The sun rises, the sun sets, and Democrats won't talk seriously about Social Security. These are the events we can count on this election season.
The state Democratic party has devised a website response to Mike McGavick's "Open Mike Tour", called "Is This Mike On?". Such websites are commonly created by both parties during campaign season to parody or criticize their nominee's opponent, and are generally exercises in political hackery, not serious political discourse. "Is This Mike On?" is no exception.
To start, the interminable intro at the site oddly reminds me of Deborah Senn's TV ads from her 2000 primary against Maria Cantwell - readers who recall those ads know that is not a compliment. Once you wade through the intro you get to the meat of the site trying to find ways to criticize the "Open Mike Tour." In particular you find "10 Questions McGavick Doesn't Want to Answer", which are the policy equivalents of "When did you stop beating your wife?"
McGavick has been answering these questions when then young, yellow-shirted Democrat staffers shadowing his tour ask, then putting those answers up online so people can hear for themselves. His responses are definitely more thoughtful and substantive than the questions themselves, regardless of whether you agree with his positions. He specifically speaks to Social Security during part of this clip.
The Democrats' site also has a "Stories from Voters" section that is just as lame as the 10 questions. The current story is from "Pauline in Anacortes" who has the usual horror story-style approach to discussing the issue of Social Security that Democrats favor, including a "privatization scheme" reference in the title that would make Al Gore proud. Sigh.
Yet, the substance of her tale deserves a closer look. She specifically claims she lost 80% of her life saving during a downturn in the stock market, just prior to her taking an early retirement for medical reasons. She uses this as a primary reason to claim personal accounts are "just too dangerous a gamble."
But take a look at the details of her story. She says her financial advisor was a "close friend who was the foreign editor of the Wall Street Journal." That doesn't sound good. I have a financial advisor, but I don't want that person to be either one of my close friends or a journalist. Assuming that a journalist has financial advising skills because they work for the Wall Street Journal is like assuming a janitor at Charles Schwab will give you sound investment advice.
In addition, anyone who knows even a modest amount about personal investing knows that the only way you can lose 80% of your nest egg when you're anywhere near retirement age is by having invested largely in speculative, individual stocks - exactly the wrong kind of investment for someone anywhere near the stage in life she implies she was when this occurred - and exactly opposite of the claim that she had "invested conservatively." No offense to her friend or her, assuming her story is true, but she chose incredibly poorly in putting her assets in his hands, and he did even worse in advising her.
These are exactly the sort of bad choices that would be eliminated by the type of personal accounts President Bush has supported, specifically modeled on the 401(k) program available to federal employees, the Thrift Savings Plan (TSP). Readers can easily peruse the details of such accounts as supported by President Bush on pages 5-7 of this document. That plan doesn't offer the opportunity for speculative investments as Pauline likely engaged in; rather it only offers low-cost index funds. Indeed, the TSP's index funds' administrative expenses are lower than anything a private investor can find in the market today.
On top of the safety of index funds, President Bush's plan would also offer lifecycle funds, which would keep an individual's assets in an age-appropriate mix of stock and bond index funds. Furthermore, the plan would specifically and strongly encourage participants to shift exclusively to lifecycle funds as they begin to approach retirement age, to avoid what apparently happened to Pauline. As anyone who has even a small amount of experience investing for retirement knows, it is difficult to screw up using index funds, and virtually impossible to screw up using lifecycle funds, short of a total economic collapse - in which case we'll have bigger problems as a society than just financing Social Security.
In short, the comparison of Pauline's tale and the reality of what McGavick is talking about with Social Security reform is hooey. But, don't hold your breath waiting for that erroneous comparison to be corrected. Pauline's story, or some variation therein, is a prime candidate for the genre of attack ads against McGavick I've said are coming. The goal will be simple: scare people at-or-near Social Security retirement age, who reform advocates agree won't be affected, facts be damned.
