Bush on Social Security

[Brown]

From CNN and AP:

President Bush said Thursday that "now is the time to confront Social Security" to deal with a projected $3.7 trillion, 75-year shortfall and give younger workers the ability to invest some of their contributions.
...
Bush said he intends to ignore the traditional political perils of meddling with Social Security in order to save the system for future generations.

"This is an issue on which I campaigned and I'm still standing," he said.
...
Bush was not specific about his own ideas for solving the problem, but laid out a few do-or-die principles.

He said that for an undefined group of seniors "nothing will change" in their benefit structure, that there should be no increase in payroll taxes and that younger workers should be moved toward private accounts for some portion of their Social Security contributions.

More Bush bull****. Bush did not campaign actively on this issue. He made no detailed proposals during the debates, except mentioning that "younger workers ought to be allowed to take some of their own money and put it in a personal savings account" (and according to the article, he doesn't have any detailed plans NOW). You can read the full text of his debate remarks, and Senator Kerry's response, here.

Kerry quoted facts and figures that little Bush's privatization plan "would be a $2 trillion hole in Social Security," an assertion that little Bush never rebutted. Kerry also stressed fiscal responsibility and job creation (two prominent failures during Bush's first term), but little Bush responded:

I didn't hear any plan to fix Social Security. I heard more of the same.

He talks about middle-class tax cuts. That's exactly where the tax cuts went. Most of the tax cuts went to low- and middle-income Americans.

That latter statement was a flat-out falsehood. Most of the tax cuts DID NOT GO to low- and middle-income Americans.

I submit that Bush cannot have a mandate on an issue (1) when he has no current plan; (2) upon which he did not propose a plan during the campaign, or (3) that he presented only to his supporters and not to the electorate at large.

 

[CBL4]

Why is the social security shortfall important and the present deficit not?

CBL

 

[WildCat]

More Bush bull****. Bush did not campaign actively on this issue.

From the 2004 State of the Union speech:

Younger workers should have the opportunity to build a nest egg by saving part of their Social Security taxes in a personal retirement account. (Applause.) We should make the Social Security system a source of ownership for the American people.

From the 2003 State of the Union address:

A growing economy and a focus on essential priorities will also be crucial to the future of Social Security. As we continue to work together to keep Social Security sound and reliable, we must offer younger workers a chance to invest in retirement accounts that they will control and they will own.

He's been talking about this since at least February of 2002:

The President has also proposed to create, for the first time, the right for every worker to own assets within the Social Security system through personal accounts.

Ensuring Freedom of Choice: The President’s proposal would ensure that workers who have participated in 401(k) plans for three years are given the freedom to choose where to invest their retirement savings. The President has also proposed that choice be a feature of Social Security itself, allowing individuals to voluntarily invest a portion of their Social Security taxes in personal retirement accounts.

Creating a Society of Stakeholders: President Bush supports the creation of Individual Development Accounts, providing savings matches for low-income Americans to accounts that would grow tax-free. The President’s Social Security framework would also give all wage earners the opportunity to invest in financial assets, an opportunity that only half of Americans can now afford.

So why are you acting like this came out of the blue? It's been an issue of his for at least 3 years.

Also, you might be interested in what Greenspan has to say:

Speaking before a House committee that oversees federal spending, Federal Reserve Chairman Alan Greenspan said he is concerned that the government is in debt more than $4 trillion and currently operating at a deficit -- spending more than it takes in.

This is a problem, he said, because in a few years, a large number of Americans -- a group known as Baby Boomers because they were born during a boom in U.S. child birth rates from the mid-1940s to the 1960s -- will reach retirement age and begin receiving Social Security checks from the government.

"This dramatic demographic change is certain to place enormous demands on our nation's resources -- demands we most surely will be unable to meet unless action is taken," Greenspan said. "For a variety of reasons that action is better taken as soon as possible."

Greenspan said lawmakers must consider raising the retirement age for all Americans, reducing yearly increases in retirement benefits and making cuts to the nation's health care program for the elderly.

 

[DavidJames]

Re: Re: Bush on Social Security

Originally posted by Brown
Bush did not campaign actively on this issue. He made no detailed proposals during the debates

Originally posted by WildCat
So why are you acting like this came out of the blue? It's been an issue of his for at least 3 years.

Notice how your question completely misses Browns actual quote.

