February 22, 2005
Social Security reform along the Sound
The news media is awash in talk of Social Security reform, a subject very close to my young heart (and my young pocketbook). Of all the millions of words written about Social Security reform--specifically, the creation of personal retirement accounts--some of the best have come from frequent Sound Politics commenter and onetime guest poster Eric Earling in a Sunday Op-Ed in the Everett Herald:
Partisans have been relying on two disingenuous claims to defend their refusal [to consider Social Security Reform]:
1) "Social Security will be fine until 2042." In reality, Social Security's trustees have said the program will begin running a cash deficit by 2018, meaning more benefits being paid out than payroll taxes coming in. Opponents claim at that point we'll simply tap the Social Security Trust Fund, which will be solvent in theory until 2042. One problem: the Trust Fund is functionally empty.
True, it holds special U.S. Treasury Bonds. But turning those bonds into cash for Social Security to make up its deficit would require money from the annual federal budget (national defense, homeland security, Medicare, etc.). At the same time we read stories about current deficit challenges it is ridiculous to think we'll simply dig deeper into the regular budget to pay for Social Security. 2018 is the date that matters.
2) Opponents describe personal accounts invested in mutual funds of stocks and bonds as "gambling" - a stunning, direct insult to every American who relies on a 401(k) or IRA for their retirement savings.
Such slander is intended to scare older generations, among whom personal investments in stocks and bonds were more rare and pensions in both the public and private sectors were more commonplace. Yet the true beneficiaries of such reform, younger workers, are already employed in a workforce where pensions are commonly unavailable, except for government employees whose unions are ironically opposing reform.
Go read the whole thing
, as they say. Eric has laid out one of the clearest arguments for Social Security reform that I have ever seen.
But it may not make much of a difference to the politicians representing Eric and the rest of us in Washington DC. Maria Cantwell and Rick Larsen, two ostensibly moderate Democrats who will be facing tough reelection bids in 2006 have already dismissed the idea of personal accounts out of hand, along with the rest of the Democrat delegation from the area. Their reasons don't stand up to serious scrutiny, as Eric deftly shows, but that doesn't really matter.
Democrats aren't getting their marching orders on Social Security from reason or from their constituents these days. They're getting them from a bewildered Democrat minority leadership that doesn't have any plan other than "obstruct, obstruct, obstruct," and which made up its mind about this a month ago. Of course, some Democrats will continue to pretend they have open minds, and when they cast their votes against reform, they'll make-believe that it was driven by their interaction with their constituents.
Take, for example, Democrat Rick Larsen of the 2nd District. This Saturday, Larsen is having a town hall meeting on Social Security reform--at the Everett Senior Citizens Center. That's right, he's having a discussion of a reform plan that will not affect anyone over the age of 55 at a senior citizens center. There's only one reason to do this--to scare the elderly into thinking that the mean ole' Republicans are going to take their Social Security away. But I'm not going to let them get away with it--and I hope you'll help.
The town hall is at 3025 Lombard Ave., Everett from 10:30 am to 12 pm on Saturday, February 26. I'd love to see a legion of those of us who will actually be affected by reform show up to the discussion--and if any like minded retirees would like to come too, that'd be more than wonderful. If anyone needs help getting there, drop me an email. If you can't make it, tune into Republican Radio afterwards, where I'll be giving an after-action report around 12:20 pm.
(Cross-posted at Flag of the World.)
Posted by Timothy Goddard at February 22, 2005
06:39 PM | Email This
1. Re: Social Security. I think it is strange that no one discusses how our government past and present have helped themselves to the Social Security Fund to pay down the national debt as well as finance other projects. It seems to me if they would keep their sticky fingers out of the Soc Sec Funds that there would be not be a problem??? Am I wrong? I would like to know.
Sincerely, Elizabeth J. Cox
I love it when you conservatives try to convince us that the fund contains nothing but worthless scraps of paper. Let's see, BBB-rated Treasury Bonds -- the safest investment on the planet. It is also the same instruments that the Bush Administration is selling to the Japanese and Chinese to float our credit out to the time when our children are due to retire.
