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Social Security's Problems
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| i saw that... |
| posted by: simplicissimus |
15:19 2.4.10 |
the only issue i have is how fucking lazy the press is.
a "bailout"?
does that mean when i loan you money, and you lose it, and i come to collect it from you that i'm looking to be "bailed me out"? jesus, man.
don't worry. eventually, there'll be some relatively small means-testing and they'll ship the age requirements up a few years and the problem will be virtually "solved" .
Except for those suckers who've been lending uncle sugar their money and now won't get it all back - ie, the people that vote. On second, though, man we are fucked.
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| well ... it's officially a problem |
| posted by: horsebeater |
13:07 2.4.10 |
social security is really in the red
http://finance.yahoo.com/focus-retirement/article/108747/next-in-line-for-a-bailout-social-security?mod=fidelity-readytoretire |
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| notable deadline passed |
| posted by: horsebeater |
11:00 1.5.10 |
i noted in my post of 5 (gasp) years ago that it was believed that "in about 2020 or so, the social security trust fund is going to start paying out more in benefits than it takes in."
oops. actually it happened last year.
the attached link is a little dicey (although if true, i have to imagine a major media source will pick this up), but it looks like the guy is pulling from the actual trust fund reports.
http://www.zerohedge.com/article/ss-trust-fund-2009-full-year-results-ugh
some of this can obviously be blamed on the recession, but i think the time when we need to worry about fixing social security is NOW. |
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| oh, this is awesome. |
| posted by: simplicissimus |
20:51 8.9.05 |
real political talk with words and numbers and stuff.
even i have grown bored with my rants. though that doesn't mean i won't make them.
anyhow, once i can return to actual procrastination i will give the 2 hours needed for the article.
looking forward to aol's take... |
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| oh, this is awesome. |
| posted by: simplicissimus |
20:50 8.9.05 |
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| thoughts |
| posted by: horsebeater |
10:45 8.9.05 |
I'd be happy to go along with the above instead of the status quo. It's hard to believe that Dems would go along with a national sales tax, however, along with some of the benefit cuts proposed above.
Normally Dems hate sales taxes as regressive. What's the TF reaction to replace income taxes with sales tax (along with a rebate)?
I never thought about how a sales tax acts as a sneaky wealth tax and nails everyone with accumulated wealth, as the article points out above, but that's a nice benefit. |
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| cut and pasted from The New Re |
| posted by: horsebeater |
10:43 8.9.05 |
President Bush's Social Security proposal looks to be dead in the water--and a good thing, too. The plan was half-baked and fiscally irresponsible. The American public took one look and realized it provided neither personal nor national financial security. Even many Republican congressmen didn't buy it. So much for the president's post-election political capital.
For their part, the Democrats are quietly exultant. Their Nancy Reagan-inspired strategy--"Just say no!"--has helped stymie the president. It looks like a classic victory for the political opposition.
Yet, as Bob Dylan wisely observed in "Just Like Tom Thumb's Blues," "[N]egativity don't pull you through." Sure, it may work as a short-term political strategy. But, in the long term, it won't save the United States from the very real fiscal crisis it faces. Just because the president's proposal deserved to be junked doesn't mean there isn't a fiscal problem that urgently needs addressing.
Consider what happens if we allow the status quo to continue: Either (a) government deficits reach an intolerable size in the eyes of financial markets, forcing a sudden collapse of the system via spiraling interest rates; (b) the proportion of income that has to be taken from the young (i.e., people who enter the workforce in the years ahead) and given to the old (those who have retired) rises to a point at which the young have to use literally all of their after-tax savings to purchase government bonds and, thus, are unable to accumulate physical capital; or (c) the United States becomes so dependent on foreign capital to finance investment and consumption that the U.S. capital stock becomes foreign-owned and all income from capital flows abroad.
Unless they believe in the Leninist principle--"the worse, the better"--Democrats need to come up with a better strategy than just waiting for one of these things to happen to Republicans. Instead of being relentlessly negative, Democrats need to recognize the magnitude of the problem we face and come up with some credible solutions of their own, sooner rather than later. What we have in mind is a new New Deal--a combination of fundamental Social Security reform, health care reform, and tax reform. A new New Deal could help Democrats win the voters they failed to persuade last November. It could also help a Democratic administration deal with our country's immense demographic and fiscal problems.
First the demographics. According to U.N. projections, male life expectancy in the United States will rise from 75 to 80 between now and 2050 (it was 66 back in 1950 and even lower when Social Security was invented). The share of the American population that is 65 or over is set to rise from 12.3 percent to 20.6 percent.
In 25 years, when almost all 77 million members of the baby-boomer cohort have retired, we'll have twice the number of elderly, but only 18 percent more workers to pay their benefits. The entire country will look, feel, and be a lot older than present-day Florida. By 2050, we will have as many old old (85 and over) people as the current populations of New York, Los Angeles, and Chicago, and as many centenarians as there are people in Washington, D.C.
Meanwhile, the United Nations also projects that the total fertility rate (births per woman) may fall below two in the next decade, and it could be as low as 1.85 in 20 years. Immigration will only partially compensate for these trends. Taken together, they mean that the elderly dependency ratio (the ratio of the population 65 years or older to the population 15 to 64) could very nearly double over the next 45 years, from 0.18 to 0.33.
This is bound to put a major strain on our current systems that help Americans provide for retirement and cope with the ill health that comes with old age--systems designed in the distant days of Franklin Roosevelt and Lyndon Johnson. But, in trying to modify the Social Security system, President Bush was only chipping away at the tip of an iceberg. The things he was worried about--the future deficits of the Social Security system, forecast to start in 2018, and the exhaustion of the Social Security Trust Fund (its stock of government bonds) in around 2042--are not, in reality, the biggest fiscal problems facing the United States.
Social Security has been reformed before. In the 1980s, the payroll tax was raised slightly and a gradual increase in the retirement age was introduced (it is scheduled to rise to 67 by 2027). One option might be simply to do more of the same. But that's not what the president proposed. He wanted to give workers the chance to divert some of their Social Security contributions into individual retirement accounts, while indexing the value of the future Social Security checks for middle-class and higher earners to inflation instead of wages.
