Obama's economic plan - Soak The Rich

[Pookster]

You would have been better off to not mention that since it is baseless rhetoric. In the future, worst case scenario, the SS fund is out of reserve. We still have people working and paying SS taxes sufficient to pay current retirees at least 70% of what SS currently promises.

That is a FAR cry from "no guarantee of seeing a dime" as you said. Your statement is illogical. People will still pay the tax, just where do you think that money will be going in the future?

Agreed. Also, the worst case scenario has already been dealt with in the past. 2017 won't be the first time when expenditures exceed revenue. In 1983, the SS trust fund was down to under 20 billion and the revenue deficit (which had been occurring for a number of years) was about 2.4 billion. Changes made by the Greenspan Commission at the time dealt with the problem accordingly. Given how politically sensitive social security is with both political parties, I strongly suspect the same will happen in the near and far future as well. It's a safety net that has too many political ramifications. To ignore that political reality is just being naive.

 

[JEROME DA GNOME]

Agreed. Also, the worst case scenario has already been dealt with in the past. 2017 won't be the first time when expenditures exceed revenue. In 1983, the SS trust fund was down to under 20 billion and the revenue deficit (which had been occurring for a number of years) was about 2.4 billion. Changes made by the Greenspan Commission at the time dealt with the problem accordingly. Given how politically sensitive social security is with both political parties, I strongly suspect the same will happen in the near and far future as well. It's a safety net that has too many political ramifications. To ignore that political reality is just being naive.

Where did you get the delusion that there was ever money in the SS account?

They have spent to monies on other things always.

 

[kallsop]

Oy!

 

[kallsop]

Obama's SS plan - same old

When you guys get through analyzing the "plan", send the details to the Obama campaign. They need all the help they can get.

Change that's nearly as good as what went before, believe it.

 

[BeAChooser]

The stocks in it aren't selected blindly

True. They are selected so they reasonably track the overall performance of the market. Which is what we want here.

I can go into it later, but the executive summary is that investments without risk have low yields.

I haven't claimed market index funds have NO risk. But 70+ years of data shows they have far less risk than what the SSA has been doing with the money they've collected over those years. I showed you an example where had you invested in the S&P500 and then withdrawn your money during the lowest point of the post 9/11 stock market collapse you still would have gotten a better return than what the SSA got from it's *investments*. And every other broad market index fund would give you the same result. It's laughable to listen to folks defend what the SSA has been doing based on concerns about risk. The SSA approach has been so risky that the SSA has had to raise the tax rate over and over and over and is still saying the system is going to collapse unless we dramatically increase the tax rate or significantly reduce benefits. In other words, the SSA system will go broke unless they TAKE more money from you and I. At least a stock broker hasn't the power to force you to throw good money after bad.

A corollary is that, over the long haul, the relatively new phenomenon of index funds, and even the huge influx of money into mutual funds, will change the historic returns of the stock market.

These funds have been around for decades. There's no indication that the historic returns are changing.

You really can't see the problem with the US government owning significant chunks of US industry?

But it won't be the US government. It will be you and I ... and our children. And the sort of investment I'm talking about won't influence the actions and behavior of US industry any more than the US government already influences US industry via the mountain of legislation, rules and regulations it's created. It's laughable to hear someone defend the SS system based on concerns that the US government might influence US industry. The liberals supporting continuation of the SS system as is encourage such influence on a daily basis and far more intrusively than anything proposed here.

 

[BeAChooser]

SS retirement is insurance against living too long.

If the retirement component of SS were a true "insurance" system, SSA would have looked at the projected longevity of people they were "insuring" (the could have seen it was 65 or more even at the beginning of the program) and invested the money that people *gave* that system in such a way that it would SELF fund the entire group of insured during retirement. But that's not what SS did. They clearly didn't look at projected life span (as I've already demonstrated), they put what money they did get into substandard investments with the full (but hidden) expectation that they would be taking more money from everyone in the future to keep the system from going broke, and ended up building a ponzi scheme that would transfer money from future generations to fund the retirement of the current retirees.

With social security retirement, the opposite is the case. You are insuring against living too long and exhausting your savings and thus being left destitute.

To suggest that the SSA is the equivalent of term life insurance companies is laughable at best. Term life insurance companies have the expectation that MOST of those who buy their product will never use it. They spread a small risk among many people. So they end up being financially viable. The SSA, on the other hand, offers SS with the expectation (just look at the life span data) that MOST of those they force to enroll in it will retire and draw out of the system. And many will draw out far more than they put in. And for that reason, it's not only NOT insurance, it's not financially viable (as is) either.