Has anyone bothered to tell the Japanese and Chinese that they are buying "worthless scraps of paper"?
Instead of trying to "fix" something that isn't broken, why not tackle the bigger problems facing our nation first? You know, like the huge, choking deficit, and Medicare.
I know why, there is a purpose here. If the conservatives can bankrupt the country, they can literally shut government down. Then the corporations can come in and run our little lives.
You are looking at the birth of facism here in the United States and you are too blind to see it. If you want to see an example of where history repeats itself, study up on what it was like from 1900 through 1939.
3. Now you really get me going when you claim the Social Security trust fund is "functionally empty". The Social Security trust fund is by law invest in US Treasury Bonds, the safest most secure and dependable investment in the world. If you are making the argument that the US Government is going to default on its bond obligations, then you arenít talking Social Security reform, you are talking global financial meltdown. The misinformation you pass off as truth is despicable. You should be ashamed.
4. Hey guys, when the USA writes IOUs to someone else, it means something. When the USA writes IOUs to itself, it means remarkably little.
5. I'm sorry, I just noted the moonbat ravings of "Political Pulpit," and wanted to take a moment to point and laugh. Dpk, is that the sort of nutjob you want to be associated with?
The aspect of Social Security discussions which dismays me the most is the abuse of terms. There is no 'trust fund'. Current receipts are paid out to current retirees. It would be nice if there actually were some sort of trust fund which one paid into and received an annuity out of upon retirement, but wait, that's suspciously like the concept of private accounts. Therefore it must be bad, right?
The current system merely promises to pay you when you retire with the taxes collected from future workers. If any private investment company were to sell policies with the exact same structure as Social Security currently operates under, they would be prosecuted for operating a Ponzi scheme and likely face jail time for fraud.
The one change I'd like to see done with Social Security as it currently exists is to let me or anyone opt out of it. I'll even sign a contract saying I will never take a dime in payments. They can keep all they've fleeced me for to this point, just let me out! If it's such a great scheme, it should be able to survive on voluntary participation.
It seems like a concerted effort, at least on the Democrats' part, to have these town hall scarefests. My congressman (Ted Strickland, D-6, OH) is holding several across the district to scare the elderly.
I'd like to ask these folks: if privatized retirement is such a bad idea, then why doesn't the Congress pay into Social Security? They have their own retirement system (and a rather nice one, at that, on your nickel and mine).
I would also like to know how Social Security isn't a huge Ponzi scheme, and, if it is, how it can possibly survive.
Furthermore, the same people who cry foul at attempts to privatize the program have no reservations about raising the age at which you start collecting. Someone please 'splain to this dumb old Owl how that doesn't cheat some elderly folks out of collecting (while privatization supposedly does).
Okay, let's take a look here-- all the money I've put into my rollover IRA and Simple IRA as long as 20 years ago is still there. mm-hmm. Looks good. Hey, it's even grown quite a bit since! And I can pass it down to my kids if I so choose....
Now let's see where all that money I was forced to put into social security went. Oh LOOK! It's gone!!! Maria Cantwell and Patty Murray spent it all and left me a pile of IOUs!!
Now which looks like a gamble??
PP (hey, those are interesting intials together), the money's NOT THERE. You know it yet try to justify it. How's this headline??---"Major corporate heads dip into employees' retirement accounts without permission and give it to creditors"
Or try this one: "Major corporate heads arrested for conducting huge Ponzi scheme with employee's retirement funds. Democrats say they're mad as h___"
Bankrupt the country and shut the government down? Who tells you this stuff? I and everyone else here , we're simply looking for more economic freedom and a better deal; what's more american than that???
Not the brand of totalitarianims you're selling (you WILL let us get into those funds and spend them any way we want even though it's you're retirement money!!! And NO, you WILL not pass any of it down to your children. It's OURS!)
Wake up, PP. You're an american--not some peon who has to be ripped off by a bunch of politicians and forced to act grateful for the crime
DPK & Others -
I never said the gov't would default. Of course they wouldn't.