There were four problems with this. First, diverting money into individual accounts would have turned the Republican line on Social Security into a self-fulfilling prophecy, pushing the system into deficit much sooner than would happen otherwise. Second, individual accounts would have done away with one of the biggest advantages of a state pension system, namely economies of scale and reduced risk. (It's a sobering thought that Jeremy Siegel of the Wharton School--as the author of Stocks for the Long Run, the equity sell-side's favorite academic--is now predicting a stock market slump as baby boomers sell off their portfolios to finance year-round vacations and plastic surgery.) Third, as a consequence, the president's scheme would have made an already bad position even worse for younger Americans, making them reliant on a risky, costly, and inadequate private-account alternative. Finally, and most importantly, it would have done nothing to address the much deeper fiscal imbalance between all the projected revenues of our government and all its existing commitments--not just Social Security, but a whole raft of other nondiscretionary expenditures, of which the Medicare system is by far the biggest.
Today, Social Security, Medicare, and Medicaid benefits per retiree total $21,000. Multiply this by the current 36 million elderly, and you see why these programs currently account for half of federal tax revenue. Over the past four years, the Medicare benefits per beneficiary have grown 16 times faster than the real wages of the workers paying those benefits. Medicaid benefits per head have grown almost as fast. And, if you think that growth in health spending will slow any time soon, think again. The new and fabulously expensive Medicare benefit enacted in 2003 by the Bush administration is just about to kick in.
The best way to measure the overall problem is simply to compare the present value of all projected future government expenditures--including debt-service payments--with the present value of all projected future government receipts, and then work out the difference. The latest estimate of this fiscal gap is a colossal $65.9 trillion. This figure comes courtesy of two distinguished economists--Jagadeesh Gokhale and Kent Smetters--who based their analysis on our government's own, quite optimistic, projections.
Of course, $65.9 trillion is a pretty hard number to grasp. But that is the implicit public debt of the United States--a sum five times larger than U.S. gross domestic product and over 14 times the size of the national debt held by the public. Gokhale and Smetters's study also lets us answer some simple questions: What alternative tax hikes or expenditure cuts would be needed to eliminate this fiscal gap? The answers are guaranteed to terrify politicians. One way would be immediately and permanently to double personal and corporate income taxes. A second option would be immediately and permanently to cut by two-thirds all Social Security and Medicare benefits. A third alternative (which would not quite close the gap) would be immediately and permanently to cut all federal discretionary spending.
The obvious point is that there is no conceivable political way to do any of these things. A politician who suggested even a mixture of the three would be as dead as David Stockman was when he suggested that Ronald Reagan cut benefits to retirees by a third. The American Association of Retired Persons exists to ensure that not one of Social Security's 2,025 increasingly anachronistic benefit provisions is changed.
So, Houston--or, rather, Washington--we really do have a problem: a truly grave demographic, fiscal, and economic problem. It's a problem that Bush inherited, but one he has done nothing to make better and much to make worse. We refer here to the president's three major tax cuts, his major increase in discretionary spending, his major expansion of entitlement programs, and his massive deficits. And that was just the first term.
So what's the alternative? The program we outline below aims at both efficiency and fairness. Unlike other solutions on offer, it is holistic; that is, it embraces Social Security reform, health care reform, and tax reform. And it is based on four fundamental principles we think most Democrats--indeed, most Americans--would subscribe to:
(1) The federal fiscal system should be moderately progressive. In other words, the net effect of all federal programs taken together should be to reduce somewhat the inequalities of income that are inherent in any market-based economy, but not in such a way that economic efficiency is compromised and growth lowered.
(2) There should be a system of universal health care--so that no American is denied necessary medical treatment--but the system should also be affordable.
(3) When they stop working, all Americans should be guaranteed a basic income of at least 40 percent of their pre-retirement earnings (the original goal of the Social Security system).
(4) The federal fiscal system should be based on the principle of intergenerational equity; that is to say, net lifetime taxes should take out of our children's income roughly the same proportion as they take out of our income.
These principles are important because our new New Deal has several components--a federal sales tax, individual retirement accounts, and health care vouchers. The plan we envision is not only market-based and economically efficient, but it is also moderately progressive and generationally equitable. It's simple and transparent, too--the very opposite of the status quo. Taken together, our proposals would not only modernize Social Security, provide universal health care coverage, and overhaul the tax system. They would also eliminate most of the fiscal gap described above, improve the well-being of the poor, enhance incentives to work and to save, raise the nation's rate of saving and domestic investment, and stimulate economic growth.
The three proposals covering taxes, Social Security, and health care are interconnected and interdependent. In particular, tax reform provides the funding needed to finance Social Security and health care reform. It also ensures that the rich and middle-class elderly pay their fair share in resolving our fiscal gap.
Tax Reform
Let's start with tax reform. Our plan here is to replace the personal income tax, the corporate income tax, the payroll (fica) tax, and the estate and gift taxes with a federal retail sales tax (frst), plus a rebate. The tax would work just like the sales taxes currently levied in many states, though at a higher rate. The rebate would be paid monthly to households, based on the household's demographic composition, and would be equal to the sales taxes paid, on average, by households at the federal poverty line with the same demographics.
Most Democrats assume that a sales tax would be bound to be regressive. But our version has three clearly progressive elements. First, thanks to the rebate, poor households would pay no sales taxes in net terms. Second, our reform would eliminate the highly regressive fica tax, which is levied only on the first $90,000 of earnings. Third, frst would effectively tax wealth as well as wages, because, when the rich spend their wealth and when workers spend their wages, they would both pay sales taxes.
The tax would be highly transparent and efficient. It would save hundreds of billions of dollars in tax compliance costs. And it would reduce the effective marginal taxes facing most Americans when they work and save.
Frst would also enhance generational equity by asking rich and middle-class older Americans to pay taxes when they spend their wealth. The poor elderly, living on Social Security, would end up better off. They would receive the sales tax rebate even though the purchasing power of their Social Security benefits would remain unchanged (thanks to an automatic adjustment that would raise their Social Security benefits to account for the increase in the retail price level).
