Bush’s Social Security plan?

[Random]

Has anyone been able to make any sense out of Bush’s Social Security plan? So far I have heard that he plans to renege on the bonds in the Social Security trust fund and that he plans to honor the bonds in the trust fund, private investment is going to be optional and mandatory, you will get all of your money back, you will get some of your money back, you will be forced to buy an annuity, annuities are optional, you will be able to keep any extra money you make, any extra money you make will be taken away from you, and there appears to be a strong financial incentive for your children to murder you in your sleep just before you retire. It’s not even entirely clear if there is a plan in the first place.
Is there a non-partisan website that covers all of this in something resembling clear and coherent English? The “information” provided by the partisan websites is so contradictory that I don’t really feel like trusting any of it.

 

[Magyar]

I am in the same boat. Nothing seems to make sense in this.

The only thing that I've been able to figure out is that this is a
straight out attempt to destroy a a successfull democratic program that has been stuck in the craw of reps for decades.

Why?
The numbers JUST don't make sense!
The numbers used to project the "crisis" are worse case scenario
put forth from SS. IN other words the @1.5 growth rate that is being used to project that SS will go bankrupt (which is not true)
or what ever in 2010 is based on almost 50% less growth than the average for the last 50 years. We're talking DEEEEPRESSION.


On the other hand Bush and croneys use almost a double rate of growth to prosect their plan to cut the deficit (really the interest on the deficit) in half.

So, HOW CAN YOU HAVE IT BOTH WAYS! Either the economy will tank, in which case how will the stock market double?
If the economy will do as well as they project then there is NO problem with SS. ESPECIALLY if you don't continue the BS tax cuts for the top 1%


A Second note - Listeninf to Al Franklin (admittedly a bias source)
was reading a NY Times article that quoted a high admin official saying that the privatization of SS will have an overall net neutral affect. In otherwords the ONLY people that will make money on this deal are the Wallstreet slime that will Enron billions.
And the Govt will be able to claim clean hands since these are private investments.

(I couldn't find the NYT article you have to sign up)

 

[Charlie Monoxide]

I'll hazard a guess that the only group that will be "secure" by these changes to Social Security, will be the rich GOP'ers and their supporters.

Charlie (let them eat yellowcake) Monoxide

 

[corplinx]

He doesn't have a set plan. He is just pushing congress to make one (Seeing as how its their job, its quite fitting).

He's playing CEO. He emotes the vision (solvency, choice, protection of current retirees) and lets the grunts (congress) turn that into a plan.

 

[Elind]

Has anyone been able to make any sense out of Bush’s Social Security plan? So far I have heard that he plans to renege on the bonds in the Social Security trust fund and that he plans to honor the bonds in the trust fund, private investment is going to be optional and mandatory, you will get all of your money back, you will get some of your money back, you will be forced to buy an annuity, annuities are optional, you will be able to keep any extra money you make, any extra money you make will be taken away from you, and there appears to be a strong financial incentive for your children to murder you in your sleep just before you retire. It’s not even entirely clear if there is a plan in the first place.
Is there a non-partisan website that covers all of this in something resembling clear and coherent English? The “information” provided by the partisan websites is so contradictory that I don’t really feel like trusting any of it.

Ditto. I think that many of the details above are still just discussion options, but there are a couple of fundamentals (at least I think they are) that I can't figure out.

1: If it's to be privatized and owner controlled, what is the fundamental difference between this and IRAs? Why not just allow larger deduction, deposits or transfers direct to an IRA?

2: If the issue is to get better returns from the stock market (maybe) why not just invest a portion of the SS funds in mutual funds managed by a number of competing investment banks? The worst performers lose control of funds. I suspect that on average they will be more successful than average Joe, myself included.

3: If dependents have a right to remaining funds, how does this differ from a simple tax giveback? The whole point of insurance is that those who don't make full claims, spread the cost so that those who do need it can be paid. How can there ever be a positive cash flow if everything paid in is allowed to be taken out?

 

[CBL4]

The idea of partial privitization of social security is a good one. If it had been done 20 years ago, the baby boomers would retire much richer and social security would be on sound footing.

Unfortunately, there is a high startup cost and Bush has destroyed our ability to afford this by continually cutting taxes. Without cutting spending or raising taxes, Bush's plan is a joke. If we ever regain a balance budget, then we can try it.

