay over the next two years probably won't count either. The problem here is that I am only 30 years old. Social Security counts only a worker's top 35 wage-earning years when determining benefits. And since the government considers 67 to be my "full retirement age," assuming a steady climb of income, I'm still two years away from starting to accrue the credit that will determine the size of my monthly Social Security check. In other words, the system is exactly the inverse of what we've all been told to do in planning for our retirement. Those who work hard and put money into the system early in life, get the same as those who start paying in later on. And as a proportion of what they've paid in, the early-contributing ants actually get less than their grasshopper peers.

Those who defend the current system are always quick to point out that Social Security isn't supposed to be a pension, but rather an insurance policy that takes care of the disabled as well as providing a retirement benefit. But here too, the system is skewed against those who pay in early. According to the letter I recently received, if I become disabled my monthly checks will be about $250 larger (in today's dollars) than they will be if I take early retirement at 62. And although there's no credit for early work, those who work a few years after their full retirement age get credit for the "extra" money they pay in. If I retire at 70, my monthly checks will be about $800 larger than they would be if I was to take early retirement and $400 more than if I call it quits at 67.

This all stacks up in favor of reform because private accounts are the only thing that can bring some equity to the system. Private accounts would pay workers based on the total amount they've paid into the system over their working lifetimes, not an average of what they paid in for part of their time in the work force. If private accounts had been around in 1989, I would have started growing mine with the first paycheck I earned pruning apple trees in the dead of winter in upstate New York. That account would have then been able to take advantage of what Albert Einstein called "the most powerful force in the universe," compound interest. So instead of penalizing workers like me, who pay in early, private accounts will give workers the advantage of nearly two extra decades of accruing retirement assets.

Viewed from this perspective, it's clear that by uniting against reform, Democrats are defending a system that is skewed against the workers they claim to represent--those who are handed little in life and must enter the work force early. Some of them work their way through college, but many stay in blue-collar and service-related jobs. They make less money each year, but make it up by working longer and harder. The Social Security debate is now about whether to allow these workers to capitalize on all of their hard work while saving for retirement. Isn't that what the Democratic Party is supposed to be all about?

Mr. Miniter is assistant editor of OpinionJournal.com. His column appears Tuesdays.

 

[Annie]

http://www.patrickruffini.com/archives/2005/03/whos_gambling_w.php

Who's Gambling with Social Security? Not Republicans
Lefty bloggers like Kevin Drum are jumping over this Bloomberg report suggesting that the implausibility of coupling pessimistic projections of future economic growth with an optimistic view of stock market returns.

If their prediction is true, it tempers the urgency to overhaul the federal retirement program, as higher economic growth results in increased wages and more workers, with more tax revenue going into the pension system.
``This low estimate ignores the potentials for immigration growth, an increase in the retirement age and significant productivity growth stemming from technology enhancements,'' says Ernest Goss, an economist at Creighton University in Omaha, Nebraska, and former scholar-in-residence at the Congressional Budget Office.


They miss the point almost entirely. The fact is that the solvency of Social Security, unlike almost every other projection of government revenue, has very little to do with economic growth. Even if we had 4 percent growth as far as they eye could see, there would still be in this mess. We cannot grow our way out of the Social Security problem.

Why, you ask? Because Social Security benefits are tied to wage growth, which is tied closely with economic growth. No matter how much workers' wages grow, the Social Security system won't be able to keep up because all of the revenue increase will immediately go out the door as COLA increases. Sadly, and unlike virtually every other area of public finance, economic growth does nothing to solve the underlying solvency equation, which is driven more and more by the declining ratio of workers to retirees.

As Dr. Goss intimates, the only solution would be to create more workers, suggesting more immigration as a solution. But as favorable as I am to legal immigration, this still remains a Catch-22: today's worker is tomorrow's retiree, and if the configuration of workers to retirees isn't just right by the time this bulge of immigrants retires, then the system will have to endure even greater strain.

Pollyannish excuse-making stories like this expose the simple truth of the their Democrats' position: it is they who want to take a big risk with Social Security, not Republicans. They're gambling that Social Security doesn't have a problem, and doubling down that the economy will just fix everything.

Just which side gives us the biggest risk here? What if the Republicans are wrong? Well, they just solved a problem that wasn't quite as urgent as thought -- and in the process gave millions the freedom to invest and earn returns far greater than the present Social Security system. What if the Democrats are wrong? Well, Social Security goes broke.

Call me crazy. But, for me, it isn't hard to tell who's playing it safe with Social Security, and who's gambling our retirement away.

 

[rtwngAvngr]

Hey. This thing sounds like a Ponzi Scheme!