The sales tax would be levied on all final-consumption goods and services. Its tax rate would be set at 33 percent--high enough to cover the costs of the new New Deal's Social Security and health care reforms as well as meet the government's other spending needs. This rate sounds high compared with an income tax in part because of the way sales taxes are levied. Earning a dollar and having to pay 33 cents in taxes when you spend it leaves you with only 75 cents of consumption, because 75 cents multiplied by 1.33 equals $1. The effect is the same as if you earn a dollar and pay a 25 percent income tax, which also leaves you with 75 cents of consumption. So a 33 percent sales tax is actually equivalent to a 25 percent income tax.
Put in these terms, a 33 percent sales tax is actually not very high. Indeed, if you add up the personal income, corporate income, and fica taxes that households pay, either directly or indirectly, you find out that the vast majority face combined average and marginal direct tax rates above 25 percent. Will taxing consumption rather than income reduce spending and put the economy in recession? No, it will shift spending away from consumption goods and services to investment goods, which will help the economy grow through time. As today's China and yesterday's Japan show, economies that shift from consuming to saving and investment can achieve tremendous performance.
Social Security Reform
Our second proposed reform deals with Social Security. We would shut down the retirement portion of the current Social Security system at the margin by paying in the future only those retirement benefits that were accrued by the time of the reform. This means that current retirees would receive their full benefits, but workers would receive benefits based only on their covered wages prior to the date of the reform. The retail sales tax would pay off all accrued retirement benefits, which eventually would equal zero. The current Social Security survivor and disability programs would remain unchanged, except that their benefits would be paid by the sales tax.
In place of the existing Social Security retirement system, we would establish the Personal Security System (PSS)--a system of individual accounts, but one with very different properties from the scheme that was proposed by the president. All workers would be required to pay 7.15 percent of their wages up to what is now the Social Security-covered earnings ceiling (i.e., they would contribute what is now the employee fica payment) into an individual PSS account. Married or legally partnered couples would share contributions so that each spouse's or partner's account would receive the same amount. The government would contribute to the accounts of the unemployed and disabled. In addition, the government would make matching contributions on a progressive basis to workers' accounts, thereby helping the poor to save.
All PSS accounts would be private property. But they would be administered and invested by the Social Security Administration in a market-weighted global index fund of stocks, bonds, and real-estate securities. Consequently, everyone would have the same portfolio and receive the same rate of return. The government would guarantee that, at retirement, the account balance would equal at least what the worker had contributed, adjusted for inflation--i.e., the government would guarantee that workers could not lose what they contributed. This would protect workers from the inevitable downside risks of investing in capital markets.
Between the ages of 57 and 67, account balances would be gradually sold off each day by the Social Security Administration and exchanged for inflation-protected annuities that would begin paying out at age 62. By age 67, workers' account balances would be fully annuitized. Workers who died prior to 67 would bequeath their account balances to their spouses, partners, or children.
Under our plan, unlike the president's, neither Wall Street nor the insurance industry would get its hands on workers' money. There would be no loads, no commissions, no fees. Nor would there be all the risks associated with individual investing. This is because PSS would continue to take advantage of the overwhelming advantages enjoyed by all state systems of social insurance: economies of scale and reduction of risk through government guarantee.
Health care Reform
Our third and final reform deals not just with our public health care programs, Medicare, and Medicaid, but with the private health insurance system as well. That system notoriously leaves some 45 million Americans uninsured. Our reform would abolish the existing fee-for-service Medicare and Medicaid programs and enroll all Americans in a universal health insurance system called the Medical Security System (MSS). Every October, the MSS would provide each American with an individualized voucher to be used to purchase health insurance for the following calendar year. The size of the voucher would depend on the recipients' expected health expenditures over the calendar year. Thus, a 75-year-old with colon cancer would receive a very large voucher, say $150,000, while a healthy 30-year-old might receive a $3,500 voucher. The MSS would have access to all medical records concerning each American and set the voucher level each year based on that information.
Some are sure to feel uneasy about this proposal, since it seems to imply an invasion of privacy. Yet the government already knows about millions of Medicare and Medicaid participants' health conditions, because it is paying their medical bills. This information has never, to our knowledge, been inappropriately disclosed.
The vouchers would pay for basic inpatient and outpatient medical care, prescription medications, and long-term care over the course of each year. If you ended up costing the insurance company more than the amount of your voucher, the insurance company would make up the difference. If you ended up costing the company less than the voucher, the company would pocket the difference. Insurers would be free to market additional services at additional costs. MSS would, at long last, promote healthy competition in the insurance market, which would go a long way toward restraining health care costs.
The beauty of our plan is that all Americans would receive health care coverage and that the government could limit its total voucher expenditure to what the nation could afford. Unlike the current fee-for-service system, under which the government has no control of the bills it receives, MSS would explicitly limit its liability.
The plan is also progressive. The poor, who are more prone to illness than the rich, would receive higher vouchers, on average, than the rich. And, because we would be eliminating the current income tax system, all the tax breaks going to the rich in the form of nontaxed health insurance premium payments would vanish. Added together, the elimination of this roughly $150 billion of tax expenditures, the reduction in the costs of hospital emergency rooms (which are currently subsidized out of the federal budget), and the abolition of the huge subsidies to insurers in the recent Medicare drug bill would provide a large part of the additional funding needed for MSS to cover the entire population.
Eliminating the Fiscal Gap
A 33 percent federal retail sales tax rate would generate federal revenue equal to 21 percent of GDP--the same proportion the Treasury collected in 2000. Currently, federal revenues equal 16 percent of GDP. So we are talking here about a tax hike equivalent to 5 percent of GDP. But we believe such a hike is both necessary for the country's long-term fiscal stability and, in the form outlined above, neutral--if not positive--in its macroeconomic impact. The new New Deal also implies some major long-run spending cuts. First, Social Security would be paying only its accrued benefits over time, which is trillions of dollars less than its projected benefits, when measured in present value. Second, we would be putting a lid on the growth of health care expenditures. Limiting excessive growth in these expenditures will, over time, make up for the initial increase in federal health care spending arising from MSS's move to universal coverage. Third, we would reduce federal discretionary spending by one-fifth, reversing the Bush administration's spending splurge. Taken together, these very significant tax hikes and spending cuts would, we believe, eliminate most if not all of our nation's fiscal gap.