If you really believe that social security is in danger, we can simply raise the retirement age 1 month every year. No more problem.

CBL

 

[Random]

The idea of partial privitization of social security is a good one. If it had been done 20 years ago, the baby boomers would retire much richer and social security would be on sound footing.

Actually, twenty years ago, social security was far closer to “collapse” than it is now. We decided to shore it up by increasing payroll taxes and placing the surplus in something called the “Social Security Trust Fund”, where no one would be able to hurt it or spend it on reckless tax cuts for the rich.

 

[Brown]

The President's "plan" is not a plan at all. It is far from clear that the notion of privitization will solve the stated problem, i.e., that the system will go "flat bust" in the long run. (Little Bush is using the "flat bust" terminology to try to "sell" his privatization scheme.) What is clear is that, in the short run, privatization will result in severe financial difficulties for the country, which little Bush simply chooses not to discuss in any detail.

Little Bush is therefore gambling that short term problems will be resolved in the long term, despite the fact that evidentiary support for such a view is slim, if not completely non-existent. But when has that stopped him before? And besides, little Bush will be long out of office by then, so if he made a royal mess, it will be up to somebody else to clean it up.

Before little Bush gave his major pitch to Congress, a "senior administrative official" (registration required) talked about privatization, saying that it was not really privatization at all. The official was asked this straight question: "How do the personal accounts guarantee permanent solvency for Social Security?" He answered this straight question with a lot of wind: "Well, we talked about the personal accounts being in the context of an overall plan to create a permanently solvent Social Security system. What I've laid out here are details of the administrative structure of the personal accounts. The larger question of the comprehensive plan to fix Social Security permanently is really subject to the details of discussions between the President and members of Congress." Translation: "I don't know."

But how would Social Security payments be cut? Well, it seems that after some indefinite point in time, everyone takes a three percent cut:

Now, the way that election is structured, the person comes out ahead if their personal account exceeds a 3 percent real rate of return, which is the rate of return that the trust fund bonds receive. So, basically, the net effect on an individual's benefits would be zero if his personal account earned a 3 percent real rate of return. To the extent that his personal account gets a higher rate of return, his net benefit would increase as a consequence of making that decision.

Ah, but what if the investor doesn't realize a 3 percent rate of return? What if he invested prudently in stocks, and just prior to his collection of benefits, there is a drastic "correction" in the stock market, due to no fault of his own? Answer: His tough luck.

In order to do better than a 3 percent return, of course, the investor must take a bigger risk.

Paul Krugman (registration required) characterizes the senior administrative official's description of little Bush's vision as "borrow, speculate and hope":

Experts usually tell people to plan for their retirement by investing in a mix of stocks and bonds. They disapprove strongly of speculation on margin: borrowing to buy stocks. Yet Mr. Bush wants tens of millions of Americans to do exactly that.
...
Do you believe that we should replace America's most successful government program with a system in which workers engage in speculation that no financial adviser would recommend? Do you believe that we should do this even though it will do nothing to improve the program's finances? If so, George Bush has a deal for you. (emphasis mine)

 

[Ziggurat]

Re: Re: Bush’s Social Security plan?

1: If it's to be privatized and owner controlled, what is the fundamental difference between this and IRAs? Why not just allow larger deduction, deposits or transfers direct to an IRA?

Because that doesn't help poor people who don't have excess cash around (in part because of the high payroll tax burden). As it is, most people don't fully utilize their IRA's and 401K's. It's more akin to simultaneously cutting payroll tax and increasing IRA contribution limits.

2: If the issue is to get better returns from the stock market (maybe) why not just invest a portion of the SS funds in mutual funds managed by a number of competing investment banks?

The LAST thing anyone should want is government involvement in the stock market. And although it's being sold as a way to get better returns, I think the main point is actually to ween people off of government dependence. Which is, at least in principle, something worth doing. Government dependence creates rent-seeking, which distorts democracy and the economy.

My point here isn't whether or not privatization is on balance a better option (that's probably going to depend a lot on details), just that the advantages really are distinct from the suggestions you provide.