Readers of Sound Politics already know Cantwell's Social Security position is unserious, and as specifically noted near the end of this post that Democrats are being chided by even liberal and centrist pundits for their refusal to offer a plan to address the long-term fiscal challenges facing Social Security. This latest twist from the state Democrats fits right in to that utterly unserious approach to one of the most important long-term domestic issues we face as a country. At least they get points for being consistent.
Who repays those trillions spent by the government when SSI needs to cash in those T-bills? Where does the Treasury get the money without other surplus revenues to repay what has been spent?
Democrats rely on the "full faith and credit" argument that says that the government will pay out the SSI benefit even if they don't have the revenues to do it. Democrats argue that the government will balance the books by whatever means necessary, even if that means higher SSI taxes to make up the difference between increasing benefits and revenues that aren't keeping pace.
This is no small problem. The shortfalls for SSI, Medicare and Prescription Drug benefits will lead to tens of trillions of dollars in shortfalls if these programs are not reformed. But for Demcracts the issue is more valuable than saving these programs and our economy.
Politics over the people. That is the Democrats real mantra, just one they don't advertise.
Democrats have already cost us trillions in lost surpluses. If we don't get future surpluses invested outside the government so they can't be spent to artificially lower annual deficits, 2015 is only 9 years away. 2015 is when expenditures will exceed revenues.
But don't be fooled by the trust fund, even if it existed, it only extends coverage of benefits another couple decades. But it doesn't exist. No one can claim to save money they have borrowed from theselves and spent.
Posted by: MJC on July 23, 2006 03:01 PMThe Dems always go for the quick political gain now, at the expense of long term winning strategy. That's all you can do when you build your party on failed collectivist ideas that are guaranteed to collapse under their own weight.
Posted by: Jeff B. on July 23, 2006 05:38 PMThere was no stock market crash in 1988.
There was a correction in October/November 1987 in which the S&P 500 lost roughly 30% of its value. But nevertheless, the index was still up 5% for all of 1987. In 1986 the S&P 500 gained more than 18%, and in 1988 the S&P 500 gained nearly 17%
Posted by: Stefan Sharkansky on July 23, 2006 06:37 PMThe viability of the Social Security system must be protected for those who need it. The system was intended to help the elderly poor and the disabled. Not all of our elderly are poor. A voluntary system should be instituted allowing those who can afford to do so, to return their Social Security payments.
So, other than vague talk about protecting the system for "those who need it" (whoever that is), his plan so far seems to be asking folks who don't need it to voluntarily return their Social Security payments. That doesn't sound very Serious.
The IRS has a similar program that allows patriotic taxpayers a chance to help reduce the federal debt by returning all or part of their tax refunds. Apparently, most folks feel they "need" their refunds, because last year the program only generated $21,179 in gifts. Something tells me voluntary returns of Social Security checks wouldn't be much higher.
Does Mike! have a more Serious plan that he'll be rolling out later?
Posted by: scottd on July 23, 2006 07:53 PMhttp://blog.seattletimes.nwsource.com/davidpostman/archives/2006/06/mcgavick_on_social_security.html
Posted by: Eric Earling on July 23, 2006 08:04 PMI remember the October 1987 "crash" (Stefan is right about that woman's faulty memory). I also remember that the stock market roared right back in a matter of just a few months! IN FACT, THE OCTOBER 1987 CORRECTION WAS A GREAT TIME TO PUT MORE MONEY INTO THE MARKET!
Economic freedom NOW (which means don't vote for democrats if you value economic freedom).