Also, you might be interested in what Greenspan has to say:

no, not really

 

[WildCat]

Re: Re: Re: Bush on Social Security

Notice how your question completely misses Browns actual

So, if a subject didn't come up in the debates it means he didn't campaign on it? How so?

quote. no, not really

Too bad, you might learn that Bush is hardly alone in thinking SS needs a lot of fixing.

 

[WildCat]

And from Brown's own link, we see it did come up during the debates:

BUSH: First, let me make sure that every senior listening today understands that when we're talking about reforming Social Security, that they'll still get their checks.

I remember the 2000 campaign, people said if George W. gets elected, your check will be taken away. Well, people got their checks, and they'll continue to get their checks.

There is a problem for our youngsters, a real problem. And if we don't act today, the problem will be valued in the trillions. And so I think we need to think differently. We'll honor our commitment to our seniors. But for our children and our grandchildren, we need to have a different strategy.

And recognizing that, I called together a group of our fellow citizens to study the issue. It was a committee chaired by the late Senator Daniel Patrick Moynihan of New York, a Democrat. And they came up with a variety of ideas for people to look at.

I believe that younger workers ought to be allowed to take some of their own money and put it in a personal savings account, because I understand that they need to get better rates of return than the rates of return being given in the current Social Security trust.

And the compounding rate of interest effect will make it more likely that the Social Security system is solvent for our children and our grandchildren. I will work with Republicans and Democrats. It'll be a vital issue in my second term. It is an issue that I am willing to take on, and so I'll bring Republicans and Democrats together.

And we're of course going to have to consider the costs. But I want to warn my fellow citizens: The cost of doing nothing, the cost of saying the current system is OK, far exceeds the costs of trying to make sure we save the system for our children.

Maybe Brown and David James are old enough to have their SS benefits when they retire, those of us who are younger aren't so sure. Personally, I'm not counting on SS to provide a dime for my retirement unless something is done.

For all the critics of personal SS accounts which can be invested, who think it's too risky, put your money where your mouth is. Remove all your $$ from your 401(k) plans and other instruments and put it in a savings account yielding 2%. It's the responsible thing to do, right?

 

[Brown]

Re: Re: Bush on Social Security

So why are you acting like this came out of the blue? It's been an issue of his for at least 3 years.

As I said at the very start, little Bush has said that he thinks workers ought to be able to put some funds in personal accounts.

But that is a far cry from any sort of plan. As you can see from the quote that you presented, there is no plan there. All little Bush offered was a hollow pledge that he planned to do something in the future, combined with the even more hollow pledge that he will [future tense] "work with Republicans and Democrats."

Allowing workers to put money into personal accounts will create a huge financial gap in the present structure. Little Bush has said that people will "continue to get their checks" but he hasn't said where the money for those checks is going to come from. He recently said that it won't come from a tax increase. Folks familiar with economics say that he is left with only really one viable option: borrowing. This would mean, of course, that little Bush is going to grossly expand the national debt yet again.

 

[TragicMonkey]

Re: Re: Re: Bush on Social Security

Folks familiar with economics say that he is left with only really one viable option: borrowing. This would mean, of course, that little Bush is going to grossly expand the national debt yet again.

I thought he also said he was going to cut the debt in half in five years?

 

[toddjh]

Re: Re: Re: Re: Bush on Social Security

I thought he also said he was going to cut the debt in half in five years?

He almost got me with that one, too. I started yelling about how that was economically impossible, until I realized he said "deficit," not "debt." And even that is a bald-faced lie.

That said, privatizing Social Security sounds good to me. I'm lucky enough to work for the state, so I have a private retirement account in lieu of paying Social Security, and I wouldn't want it any other way. If it takes some short-term spending and a few ruffled feathers in order to set up a stable system for the future, I don't have a huge problem with it.

Jeremy

 

[Lurker]

Some info on Social Security that you may not know. It is not going bankrupt as some would have you bleieve. A recent Wall Street Journal article and a column by the economist Paul Krugman give the details.

Essentially, depending on whether you believe the estimates by the Congressional Budget Office or the Social Security Admin, the program is just fine until the year 2045 or 2055. That is still a long way away. Even then, it is not as if the system goes broke at all. At that point, we would only be able to provide 80% of benefits.

80% is still something. I am not saying the system does not need adjustments but it is far from going bankrupt or broke.

Lurker

 

[corplinx]

Re: Re: Re: Bush on Social Security

But that is a far cry from any sort of plan.

You mean the old bipartisan Moynihan (sp?) plan they've been trying to implement for almost a decade in different incarnations?

 

[Brown]

Some info on Social Security that you may not know. It is not going bankrupt as some would have you bleieve. A recent Wall Street Journal article and a column by the economist Paul Krugman give the details.