The old New Deal is all but dead. It and the Great Society programs of the 1960s are being inexorably killed by demographic changes that their architects could not have foreseen. Keeping them on life support is not an option; it merely prolongs their death agonies. But our new New Deal offers a viable way to achieve social and generational equity through affordable programs of public pensions and health care that yoke the dynamism of the free market to the great cause of social justice. And our new New Deal represents the best chance of the Democrats getting back into power.
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| sigh |
| posted by: horsebeater |
15:55 6.14.05 |
| and if social security reform isn't enacted, we'll be eating caviar and drinking champagne? |
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| he had me until the last sente |
| posted by: simplicissimus |
15:21 6.14.05 |
"...And all he wants in return is the opportunity to try something that will alienate people from the Republican Party for generations."
great, it will be a blast to celebrate a democratic majority while people curse the republicans over a nice meal of government cheese and alpo chili! |
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| Kinsley likes Bush on Social S |
| posted by: horsebeater |
15:10 6.14.05 |
From June 5
http://www.latimes.com/news/custom/showcase/la-oe-kinsley1may01,0,104991.column
*****
Above all, Bush was honest and even courageous about Social Security. Social Security is about writing checks: Money goes in, money goes out. As Bush has discovered in the last few months, there are no shadows to hide in while you fiddle with it. The problem is fewer and fewer workers supporting more and more retirees, and there are only two possible solutions: Someone has to pay more in, and/or someone has to take less out.
On Thursday, Bush didn't exactly go from explicitly denying this to explicitly admitting it. But he went from implicitly suggesting that his privatization scheme is a pain-free solution to implicitly endorsing a plan for serious benefit cuts. For a politician, that's an admirable difference.
Even more to Bush's credit, the plan he's backing is highly progressive. Benefits for low- income workers would keep rising with average wages, as now, but benefits for middle- and high-income people would be geared more toward merely keeping up with inflation. This allows Bush to say that no one's benefits would be cut, although some people would be getting up to 40% less than they are currently promised. But in the swamp of Social Security politics, that is really minimal protection from the alligators.
So Democrats now face a choice: Are they going to be alligators on this one? Why Bush has taken this on remains a mystery. There is no short-term political advantage, and there are other real long-term problems that are more pressing. But he has done it, to his credit.
As this column has argued to the point of stupefaction, Bush's privatization ideas are a mathematical fraud. There is no way that allowing people to manage a portion of the money they put into the system can produce a surplus to supplement their benefits or cushion the shock of the necessary cuts. But if privatization is truly voluntary, it can't do much harm. And if that's Bush's price for being out front on a real solution to the real problem, the Democrats should let him have it.
Unless they are complete morons — always a possibility — the Democrats could end up in the best of all worlds. They know in their hearts that Social Security has to change in some unpleasant way. Bush, for whatever reason, is willing to take this on, and to take most of the heat. And all he wants in return is the opportunity to try something that will alienate people from the Republican Party for generations. |
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| To directly respond to Ludwig |
| posted by: horsebeater |
10:36 5.20.05 |
(0) / (2) / (3) "HB assumes its either pension or this." You say its not and that everyone should have a "number of different sources." The point of this exercise is to say which is better and to recognize that if you have to choose to favor a particular system, what should policymakers do (i.e. should the government prop up the pension system or not).
In the above example, maybe you would say that I want to give $3 to the federal government, put $2 in a pension and put $5 in a 401(k). My point is I don't see why you would trust a pension, which is ultimately a private company, with any of your retirement, let alone all of it.
Look, I want both a blowjob and doggie style sex, as well. That doesn't mean I'm not allowed to argue that one is better than the other one. And while its nice to have them both, that doesn't happen as much as you might like. You normally get only one. If that. In this analogy, pensions are like backrubs. Sure, its ok, but gimme the other stuff, man.
(1) (a) In my opinion, using CALPERS as your example in favor of pensions is somehwat unfair. Look, CALPERS IS the State of California government, essentially. If CALPERS' made bad investments and wasn't fully funded, the State of California would bail it out. The level of oversight in a State government pension is a lot highly than in a normal private company pension as well. So CALPERS is actually has a lot in common with social security and is something of a hybrid animal. So I don't think you can fairly use CALPERS in this debate. Why not use Ford's pension plan? CALPERS is the exception, not the rule.
I don't deny that CALPERS has done some really good stuff on a number of levels, especially corporate governance. But Vanguard and others have done as much, if not more (although the pensions did jump in first). And, really, if you want to clean up corporate governance issues, pass laws regarding corporate governance, or give SEC more money, or amend securities laws or do something like that.
To chooose a particular retirement system because it happens to have benefits in the totally unrelated field of corporate governance is putting the cart before the horse if you ask me. It's like buying weapons systems for the army not because you want them but because it helps the economy to have Boeing be buys. Ultimately that's just silly.
(b) On your comment that individuals can't invest in the same things pensions can, that's a weird comment for you to make, in my view.
First, the argument is essentially inaccurate, beacuse REITS and other funds have been created to do this stuff, and thereby individuals can invest in all the stuff that pensions can. I put $3000 into a REIT IRA a few years back. There's no reasons a 401(k) plan can't offer it either.
But Second, one Dem argument is that you have to heavily restrict choices that people can make in their 401(k)'s and in social security private accounts, because otherwise people will make dumb decisions (like putting all of their 401(k) in Enron stock).