 

[jay gw]

Center for Economic and Policy Research
Basic Facts on Social Security
and Proposed Benefit Cuts/Privatization

1) Social Security is Financially Sound

According to the Social Security trustees report, the standard basis for analyzing Social Security, the program can pay all benefits through the year 2042, with no changes whatsoever. Even after 2042 the program would always be able to pay retirees a higher benefit (in today's dollars) than what current retirees receive. The assessment of the non-partisan Congressional Budget Office is that Social Security is even stronger. It projects that Social Security can pay all benefits through the year 2052 with no changes whatsoever. By either measure, Social Security is more financially sound today than it has been throughout most of its 69-year history.

2) President Bush's Social Security Cuts Would Be Large

The proposal that President Bush is using as the basis for his plan phases in cuts over time. A worker who is 45 today can expect to see a cut in guaranteed benefits of around 15 percent. A worker who is age 35 can expect to see a cut in the guaranteed benefit of approximately 25 percent. A 15 year old who is just entering the work force can expect a benefit cut of close to 40 percent. For a 15 year old, this cut would mean a loss of close to $160,000 in Social Security benefits over the course of their retirement.

Private accounts will allow workers to earn back only a small fraction of this amount. For example, a 15 year-old can expect to make back approximately $50,000 from the $160,000 cut with the earnings on a private account. If this worker retires when the market is in a slump, then it could make their loss even bigger.

3) Imaginary Stock Returns Don't Offset Real Benefit Cuts

Proponents of private accounts have often used highly exaggerated assumptions on stock returns to argue for the benefits of private accounts. For example, even at the height of the stock bubble in 2000, when the price to earnings ratio in the market exceeded 30 to 1, many proponents of private accounts assumed that stocks would generate 7.0 percent real returns annually. This assumption was absurd on its face - it implied that price to earnings ratios would rise to levels of more than 100 to 1. Unfortunately, even the Social Security Administration has used these unfounded assumptions in assessing privatization plans.

Given current price to earnings ratios and the Social Security trustees' profit growth projections, real stock returns will average less than 5.0 percent annually. Some proponents of private accounts are still using exaggerated stock return assumptions to advance their case.

4) Social Security is Extremely Efficient, Private Accounts Are Wasteful

On average, less than 0.6 cents of every dollar paid out in Social Security benefits goes to pay administrative costs. By comparison, systems with individual accounts, like the ones in England or Chile, waste 15 cents of every dollar paid out in benefits on administrative fees. President Bush's Social Security commission estimated that under their system of individual accounts 5 cents of every dollar would go to pay administrative costs.

In addition, under Social Security workers automatically get an annuity (a life-long monthly payment) when they retire. By contrast, financial firms typically take 10 to 20 percent of workers' savings to provide an annuity when they reach retirement.

8) The Bush Proposal Phases Out Social Security as We Know It

President Bush's proposal gradually shrinks the traditional guaranteed Social Security so that it will eventually become irrelevant for middle income workers. For today's twenty year old average wage earners, the guaranteed benefit will be equal to just 15 percent of their annual earnings when they reach retirement age. The guaranteed benefit will be equal to just 7 percent of annual earnings for a child born ten years from now.

As the traditional Social Security benefit becomes less important for middle-income workers, Social Security will increasingly become a poor people's program. This may be a clever strategy if the purpose is to undermine political support for Social Security; it is not a good way to structure the program if we expect it to be there for our children and grandchildren.

http://www.cepr.net/publications/fa...al_security.htm

So basically this data shows that private accounts won't be a savior to Social Security, and that if you agree to take them, your benefits will but cut....by alot.

One of the big problems is that the Democrats, Independents or even Ralph Nader have no plan. They just insist that SS is not going to have any problems. So there's no real debate because there's nothing to compare Bush's plan to. The Democrats are pretty much guaranteeing Bush's plan will become law, so they don't really oppose it as far as I can tell.

 

[Random]

Even the most basic questions don’t seem to have answers. No one seems to have asked Bush if he intends to default on the bonds in the Social Security Trust fund. This is a pretty freaking huge question considering the US Government has been borrowing money from us for twenty years to build that up.

How will this affect Social Security Disability? SSD is not based on long lifetimes of saving and investing, and any US worker of any class may find himself collecting tomorrow, regardless of how long they have worked, and regardless of whether or not they were expecting it.