2) Shifting large sums (billions or trillions) of dollars from US government bonds to the equity markets has the potential of causing some major disruptions.

Any worse than the disruption caused by the SSA increasing tax rates year after year after year, threatening drastically reduced benefits and collapse, and being used as a political issue to manipulate the electorate and even keep them dependent?

 

[BeAChooser]

Originally Posted by BeAChooser
And of course, I haven't even mentioned the fact that the system is in trouble and there is no guarantee that anyone putting money into it now for retirement in 20 or 30 years will see a dime.

You would have been better off to not mention that since it is baseless rhetoric. In the future, worst case scenario, the SS fund is out of reserve. We still have people working and paying SS taxes sufficient to pay current retirees at least 70% of what SS currently promises.

Fair enough, although when top democrats decry any suggestion to reform the system by handing over any control of how some of income will be invested to the people actually giving the money as taking food from the mouths of children, it's hard not to respond in kind.

But don't lose sight of the central fact that what SS promises is far less than what one would receive were the funds collected by the SSA properly invested. Keep in mind that if YOU had control of your own retirement funding, you could expect to retire on 3 to 6 times the amount of money you can expect to get from SS ... assuming they don't have to cut what you get by 30%.

 

[BeAChooser]

2017 won't be the first time when expenditures exceed revenue. In 1983, the SS trust fund was down to under 20 billion and the revenue deficit (which had been occurring for a number of years) was about 2.4 billion. Changes made by the Greenspan Commission at the time dealt with the problem accordingly.

And what were those changes? Social Security tax rates increased (for the 13th time in 25 years) from 6.7 percent to 7.0 percent in 1984, with an agreement to further increase them to 7.05 percent in 1985, 7.15 percent in 1986-87, 7.51 percent in 1988-89 and 7.65 percent in 1990 and thereafter. Did that prevent further increases in the tax rate? No. And did that solve the inherent problem in the system? No.

To ignore that political reality is just being naive.

To ignore that financial reality is just being naive.

 

[gdnp]

To suggest that the SSA is the equivalent of term life insurance companies is laughable at best. Term life insurance companies have the expectation that MOST of those who buy their product will never use it. They spread a small risk among many people. So they end up being financially viable. The SSA, on the other hand, offers SS with the expectation (just look at the life span data) that MOST of those they force to enroll in it will retire and draw out of the system. And many will draw out far more than they put in. And for that reason, it's not only NOT insurance, it's not financially viable (as is) either.

As I stated the SSA is not the equivalent of term life insurance, it is the opposite of term life insurance. The weakness of the system is that it did not foresee the increase in lifespan and have not yet completely adjusted for it.

Any worse than the disruption caused by the SSA increasing tax rates year after year after year, threatening drastically reduced benefits and collapse, and being used as a political issue to manipulate the electorate and even keep them dependent?

That remains to be seen. Quite possibly. As to the "increasing tax rates year after year", social security tax rates have not be increased since 1990.

 

[BeAChooser]

The weakness of the system is that it did not foresee the increase in lifespan

Why not? The data to project life spans of 60-70 years for those entering the system in the 30's was available back when the system was established. Poor management. It's way past time to fire that management and find a new retirement investment vehicle.

As to the "increasing tax rates year after year", social security tax rates have not be increased since 1990.

And the system is now so broke they are talking about increasing tax rates to 20% or significantly reducing benefits. And while the rate hasn't been increased since 1990, the maximum taxable earnings has gone up dramatically ... from around $50,000 to over $100,000. And this thread is about Obama wanting to make ALL earnings by those earning more than $250,000 a year taxable.

Here's the problem:

http://mwhodges.home.att.net/soc_sec-a.htm

And ANY solution is going to cause disruptions.

 

[gdnp]

And the system is now so broke they are talking about increasing tax rates to 20% or significantly reducing benefits.

People talk about a lot of things. They also talk about raising the retirement age, eliminating benefits for the wealthy, or funding social security out of general revenues. Which, if any, come to pass remains to be seen.

And while the rate hasn't been increased since 1990, the maximum taxable earnings has gone up dramatically ... from around $50,000 to over $100,000.

At the same time, average wages grew from 21K in 1990 to 39K in 2006, and $100 in 1990 had the buying power of $165 today. So this increase in the maximum taxable amount is at least mostly indexing for inflation and increasing wages.

And this thread is about Obama wanting to make ALL earnings by those earning more than $250,000 a year taxable.

