Bush on Social Security

[Samus]

Frank Newgent: Is it safe to assume you're here to defend a privatized system?

No, that is not a safe assumption. I am exploring options for social security, having not yet reached a decision on what is best.

What I do know is that the overall fiscal mismanagement of the past four years has only served to exacerbate the problem.

Frank Newgent: Maybe we agree after all. Spending borrowed money doesn't offset deficits, it creates them.

Correct. And succinct, which is what I most often have difficulty with.

Frank Newgent: Whatever happened to taking responsibility for one's behavior?

Boy, I wish I knew! I can't believe we run the deficits we do, and have such a flippant attitude towards it to boot.

Frank Newgent: Weren't tax cuts going to "make the pie higher"?

Well . . . that's the theory anyway. Actually, that does work sometimes. If the economy is really dragging, cutting taxes to boost it can result in an overall increase in revenues for the government. I don't think that happened in the case of the Bush tax cuts, though I suppose one could argue that it did stimulate growth (though arguably, the economy has not grown much more than it probably would have without tax cuts).

Frank Newgent: And if you're this worried about more borrowing, well, what's your plan on funding any transition costs to a privatized system?

I don't have a plan for it, because like I said, I'm not advocating it. I'm wary that social security was never intended to be, and shouldn't be, an investment program. It's the current generation caring for the previous one. Shifting from the traditional entitlement model to an investment model can costs trillions, and I don't think borrowing money to cover that is fiscally responsible. That leaves two other options: raising taxes or cutting spending. Neither of which are popular on the Hill, with either party.

Frank Newgent: We're back to this. Are invested surpluses real assets?

Yes and no. How's that for a politician's answer? It is confusing because the lender and receiver are two parts of the same entity, viz. the U.S. government.

From the perspective of the SSA (who administers the SS trust fund), it has invested its surpluses in government-issued bonds. That is an investment because those bonds accrue interest and come to maturity and in the end, for any given bond, the SSA winds up with more money than it had before. Pretty straightforward investment stuff.

From the perspective of the Treasury (who borrows from the SSA), it has a liability in that it has borrowed money from SSA and needs to pay it back plus interest. The Treasury is spending that money on day-to-day general fund stuff. So it is paying out more than twice as much: the money from the bonds which is paid to various government programs, and the money (over time) redeeming bonds + interest accrued paid to SSA.

Frank Newgent: Hmm, am not an expert here. But let me guess. We'd just borrow more. Or declare bankruptcy.

Yeah, well, that's about the tall and skinny of it. More debt, that's always the answer!

It is difficult for me to propose a solution, because I see so many things wrong with the way our federal government manages its money, it's difficult just to pick on social security. I think there should be some procedural reforms in Congress, such as sunset dates on all programs, with renewal tied to performance. There are probably hundreds of billions of dollars in wasteful spending that could be phased out over the course of 4-5 years, and if surpluses occur, then they should be applied mostly to paying down debt. Having debt isn't a bad thing, but having $7.5 trillion with no plan to ever decrease debt is a bad thing.

But I digress . . . I suspect we agree more than we disagree.

 

[Lurker]

If the economy is really dragging, cutting taxes to boost it can result in an overall increase in revenues for the government. I don't think that happened in the case of the Bush tax cuts, though I suppose one could argue that it did stimulate growth (though arguably, the economy has not grown much more than it probably would have without tax cuts).

I am confused with this paragraph. You say the Bush tax cuts failed to increase revenue yet stimulated growth? What kind of growth are you talking about? A cancerous one?

Year / US Receipts
2000 / 2.025
2001 / 1.991
2002 / 1.853
2003 1.782

That's three years of shrinking receipts under Bush.

Lurker

 

[Brown]

According to Reuters and Yahoo,

President Bush will spearhead an election-style public relations campaign early next year to try to convince Americans that Social Security is in urgent need of change but will keep dollar and cent details deliberately vague, analysts and officials say.

With Bush's political capital riding on a successful overhaul of the popular retirement program, the White House and its allies plan to bombard the public with presidential speeches, television and radio ads, newspaper op-ed articles and grass-roots rallies between now and early 2005.
...
Meanwhile, opponents accuse the White House of exaggerating the issue's urgency, saying it used a similar ploy to justify the war in Iraq by citing an urgent threat from Iraqi weapons of mass destruction that have never been found.