So you are going to restrict people to 5 white-bread options, out of a paternalistic instinct, and THEN you're going to argue that pensions are better because 401(k)'s and private accounts are too restrictive? They are only restrictive because you made them that way!! You can't have it both ways. If you think pensions are good because they aren't restrictive, then you shouldn't restrict the other options either, since pensions' advantages in this regard is completely manufactured one, and it doesn't have to be that way. |
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| Let me try it this way |
| posted by: horsebeater |
10:13 5.20.05 |
Let's say a company was going to hire you, and they had $100 a day to pay you. They sat you down and said, here are your options:
(1) We'll give you $100 a day, all of which will be taxed as ordinary income. You can take $10 of it and save it if you want, but you'll pay regular style capital gains and income taxes on it.
(2) We'll give you $90 a day in regular income, and we'll give you $10 a day that you can invest into stock or bond funds of your choosing. Even if we go bankrupt and have no money, when you retire, it doesn't matter because the $10 is yours.
(3) We'll give you $90 a day in regular income, and when you retire after 30 years of work, we'll give you the $10 plus interest in the form of a monthly annuity.
And to show you that we're serious, we're going to take $6 and set it aside now. What about the other $4? Don't worry, I'm certain we'll have that money when it comes due.
(4) We'll give you $90 a day in regular income, and we'll give the federal government $10. When you retire, the feds we'll give you the $10.
WHICH WOULD YOU CHOOSE?
************
Out of these options, I think it's clear that:
Option # 2 (the 401(k) / 403(b) system)is the best
Option # 1 (no retirement plan) or Option # 4 (social security) are debatable. I probably like Option # 4 better, but reasonable minds can differ.
Option # 3 (the pension system) is the worst.
************
So why bother with the pension system? It simply isn't that cool. |
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| I don't agree |
| posted by: ludwig |
19:53 4.26.05 |
Pensions are deferred compensation. Companies paid them (later, after investing money) so that they could pay workers less in the present. Most companies have taken pensions away. As a result, workers make less. congress should act to restore that money.
The problem with your post is that you presume it's either pension or this. Not so. Neither pensions or social security should be a person's sole source of retirement income (isn't this what republicans are always telling else). Instead, individuals should have a number of different sources. Pensions are one valid source.
To address your specific points:
1) The Alabama pension purchase of US Airways stock is a good example of a dipshit investment by a pension. However, other pensions get great returns. Indeed, look at the California teacher pensions. They achieved a 13.1% return in 2004. Indeed, this article about their return (http://sacramento.bizjournals.com/sacramento/stories/2005/04/11/daily6.html) counters your claim that pensions only invest in stocks. A well run pension diversifies its investments. An individual cannot invest in the range of investments a pension fund can (because it doesn't qualify under the securities laws) preventing the individual from beneftting from large returns. Further, a person couldn't us social security or a private acocunt to invest in real estate or other investments like that.
Your argument that pensions are a risky, functional equivalent of social security is invalid. It is one post-retirement income source that can be tapped, alleviating an individual's need for social security.
2) Again, you misconstrue the role a pension. It does not stand in the shoes of a personal account. It can supplement. As for your United example, United is a classic example of a company that was permitted to unnerfund its pension in strong years. Stronger laws requiring better funded pensions could cure some of this.
3) 401ks are great as well. People should have the option of investing in them. Again, it needn't be an eiter or choice. I suggest that the government alter the tax laws to encourage investments in pensions. Why not have companies, which have been slashing the real wages of workers, foot a little of the bill?
Finally, you only see th negative of pensions (bad management with cronies sitting on the board). Some pensions have become the strongest corporate watch dogs. CALPERS often serves that role (although it failed miserably with Enron). Further, pension funds have become lead plaintiffs in a number of class actions and have served a great role in selecting and reducing fees awarded to plaintiff firms. |
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| Pensions suck |
| posted by: horsebeater |
18:58 4.26.05 |
Ludwig, did I just hear you right on your possible solution?
The stock market is too risky, but you want to revise social security by providing incentives for private companies to fund pensions?
Where do you think the pensions invest their money? (the stock market)
You want to talk risky, an Alabama state workers' pension invested about $300 million in US Airways after their 2002 bankruptcy, an equity investment that took about 1 year for it to be completely worthless. So instead of the workers having some control over where to invest their retirement monies (and investing in a S&P 500 index fund, or a gov't bond fund, or something safe), you have a board deciding where to put it (and normally a board that is appointed by a combination of state government and unions, so the board attracts lifelong leaches and the worst kind of politicos). The whole US Airways deal seemed to be inspired by an Alabama guy wanting to look cool. Not good. Bye bye $300 million.
I don't think anyone would dispute that the U.S. government is the most creditworthy borrower in the entirety of human history. If you could pick someone or somebody to owe money to you, you would pick the U.S. government. So I don't think there's any question that if you're going to have a pension model, where someone is indebted to workers to pay them during retirement, you want that someone to be the federal government. So having the feds pay retirement instead of private companies is DEFINITELY an improvement.
So here's my POINT 1: Social security is definitely better than pensions.
But my POINT 2 is this: Social security private accounts are also WAY better than pensions.
Private accounts get away from the whole single-payer regime to some extent. Five years ago, if you had worked for United your whole life and retired, you were stuck: it was United's solvency that determined what benefits you were going to get. Even if you KNEW United was going to go under, and once they went under, you'd get screwed, there was nothing you could do about it. You can't sell your pension rights. (incidentally, due to the deal struck with the PBGC last week, which caused big time cuts in pension benes, you would have been right that you were going to get screwed).
If you have a social security private account invested in United stock, however, if you think United is going in the tank, 5 years ago you could've sold it and bought an index fund or a bond fund or something safer.
So private social security accounts, which let you diversify your risk and sell when the going gets tough, are SAFER investments than pensions.
And POINT 3 is this: 401(k)'s are better than pensions.
All this reasoning from above applies to the 401(k) v. pension debate. The change to 401(k)'s from pensions, while often bemoaned, isn't a bad thing. While some workers get screwed in the 401(k) regime because they pick risky investments, at least they have some control over what they picked.