The point is the bonds - like any bond in the financial market - require cash for redemption, which is what the fed gov't will need to do when incoming payroll taxes no longer cover outgoing benefits (when they supposedly just tap the Trust Fund). That cash will have to come from the general fund, which as I noted in the op-ed has other consequences that aren't terribly fun...hence the disingenuous nature of arguments claiming everything will be dandy since we have the Trust Fund.
As Timothy alluded to, if I write you an IOU for $50, you have an asset. If I write my savings account an IOU for $50 to be paid from my checking account, I only have a reminder that I owe myself $50. The Trust Fund holds reminders that the US Treasury owes it money. In this case, it's a reminder that will be paid with 100% certainty, but a reminder that has consequences nonetheless. To think otherwise is poor public policy.
Yes, the Treasury Bonds used for investment are a high-grade investment.
But only a small fraction of current receipts are invested, as (as has been pointed out) current receipts are used to pay out current payables. It's simply that at the moment more people are working than are directly needed to cover today's retirees.
As America ages, that latter fact will soon, rapidly, and devastatingly change. Additional tax dollars will be required to cover tomorrow's retirees, under today's system. That's simple demographics, and will not be avoided by increases in productivity.
What will help is a better return on investments, and the best way to achieve that is through additional choices on the investments chosen. Today, we might get what, 3% averaged return? Who wouldn't rather get 10%?
A decent article on the topic, from Canada's Maclean's Magazine, comparing Canada's Pension Plan:
DPK, you do have one thing right, the SS Trust fund is made up of US Treasury Bonds. Now follow this. Our excess SS taxes were used to buy US Treasury Bonds. In order to tap into the Bonds to pay SS benefits the Bonds have to be redeemed for cash. Just where does this cash come from to redeem the Treasury Bonds? It comes from the U.S. Treasury, meaning it comes from taxes collected from you and I.
Can you follow this? Let's say I collect from you $100 in SS taxes, you are out $100. With that $100 I buy a US Treasury Bond. Now it is time to redeem the bond and give you your $100 back. In order to redeem the bond, I must collect another $100 from you in order to give you your original $100 back. So in the end, you are not even, you are down $100. Sound fair? Well that is what is going to happen once the US Treasury Bond IOUs are redeemed
What it means to have US Treasury Bonds in the trust fund is we are being taxed twice to pay out once. We were taxed the first time to buy the bonds and now must be taxed a second time to redeem the bonds. Nice deal huh???
DPK, you are right the US Gov't will not default on the bonds but it will HAVE TO RAISE taxes in order to redeem the bonds. How is that for a hidden tax increase?
DPK, if you don't follow this flow of money, meaning we are being taxed a second time to redeem these IOU's then don't even bother entering into the discussion because a failure to understand the system disqualifies you from offering your opinions.
I am getting tired of these two options
a) Social Security is not broke so shut up and give us your money.
b) Social Security is broke so we need to fix it so you can shut up and keep giving us your money.
Who's money is it? It sure isnt your money. Why dont we have option
c) Its your money, but in order to take home all of it you need to sign this waiver that states that you are an adult and can make decisions that will affect your future.
The problem with the Rebublicans on this one is that they say its your money but you have to put it into their options of privitization.
Why cant I save my own money and invest it as I see fit without anyone in Government twisting my arm into giving it to them to hold onto unto after school because they are bigger and stronger than I. Who else hates a bully?
Re: Instead of trying to "fix" something that isn't broken, why not tackle the bigger problems facing our nation first? You know, like the huge, choking deficit, and Medicare.
Oh really? Isnt it so funny how liberals are always talking about Huge Deficits these days?
Re: The one change I'd like to see done with Social Security as it currently exists is to let me or anyone opt out of it. I'll even sign a contract saying I will never take a dime in payments. They can keep all they've fleeced me for to this point, just let me out! If it's such a great scheme, it should be able to survive on voluntary participation.
I am with you on that Chunk. I remember Kirby asking Jennifer Dunn that same question on the air.
The cost for provatising Social Security is over one trillion dollars = $1,000,000,000,000. I'm sure TG included this fact in his original post and I just missed it.