Basically, this is correct. Despite the president's assertion that the Social Security system has already reached a "crisis" stage, in fact the system is expected to be solvent for at almost 50 years.

That said, there is nothing wrong with getting an early start toward improving the system. Indeed, starting sooner is much better than starting later. It is, however, disingenuous (if not outright dishonest) to say that "the crisis is now."

 

[BPSCG]

Essentially, depending on whether you believe the estimates by the Congressional Budget Office or the Social Security Admin, the program is just fine until the year 2045 or 2055.

It is far from "just fine until the year 2045 or 2055."

It will start running deficits in 2016 or so. At that point it has to start drawing down the surplus it is currently building up. This is the equivalent of you having living expenses that exceed your income, and being forced to hit your savings account to make up the difference. Would you consider yourself to be "just fine" in those circumstances?

That is still a long way away. Even then, it is not as if the system goes broke at all. At that point, we would only be able to provide 80% of benefits.

This is the equivalent of having living expenses of $1000 a month and income of $800 a month and having no money in the bank. So what do retirees do when the surplus is all gone and current Social Security taxes suffice only to pay 80% of their benefits? Take a 20% cut in their Social Security checks? Run that proposal past your nearest retired relative and see how that plays.

Or do you institute a Social Security tax hike in the face of demographics that show that the benefit deficit will continue to increase, and that more and more tax hikes will be needed?

80% is still something. I am not saying the system does not need adjustments but it is far from going bankrupt or broke.

Good. What's your solution?

 

[CBL4]

Good. What's your solution?

There are 3 obvious solutions
1) Slowly raise the retirement age e.g. raise it one or two months every year.
2) Make the social security tax a flat tax - e.g. do not create an income level where it disappears.
3) Make the tax apply on all income not just wages.

All are simple and not very costly.

CBL

 

[Lurker]

It is far from "just fine until the year 2045 or 2055."

It will start running deficits in 2016 or so. At that point it has to start drawing down the surplus it is currently building up. This is the equivalent of you having living expenses that exceed your income, and being forced to hit your savings account to make up the difference. Would you consider yourself to be "just fine" in those circumstances?

Yes, perhaps I misspoke a bit. But even in 2016 it still meets 100% of obligations, right?

This is the equivalent of having living expenses of $1000 a month and income of $800 a month and having no money in the bank. So what do retirees do when the surplus is all gone and current Social Security taxes suffice only to pay 80% of their benefits? Take a 20% cut in their Social Security checks? Run that proposal past your nearest retired relative and see how that plays.

Well, remember that does not occur until roughly 2050. If you read my post you will see that I am all for working to resolve this shortage.

Regardless, I hope you are as shocked as I am that all the pundits are saying the system will go bankrupt if we do nothing. Again, 80% is a far cry from bankruptcy, wouldn't you agree?

Or do you institute a Social Security tax hike in the face of demographics that show that the benefit deficit will continue to increase, and that more and more tax hikes will be needed?
Good. What's your solution? [/B]

I think there are a plethora of possible solutions. Not being an economist I don't have figures of course. I wonder if we got rid of the max amount that is liable for the SS tax if that might help? Or perhaps raising the retirement age might help. Or perhaps reducing benefits might help. I don't presume to have the solution - I'll leave those details to those who know far more than I do. Considering I am not a economist or anything but I came up with three possibilities right off the top of my head I am sure there are even more out there.

But the administration is running headlong into a solution that has a glaring problem - adding $1 trillion to our debt. That does not concern you at all? It seems the days of fiscal responsibility from the Republicans are only a distant memory.

Lurker

 

[TragicMonkey]

There are 3 obvious solutions
1) Slowly raise the retirement age e.g. raise it one or two months every year.
2) Make the social security tax a flat tax - e.g. do not create an income level where it disappears.
3) Make the tax apply on all income not just wages.

All are simple and not very costly.

CBL

Don't they already do #1? Which isn't very nice for the people who will be retiring at 80 plus. Or is this just til the babyboomers die out?

 

[Brown]

Here's a column from CNN/Money, entitled "Social Security: Crisis? What Crisis?" that includes dates and figures from the Security trustees report and the Congressional Budget Office.

Paul Krugman of the New York Times (registration required) points out some of the problems associated with privatization, as experienced by the countries that actually tried it.

In particular, the public hasn't been let in on two open secrets:

Privatization dissipates a large fraction of workers' contributions on fees to investment companies.