You don't have situations like we have in the textile industry, where (a) you have free trade that essentially drives U.S. textile makers out of business, really through no fault of the employees, causing people to lose their jobs; (b) the pensions ended up being underfunded, so the people not only lose their jobs, they have their pension benes slashed. What a great two-fer! And under the pension regime, a group of people, often geographically concentrated (see: the steel industry) just get WIPED OUT (jobs and retirement both pretty much gone in one fell swoop). A three-fer! We can annihilate an entire area all at once! (see: Youngstown).
Compare this with 401(k)'s. The people wiped out in this regime (a) are at least partially at fault for the investments they got to choose themselves to some extent; (b) are geographically spread out so it isn't one area getting crushed; (c) the people who invest stupidily and have their retirement savings wiped out normally haven't lost their jobs at the same time.
There's pain in both, but I like 401(k) style pain (and social security private accounts style pain) better than pensions.
DIE PENSIONS DIE !
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| Genius idea |
| posted by: ludwig |
10:09 4.26.05 |
Are you the President? Are you having difficulty selling your ill-defined gutting of social security? Why not have the least popular politician in america join you on your shill across America tour? that's bound to make your ideas more popular.
http://www.foxnews.com/story/0,2933,154591,00.html |
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| i'm puzzled by SS |
| posted by: ludwig |
18:30 4.20.05 |
what is Bush's plan? He keeps talking about starting a dialogue but I don't see an endgame. From this vantage point, that of an an avid newspaper reader, all I see are administration officials traveling the country talking to sympathetic groups. but to what end? where is this going? for a white house that has stayed ruthlessly on message they seem to be wandering aimlessly. Is there an impasse between bush and the republicans in congress? are they playing a game of chicken trying to wait the other out until one of them proposes a plan?
As for HB's original post, investing in the stock market seems risky. a lot of those boomers have 401k's. they already have money in the market. they are going to be pulling that money out to pay for things they need once they no longer get a salary (a lot of that will go to health care, assisted living, etc). Since a lot of these people won't have pensions (companies have ceased offering pensions, health care, etc. and shunting that to the govnerment), or life insurance, they'll need that money in the market even more. So, that seems to queer the average stock market return even lower.
Couldn't one possible solution be that congress pass lows creating incentives for companies to create fully funded pensions so that employees no longer need hope that SS will cover them? Aren't republicans always crowing that private industry does things better? wouldn't this solve a lot of problems (again, in the long term) and reduce the reliance on social security? |
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| Yes....fine....but.... |
| posted by: simplicissimus |
18:03 4.19.05 |
A great man (above) went after the democrats because they weren't admitting there was a problem and suggesting a solution.
well, if bush doesn't want to go concrete, why would the dems?
fucking a, find me a dnc job and i'm there.
though i think i'd like to work for schweitzer.
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| whatever... |
| posted by: horsebeater |
17:17 4.19.05 |
... i didn't realize you were working for the DNC these days, simpli.
C'mon, this is politics. Bush is trying his hardest to not get pinned down on any particular position, because he saw what happened to Clinton health care in 1994. If Bush takes a specific position, the Dems will simply go apeshit attacking him, figuring they'll score more points attacking him and doing nothing than by making any kind of proposal themselves. So Bush is refusing to get publicly pinned down on this. There's nothing wrong with that. Many trial balloons are going up and down and plans floated in congress on this thing to see if anything can come out of it. |
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| HB: The President has admitted |
| posted by: simplicissimus |
10:35 4.15.05 |
the spin is his personal accounts will "fix it" and the democrats just bitch and oppose without a plan of their own.
the reality is this personal account thing is a joke and, even W himself admits, is not a plan to fix the problem.
http://story.news.yahoo.com/news?tmpl=story&cid=514&e=5&u=/ap/20050414/ap_on_go_pr_wh/bush
to recap:
he's spent $3M in taxpayer money over the last 4 months at events only republicans can attend to convince us there's a problem but he has no suggestion yet as to how to fix it.
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| i couldn't read HB's post |
| posted by: ludwig |
08:12 4.6.05 |
it's too long. it would be helpful if he could provide a USA Today-esque bar graph or pie chart.
On a side note, this guy makes a good point that the budget is in a huge deficit and Bush et al. are spending a fortune of tax payer money jetting hither and thither to push their plan to destroy social security while preventing non-loyalty oath taking tax payers from attending the presentations.
http://www.davidsirota.com/2005/04/how-much-is-bushs-ss-tour-costing-you.html |
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| ahhh... izzi conjures up the s |
| posted by: horsebeater |
15:32 4.1.05 |
BUT HOW DO YOU KNOW THERE'S AN OZONE HOLE?
On some things, like budget deficits and anticipated tax income, things are tougher to predict year to year. The fact that social security is going to run out of money isn't really open for debate: it could be 2038; it could be 2060, but it's going to happen (and is coincidentally going to happen near the time that the tentfort hits the age - 67- for retirement). At that point, something is going to have to be done.
***********
Let me make one thing clear. If I was going to mess with proposals (1) through (5), I would NOT enact the changes now. Right now we take in more money than we need. Why do things that will cause us to take in evern MORE money now? If you're going to do (1) through (5), I would make it prospective: to occur in the future.
That's how Reagan was able to jam through the last set of social security reforms in the 1980's. He raised the retirement age, but he raised it starting in 2002 or something, so nobody really paid attention or cared when the law passed in 1984. Right now you could change the law to cut the rate of increase in benefit STARTING IN 2020, start to raise the $90,000 cap (which will be $120K or more by then, since it automatically goes up with inflation)... Why is that so hard to swallow?
It frustrates me that anyone proposing that would get demagogued to death.
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| a lot can happen in 40 years |
| posted by: isidorus |
00:11 4.1.05 |
how confident can we really be about these prognostications? I realize that demographics are pretty cut and dried -- the population is getting older and at some point around 2025 the tip from collecting to paying occurs. What's less clear is what happens politically and economically between now and then. How realistic are the assumptions about economic growth and taxation (whatever they are) that are driving this?
I'm more of the mind that we'd be better off doing more of one through five than making a big shift toward nine. The argument for private accounts seems too distant, and therefore too abstract, to pull it out of the realm of partisan politics. I don't wish to sound naively optimistic, (ie I'm not saying there's not a problem) but the administration sees an opportunity here and is doing its best chicken little.
