Democrat Congressman Rick Larsen's "town hall" on Social Security reform wasn't much of a town hall, and it didn't talk much about Social Security reform. Instead, it was a thoroughly partisan operation devoted solely to attacking the idea of adding personal retirement accounts to Social Security and frightening seniors into thinking that Bush is out to steal next month's social security check. Surprising? No. Disappointing? Yes.
The room was about 90% elderly people who won't be affected by social security reform. Everyone made lots of noises about how it was a shame there weren't more young people there, but that raises the question of why in the world it was held at a senior center. The answer, purportedly, was that this was the only room big enough they could find that was available. Considering the vast number of elementary schools, middle schools, high schools and churches within a mile of the senior center, I find that very hard to believe.
The event started (after the Lyndon LaRoucheites finished passing out their propaganda) with a presentation by Rep. Rick Larsen about how great Social Security is, about how there's no crisis, and about how personal retirement accounts are bad, bad, bad. I really was surprised at how shallow the presentation was--quite frankly, I expect a member of congress to think a little harder about such important issues.
I was less surprised, but still disappointed, with how dishonest and one sided the presentation was. Inconvenient facts were ignored, meaningless statistics were tossed about as if they were gospel truth, and unmistakable lies were told. Larsen insisted that, should personal accounts come into being, "every Social Security beneficiary will see benefit cuts." This ignores the fact that no one (on the Republican side, anyway) has suggested that anything be changed for those over 55, and the fact that it would be political suicide to cut benefits currently being given out. It was a lie, pure and simple, and Larsen made no apologies for it.
Then, we went into question-and-answer time. This was equivalent to hitting one's head against a brick wall repeatedly. To his credit, Larsen knew I was going to be there (his staff is wisely watching Sound Politics, it appears) and gave me two minutes to say my piece. Unfortunately, I was unaware of this until that point, and so was unprepared (note to self--in the future, always be prepared for that). I did ask two questions, though--why was Larsen lying to people about benefit cuts, and where exactly did he think the money to pay for benefits after 2018 was coming from? To his discredit, Larsen barely pretended to answer either question.
One of the most remarkable aspects of the event was that Larsen utterly and repeatedly refused to say anything about Social Security reform beyond the fact that personal accounts are the devil's handiwork. Citing the fact that the President hasn't put forth a plan yet (only partially true), Larsen refused to state a position on any of the additional reforms that Social Security needs, despite admitting that there is a problem (but no crisis! Anymore!). He's doing this, of course, in order to be able to oppose whatever final plan the President does propose.
The most remarkable aspect, however, was how hostile the environment was, and how clear it was made that Republicans--and anyone who supported personal retirement accounts--were unwelcome. Rep. Larsen informed me during my question that the majority of those in attendance wanted to wring my neck. (If that's true, it reflects rather poorly on Larsen's supporters, though I'm happy to report that I didn't have to fight anyone off afterwards.) Those who supported personal accounts were sneered at and sniped at by the incredibly vitriolic audience, and generally ignored by Larsen.
One good thing came out of the experience (aside from meeting and commiserating with the few friendly faces in the audience). I have determined the root of Democratic hostility (not just resistance--outright hostility) towards personal accounts. They do not believe the poor should have the opportunity to grow wealth. That was a constant theme throughout the meeting--"you already have access to personal accounts--they're called 401(k)'s." Leaving aside the fact that many of us who work at small businesses do not have easy access to such things, what about those who don't have enough money to spare for them after paying payroll taxes?
The poor are forced to put all their retirement money into something with a dismal rate of return that cannot be passed onto their heirs. It keeps their heads above water--but it keeps them in the water. Personal accounts would help the poor to do something the Democrats cannot countenance--stop being poor.
(Cross-posted at The Flag of the world.)
Posted by Timothy Goddard at February 26, 2005 08:58 PM | Email ThisContra Rep. Larsen, I am firly with the devil on this one: I want a personal retirement account into which I can invest a portion of my social security money.
Posted by: Seth Cooper on February 26, 2005 09:30 PMThat was a propaganda evening. The reason they oppose SS reform: Bush is for it. The very definition of kneejerk.
Posted by: Bleeding heart conservative on February 26, 2005 09:47 PMMoynihan on Social Security
From the New York Times May 30th 2000.