Posted by: Michele on July 23, 2006 08:10 PMOne guy who'd probably know is John Bussey, now deputy managing editor of The Wall Street Journal and editor in chief of Dow Jones Publications Asia. Can someone find his e-mail address with the WSJ? His past would certainly overlap with the errant advisor Pauline claims to have worked with:
Mr. Bussey was named deputy managing editor in June 2002. Previously, he was foreign editor of The Wall Street Journal for eight years, based in New York and responsible for the paper's international coverage. He joined The Wall Street Journal in 1983 as a reporter in the paper's Chicago bureau and later worked in its Cleveland and Detroit bureaus. In 1988, he became a writer and editor with the paper's front-page staff in New York. He was named Tokyo bureau chief for the U.S. edition and The Asian Wall Street Journal in September 1992, and in January 1994 he returned to New York as a senior editor responsible for economics coverage. He was named The Wall Street Journal's foreign editor in October 1994.
Posted by: Regret on July 23, 2006 08:18 PMWe followed the same path last time Social Security reform was on the agenda. Months of vague talk, but when actual details started to come out, many people started realizing they would be worse off. After that, reform died quickly.
McGavick is doing the same thing. Vague reassurances with the added touch of suggesting we may be able to avoid means testing altogether if only those who didn't need it would voluntarily return their Social Security payments. Does he Seriously think that's a likely outcome?
Posted by: scottd on July 23, 2006 08:19 PMAt least Mike has a position that he's willing to start negotiations. Maria doesn't offer a plan, a position, or an opinion, even though she's been in the Senate for five years. Maria's plan is more of the same, and then raise taxes.
Mike's said more that Maria about how to fix Social Security.
If you don't like Mike's proposal to fix Social Security, fine. Then please support Maria's proposal, once you, and I, hear what that is.
Posted by: Obi-Wan on July 23, 2006 09:27 PM"For 41 years, I was a fairly successful career woman but in 1988 I lost 80% of my life savings in the stock market crash; in fact, the crash happened the month I had to take early retirement because of a health problem," said Pauline Crooke, a local Anacortes senior and former New York marketing executive. "From my personal experience, I believe it would be a disaster to have McGavick and Bush's plan to privatize Social Security tie people's retirement security to the ups and downs of the stock market."
According to the Sound Politics voter database, she was born in 1928, so she would have been 59 in 1987 when the crash really occurred and age 60 when she thinks it occurred. As Stefan pointed out, a broadly diversified portfolio actually gained ground that year, although the month of October was horrific. If she lost 80% of her money, she was gambling, not investing.
Again, I don't think debunking her story has much real value, but I suspect there's more to it than she's shared with us so far.
Eric, Stefan,
I think Soundpolitics should put up a $10,000 reward to anyone who can produce this mysterious 'Pauline from Anacortes' backed with evidence that her life savings dropped more than 78% between '87-'89.
I don't think she exists. I'm good for $100.
Posted by: Brent in Ferndale (really) on July 23, 2006 09:40 PMJust so you know, it's the Congress who has responsibility for reforming Social Security, because they write the legislation. Bush's job is to suggest legislation and then administer any laws that get passed. McGavick has claimed some special expertise on this subject -- after all, he's been in the insurance biz. So let's hear some details about what he thinks should be done.
So far, he's been pretty vague, but one of the few points he has been specific about is the role of "voluntary means testing", i.e. asking folks to return their Social Security checks if they don't need them. Anyone who thinks that will generate significant revenue just can't be taken seriously on the topic.
Posted by: scottd on July 23, 2006 10:01 PMSo Michele, is having your money in a government-controlled index fund your idea of economic freedom?
Posted by: Ben Diamond on July 23, 2006 10:56 PMShe leaves a lot out of her story (or else it was edited for a sound bite). Taking early retirement has serious implications that not everyone thinks through. For example if you start taking Social Security at 62, your benefits are reduced. Permanently. You do not get a big increase at 65. Early retirement can also affect your company pension and your health insurance. Social Security was only meant to be SUPPLEMENTAL, not your sole means of retirement income.
The first step in fixing this mess is to make the SSI a separate budget so people can see how much is going to the addict on the street or the person with the "bad back". (And before the more sensitive readers think I am heartless on this, I have relatives who spent years working the system to prove they had a bad back or an addiction that kept them from any type of gainful employment. Also, check out the liquor store sales about the time the Social Security checks come out.)