Here are the key facts:
The Social Security actuaries project that in 2018, Social Securityís trust fund will hold $5.3 trillion in assets, in the form of U.S. Treasury bonds. Starting in that year, Social Security payroll tax collections will not be sufficient to cover the cost of all Social Security benefits, so the Social Security system will start to use a portion of the interest the trust fund earns on its bonds to cover the remaining benefit costs. The rest of the interest the trust fund earns will be reinvested in the trust fund. The actuaries project that as a result of these interest earnings, the trust fundís assets will increase by another $1 trillion in the decade after 2018 and reach $6.6 trillion by 2028.
Treasury bonds are the worldís most secure investment. They are the instruments that investors large and small, at home and abroad, turn to for safety, secure in the knowledge that the United States has never in its history defaulted on its bonds.
The notion that the Treasury bonds which the trust fund holds are nothing but paper IOUs that may not be honored does not withstand scrutiny. Failure to honor Treasury bonds would result in a U.S. government default, and that likely would trigger an international financial crisis. As the New York Times editorialized on January 10, "If the trust fundís Treasury securities are worthless, someone better tell investors throughout the world, who currently hold $4.3 trillion in Treasury debt that carries the exact same government obligation to pay as the trust fund securities."
The Social Security Trustees, a group that includes Treasury Secretary Snow and other Cabinet officials, project that the Social Security trust fund will be able to pay full benefits until 2042. At that point, the trust fund will be exhausted ó that is, all of its bonds will have been redeemed. The Congressional Budget Office projects the trust fund will be able to pay full benefits until 2052.
When the trust fund is exhausted, the Social Security system will not be "bankrupt." It will continue to collect both payroll taxes and the income taxes levied on a portion of Social Security benefits. With these revenues, it will be able to pay about 70 percent of benefits according to the Social Security Trustees, and about 80 percent of benefits according to CBO.
Finally, if one believes that Social Security faces a crisis in 2018, then converting part of Social Security to individual accounts would accelerate that crisis. According to the Social Security actuaries, the major individual account plan proposed by the Presidentís Social Security Commission (which is reported to be the principal plan the President is considering) would advance the date at which Social Securityís benefit costs exceed its non-interest income from 2018 to 2006. In other words, under that plan, Social Security would have to rely on interest from the trust fund to pay benefits starting next year.
Furthermore, according to the actuaries, that plan would increase the federal debt by $10 trillion by 2030, an amount equal to 28 percent of GDP, substantially increasing the volume of Treasury bonds that the government has to finance.
15. I say if they would keep their slimy paws off of it, and pay back what they have stolen from it, and have Congress and the senate start paying into social security like all other amarican citizens are, it would have a chance to prevail!
GSA - Congress does pay into the system. See question #5 at http://www.ssa.gov/history/hfaq.html
And for good or for ill, to "pay back what they have stolen" would have the same consequences I've pointed out to dpk and in the op-ed...which reminds me...
DPK - a couple of things:
1) you're hung up on the fact people are questioning the Trust Fund. if you read my whole op-ed I acknowledge the value of US Treasury bonds. yes, they will be repaid. noone is saying the fed gov't would remotely think of defaulting. but it would require cash from the Treasury to redeem them and thus provide the finances you cite. since you appear to disagree, where do you think the cash to redeem those bonds is going to come from?
2) you're using 2 different figures, $1 trillion and $10 trillion to describe adding personal accounts to Social Security: which is it? either way, the sytem faces $10 trillion in unfunded liabilities as it is, according to the same Social Security Trustees you cite. so if you can come up with a reform plan with a price tag well-under $10 trillion that's a good thing.
and speaking of a reform plan, your arguments sound like the do-nothingism other opponents preach, yet does nothing to address the 27% cut in benefits that comes after 2042 even if we believe your flawed description of the system's finances. what do you propose at that point since you are otherwise not allowing younger workers to recoup such a cut?
Wow, DPK, you completely ignored everything Eric and I said. Nice work! Which would you rather the government do to pay back those bonds: raise taxes or cut Medicare? Take your time. Meanwhile, I won't even get to retire until even you
admit that problems will start, so I still want something done now. If I get a personal account, then at least I'll be guaranteed some money when I retire.