Building Wealth For Everyoneby Daniel Patrick Moynihan Social insurance began in Europe, principally in Germany in the Bismarck era. In 1911, Winston Churchill carried unemployment insurance in the House of Commons, representing the Liberal government. The Tories opposite said the workers would spend the money on drink; Churchill said it was their money. Whereupon a first principle was established.
The American Association for Labor Legislation, an academic group, was established in 1906. Workers' compensation laws began to appear. Soon, in Albany, Al Smith and Robert F. Wagner brought us "mothers' pensions" and the like.
In the 1930's, for the first time we enacted national legislation providing unemployment insurance, an old-age pension to be known as Social Security, and a mother's pension, Aid to Families with Dependent Children. The first two programs were presented as contributory insurance. I knew Frances Perkins, who was then the secretary of labor, and have talked with one of the experts involved, Luther H. Gulick of Columbia University. Both would go on about Franklin Roosevelt's insistence that each worker have a separate account, like a bank account. His or hers. As F.D.R. put it to Gulick, so that "no damn politician can ever scrap my Social Security program." (Observe that A.F.D.C. was not contributory. Soon it became known as "welfare," and it was repealed in 1996.)
President Eisenhower brought us disability insurance, expanding workers' compensation. Then came President Johnson with Medicare, a contributory health insurance plan, and Medicaid, a welfare measure. A once-a-generation sequence had evolved.
And now we have the opportunity for a grand culmination, starting this century with a system of voluntary, contributory savings plans such that Americans will end their working lives with a measure of wealth. An estate. And for the first time, an American idea!
A bit of background. In 1977, Social Security, the retirement program, was changed from a pay-as-you-go system to a partially funded system. The revered Robert J. Meyers, who was present at the creation in 1935 and still analyzes Social Security financing, records, "The underlying financing mechanism was to build up a reserve." No one noticed this. I was a member of the 1977 House-Senate Conference Committee that enacted the law, and I surely didn't notice. Nor was it reported.
We added two percentage points to the F.I.C.A. tax -- Federal Insurance Contribution Act -- such that today some 80 percent of American households that pay this tax pay more in Social Security than in income taxes. In time, larger Social Security surpluses appeared, enough to moderate the even larger federal budget deficits of the 1980's, and then to bring us into the overall budget surplus of today.
Now here is the point. If we will make a few, admittedly difficult but wholly defensible changes in the existing program, those two extra percentage points won't be needed. Workers could take back their half -- the employer keeps the other half -- or could choose to invest the two percentage points in a personal savings plan modeled on that available to federal employees since 1987. Let the magic of compound interest work its magic.
Here are the main changes.
Use an accurate cost-of-living adjustment. The consumer price index overstates inflation by about eight-tenths of a percentage point, even after recent improvements made by the Bureau of Labor Statistics.
Next, provide normal taxation of benefits, which are now only partially taxed. Then extend coverage to all newly hired state and local workers, a quarter of whom don't pay into Social Security from their primary earnings but get benefits through part-time jobs.
Finally, increase the number of years counted in computing benefits from 35 to 38. Of a sudden you are in 75-year actuarial balance and don't need those two percentage points of payroll taxes.
On March 18, 1998, Senator J. Robert Kerrey and I introduced the Social Security Solvency Act, with these benefit adjustments and a provision for a "voluntary investment of payroll tax cut by employees." In 1999 it became the Social Security Solvency Act of 1999, the first Senate bill introduced in the 106th Congress other than those reserved for the two leaders. We also included Senator Kerrey's proposal to provide every child with a nest egg of $3,500: $1,000 at birth and $500 on each of the child's first five birthdays.
With respect, this is where the coming presidential debate should begin. The numbers add up; they are from the actuaries at Social Security. There are some tricky details, including a far-off increase in retirement age. (But note that now most folk, 76 percent, retire before reaching 65, the so-called normal retirement age.) And of course the main debate will concern the personal savings accounts.
It would be unforgivable to label this "privatization." But it has already begun. These savings accounts are being referred to in New York Times reporting as "partial privatization."
The term goes back to the presidential campaign of 1964, in which Barry Goldwater made an offhand remark that Social Security should be made voluntary. In the definitive study, "Policy Making for Social Security" (Brookings, 1979), Martha Derthick explained that though the remark was "not the party's position and not even clearly the candidate's position," it was "transformed by media coverage and the ridicule of rival candidates (including other candidates for the Republican nomination) into a symbol of Goldwater's radical conservatism." As such, she wrote, "it figured conspicuously in the campaign."