So little Bush is going to spend a lot of money (not his own money, of course) to tell the people that there is a crisis in social security. Once again, he's going to cry "Wolf!" And yet, as discussed in this column from Newsweek, there is a shortfall crisis, but it is one that is bigger, more immediate, and of Bush's own making:

Bush talked about Social Security's being a $10.4 trillion problem. That's how much you'd have to give Social Security today for it to continue paying benefits indefinitely under its current formula. But the shortfall in Bush's Medicare drug program is $17 trillion. In other words, the problem that Bush himself created a year ago is two thirds again as large as Social Security's problem. What's more, the drug plan starts costing taxpayers big bucks just a year from now, in 2006. We'll borrow it, of course. Social Security, for all its flaws, will take in more than enough cash to pay for itself for a dozen years even if nothing changes. So which is a "crisis"? A $17 trillion problem that starts next year, or a $10.4 trillion problem that starts in 2018?

Little Bush has blustered about how he's going to be a budget-cutter, but it looks like he plans (if "plans" is indeed the right word) to grossly expand the national debt even further.

 

[Lurker]

Oh, man. Thanks for the info about the drug plan shortcomings. I did not know this. Yikes!

Lurker

 

[Frank Newgent]

[size=1/4]thanks Brown[/size]

"The Medicare problem is about seven times greater than the Social Security problem, and it has gotten much worse," said Comptroller General David M. Walker, head of the GAO. "It is much bigger, it is much more immediate, and it is going to be much more difficult to effectively address."

New technologies and discoveries are likely to keep health-care costs rising at a faster pace than overall inflation, making future Medicare spending much harder to predict than the price tag for Social Security benefits.


.....


"Medicare suffers from all the demographics that Social Security has and has the added problem of rising health-care costs," Treasury Secretary John Snow said in an interview.


.....


The prescription-drug benefit, the centerpiece of the 2003 law, is one of the chief reasons for Medicare's worsening fiscal health. It added $8.1 trillion to Medicare's unfunded promises over the 75-year period used by government actuaries.

"Medicare's problem has gotten much worse in the last year, primarily due to the passage of the drug bill," Walker said.


.....


The hospital trust fund, the biggest part of Medicare, may also be the hardest to deal with. The fund, which is fed by a payroll tax of 2.9 percent split evenly by employees and employers, is on course to exhausting its surplus in 2019, according to Medicare's trustees.

The trustees say the funding gap could be eliminated by more than doubling the payroll tax to 6 percent. However, a substantial tax increase on workers, millions of whom can't afford health insurance for themselves, could spark a political backlash.

Another option is to cut hospitalization benefits by about half.


http://seattletimes.nwsource.com/html/nationworld/2002128351_medicare23.html

The self-employed have no employer to pitch in half, so they, effectively, pay double. Though that half is, in turn, a deduction on the 1040.

Anyhow, it's easy to see that the patriotic thing to do in support of our president - especially now with the holidays upon us - would be to take a ride in the car with the garage door closed.


[size=1/2]edited to add link[/size]

 

[Frank Newgent]

Have a couple of questions/observations for the advocates of privatization:

1. Doesn't privatization amount to a "withering away" of the current system? From what I read the argument we'll all soon be hearing is how the reduction/elimination of the implicit debt of the cost of benefits promised to future retirees will more than offset the explicit debt incurred by borrowing the one or two trillion needed for transition costs. Meaning benefits provided by the current system will, in the future, be thoroughly slashed (otherwise where are the savings?). Though then covered instead, of course, by the individual's private account (never mind disability and survivors' benefits). Guess my question is: who's gonna have the guts to come out and just say this?


2. That was easy. My next question might be a little harder for you all. According to the Summary of the 2004 Annual Reports of the Social Security and Medicare Boards of Trustees, an immediate increase in payroll tax of 1.89 percentage points (page 3) fixes the entire projected shortfall (in Social Security, not Medicare). Of course, these increases in the payroll tax (essentially double for the self employed like me: I'm not taking this lightly) might not take up the slack if we hit a big recession and wages under the Social Security cap fell terribly, reducing payroll tax payments into the system.

What, is the stock market going to be giving generous returns on these small investors' private accounts in this theoretical big recession? Can anyone here come up with an economic model that will give a return on equity that is consistent with the historical average for stocks (no fair giving estimates that would be illegal for a financial professional) that wouldn't also fix Social Security under this 1.89% increase to begin with?