Christian & Chunkstyle-- I wish people wouldn't discuss doing away with Social Security entirely. That's the sort of talk that scares people who aren't rabid conservatives/libertarians. The fact is, I want govt. supplied personal accounts because both my wife and I work for small organizations that don't provide 401ks. Additionally, a good portion of Social Security goes to those who are unable to work. You may want to cut them off, but the majority of us don't.
18. It seems to me if they would keep their sticky fingers out of the Soc Sec Funds that there would be not be a problem??? Am I wrong? I would like to know.
Sincerely, Elizabeth J. Cox
Yep. In order to try to show that there was not as much of a deficit, Reagan for the first time included the income from social security in the main budget. Now, the federal government is asserting the money is not there. The funds should be taken from the main budget as they were placed in there in the first place by taxpayers.
Social Security is part of the dreaded liberals "new deal" which Carl Rove and the Neocons want to destroy.
Bush already is running the highest deficits ever. He would have to borrow Trillions more to work his payer acount scheme as placing money aside would leave no funds to pay off current recipients of social security.
What happened to the fiscal conservative wing of the republicans? Do they have any life left?
For anyone who's interested, there is also a meeting in Skagit County in the afternoon on Saturday:
Saturday, February 26, 2005; 1:30 Ė 3:00 p.m.
Mount Vernon Police Department, Multi-Purpose Room
1805 Continental Place
Mount Vernon, WA
You seem to be missing the big point, "Starting in that year, Social Security payroll tax collections will not be sufficient to cover the cost of all Social Security benefits, so the Social Security system will start to use a portion of the interest the trust fund earns on its bonds to cover the remaining benefit costs."
Just where does the interest on all these bonds come from??? FROM YOU AND ME, via our taxes. Once again, by having Bonds we have to pay taxes a second time to pay for the bonds bought with our original SS taxes. The interest paid on these TBonds and the money used to redeem these Tbonds come from OUR TAXES. Again, we are being double taxed. in my mind that is one Big F'IN Problem.
I'm not saying do away with Social Security entirely, just let me provide for myself. There are other options, Keogh plans, SEP, even straight forward post-tax investment.
As to the destitute, let's have handouts, just don't pretend that they are a valid pension scheme.
CATO INSTITUTE web site has a social security calculator. Check it all out for your selves.
also note, Reid on PBS Jim Lerher said SS is a Dem program and he will do "anything" to prevent this reform from happening. Anything? Does that included lying? TSP good enough for him, good enough for me.
If it's gambling, then what's AARP doing offering mutual funds????
Maybe those 60-5 and over shouldn't be allowed to invest in the market at all, just buy treasuries.
Will you please address the strong arm topic? The fact that they have no right to take from us by force what belongs to us?
It should be a simple concept.
Part of the problem that we have is that Government is doing just as you say,
Additionally, a good portion of Social Security goes to those who are unable to work. You may want to cut them off, but the majority of us don't.
Be honest and call it an income tax. But dont act like its for our own good. It is not. The welfare mentality that exists in EVERYONE waiting to collect that SSI check is not good for our society.
Being in the unfortunate age group ...above 50 but below 55....I demand that my years of paying into Ss be fully appreciated.....
the problem is that so many people are receiving their nice and tidy govt pensions that most people don't care what happens to the rest of us....
we will be banging at the door if the govt screws us over, I can guarentee that.....
For how long? What if life expectancy increases? Do we cap how many years you can collect? Do they just shift the age that you can start?
I can see how you want to get it Lee, and I think that the Gov needs to honor what you put in. But the lie need to stop. The Ponzi Scheme has to end sometime and somebody always gets screwed. That is how fraud works. Republicans lose because they fail to be honest.
Can we all admit that the whole thing is designed to make us feel dependent?
Can someone list what other government employees dont have to pay into Social Security? I was sure that the State Patrol does not.
Just step back, everyone...listen to yourselves. This is why SS reform isn't going to work.
I'll pick a few arguments at random...Christian takes a Libertarian viewpoint. Do you, Christian, honestly think your argument will take you anywhere? Or is it more likely it will be used to scare old people? I'm continually amazed at the capacity for Libertarians to sabotage the good in the name of the perfect. That's why, BTW, the Libertarian Party will be a fringe party for at lkeat the next 50 years.