Until SSI is a separate item, the problem is going to escalate. People don't mind saving for their retirement. They should be given the option if they want money withheld for the drunk on the street. I wonder how many liberals will agree to extra withholding for that purpose? I can hear it now--"but we should all help". For the truly disabled, yes, we should. For all other cases there needs to be a strict time limit, after which the benefits go away.
Posted by: Burdabee on July 23, 2006 11:22 PMSSI is not part of Social Security benefits and it is not paid for by Social Security taxes. Therefore, it has nothing to do with the so-called Social Security crisis, i.e., the future inability of Social Security taxes and assets to keep up with Social Security benefit payments.
You can check it out for yourself at ssa.gov.
Posted by: scottd on July 23, 2006 11:54 PMEconomic freedom also means to me not having excessive amounts of my income stolen by greedy politicians via income taxes. With republicans, I get a shot at a much-needed tax cut. With Maria, I got nothin' but higher taxes (I still remember what she did to my family in '93). People deserve to keep more of what they earn. Too many politicians like Maria just don't respect people who work hard for their money. Govt. has a moral obligation to try to take as little from me as possible to accomplish the basic functions of govt. They have to have SOMETHING, but what they're taking now is a crime. Dems just want more and more of our money. There's no respect for the taxpayer. Dems just see us as financial doormats to pillage over and over.
Posted by: Michele on July 24, 2006 12:12 AMYour payroll taxes doubled under Reagan and Bush 41.
Clinton's tax increase in '93 was under the same name as the bill signed by Bush in '90 to correct for the Reagan cuts that were too deep to be fiscally sustainable.
Posted by: Ben Diamond on July 24, 2006 01:08 AMSee they're talking about it.
Posted by: Andy on July 24, 2006 07:14 AMThe truth is that none of you have actually examined the personal account scheme Bush is pushing. Perhaps those of you who proclaim that you want to invest your own retirement money really would do some research first, would look at the prospectus required by law for every mutual fund, for every new issue of stock. You can't do that for the Bush scheme: there is no prospectus. All you have is the sales pitch - the same thing that those who visited New York and bought the Brooklyn Bridge had. Because it's Bush and because you are suckers for the propaganda you never even think of askig to see the details of the scheme before it is enacted. If you haven't seen the details how do you know you will have control of your own money (the money that you permanently give up, according to Bush himself)? How do you know that you'll have nothing more than a choice among a small number of funds and perhaps a limited power to shift existing investments among those funds?
If you invested in stocks or mutual funds the money you invested would be just as spent as the Social Security surplus has been spent. Actually, its worse: the money was spent long ago. When you buy a stock on the market or buy a mutual fund you are buying from someone else.
Do any of you know about the many highly successful mutual funds that are closed to new investors? Do you understand why they won't accept investments from anyone beyond the existing share owners? THEY CAN'T CONTINUE ACHIEVING HIGH YIELDS IF THE FUND GETS TOO LARGE. Well, duh. Just how large would the "Social Security mutual fund" be?
Posted by: Brad on July 24, 2006 07:16 AMThe anticipated possible shortfall is far in the future. The reason Social Security was not properly discussed in the Congress was the insistence of those who control Congress that any action had to include "personal accounts." Personal accounts were not enacted into law because they were not supported by enough Republicans. You can scapegoat the Democrats all you want but they stood ready and stand ready to engage in an honest discussion of Social Security - it is the Republicans who refused to allow such discussions.
It is the Republican leadership that is preventing action on Social Security by their refusal to allow actual discussion and by their insistence on the personal account scheme, a scheme so fraught with problems that they refuse to make a concrete legislative proposal for it. As it stands the personal accounts are still a "pig in a poke." The details are kept secret by the Republicans. Bush did reveal that retirees would be refused access to their principal during their lifetimes. Once that got reported he stopped saying it.