It leaves many retirees in poverty.

Decades of conservative marketing have convinced Americans that government programs always create bloated bureaucracies, while the private sector is always lean and efficient. But when it comes to retirement security, the opposite is true. More than 99 percent of Social Security's revenues go toward benefits, and less than 1 percent for overhead. In Chile's system, management fees are around 20 times as high. And that's a typical number for privatized systems.

 

[BPSCG]

There are 3 obvious solutions
1) Slowly raise the retirement age e.g. raise it one or two months every year.

They started doing that in (I think) the 1990's (it was after I left the agency in 1988). Rises to age 67 for the younger baby boomers to receive full benefits, IIRC.

2) Make the social security tax a flat tax - e.g. do not create an income level where it disappears.

To reply to this, I'm just going to plagiarize from a post I put on the Molly Ivins thread:

Problem is, even eliminating the ceiling while keeping a cap on benefits, which would maximize revenue to the system while minimizing payout, would only postpone the day of reckoning:

The Social Security Administration this week published a memorandum on an analysis on the effects of increasing the maximum taxable Social Security wages. Several opponents of individual accounts have suggested to raise or eliminate this cap thereby adding years to the system’s solvency. However, the results of the analysis conclude that eliminating the cap is not a permanent solution. Thus, individual accounts remain the only actuarially scored solution that promise to bring Social Security to solvency. The memo provides analysis of two proposals.

(...snip...)

This alternate proposal eliminates the cap on taxable wages and, further, denies any benefits based on these additional contributions. Such measures would alter the relationship between contributions and benefits for high-income earners. Essentially, Social Security would no longer resemble a contributory insurance system. Even under this “stick it to the rich” proposal, permanent cash deficits would begin in 2025—delayed 7 years. While both proposals extend Social Security’s insolvency date, eliminating the wage cap is by no means a permanent solution.

Link

3) Make the tax apply on all income not just wages.

Do you realize what kind of massive tax hike you're recommending here? First, removing the Social Security tax cap (your suggestion #2) and also taxing all income, regardless of source? Tax people's retirement pensions (other than Social Security), rental income, capital gains from stock sales and mutual fund distributions, interest on your bank accounts, 401(k) distributions, IRA distributions - everything that goes onto your 1040.

Implement those measures and watch the economy go into a 1970's style nosedive.

 

[Frank Newgent]

Carried over from another thread.

Right now, the U.S. government owes the Social Security trust funds $1.5 trillion. Over the next ten or twelve years, the surplus will accumulate to the tune of another $1.7 trillion. That $1.7 trillion will also be borrowed and used to pay the costs of running the government during that time. And the government will issue bonds against that borrowing also. So by 2016, the accumulated debt that the U.S. government owes the Social Security trust funds will be $3.2 trillion

[size=1/4]Should we start here again, BPSCG? [/size]

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Payroll taxes generated that money. Income tax can pay the interest owed on borrowing it. What's the problem?

If there's a deficit, raise the income tax. This is basic economics, not rocket science.
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And what do you do when the Social Security deficit becomes so large that the economy can no longer generate enough tax dollars to pay for it and all the other things that the government pays for?

Don't let it happen to start with, of course. (While we're on the subject, what's the growth rate stocks will have to achieve - factoring in the higher administrative costs of privatization - to outperform the return of government bonds over the next four decades?)

Stanation in wage growth in the bottom two-thirds of the income distribution since the eighties has a lot to do with the current anticipated shortfall.

Seems unfair that with payroll taxes having been raised back in the eighties to cover future shortfalls end up being treated as general revenues, enabling tax cuts for the wealthy few, doesn't it?

 

[BPSCG]

Paul Krugman of the New York Times (registration required) points out some of the problems associated with privatization, as experienced by the countries that actually tried it.

More than 99 percent of Social Security's revenues go toward benefits, and less than 1 percent for overhead. In Chile's system, management fees are around 20 times as high. And that's a typical number for privatized systems.

Maybe instead of comparing the U.S. to Chile, Krugman should compare it to the U.S.

Where the Federal government has tried partial privatization - in its own retirement system - administrative costs are a tiny fraction of a percent. In 2003, administrative costs were .10% - one tenth of a percent of the account balances.

This is far from unusual. If you put your money into a mutual fund as part of your IRA or 401(k), you'll find that admin fees typically amount to less than one percent.

Federal employees have a choice of five different funds in which to put their money, including the G fund (safest - invests in U.S. government bonds) and the C fund (common stock).

More on the Federal thrift plan.