Another proposal that may never come to pass. Since this seems to be a "soak the rich" plan, I would prefer broadening the tax to include dividends, interest, and capital gains to simply taxing the earned income of the wealthy. As I stated long ago, I feel an obligation to pay my fair share, but don't see why the money that I earn should be taxed at a higher rate than money generated from inherited wealth.

 

[Meadmaker]

These funds have been around for decades. There's no indication that the historic returns are changing.

Specifically, for three decades. The first was started in 1975. At first, it was ridiculed and had very little money. After a bit of time, though, money started flowing into it.

Now here's where the whole system breaks down. The index fund requires the theory of efficient markets to work. The theory of efficient markets requires that the collective wisdom of the market will incorporate all available information in setting prices. Unfortunately, the very nature of the index fund is that the investors do not incorporate all available information. The index fund works great, so long as the amount of cash invested in index funds was not sufficient to be a market mover. Until 1975, the amount of money was zero, so no problem. Until around 1990, the amount was negligible.

Now, though, money is flowing into these funds, and it is skewing the market. There are companies getting investments which, in an efficient market, they simply wouldn't get. That is causing companies that have a high presence in these funds to be overvalued, at least on average. That will eventually correct itself, and a lot of investors who were promised free money will feel cheated.

There are forces more fundamental than historical rates of returns at work here. There's a reason that risk and reward are linked, and why there never is a true high reward investment that has low risk. If there were, someone would be giving away money.

But it won't be the US government. It will be you and I ... and our children.

We have three different ideas all competing. There is the "government invests the money" idea, in which case government owns the companies. Then we have the "government tells individuals how they must invest their money", in which case we have incredible graft and corruption, not to mention destrution of the "free" part of the free market. Finally, we have the "government tells people they must invest, but doesn't say how", in which case we have the problem of what to do with people who invest it badly.

In my opinion, all of those are worse than the current system which is basically, "government will take your money but promises to give you money when you are old, all the while doing accounting tricks to make it look like it is being invested."

And the sort of investment I'm talking about won't influence the actions and behavior of US industry any more than the US government already influences US industry via the mountain of legislation, rules and regulations it's created. It's laughable to hear someone defend the SS system based on concerns that the US government might influence US industry. The liberals supporting continuation of the SS system as is encourage such influence on a daily basis and far more intrusively than anything proposed here.[/QUOTE]

 

[Meadmaker]

And the sort of investment I'm talking about won't influence the actions and behavior of US industry any more than the US government already influences US industry via the mountain of legislation, rules and regulations it's created. It's laughable to hear someone defend the SS system based on concerns that the US government might influence US industry. The liberals supporting continuation of the SS system as is encourage such influence on a daily basis and far more intrusively than anything proposed here.

I accidentally left the above paragraph in my previous response, but let me address it.

Your post carries in it the false premise that it is "liberal" who want to continue SS as it is. Having done that, you can than compare the "liberal" way of influencing industry with the "not so liberal" way. (It certainly isn't "conservative". Your proposal is a radical shift away from anything that has ever been done before.)

Regardless of whether this form of intrusiveness is better or worse than that form of intrusiveness, it is still handing over another chunk of power to the government. If you let government dictate the rules under which private money is to be invested, you are handing government huge power. Do you expect that power to be used wisely? You seem to be under the impression that government doesn't often use its power wisely, and yet you think this time it will be different. Why? Because the sums of money involved are so large?

 

[Meadmaker]

One more thing: Here's a quote from a book by John Bogle, who if memory serves was the founder of the first index fund open to individual investors. It became the Vanguard 500 Index Fund.

Index mutual funds, which accounted for only 3 percent of equity fund assets in 1995, represented 6.4 percent just three years later. With estimated cash inflow of $50 billion in 1998, index fund flows were equal to 25 percent - fully one-fourth - of total equity fund cash flow. Index funds have become the fastest growing segment of the entire mutual fund industry.

In trumpeting the success of indexed funds, Mr. Bogle seems to overlook the implications of his own statement. In 1995, index funds were a very small, and thus inconsequential, portion of the market. By 1998, they were a dominant force in investing. That represents a sea change in the way investors put money into American equities markets. Is there any possibility that such a huge new force could fail to influence the behavior of the market?

None whatsoever. The market today is not the market as it existed in the 20th century. Any discussion of historical returns on investment is made moot by the fact that over the vast majority of the time studied, no one was investing in those indexes, but today, huge sums of money are being invested in those idexes.