Posted by: Brad on July 24, 2006 08:05 AMWe were shocked at how little my dad's SS checks were when he fied. He put a ton of money into SS and his ROI was pathetic. SS is a BAD DEAL for thye masses.
Posted by: Michele on July 24, 2006 08:25 AMIn 2005 Social Security revenues were $604 billion. Expenditures in 2005 were $434 Billion. That left a surplus of $170 Billion to go into the "trust fund". The Trust Fund in 2005 held $1.666 Trillion in Treastury Bills when the new surplus was added.
So that $170 Billion was lent to the Treasury in exchange for more T-Bills, which is mandated by law, increasing the Trust Fund - with interest from 2005 - to $1.85 trillion dollars.
But what did the Treasury do with the $170 billion received in exchange for those T-Bills?
They spent it. Every penny of it to reduce the deficit in 2005-2006 by $170 billion.
They did exactly what they have done with every penny of the $1.67 trillion in surpluses obtained previously, which they also spent.
So I don't care if the privatization of SSI makes money at this point. I don't care if it keeps pace with inflation. I don't care if it loses money. But when you compare privatization to the current scheme being run by our government, even losing 80% would leave the system with something. Under its current approach, every penny of the surpluses are lost.
And who has to repay the government to provide the money when SSI needs those surpluses borrowed and spent by our government? Yup, we get to pay it again. It will be roughly $2 trillion by the end of this year, doubling again in 7 years to $4 trillion.
Can we wait to fix this?
Posted by: MJC on July 24, 2006 08:49 AMGiven there is no alternate how could there be a prospectus? Bush advised that congress do something about it, suggested that thee are private accounts similar to the ones that congress has. He laid out a guidline for congress to write the laws - the correct responsibility of both the executive and legislative branches. Once finalized I am sure there would be more information then there currently is on how my SS is 'invested' now.
Unless you are saying when we are not given a choice we do not need to know where it is going, but when we have a choice (which includes the current system) then we need full disclosure, which most people wouldn't understand, even if they did read it.
Posted by: Fred on July 24, 2006 09:03 AMMichele @ 28, you have made a couple of references to an account with your name on it. That is a common misunderstanding of how Social Security works. The government doesn't take your money, which is over 12% of your income (including employer taxes - let's not call it contributions) and put it into an account, or lockbox, with your name, my name, Brad's name, or MJC's name on it. It spends the money.
Current Social Security taxes are used to pay retirees. Social Security is a wealth transfer scheme, plain and simple. The government takes money from those of us that work, and gives it to those who don't.
Posted by: Obi-Wan on July 24, 2006 09:15 AMThe Dems and their mainstream media buddies successfully convinced the country that Bush wanted to gift their social security dollars directly to Wall Street. Rarely mentioned was that the plan only proposed a voluntary option of around 6% of an individual's contribution. I am waiting for the Dems to come up with an alternate plan. I expect it to be a very, very long wait.
Oh yes, I don't exactly believe there is a "Pauline in Anacortes".
Posted by: Bill Cruchon on July 24, 2006 12:11 PMhttp://www.usatoday.com/printedition/news/20050316/oplede16.art.htm
Posted by: Snuffy on July 24, 2006 01:18 PMwe need to stop living in an "everything for everyone" dream world and make some hard cuts for the future & personal responsibilities; i'm willing to cut my benes if it will make a difference and also eliminate fraud and ineligible leeches; after all, how did people cope before the Great Society?
Posted by: Jimmie-howya-doin on July 24, 2006 01:23 PMYou know, ones like . . .
Enron (yes, that one, run by "Kenny-Boy" Lay and the No. 1 contributor to Bush's 2000 campaign.)
Worldcom
HealthSouth
Tyco
Adelphia
Global Crossing
and the list goes on . . .
Posted by: Critical THINKER on July 24, 2006 01:56 PMThat is the starting point for any discussion of changing the program. If anyone other than the government ran a program like this, they would be arrested for operating a Ponzi Scheme, and thrown in prison.