Privatization. If it works, it won't be necessary. And if it is necessary, it won't work.

 

[Frank Newgent]

[size=1/8]nudge shove kick[/size] bump[size=1/8] smack[/size]

 

[Silicon]

I heard someone on the radio saying in essense this:


Let us assume that private savings accounts have already been in existence. With the downturn of the stock market that we recently had, people who retired in 2002 would get HALF the Social Security benefits of those who retired in 2001.

Isn't this a politically untenable situation? Wouldn't it be politically impossible for Congress NOT to have to make up that difference?

He said "To ask that question is to answer it."





I've said it before, and I'll say it again. There must be a THOUSAND ideas to help Social Security. WHY is the Bush Administration and the Republicans in Congress only focusing on ONE?

Because it's the ONE idea that floats billions in new debt and cuts a big fat check for Wall Street. It then hands the American public that debt.


If American Industry needs capital for growth, THEY should incur the debt. It's not like debt is expensive right now.

 

[Brown]

During the debates, little Bush said:

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.

Today we hear from the Washington Post (and CNN/Money, among others) that little Bush is floating the idea of cutting benefits dramatically. If the proposal gets adopted, people will "still get their checks." There just won't be as much in them. According to the Post,

The White House hopes that some, if not all, of those benefit cuts would be made up by gains in newly created personal investment accounts that would harness returns on stocks and bonds.

This hope seems to be totally unsupported by evidence or experience, but those minor problems don't seem to matter to the Bush "administration." Never mind that this Social Security "crisis" is bogus and that there are other far more pressing financial problems. Never mind that those who are by far most likely to benefit from the proposal are those who are already very wealthy, and those who are most likely to be disadvantaged are those who need Social Security the most. Never mind that eliminating the regressivity of the Social Security tax could solve the "problem" in its present framework. Never mind any of that.

It would be far more honest for little Bush to simply come right out and say that he believes that Social Security should be completely abolished.

 

[Silicon]

We need better arguing righties here on JREF.

As in, not argumentative or whatever, but reasoned arguers.

Who here on the right will forthrightly and in good faith explain the reasons why our objections are unfounded?

 

[Brown]

We need better arguing righties here on JREF.

As in, not argumentative or whatever, but reasoned arguers.

Who here on the right will forthrightly and in good faith explain the reasons why our objections are unfounded?

Let me add that I do not see these questions as matters of "right wing" or "left wing." I see them more in terms of good ideas versus bad ideas. I don't judge political actions based upon whether they are labeled as "liberal" or "conservative." I judge them on their merit.

Little Bush's proposals--if they can indeed be called "proposals"--MIGHT be a good idea. Hell, they might even be a GREAT idea! But as far as I am able to determine, no one has ever offered a good fact-based explanation as to why the Bush proposals have merit.

 

[Silicon]

Certainly.

But my suspicions, I have no problem saying, do come from the left.

I would like some intelligent proponent of the Bush plan to come and disabuse me of my notions. It's certainly happened before that I have some lefty nonsense in my brain and someone has come along with a cogent economic argument that has at least let me see the logic of the other side.

More and more, it seems missing here at jref, so I may have to look elsewhere.

 

[Frank Newgent]

It would be far more honest for little Bush to simply come right out and say that he believes that Social Security should be completely abolished.

What's really up is that the administration wants to see the Social Security surplus abolished. Way too much cash available there for Congress to use/loot.

 

[Silicon]

I don't actually agree, Frank.

I think the current congress would spend every dollar they could get their hands on.

In fact, quite a few dollars that they have yet to get their hands on have already been spent.


The Cato institute is right. The Republican party is not a break on runaway spending. Divided government is. People who advocate smaller government should vote a split ticket.

 

[Frank Newgent]

I don't actually agree, Frank.

I think the current congress would spend every dollar they could get their hands on.

In fact, quite a few dollars that they have yet to get their hands on have already been spent.


The Cato institute is right. The Republican party is not a break on runaway spending. Divided government is. People who advocate smaller government should vote a split ticket.

Never suggested the Republicans would brake runaway spending. That's more of a Democratic concern these days.

But this administration seems interested in defunding the federal government any way it can. The Social Security surplus is being targeted for that reason.