Democrat politicians out scaring old people...that is beneath contempt. You know that the "truths" they share will be half-truths, at best. Don't they get tired of being on the wrong side of history?
Erik...you can't be wrong that often for it to be an accident...you have the idea right about SS being part of an integrated budget, but you have the wrong president...try Lyndon Johnson. If you added a little more truth to your posts, I might be inclined to at least take the time to disprove the wrong ideas.
There is no transition cost, period. Anyone who talks about "transition costs" as some type of new creature ignores unfunded liabilities. SS reform actually lessens (and can eliminate) long-term unfunded liabilities. It's a case of "pay me now, or pay me later." As is usually the case, "paying me now" is much cheaper.
RAT politicians and supporters might have more credibliity if they sounded like they knew anything about finance in general, and actuarial finance in particular.
29. Anybody want to play?
No deal. There is no reason why we cant fund the program to cover those that need it and eliminate it for those that dont. Someone has to take responsibility and "lose out" of their benefits. I am saying let it be my generation. Those that are under 40. The only other option is for my kids to pay way more than is ethical. If you are under 40 and cant save enough to not need SSI when you are of that age than food stamps and sec 8 housing is somthing that you are probably familiar with already.
Why is that so scarry? That your kids might be willing to pay for your mistakes? We already are.
May I add some analytical tools to the SS debate? I am a retired investment software company owner and developer. I have an Excel Spreadsheet which show the size of fund each worker ( in families there would be 2 funds ) gets at retirement. It will illustrate just how big the money becomes. By the way, the yearly tax into SS looms at nearly $12,000 per year for big wage or profit owners, and that is in a system where your money goes POOF when you die ( in most cases).
The site is at MSN. http://groups.msn.com/socialsecurityinvestment
There is no advertising, no trick, free, and I am not in any business. Free to download for any investment planning purposes.
Lets keep this simple. A US bond is a promise from the government that when the citizen wants the value of the bond they bought, the US government will pay it in full faith and value.
Since Congress changed the laws, any excess in the Social Security fund is transferred to the General Fund and replaced by bonds of equal value.
When in 2018 the Social Security Fund can not cover its expenses from current funds, then it must redeem some of those bonds. So the US government must find the cash to cover those bonds to pay itself; there are only two ways to do it: take money from the General Fund, causing a budget crunch or raise taxes.
There is no getting around that brutal truth. In 2018 there will either be a massive tax hike or budget cuts.
I much prefer to spend that one trillion dollars now to fix Social Securty by empowering people versus do nothing and watching the United States implode sometime after 2018 due to gross fiscal mismanagement.
What will happen Anna is that the government will borrow more. Government will ultimately borrow to cover SS insolvency. As you said, it's a case of now or later.
I don't know why so many find this hard to understand...what part of actuarialy unsound don't SS defenders get?
34. South County,
Perhaps because of the redesigned public education system where getting correct answers on math quizes was replaced by 'does little Johnnie have the method down and if he does then he gets a B even though the answer was wrong.'
After all we are talking hard cold numbers here, not feelings or intent of hanging chads.
To borrow from the non-PC Barbie, "Math is hard." At least it seems that is what it boils downto when the socialists utopian dream state is about to crash down and they do not want to face the reality their theories are wrong.
There seems to be a lot of confusion about Social Security. Letís let the President explain it so we can all understand:
Thirteen years from now, in 2018, Social Security will be paying out more than it takes in.
OK, there seems to be general agreement about that.
And every year afterward will bring a new shortfall, bigger than the year before. For example, in the year 2027, the government will somehow have to come up with an extra $200 billion to keep the system afloat -- and by 2033, the annual shortfall would be more than $300 billion.
Because the Social Security Trust Fund doesnít really exist, right? So the shortfall has to be made up from general revenue.
By the year 2042, the entire system would be exhausted and bankrupt.
What? I thought the system was exhausted in 2018. Of course, itís not really exhausted since we still have current SS taxes being collected. So what happens in 2042? Oh, thatís when the Trust Fund runs out. Wait, I thought the Trust Fund was a myth.