Some projections show the current surplus in social security taxes (receipts minus payouts to current beneficiaries) drying up as early as 2011. Other projections show the surplus continuing until as late as 2018 or so.
The problems will start as soon as the surplus is gone. At that time, taxes will have to be raised, or benefits cut, or the National Debt increased, to bring receipts and payouts into alignment.
Some may ask, "But what about the Trust Fund?" Ken Lay or Jeff Skilling, well, Skilling anyway, might be the best ones to answer that question, as the Social Security Trust Fund is an Enron-like fraud. The Trust Fund is an obligation of one division of the US Government (Treasury) to another (Social Security).
There is no tangible asset created by such an obligation. When the time comes that the Social Security Administration requires additional funds (beyond current receipts) to pay current beneficiaries, redeeming the special-issue Treasury bonds that constitute the Trust Fund doesn't draw on any stored wealth. All it does is create an immediate obligation on the Treasury to transfer funds to the SSA. Those funds will have to be accounted for by a tax increase or deficit spending.
Beyond the fraud and immorality of the current Social Security system, it is a very risky scheme. The risks could be overlooked at the beginning, and even long afterwards, because there were many people paying into the system for each person collecting benefits. Initially the ratio was about 9 to 1. Over the years, it has fallen to about 3 to 1 (as of 2004). The ratio will decrease sharply as the Baby Boomers retire. A decrease to 2.5 to 1 requires an increase of 20% in taxes to maintain current benefit levels. A decrease to 2 to 1 requires a 50% increase.
Granted, such decreases will occur over ten or twenty years or more. But what happens when medical science finds a cure for cancer, and other treatments, that collectively extend the average lifespan from the current ~75 years to 100 years, or 120, or beyond? The ratio of payors to payees could drop to 1 to 1, or even lower, meaning that each tax payer is supporting one retiree.
Prudence demands that changes be made now to put Social Security on a sound footing. The best thing would be individual accounts funded by diversion of a percentage of the payroll tax, owned by individuals. Such accounts would be managed by entities (Schwab, Vanguard, etc) that met certain conditions, such as maximum fees, with investments limited to things like index and lifecycle funds, and limiting risk with age.
Posted by: ewaggin on July 24, 2006 02:07 PMHow dilapidated and Wellstonian need it be before it becomes an acceptable campaign vehicle?
Posted by: Howard Hirsch on July 24, 2006 04:23 PMIs that the same Global Crossing that Terry McAuliff made $18,000,000 on?
Posted by: Obi-Wan on July 24, 2006 04:29 PMIs that the same Global Crossing that Terry McAuliff made $18,000,000 on?
Yeah, and it's the same Enron that bankrolled Bush's presidency and manufactured the California energy crisis. And Bush's lackeys on FERC were trying to fuck Snohomish County out of $118M in ill-gotten cancellation fees.
Geeze, conservatives are dense.
Posted by: Critical THINKER on July 24, 2006 05:21 PMNow the city workers have pensions that are privately invested. They receive 3-4 x what SS pays. That is to say retireing with $4,000 a month coming in. And when they die, their families receive a death benefit. And, yes, the wives also receive payments. Interesting story, check it out. And pass it along to both parties.
http://www.usatoday.com/printedition/news/20050316/oplede16.art.htm
It is what social security should be.
Posted by: Snuffy on July 24, 2006 07:02 PMHi, ivan, just checking to see if you read every comment on every post.
Posted by: Obi-Wan on July 24, 2006 09:47 PMIf everybody did like Galveston County did, we wouldn't need Social Security. Self-reliance....what a concept!
I don't think annuities are the best choice now, but they may have been, back then (1980). I think risk could be managed just as well by the use of lifecycle funds, and that way avoid being locked into the fixed payments of an annuity.
Posted by: ewaggin on July 25, 2006 12:07 PM