How are we going to pay for this? Near as I can figure, we are going to borrow huge sums of money in order to pay off the huge borrowing that we have already made. We will then borrow more money to pay back those loans and spend the rest of our lives looking for the next person who will loan us money. Thus the US will lift itself up by its own bootstraps or something. Maybe if we call them “freedom loans”.

Some things are clear however. One, he intends to cut benefits. Social Security has a long-term deficit. There are two ways to relieve deficits. One is to increase “revenues”, the other is to cut “expenses”. Bush has already clearly stated that he is incapable of raising taxes due to his profound belief in Christ or something. That leaves only one option.

Two, he wants to give taxpayer money to the sages of Wall Street. The mere fact that every single plan put forward involves having millions of people buy stock is pretty clear evidence of this.

Three, any plan put forward will have at least the appearance of keeping things exactly the same for people over 55. There are a lot of active voters in this demographic, and this is obviously an attempt to make sure that this segment of the electorate doesn’t raise a fuss. “We’re not going to rob you, so you can safely stand aside while we rob your children and grandchildren.”

 

[CBL4]

Originally posted by Random
Actually, twenty years ago, social security was far closer to “collapse” than it is now. We decided to shore it up by increasing payroll taxes and placing the surplus in something called the “Social Security Trust Fund”, where no one would be able to hurt it or spend it on reckless tax cuts for the rich.

Yes, this was one of Reagan's uses of bi-partisanship that accomplished a lot. It was a also good example of working on a problem before it got too severe. However, if the excess funds had been put in private accounts, it would have been a much better idea.

Ah, but what if the investor doesn't realize a 3 percent rate of return? What if he invested prudently in stocks, and just prior to his collection of benefits, there is a drastic "correction" in the stock market, due to no fault of his own? Answer: His tough luck.

It is much more likely that he would have done much better than 3%. Have you looked at the return on investment for social security? It is negative for anyone born after 1950 or so. I think I saw that a man born in 1961 would lose about 1/3 of the money he "invested" (inflation adjusted). Since women live longer, they do better but still lose money.

CBL

 

[Elind]

Re: Re: Re: Bush’s Social Security plan?

Because that doesn't help poor people who don't have excess cash around (in part because of the high payroll tax burden). As it is, most people don't fully utilize their IRA's and 401K's. It's more akin to simultaneously cutting payroll tax and increasing IRA contribution limits.

I was thinking more that the tax money saved had to go to the IRA. Poor people who have no SS tax will be in the same boat with or without privatization, won't they?



The LAST thing anyone should want is government involvement in the stock market. And although it's being sold as a way to get better returns, I think the main point is actually to ween people off of government dependence. Which is, at least in principle, something worth doing. Government dependence creates rent-seeking, which distorts democracy and the economy.

That's all very well, but the government IS greatly involved in what is proposed so far. Not only will they regulate HOW it can be invested but also on WHAT it can be spent (not simply at what age).

 

[CBL4]

Ignore this post.

 

[Ziggurat]

Re: Re: Re: Re: Bush’s Social Security plan?

I was thinking more that the tax money saved had to go to the IRA. Poor people who have no SS tax will be in the same boat with or without privatization, won't they?

I'm not aware that there are significant numbers of poor people who don't pay SS taxes. As far as I'm aware, that pretty much means the unemployed. Which sort of puts them out of bounds for social security to begin with (as it is, if you're not paying in, you're not acruing "credit").

That's all very well, but the government IS greatly involved in what is proposed so far. Not only will they regulate HOW it can be invested but also on WHAT it can be spent (not simply at what age).

I don't think any of that is fixed in stone yet. But even were you to only be given certain choices, the fact that it's your choices is still absolutely crucial. The reason it's critical for government to not invest is that it creates a very unhealthy conflict of interest, and that doesn't exist if you take responsibility not only for the investment decisions, but also for their consequences. As for what the money can be spent on, well, as far as I'm aware that only concerns taking out loans before retirement, and that's quite similar to what we already have with 401(K)s and IRAs. If you know otherwise, please elaborate.

 

[Random]

One of the big problems is that the Democrats, Independents or even Ralph Nader have no plan. They just insist that SS is not going to have any problems. So there's no real debate because there's nothing to compare Bush's plan to. The Democrats are pretty much guaranteeing Bush's plan will become law, so they don't really oppose it as far as I can tell.