Doris Kearns Goodwin, a distinguished historian of the period, recently described a Democratic ad of that campaign depicting scissors cutting a Social Security card in half.
The charge is hurled at every opportunity. Establishing personal savings accounts is described as turning Social Security over to Wall Street. Dock workers would become day traders. A market downturn could wipe out benefits.
The latter charge is obscene. The present progressive retirement benefit is fixed in our bill. There is no occasion to touch it. We add a savings plan modeled on the Thrift Savings Plan for federal employees, including senators. The government matches up to 5 percent of an employee's pay. The money is invested, at the employee's choice, in one of three plans, ranging from government bonds to a stock index fund. The employee can switch around from time to time. If there is an element of risk even in a 40-year stretch, at no time are basic Social Security benefits at risk. Those are funded and solid, just as they are today and have been for 60 years.
The Thrift Savings Plan was essentially an adaption for federal workers of various retirement plans, principally the 401(k), as it is known, which were passing the tax committees in the 1970's and 1980's. In the Senate it emerged from the Government Affairs Committee. Al Gore, then a senator and a member of the committee, said on July 30, 1985, "An employee savings plan with government matching funds will give every worker the opportunity to supplement a defined and predictable pension amount." He praised a Congressional Research Service report, "Civil Service Retirement: Capital Accumulation Plans for Federal Employees."
A parallel arrangement under Social Security would, at a 7 percent non-inflation-adjusted rate of return, provide an average worker (making $30,000 a year), with $350,000 of savings at the end of 45 years. A measure of wealth.
In 1944 the British came up with the slogan of "cradle to grave" protection. We propose something beyond: an estate! For doormen, as well as those living in the duplexes above.
If I'm a 25-year-old Democrat, I'm all for the proposed changes to SS and if I'm a 65-year-old Republican, I'm against it. The fact of the matter is that this plan does nothing for those already receiving a benefit check except it replaces the known with the unknown.
Look at this from their, the elderly's, perspective. During the Bush administration, they've seen income taxes lowered which primarily benefitted the wealthy. They've seen estate taxes lowered which primarily benefitted the wealthy. They've seen capital gains rates lowered which primarily benefitted the wealthy. And now they see their SS being screwed with. It's an easy sell for Democrats to convince the elderly that this administration doesn't care about them.
Up to 85% of SS benefits, depending on total income, are subject to income tax at the ordinary income rate. You want to get the elderly on board? Do something to lower (or eliminate) the taxes they have to pay on their benefit check. Keep ignoring them and they'll fight this to the end.
Oh, and by the way, the baby boomers will start receiving benefits in 2008, not 2010.
Posted by: Alan in Las Vegas on February 27, 2005 06:44 AMNo, it hasn't. Social Security has served us well. My parents both worked hard all their lives and their pension check was so small that if they dropped it on the floor, it would have barely been worth the effort to bend down and pick it up. Thank goodness they had that SS check coming in every month. They bought a little place in Florida and lived surprisingly well. Maybe some of your own family members were in similar circumstances.
Rather than harping about what a bad deal it is, why not just say it was a good idea at the time but times change.
Posted by: Alan in Las Vegas on February 27, 2005 07:28 AMHaving organized such events for a US Senator I know for a fact it is not tough at all to get a local school or other such venue - outside of a senior center - to host such an event. His office could have also worked with some local community college polisci departments or history/civics teachers to boost attendance among the younger crowd. I've done that before too, not that tough. Offer the "kids" extra credit, it works.
Another question that should have been posed at the event is how many people in attendance were relying on Social Security for more than half of their retirement income. I bet the answer would have been through the roof. Having also organized events at senior centers, seniors who go to events at such places are more likely than their peers to be comparatively less well-off financially. For current seniors, that means the segment of our society who is the least likely to have ever utilized financial markets for their savings. As Tim noted, not exactly the target audience for this discussion...unless you're trying to scare people.
Did he really say everyone there wanted to wring your neck, Tim?
Which reminds me. An event in a senior center in Everett is likely not only be be dominated by seniors who are not financially secure without Social Security, but former union members to boot. Many of them would be happy if the stock market didn't even exist, evil capitalism and all.