 

[Brown]

Originally posted by me
... there is a shortfall crisis, but it is one that is bigger, more immediate, and of Bush's own making...

We have just learned that Bush's Medicare figures were, shall we say, a little "off." The current estimate of the cost of the Medicare drug benefit is about 80 percent larger than the previous estimate. (Of course, the benefit was sold to Congress by citing the considerably smaller cost estimate. Also, the secretary of health and human services is forbidden by law from negotiating with drug manufacturers to secure lower prices for Medicare beneficiaries.)

Stories from the New York Times (registation required, available for a limited time) and AP/Yahoo.

 

[jay gw]

Shifting from the traditional entitlement model to an investment model can costs trillions, and I don't think borrowing money to cover that is fiscally responsible.

I've heard that Bush's plan would require about a $2 trillion dollar loan to get it started.

Here's what the manager of the world's largest bond fund has to say about the Bush SS plan (it's not a flattering criticism)

NEW YORK (CNN/Money) - Bill Gross, manager of the world's largest bond fund, is criticizing President Bush's plan to privatize part of Social Security.

Gross, managing director at Pimco, called the argument about the solvency of Social Security "silly" and said it was an example of the president not focusing on more important issues, such as the budget deficit.

The president's argument for individual Social Security accounts is meant "to promote an agenda that has little to do with seniors and more to do with Bush, his ownership society, and ultimately his domestic legacy alongside the likes of Ronald Reagan and FDR," Gross wrote in comments posted on Pimco's Web site.

"Without a blockbuster of a program in his second term it is unlikely that Bush can go very far in the history books on the back of a paltry 3 or 4 percentage point tax cut for the rich," Gross wrote.

"Presto!" he continued. "We now have partial privatization of Social Security heading the agenda upon which the president intends to spend his well-advertised political capital."

But while the president says that will help fix Social Security, "the problem has more to do with demographics than the lack of ownership," Gross wrote.

Gross argued that it will take more than individual Social Security accounts to correct a projected shortfall and suggested the government should focus on cutting the budget deficit instead.

"Production can only come from employed workers and so the basic solution is to produce more workers, either through immigration or postponed retirement for the existing work force," he wrote.

http://money.cnn.com/2005/02/04/markets/gross_social_security/

The problem with Gross' solutions, "more immigration or postponing retirement" is that neither of those will solve the problem either.

Immigration from where? Non English speaking uneducated Mexico? China? How long can someone work, till they're 85? Talk about silly.

There just aren't any good answers to this one.

 

[BPSCG]

We need better arguing righties here on JREF.

As in, not argumentative or whatever, but reasoned arguers.

Who here on the right will forthrightly and in good faith explain the reasons why our objections are unfounded?

Let me put my bona fides in and make my truth in advertising statements first:

1) I worked as a claims rep for the Social Security Administration (SSA) from 1975 to 1988. Somehow, I still remember a lot about how benefits were computed and such.

2) I'm also still a federal employee, getting close to retirement age. Federal employees hired before 1984 were not covered by Social Security. We were given the option in 1984 to get out of the Civil Service Retirement System (CSRS - non-SS) and join the new Federal Employees Retirement System (FERS - SS-covered). I decided to stay in CSRS, and since my SS-covered work is not enough to qualify for benefits, I'll never see a Social Security check with my name on it.

In other words, I really have no dog in this fight. Social Security could go belly-up tomorrow and I'd shrug my shoulders. Of course, my mom wouldn't be pleased...

Anyway, Congress has been nibbling away at Social Security benefits since 1978 - almost thirty years - in an attempt to keep it solvent. Here are the examples I can think of off the top of my head:

1) In 1978, they began a new method of calculating benefits, called the 1978 NS (for New Start) computation. I won't get into how it worked (it's insanely complicated, but, surprisingly, I still remember how it worked, and if you have insomnia, PM me and I'll send it to you) but essentially, it amounted to a substantial reduction in future benefits. It was touted as being the solution to SS's financial woes.

2) Benefits had been paid to children of retired, deceased or disabled workers, as long as the children were full-time time students, even while in college. Those benefits were stopped - I forget when (I think 1984).

3) SS used to pay a $255.00 lump-sum death benefit to the surviving, living-with spouse. If there was no spouse, the benefit went to whoever paid the funeral expenses, or could be assigned to the funeral home. That was stopped the same time student benefits were stopped; only the surviving, living-with spouse now gets the benefit.