The Democrats have a lot of different ideas on how to fix Social Security. Eliminate the cap on Social Security taxes, allowing the 2001 Bush tax cuts to expire and using some of that money to shore up Social Security, gradually raising the retirement age to reflect increasing lifespans, etc. Unfortunately, they have a slight problem with putting forward their proposals.

They are currently in charge of bupkis. The GOP is in control of the House, the Senate, the White House, the Judicial Branch, the Social Security Administration, the Federal beureaucracy, etc. The Democratic party does not have the ability to present bills and have them come up for a vote, except at the sufferance of the GOP. If Tom DeLay doesn’t want a law passed, it will never make it out of conference committee, regardless of its merits.

The result is that the House and Senate Democrats really only get to vote on bills presented by the GOP. They only get to discuss GOP ideas, and since they end up opposing many of them because they are so horrible, they are labeled “obstructionists”.

 

[Random]

Ignore this post.

OK.

 

[Brown]

The Democrats have a lot of different ideas on how to fix Social Security.

This is true. Clinton put forth ideas, Kerry put forth ideas, the late Senator Moynihan bandied around some ideas.

These ideas are basically dead from the start. Little Bush has decided what he wants, and he will push for it, no matter what. He will scare, he will lie, he will exaggerate... just like he did with the Iraq invasion, just like he did with tax cuts to benefit the wealthy. This is his style.

His style does not include listening to the views of those with who whom he disagrees. He only listens to those who say what he wants to hear.

In 1776, the founders of this nation were fed up with King George, and one of the reasons they were fed up was because the King did not listen to those with whom he disagreed. Consequently, one of the complaints listed in the Declaration of Independence is:

In every stage of these oppressions we have petitioned for redress in the most humble terms; our repeated petitions have been answered only by repeated injury. A prince, whose character is thus marked by every act which may define a tyrant, is unfit to be the ruler of a free people.

 

[Elind]

Re: Re: Re: Re: Re: Bush’s Social Security plan?

I don't think any of that is fixed in stone yet. But even were you to only be given certain choices, the fact that it's your choices is still absolutely crucial. The reason it's critical for government to not invest is that it creates a very unhealthy conflict of interest, and that doesn't exist if you take responsibility not only for the investment decisions, but also for their consequences. As for what the money can be spent on, well, as far as I'm aware that only concerns taking out loans before retirement, and that's quite similar to what we already have with 401(K)s and IRAs. If you know otherwise, please elaborate.

My suggestion was to let free enterprise bid for the investment management and be judged on performance. That is not government involvement anymore than setting the rules is. Either way they do the latter. The question was, why not have a portion of the current SS funds invested that way, instead of a much more complex way of letting individuals pick between a finite number of "approved" investments? Sounds like smoke and mirrors to me.

 

[Ed]

Originally posted by Random
The Democrats have a lot of different ideas on how to fix Social Security. Eliminate the cap on Social Security taxes

Tax increase

, allowing the 2001 Bush tax cuts to expire and using some of that money to shore up Social Security

Tax increase

, gradually raising the retirement age to reflect increasing lifespans, etc.

Tax increase


Unfortunately, they have a slight problem with putting forward their proposals.

No wonder


They are currently in charge of bupkis. The GOP is in control of the House, the Senate, the White House, the Judicial Branch, the Social Security Administration, the Federal beureaucracy, etc. The Democratic party does not have the ability to present bills and have them come up for a vote, except at the sufferance of the GOP. If Tom DeLay doesn’t want a law passed, it will never make it out of conference committee, regardless of its merits.

With respect that is BS. They can still go directly to the people.

The result is that the House and Senate Democrats really only get to vote on bills presented by the GOP. They only get to discuss GOP ideas, and since they end up opposing many of them because they are so horrible, they are labeled “obstructionists”.

The problem at the core here is that Democrats hate anything that reduces the ability of the government to have power. As I understand some of the ideas on restructuring, that is exactly what will be accomplished.

I read that the Z study (what's it's name?) showed that 60% of dems think that looking into SS is a good idea. Compare that to outright rejection of anything that Bush had to say before he said it on the part of Kennedy and other prominant democrats. I fear that, once again, they are behind the curve. Having taken an arrogant rejectionist course, they are now in the position of eating humble pie and scurrying around to find a tax laden big government solution. Lame.[/QUOTE]