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Feb 3 thread

Doren's initial query

Ok. I might be crazy, but I just don't get this. Last night in his state of the Union, Bush proposed allowing people to put aside 4% of what they are currently required to pay for social security into private government authorized accounts. How does this save social security? How does 4% of the 12% (or whatever it is) of my income that I pay to social security give me anything to retire on? And what does everyone give up for this lovely "opportunity"?

Sara's response

I believe the fact that a) the funds have a higher risk and therefore could earn a better return than what's used right now for all the Social Security funds (I don't know what the return is but it's low and "safe") and b) the $$ invested would be open to a wider variety of folks that want the investment capital. Well, the ones that the Government let's you invest in a.k.a. GWB's friends that need some $$ help.

Kevin's response

Since they still haven't supplied an actual plan, this is mainly conjecture. The expectation is that the private accounts replace some or all of the government-paid benefit. We can probably expect the defined benefit to be sharply curtailed for poeple younger than, say, 50 or 55. Some years later, it may be eliminated altogether. That's been a goal of the neocons for decades. It essentially "saves" the program by gutting it.

Of course, there are some serious problems.

  1. We need to pay benefits to current retirees, and that money has to come from somewhere. The last thing I read was that they would just borrow the money and add another two trillion to the debt, but somehow keep that "off-budget" so it doesn't actually get counted as such. We'll see what the bond market thinks of that. (Hint: expect to pay much higher interest rates.)
  2. If you make bad investment decisions, or if the market tanks right before you retire, well, too bad for you. (IMHO that's the general Republican response to anyone who isn't them.)

Never mind that minor tweaks could keep the system solvent for many decades to come, and who knows what will happen between now and then. It's hard enough to forecast the economy 5 or 10 years out, much less 30 or 50. This is all about ending the New Deal and getting people to feel like "investors", so they somehow identify with the billionaires and support the Republican agenda (e.g. more tax cuts on investments, shifting more of the tax burden onto labor).

Sorry, bit of a soapbox there.

Tony's response

I think the figure of 4% to 12% is on gross income not the amount withheld for Social Security (not that I agree with his plan). See (Paul Krugman) editorial

Of course, the REAL goal of privatization of SS is to create more people invested in the outcomes (profits) of companies/business than the quality of life and rights of the individuals (workers). In the long run (a generation to two), the idea is that you'll have even more RED voters and better distributed along the coasts ;-)

My guess is that this time around it won't pass but the wind for reform (like welfare reform almost a decade ago) is in the air....

Gene's response

"save social security"? what in the world do you think that dubyaís plan has to do with "saving" it? Remember, we went into Iraq because they were on the verge of attacking the US with nuclear, chemical and biological weapons. If youíre trying to find motivations for his plans in his stated reasons, youíre going to have to look with an awful lot of creativity. The words and phrases that he uses to talk about social security are meant to stir up an irrational panic, and sound like a plausible solution. They do not have to have any truth behind them, they just have to stir emotions, not inspire thought.

When pondering actual motivations, remember to think big. The greater concept is that if thereís a pool of money thatís hard to get at, it takes creativity to drain it.

Starting with Reganís 1980-2 laws allowing it, a lot of good-ol-boy bankers began to give out a lot of huge loans to their buds. The game went on till the house of cards collapsed, because that money was never going to be returned. Rather than go after the responsible parties, which included his son Neil, George the first decided that we, the US taxpayers, should pay back all of those loans. While it was called a "bailout", an awful lot of S&L workers lost their jobs. The working class was screwed royally, and those in power got to keep all of the loot. The pool of money was the federal government, and the keys to the vault were given to the wheelers and dealers.

Now thereís the social security trust fund. Itís a gigantic insurance program, and itís run like one. It has extremely low overhead, doesnít have a great rate of return, and is backed by the US government. Itís a pool of money that until now, has not been plundered. Well, you canít just go in and take it. First redirect (part of) the flow of money - instead of going into the existing trust, put it into a pool that you can get into. Eventually the fund will run out because itís starved for funds, youíve already been siphoning off from the other pool, and now the federal government is on the hook for replenishing past siphoning. Fundamentally a similar scam as the 80s, but the stakes are much, much higher.

I would have loved to have paid into a self-managed account, rather than social security, all of my working life. I would have profited greatly from it, because I can manage the funds much more profitably than a low-yield insurance policy. But the Social Security Administration is not supposed to be about bestowing profit on a few. It's supposed to be about - well, social security.

Here are some quotes from last nightís speech meant to stir folk into a panic:

  • "The system, however, on its current path, is headed toward bankruptcy"
  • "the Social Security system has serious problems that will grow worse with time"
  • "By the year 2042, the entire system would be exhausted and bankrupt"
  • "only solutions would be drastically higher taxes, massive new borrowing, or sudden and severe cuts in Social Security benefits or other government programs"
  • "Social Security collapsing before they retire"

Mind you, the FACTS are not in dispute. If the SSA continued to receive money and pay out just as it does now, between now and ETERNITY the shortfall would be between $10-11 trillion. If there are no changes at all, something will have to give between 2042 and 2052, which could be an incremental reduction in benefits or increase in taxes. A minor change right now that would fix it for all eternity is to lessen (but not even remove) SS tax exemption for income over $90,000. A minor change right now that would fix it for all eternity is to repeal only about one quarter of Bushís tax breaks to the upper 1%.

And saying "the system would be exhausted and bankrupt" without following it immediately with "but only if the US government goes bankrupt and cannot pay its existing debt" is intentional misleading.

The state of the union address is supposed to be about the state of the union. Instead, the SS part of it was used as a sales pitch. The pitch is going to continue, the media will dutifully parrot it, and it will go on until a mechanism is put in place to drain the SSA into the pockets of the rich, or enough people stop believing the sales pitch that flies in the face of actual facts. Trying to look for reasoning in the details is falling for the distraction away from the big picture.

Yes, Iím on a rant, but this is my retirement that this snakeoil salesman wants to take, and I donít appreciate it.

Jeff's response

Gene hit most of my points. A quick summary though

  1. the plan is to replace the missing funds by additional borrowing, which middle-america will need to bear the brunt of
  2. getting people to invest in private funds takes all that money out of a government run funds which do not allow for private profits and puts all that money in the private investments which directly profits the deep pockets.
  3. Money money money
  4. Theyíre using a big social issue and the agreed-upon need to do something about it to seize upon an opportunity to makes lots of cash
  5. Back to top


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Last updated: 3 Apr 2006, 8:21 am