4) Federal employees who (unlike me) had worked long enough under SS to be vested in the system (fully insured is the term) would have their benefits reduced if they got a pension based on work not covered by Social Security. This also started when students got cut off. What this means is if I work after retiring from the government, and get myself fully insured, I won't get as much SS as someone who never really worked very much at all but managed to get fully insured, even if I pay as much or more in FICA taxes as that guy.

5) You hear talk about how some of the plans being proposed today would raise the retirement age for future retirees to get full benefits. Actually, a raise in the retirement age is already being phased in - has been for (I think) about ten years - at some future date, the full retirement age will be 67, rather than the 65 that had been in force since FDR was president. Delaying the date you can get full benefits is a benefit cut, folks.

There have been other minor benefit cuts, but essentially, they've been triming away for almost thirty years now.

And the FICA tax has been increasing steadily also. Not just the tax base - the amount of earnings subject to tax - but the tax rate also. Have a look at the history over the last 30 years (these are rates for OASDI - Old-Age, Survivor, and Disability Insurance - excludes Medicare, which is a whole other kettle of fish entirely):

1974-77 4.950
1978 5.050
1979-80 5.080
1981 5.350
1982-83 5.400
1984-87 5.700
1988-89 6.060
1990- present 6.200

So, yes, benefit cuts and tax increases have been the history of the system since 1978. And with fewer workers per retiree paying into the system, and with retirees living longer, they will continue; the demographics demand it. Far from being a "guaranteed benefit", as the politicians like to point out, it is nothing of the kind. An annuity is a guaranteed benefit. A benefit that costs you more and more, at unpredictable intervals, with cuts made at unpredictable intervals, is anything but guaranteed.

This was in the Boston Globe earlier this week, and sheds a lot of light on the issue.

Anyway, y'all can claim that a little tax increase will take care of the problem "for the foreseeable future," but remember, politicians love to use that term. They used it in the 1980's when they were talking about federal budget deficits "as far as the eye could see." Then in the 1990's they were talking about federal budget surpluses "as far as the eye can see" (and what were they going to do with the surplus? "Save Social Security first!" intoned Bill Clinton and Al Gore and all the other Democrats - so why are we having this discussion today?) That lasted until the dot-com bust, and now we have deficits again. So when you hear a politician talking about saving Social Security "for the foreseeable future," keep in mind, these guys have a history of foreseeing only as far as the next election.

You want to believe a little tax hike is going to take care of the demographics? Y'all go right ahead. Like I say, I got no dog in this fight - I got my Civil Service Retirement.

 

[Silicon]

And the Republican plan solves any of these problems how exactly?

The numbers I posted in another thread show that the Republican plan even with a private account produces benefits lower than a do-nothing plan.

How is that a plan?

I'm not saying I have any simple solution, but that I can't seem to find a way TO the solution that threads through the needle of a private stock market account.


Obviously the Congress can't just take the current surplus and invest THAT into the Stock Market (this way lies Socialism). So they use an accounting trick and get ME to put my money in a government-approved stock market fund, then they borrow 2 trillion to make up for some of the money I didn't put in the surplus.

A distinction without a difference, it seems.

The part of the whole thing that nobody seems to be addressing is "what happens when the stock market goes down?"

Under Bush's system, YOU CAN LOSE. And you can lose more than the deliverable benefits in the projected shortfall if we DO NOTHING.

SOME years retirees WILL LOSE under Bush's plan. And so what then? A huge taxpayer bailout. It's not politically tenable to have a stock-market correction when that correction drops granny's safety net below the poverty line and she has to eat cat food.

There WILL be huge borrowing when the stock market drops. Private accounts do nothing to address the shortfall in the current system.

 

[Renfield]

Because it's the ONE idea that floats billions in new debt and cuts a big fat check for Wall Street. It then hands the American public that debt.

I think you just about nailed it there. All these people singing the praises of privatization haven't been paying attention to what tends to happen when it comes time to award government contracts.

http://www.halliburtonwatch.org/about_hal/costplus.html

the way privatization is portrayed is often far different from how it ends up working in practice. Since SS is one of the more efficient government programs around, I find it hard to believe a privatized system will be a huge improvement.