36. Why don't they fund Fannie Mae with a portion of
SS funds from the younger crowd and let SS
recipients make 5 or 6 percent.
Since Bob T. is from your neck of the woods, I thought you might enjoy this:
LOOKS LIKE HE THINKS VOTE-BY-MAIL IS THE ANSWER!
Please refute this :
Myth 6: Younger workers will receive a higher rate of return under a privatized system.
Reality: Younger workers will receive a lower rate of return under privatization than they will under Social Security. That is because younger workers will have to pay twice Ė once to fund the benefits of current retirees under Social Security's pay-as-you go system and a second time to fund their own individual accounts. The Congressional Budget Office concluded in a recent study that the costs of the transition to a privatized, prefunded system would reduce the rate of return on today's young people, the transitional generation, to a level lower than the rate of return on Social Security.
Ron - the truth of the matter on the issue you raise requires comparing different reform options against each other rather than the current system that will inevitably be changed. In its current form it is not sustainable.
The transition cost from pay as you go to self-funded would require borrowing, but as I noted in my original op-ed, the current system already projects $10 trillion in total additional borrowing for unfunded liabilities. A transition cost with a price tag notably under that $10 trillion is thus preferable. What I've read is that financial markets will accept such lesser borrowing without negative consequences if it addresses the system's present unfunded liabilities.
As for actual returns, based on benefit reducations and/or tax increases for younger workers that would be required in the future absent other reform, people like me (I'm 29) can actually expect a slightly negative rate of return from traditional Social Security. If the current system was actually sustainable, younger workers still only get a rate of return below the rate of inflation for the most part. In comparison, even conservative blends of stocks and bonds have historically exceeded inflation with a comfortable margin.
To specifically refute the CBO analysis you cite, one would have to look at the specific reform plan they used for the comparison since there are many variable in such analysis, while understanding such studies tend to compare such reform to a system that will not remain 100% the same as it is today.
40. Eric, keep speaking truth to power.
41. What? I thought the system was exhausted in 2018. Of course, itís not really exhausted since we still have current SS taxes being collected. So what happens in 2042? Oh, thatís when the Trust Fund runs out. Wait, I thought the Trust Fund was a myth.
It seems more sensible to book passage on another ship, instead of arguing about how fast the Titanic is going down.
The numbers don't work. Arguing about how long we can ignore it until it MUST be faced is irresponsible at best. Lying to old people is beneath contempt.
If someone wants to propose changes to the current Social Security system, I'm all ears. In fact, I think some change is necessary. But this president has shown that he himself doesn't have a grasp of the problem (or of economics in general) yet he proposes a solution.
Social Security has served us well and is vitally important. It shouldn't be tossed around like a political football.
I would certainly trust the CBO before I would trust the Cato Institute or the Republicans or the Democrats or the Libertarians.
How about a bi-partisan, or better yet a non-partisan, analysis and solution.
43. Lying to old people is beneath contempt.
But old people are being told that the proposed changes won't affect them. Hopefully, that's not a lie. So where on the contempt scale do we place lying to young people?
If you are looking for "practical" solutions, you might as well skip this post. All I am doing is naming the true criminals.
The following comment from Anna, while true, is incomplete. I am not picking on Anna, just using it as an example.
"When in 2018 the Social Security Fund can not cover its expenses from current funds, then it must redeem some of those bonds. So the US government must find the cash to cover those bonds to pay itself; there are only TWO ways to do it: take money from the General Fund, causing a budget crunch or raise taxes." [Emphasis added].
What everyone is missing is the THIRD way the government funds anything - counterfeiting. If it can't collect the taxes it needs, but still needs more cash, the Federal Government merely prints it, sells it to the Federal Reserve for the cost of printing, wherein the Fed Reserve makes appropriate accounting entries bumping the Treasury's account balances. Voila!! Instant "money". (Alternatively, the government can trade securities with the Federal Reserve in exchange for a bump in account balances.) As with all counterfeiting, this causes inflation, which decreases the buying power of everyone downstream from the first purchaser (govt). This is a hidden tax (theft/fraud for the rest of us).