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| Negotiation and political capi |
| posted by: simplicissimus |
21:32 3.31.05 |
my negotiations, which now number in the dozens and getting on to hundreds, are small, rarely getting beyond a quarter of a million, tops (and most often, mid-5 figures), but i have learned an awful lot, and will attempt to apply it here:
Bush made a political decision to float the whole private accounts thing. Now, I'm not sure how you missed this point, but even he has never maintained that private accounts are going to solve this thing. It is strange, but true, that he has pretty much refused to offer anything more to the plan than private accounts.
Why would he do it this way? Well, when you're negotiating (and again, I'm not saying I'm a pro or anything close, but they all seem to follow the exact same pattern), your opening position is always akin to throwing a bomb. You may find out (to your delight) that the other side doesn't tell you to go to hell - and then the initiative is all yours and you take it home. But even if you don't get your brass ring, if the other side is weak they are going to play along with you and you dictate the whole shooting match.
But, the Democrats weathered the storm and stayed put.
And now Bush is twisting in the wind with this whole thing. The public doesn't like his plan (for reasons good or otherwise) and every day he stumps for private accounts he loses some political points.
And a counter-proposal from them at this point would do nothing but throw a lifeline to him. You notice that Bush had all these appearances scheduled? You think he was just planning on beating home the private accounts thing 80 times? Maybe he thought he'd get lucky, get traction, and bring them home. But, at the very least, he assumed the dems would be cowed/arrogant enough to counter with something (ironic, given that Bush has never proposed a full plan to fix thing, just a lot of "private account" talk). He'd get his battle.
But why would the democrats give him a free pass from a politically damaging position?
Why on earth would the Democrats give Bush something to rail against?
Why on earth would they take one step toward fixing social security this term, so bush could get the credit?
No, they're staying put. This year. And next year or in 3 years, they do it. But then, the "floor" will not be private accounts - they won't even be on the table. And the real debate -- about retirement age, payroll taxes, govt investment -- will produce something much better. And guess who'll get the credit and own the issue (as they have for 40 years)?
I agree with you hb, we all know something needs to happen. But why let Bush dictate what they something is, or at least shape it, when you can push something more sane and less dubious in a few years?
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| No Need to Read It! |
| posted by: horsebeater |
11:40 3.31.05 |
I'll sum it up for you!:
There are a lot of ways to fix social security that are fair: you could have a combination of lowering cost of living adjustments, bumping up the retirement age ever so slightly and easing up the $90,000 cap on what income is subject to social security taxes. Mix it all together and it would be almost unnoticable. Of course, this will never happen.
The Dem's comments that social security ain't broke are a giant fucking joke.
Bush's private accounts, while flawed in many ways, fix part of the problem and are better than nothing and, actually, are relatively similar to what Clinton proposed during his presidency. While I'd prefer the mixed solution above, either Bush OR Clinton's solution is better than the status quo. |
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| and it's also another example |
| posted by: armyoflebron |
11:09 3.31.05 |
...i never read hb's posts. they're too damn long.
(kidding. though it'll likely take me the weekend to get through it, i'll try anyway.) |
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| This post is yet another examp |
| posted by: simplicissimus |
15:57 3.30.05 |
| every time you and i disagree on anything, i doubt myself. a lot. |
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| oops |
| posted by: horsebeater |
15:35 3.30.05 |
I forgot these solutions:
(A) Apply the social security tax to earnings over $90K / year.
(B) Raise the Payroll Tax
I don't like (B), and the government sneakily has been doing (A) over the past several years (it was only about $72K / year in 1999... it's rising faster than inflation). |
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| Why Bush's Reform Is One Decen |
| posted by: horsebeater |
15:10 3.30.05 |
OK...
I wanted to weigh in on this one, because I think the Democratic position on Social Security (don't touch it) is a big big problem, and I think that private accounts, while problematic in many ways, really is a very sneaky way to fix social security's problems that might be better than the alternatives. People forget that Clinton proposed something much more similar to what Bush is proposing.
The Problem:
Today, social Security takes in more in taxes than it pays out in benefits. This has been true for decades. Whether this happens, social security gives the excess to the federal government and gets an IOU from the government in return. Accordingly, the feds currently owe hundreds of billions or trillions of dollars to the social security trust fund. In about 2020 or so, the social security trust fund is going to start paying out more in benefits than it takes in. Accordingly, the trust fund will have to start calling in the IOU's from the federal government and the feds are going to have to find a way to pay the trust fund back. As of 2045, all of the IOU's will be used up and the trust fund would officially go "insolvent" at that point, because they'll be spending more than they take in and the feds won't be making payments on the IOU's to close the gap.
So, really, you have 2 problems. The first problem is that after 2045, you're out of money. The second problem is that you have too much money coming in now and not enough coming in from 2020-2045.
THE DEM'S SPIN: There's no problem until 2045!
This is highly disingenuous. General revenues are going to start to be plowed into social security starting in about 2020, so we're going to have to collect more in income taxes, etc., in order to pay off the IOU's, and the IOU's are going to come due fast and furious in a 25 year span (income taxes will get jacked through the roof). If we do something to the social security system, then maybe the IOU's can be paid off over 100 years (or never) and that will cause less of a need to raise regular tax rates / cut spending.
Now, it WOULD be fair to say that there's no problem until 2020, so arguably government can do nothing now.
BUT there is a way to USE the fact that you're taking in too much money to your advantage when trying to solve this problem that both Bush & Clinton recognized that will help a ton (see # 7 and # 9 below).
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Possible Solutions:
(1) The Supply Side Solution. We're taxing MORE than we need to now, so the solution is to CUT social security taxes NOW so that the social security system breaks even year to year, which will cause the economic to increase faster than it otherwise would (since tax rates would be 5.2% instead of the current 6.2%). Then, in 2020, you can raise the rates back up to 7% and then, hopefully, the economy will have grown enough to make 7% of income more than it would be if you hadn't cut the taxes.