 

[gdnp]

These are from the Wikipedia article on the S & P 500:

a company which has its stock added to the list may see a boost in its stock price as the managers of the mutual funds must purchase that company's stock in order to match the funds' composition to that of the S&P 500 index.

The opposite is true when a company is delisted.

The components of the S&P 500 are selected by committee. This is similar to the Dow 30, but different from others such as the Russell 1000, which are strictly rules-based.

Think the committee that chooses these stocks might be susceptible to outside pressure and lobbying?

Obviously, this is only one index, but the one which has been traded as an index fund the most commonly. Other index funds are also susceptible to similar market distortions.

 

[BeAChooser]

Your post carries in it the false premise that it is "liberal" who want to continue SS as it is.

Oh yeah?

http://www.crosswalk.com/1332603/ "Social Security reform? House Minority Leader Nancy Pelosi and other Democrats have said no all along, but now they're saying "no dice" to President Bush's call for change."

Here's the sort of change Pelosi and the democrats want folks:

http://www.newswithviews.com/NWVexclusive/exclusive112.htm "While the nation's capital and the news media celebrated the appointment of Rep. Nancy Pelosi (D-CA) as America's first female Speaker of the House of Representatives, no mention was made of one of her priorities in the new Democrat-controlled congress: Social Security checks for illegal aliens who live in the US or in Mexico."

If you let government dictate the rules under which private money is to be invested

They are already are. They are taking (by force of arms) huge chunks of everyone's income (i.e., private money) and *investing* it (or not) as they wish without any regard for anyone's wishes.

You seem to be under the impression that government doesn't often use its power wisely, and yet you think this time it will be different.

I don't think government tends to use it's power wisely. If it were up to me the social security system would look quite different. But folks like you aren't going to let that happen so I'd like to at least see to it that you folks actually try to invest what you take from us more wisely than you have for the last 70+ years. Then maybe you won't have to take quite so much from me and my children in the future to satisfy your need to take care of irresponsible people.

 

[Kestrel]

One more thing: Here's a quote from a book by John Bogle, who if memory serves was the founder of the first index fund open to individual investors. It became the Vanguard 500 Index Fund.





In trumpeting the success of indexed funds, Mr. Bogle seems to overlook the implications of his own statement. In 1995, index funds were a very small, and thus inconsequential, portion of the market. By 1998, they were a dominant force in investing. That represents a sea change in the way investors put money into American equities markets. Is there any possibility that such a huge new force could fail to influence the behavior of the market?

None whatsoever. The market today is not the market as it existed in the 20th century. Any discussion of historical returns on investment is made moot by the fact that over the vast majority of the time studied, no one was investing in those indexes, but today, huge sums of money are being invested in those idexes.

Actively managed mutual funds and individual investors were buying these same stocks before the index funds came along. It's not like the S&P 500 index funds are purchasing stocks nobody ever bought before. When stocks in the index change, they are mostly low capitalization stocks. Since the index is weighted by market cap., index funds moving in and out of stocks added to this index has little effect on the market as a whole.

I might be concerned about funds that track certain poorly designed indexes distorting the market. The Dow Industrials only tracks 30 stocks, so whenever stocks in the Dow are changed, a relatively large proportion of index fund holdings need to change.

 

[Meadmaker]

Oh yeah?

http://www.crosswalk.com/1332603/ "Social Security reform? House Minority Leader Nancy Pelosi and other Democrats have said no all along, but now they're saying "no dice" to President Bush's call for change."

Here's the sort of change Pelosi and the democrats want folks:

http://www.newswithviews.com/NWVexclusive/exclusive112.htm "While the nation's capital and the news media celebrated the appointment of Rep. Nancy Pelosi (D-CA) as America's first female Speaker of the House of Representatives, no mention was made of one of her priorities in the new Democrat-controlled congress: Social Security checks for illegal aliens who live in the US or in Mexico."

You are confusing the philosophical positions of the Democratic and Republican parties with the philosophical positions of liberal and conservative. Any Republican who wants to dictate investment patterns doesn't deserve the moniker "conservative". Sadly, pro-business positions have been confused with "free market" positions. The Bush administration's proposals on Social Security are not free market proposals.

 

[Meadmaker]

They are already are. They are taking (by force of arms) huge chunks of everyone's income (i.e., private money) and *investing* it (or not) as they wish without any regard for anyone's wishes.

Except the voters. For better or for worse, politicians are elected by them.

 

[BeAChooser]

Except the voters.

Oh yeah ... sure. The voters control our government.