Of course the Federal Government has never "defaulted," it just commits outright fraud by printing more currency/T-Bills/T-Notes whenever it needs to, which is why the IOUs really are worthless scraps of paper. Please, TELL EVERYONE YOU KNOW, including foreign investors.
Not only is the Federal Government running the biggest Ponzi scheme in the history of civilization, it is also running the biggest counterfeiting operation as well. Sounds like "organized crime" to me!!
(BTW: The reason the government prosecutes anyone of us who might try this is that it can't stand the competition. All crime syndicates hate competition.)
When the "money" system is nothing but debt instruments (Federal Reserve Notes, Treasury Bills/Notes, etc.), i.e, nothing of intrinsic value, what do you suppose happens when you "pay off the debt?" The money system disappears, which is why the debt will never be paid. We would actually have to return to "honest money," something with intrinsic value. WHAT A BLASPHEMY!!
So, what CAN be done? Probably not much. Privatization is a good start, but that is only the beginning. I only hope that someday, future generations will see fit to smash the the Ponzi and counterfeiting schemes used to steal our rightfully earned property. Then everyone will be able to fund his/her own retirement.
It has been suggested that some state pension systems, such as the U.S. Social Security system and the U.K. State pension systems are actually large-scale Ponzi schemes. Under these systems, incoming payments (taxes or other kinds of non-voluntary contributions) are not saved or invested to pay for future benefits. Instead, the taxes (perhaps with some general government revenues) are used to pay for current benefits.
State pension systems, though they involve the taxes paid in by workers being redistributed to pensioners, lack a number of basic features that define Ponzi schemes, and so are somewhat different:
There is no belief that there are large profits coming from something; rather, it is clear that these are pay-as-you go systems, where workers (at any given time) are providing money to those who have retired.
A Ponzi scheme offers high short-term returns in order to entice new investors, whose money is needed to fund payouts to early investors. These high returns require an ever-increasing number of investors - once the flow of new investors stops the scheme collapses. By contrast, a state pension system relies on the tax power of the state to ensure continuous funding. Also the amount of money paid out per investor is approximately equal to the amount paid in per investor - this means that the scheme is stable unless there are unfavorable demographic changes such as a significant increase in life-span or a declining population.
State pension systems are in some way insurance rather than investment systems. A person who dies before retirement gets no money back (regardless of what he/she paid in). Someone who lives to a very old age continues to get payments regardless of the amount of money he/she has paid in.
Because receipts (taxes) and payouts (entitlements) can be calculated quite accurately in the short term (five to ten years), and predicted (with a range of assumptions) for periods beyond that timeframe, there will never be a sudden collapse.
General tax revenues can be used to supplement worker payments into the systems, although many taxpayers will be unhappy with such supplementation. Similarly, benefits can be reduced through the political process, either across-the-board or by reducing benefits to the well-off, although there will clearly be opposition by those who will get less.
To be fair to the other side, Rep. Rick Larsen has an op-ed in today's Everett Herald.
It appears to be a pretty generic piece, in part to plug his townhall this weekend. I doubt it was in direct response to my own op-ed on Sunday...it was probably writeen and submitted before mine ran...since he, or his staff member who wrote it, blindly trots out the same discredited point that everything will be fine until 2042.
47. Seems to me I remember a story about how Maria Cantwell got rich. I could be wrong, but wasn't it by making a relatively modest investment in Realnetworks or something? This would have been after she lost her congressional seat to Rick White. Didn't she go to "work" for Realnetworks and came out of it with a bunch of money? Now, if true, isn't it the height of hypocracy for her to deny that same "rags to riches" opportunity to the "average" person paying into social security? I'm just asking...
48. Scott: Sadly, what's okay for Maria is not okay for everyone else. YOU have to settle for the bad deal.
49. Michele you are right, there is a double standard. Senator Cantwell proves that investment works. I want the opportunity to invest some of my social security tax dollars into a personal account so maybe when I retire I have a significant nest egg. I joined an organization that is helping me get involved so Senator Cantwell and others know exactly where I stand. The organization is called Generations Together and can be found at www.generationstogether.net if anyone else is so inclined as to take action and demand a solution.