Critique: The Laffer curve ain't all its cracked up to be. Cutting social security taxes to make it solvent doesn't make much sense in the long run.
(2) Raise Retirement Age. It's going to be 67 for the tentforter's anyway. Why not go to 70? A retirement age of 70 solves all of the problems. And you wouldn't need to raise the age over 67 until 2025 or so.
I've seen proposals to make it 67 for jobs that focus on "manual labor" so that we don't have people in coal mines at age 69 that could solve that problem.
Critique: People don't want to wait 3 extra years to retire.
(3) Lower Benefits. Again, this is fair. It's pretty clear that the inflation adjuster being used gives the oldsters way too much money, so that in 50 or 100 years, the benefits that are being received will be WAY out of whack.
Critique: Political suicide. People like their benefits.
(4) Start means-testing. You only get social security if you are middle class or under.
Critique: The mechanics of this are VERY difficult. First, this is a HUGE administrative hassle because you can't use the income tax: you have to use a wealth test.
If you used an income test, it would go like this: if you earn $100,000 per year or more, then you don't get social security. This sounds fair enough, but many old people (a) don't have a job (no income there); and (b) have 401(k)'s, pensions and IRA's whose income is tax-sheltered. So a guy could have $2 million and be taking out $99,000 per year from his accounts and not meet the income threshhold, when he is clearly the kind of guy you want to "cut off" if this is going to be meaningful.
So you have to go to a "wealth test" which would say "if you have more than $250,000, you get nothing (or you get 50% of your benefits or something." But that means if you own your own house in most places, you get nothing. And U.S. tax laws presently aren't designed to measure wealth. And doing this wouldn't be easy at all (which is why we've never tried to do it to means test things). The closest thing the government does in this regard is with respect to college financial aid programs, which use very difficult and arcane formulas to measure parental wealth. So this is tougher than it sounds.
(5) Add more young workers. We could add incentives for people to have kids, modify immigration policies to let more people in and do other things to change the demographic picture so that the ratio of workers to retirees doesn't go in the tank like is projected.
Critique: Post-9/11, making immigration EASIER is of questionable value. In light of the desesrtion of good unskilled jobs from America, adding to the unskilled labor pool through immigration could have really harmful consequences to those at the bottom of the economic ladder currently.
(6) Have the old people die sooner. I'm not sure how you accomplish this one (let the Senior Simpli make medical decisions?) (rim shot).
**********
OK... it seems to me that unless politics in America changes, none of the above 6 things are going to happen. Assuming that's true, we're going to start to be in real trouble in the 2020's, in that we're going to either have to slash spending to the core, raise taxes or have deficits that make today's deficits look puny in scale in order to pay off the IOU's to teh social security trust fund.
What Bush and Clinton recognized is that if you DIDN'T have social security give the money to the federal government from 2005 to 2020, then the IOU's being called in during the 2020-2045 period would not be as great. Thus, you eliminate the incredible stress you put on the government's finances during this period. This only works, however, if you change the program before 2020 because after that, there are no surpluses. Here's are their ideas:
(7) Invest the Money in the Stock Market. This was Clinton's idea. Before, the treasury bonds would only pay 4-7% or so, so social security was getting a kind of crappy return from the feds and, the flip side, was that even if the rate of interest went UP, it's the taxpayers paying the interest, so that doesn't exactly solve your problem.
So instead of having social security buy treasury bonds that pay 4%, invest the money in the stock market and make 8% or 9%. This (a) helps the IOU problem in the 2020-2045 period; (b) means that you're going to have money coming in from investments in the 2020-2045 period and you're probably solvent PAST 2050 because of the increased rate of return.
Critique: When the federal government takes an ownership interest in companies, this is called communism. So what Clinton was really advocating was a backdoor form of communism. On top of this, having members of the federal government choose companies to invest in seems to me a situation fraught with the potential for abuse (coca-coca donates $1 million to a campaign; bush's appointee to the "social security investment board" decides to buy $1 billion in coke stock). So this could get ugly in a number of ways.
Alternative: One alternative that I haven't fully thought through is having the social security trust fund buy bonds of FOREIGN governments. Thus, the interest would be coming from the austrailian taxpayers instead of US taxpayers. I'm not sure if this works or not.
(8) Put the money under the mattress. If you have a $100 million surplus this year, literally put the actual dollar bills in a safe and keep them until 2020-2045 when you need them.
Critique: You get less in interest this way. Social security probably goes insolvent in 2035 instead of 2045.
(9) Invest the Money in the Stock Market Using Private Accounts.
This gets many of the benefits of the Clinton proposal (i.e. the increased rate of return from the stock market; less IOU's getting called in from 2020 to 2045), but avoids the communist tinge and the potential for fraud and abuse in the Clinton plan.
Critique: It's called social "security." It should be a guarnateed base level benefit for retirees. If they can lose all of the benefits by investing poorly, then it kind of defeats the purpose.
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If I was god, I would do a little bit of (1) through (5). You could tweak each a little bit and fix the system (raise the retirement age to 67.5; lower the CPI adjustment by 0.2% per year; loosen immigration law, etc.). But that ain't going to happen.
So if those are off the board Bush's solution, option (9) solves more of the problems than any politically viable option in my opinion and is better than nothing.
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Why Do This Now?
First, YOU CAN'T WAIT TO FIX THIS. The oldest baby boomer is now 60. Once the baby boomers are retired, game over. If social security is the third rail of American politics now, it will be doubly untouchable in 15 or 20 years. The boomers are clearly assholes. They'll probably raise their benefit levels and tax us at 25% to pay for it. There is NO WAY they'll agree to any changes in the system once they are mired in it unless they are making it worse on us and better for them.
Second, if you're going to partially rely on the fact that you're reducing the IOU's that you're calling upon from 2020 to 2045, then you can only implement such a program now, because if you don't implement the program, present law means that the social security trust fund will automatically shovel the surpluses into the federal government's general funds and the feds will give the trust fund the IOU. So the only way to leverage the benefits of having LESS in IOU's to call in is to start doing it now. |
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