Posted by: Eric Earling on February 27, 2005 08:54 AMhttp://www.simplyfamily.com/display.cfm?articleID=000623_positively_old.cfm
Posted by: Eric Earling on February 27, 2005 09:09 AMThose were his exact words--well, not the "everyone" part. I think he said "most." But "wring your neck" is verbatim. Classy guy, no?
Posted by: Timothy on February 27, 2005 09:18 AMOK, that's a fair question. Thank you for responding. Let's talk about "wealth."
Here's a typical(?) 65-year-old middle class retired couple who have done pretty well for themselves. When they retired, they had a combined income of $100,000. They've paid off their house which cost them $40,000 many years ago but is now worth $250,000. They've accumulated $350,000 in their 401(k)'s. They were lucky enough to have a pension which pays them $25,000 a year. If they had to buy this pension, they would have had to save roughly an additional $250,000. Plus, they get another $20,000 a year from Social Security. This has a present value of around $200,000. Let's say they had no other investments. But they have 2 cars that are fully paid for and furnishings worth a total of about $50,000. So, their net worth is $250,000 + $350,000 + $250,000 + $200,000 + $50,000 = $1,100,000. My God, these people are millionaires.
Looking at income, let's say they draw a conservative 6% out of their 401(k) each year which is $21,000 the first year. So their annual income is $25,000 + $20,000 + $21,000 = $66,000 -- 2/3 of the income they had before they retired. But their expenses are lower too, at least unless and until one of them gets seriously ill, so they can live nicely on their $66,000.
So, are these people wealthy? Yes in terms of net worth but no in terms of income. And it's current income that they're paying taxes on. They're taxed on all but $3,000 (15% of $20,000 SS) of their $66,000 -- all at the ordinary income rate.
So, seniors tend to have relatively high net worth because they've been accumulating it all their lives. Their income, on the other hand, will tend to be modest as compared to their pre-retirement income. And don't forget, this money has to last them for the rest of their lives. So, would even a modest decrease in income taxes help these millionaires? Absolutely.
Related to Rep. Larsen's comments about the Trust Fund, see this AP story where the US Bureau of Public Debt acknowledges the Trust Fund has no money but will have to pay up (thus starting the chain reaction of negative consequences oft discussed at this site and others):
http://apnews.myway.com/article/20050227/D88GKT9O0.html
Posted by: Eric Earling on February 27, 2005 09:26 AMI worked for the Federal Government for ten years. Here's how I remember it: You can voluntarily contribute up to 10% of your gross income into the TSP. The employer would match dollar for dollar the first 5%. All of the contributions are in pre-tax dollars. Once in the system the employee can designate the pecentage they want to go into any of five funds.
go to
http://www.tsp.gov/rates/monthly-current.html
to see the rates of return on these funds.
These aren't "dot-coms" or anything like it. They are stable. solid funds, all based on different segments of our economy that YOU chose from.
Sounds like a typical 401K....Matching funds to a point, and selective funds to choose from.
But with SS, the employer ante's up 7.5% and employee the other 7.5%.
I think all Employees whether goverment or private should have to pay into SS. It's only fair. Maybe the Goverment would trim it's FAT if it had to ante up 7.5%.....
Posted by: Chris on February 27, 2005 10:21 AMI think there are some very compelling arguments in favor of personalized accounts. I just don't think that's one of them.
Since 1983, workers have been paying more in Social Security payroll taxes than was required to pay benefits. The idea was to build up a reserve for when the Baby Boomers retired. This money was invested in Treasury Bonds. If this money had not been available, the resulting shortfall in the federal budget would have been made up from other sources -- like selling Treasury Bonds to individuals or foreign investors. Either way, the bonds would have to be redeemed at some point in the future. In the meantime, we've had the use of that money which presumably benefits all of us. Whether the money has been spent wisely is another issue entirely.
If there is no trust fund, why did the President say, "By the year 2042, the entire system would be exhausted and bankrupt." Something must be going away in 2042. If the president really believes that the Social Security trust fund doesn't exist, why have workers overpaid a trillion plus dollars into the fund? And shouldn't the President call for an immediate cut in payroll taxes to halt this overpayment?
Let's forget about this bogus trust fund argument and highlight the real advantages of personalized accounts.
If more people thought like Marge, we'd have a lot fewer problems. "What's better for the country?" "What's better for the future?" Unfortunately, most people think, "What's better for me?"
Is the proposed system better? I'd like to hear discussion from fewer politicians and more economists and actuaries.
Posted by: Alan in Las Vegas on February 27, 2005 11:01 AMI don't know what kind of discussion you are interested in, or what research you have done. If you haven't already looked at these sources, you may find them interesting.
http://www.socialsecurity.org/
http://www.heritage.org/Research/SocialSecurity/
Thank you. I'll read those in more detail. Of course, the Cato Institute and the Heritage Foundation are going to support the President. I've also read what the Congressional Budget Office (CBO) says and what Alan Greenspan had to say recently. One of the interesting points that Greenspan makes is that personalized accounts, by their very nature, are fully funded -- kind of like 401(k)'s.
I'm not totally clear about how these personalized accounts will work initially or ultimately but I do have this concern:
In years past, when a person retired, he might typically receive a company-provided pension plus Social Security. Add to that the equity in his home plus private investments, if any, and that was his retirement nest egg.
But now, 401(k)'s have largely replaced defined benefit pension plans and we're possibly moving at some point in the fairly distant future towards personalized accounts completely replacing monthly Social Security checks. So, when you retire, you have no monthly income but a huge chunk of cash. Sounds pretty good, eh? But you have to be careful. It has to last you the rest of your life. Can people be trusted to handle that money wisely?
So, here's my bottom line. If you're a Democrat and/or a senior, don't dismiss the proposed changes out of hand. If you're a Republican and/or young, don't assume this is the answer to your prayers. Specifically, how will this work for a 25-year-old, a 35-year-old, a 45-year-old, high paid, average paid, low paid? Let's see some numbers. Maybe someone has already done this analysis and I just haven't seen it. And, of course, what is the effect on the economy short-term, medium-term, long-term?
Posted by: Alan in Las Vegas on February 27, 2005 12:01 PMMy point--and everyone's, I think, regarding the trust fund and personal savings accounts--is that by instituting personal accounts--turning SS into a pay-as-you-go system--we will never have these problems again. That's the argument.
Posted by: Timothy on February 27, 2005 12:24 PMThere is a clearly a debt that is owed to the Social Security system that will be paid. However, the contents of that Trust Fund deserve to be discussed honestly. Opponents of reform claim the bonds in the trust fund will be redeemed with no other consequences and everything will be hunky dorry until 2042. Advocates of reform, including the President, note 2018 is the more important date when the cash deficit begins, with 2042 being the date at which the system's theoretical assets are exhausted as well.
The President, likely for good reasons related to the reaction of the bond markets, has not discussed the issue as directly that the bonds in the Trust Fund will require other cash or borrowing to redeem. As the spokesperson for the Bureau of Public Debt alluded to, the special bonds in the Trust Funds are not assets like traditional US Treasury Bonds that can be bought and sold in financial markets; they are IOU's, accruing interest, from one arm of the government to another.
For a couple insightful discussions of this issue see:
http://www.nationalreview.com/frum/diary022205.asp#056808
and
http://www.nationalreview.com/frum/diary020605.asp#055438
As Frum points out in the above links, the issue isn't whether the Trust Fund exists, the issue is how the obligations of the Trust Fund get paid. That will require raising taxes and/or cutting spending absent other reform of some sort. Opponents in the current debate are avoiding that angle of the discussion completely and thus doing the country a disservice.
Posted by: Eric Earling on February 27, 2005 01:00 PM
I read through your response and I can't find anything to disagree with so we must be on the same page. Thanks to you and Tim and others for their responses.
By the way, if you're a real glutton for punishment and have a few hours to spare, read Greenspan's testimony before the Senate Banking Committee. Half the time I have no idea what he's talking about but the other half is pretty interesting.
Posted by: Alan in Las Vegas on February 27, 2005 02:17 PMJust like Ted Turner.
Posted by: Sandy P on February 27, 2005 07:20 PMIt's particularly interesting to plug in someone making a low wage (I used $7.50/hr or $15,600/yr), use the account with the highest rate of return (who wouldn't want that?) then vary the age and watch what happens! The power of compound interest...
Posted by: Chile Babe on February 28, 2005 11:08 AM