Wednesday, June 22, 2005

Democrats Vow to Oppose Any Social Security Privatization, No Matter How Minor

More details are coming out concerning the Social Security plan being released today by the House Ways and Means Committee. The bill is significantly different from what the President has been proposing.

Instead, the measure showcases a promise, designed to reassure seniors, that Social Security surplus funds will be used only to create individual accounts that differ sharply from Bush's approach.

Despite the differences from Bush's proposals, Democrats quickly attacked the legislation, which is emerging in different forms in the House and Senate.

Sen. Max Baucus, D-Mont., called it "a smaller version of a bad idea. That bad idea is private accounts."

"They can twist themselves into any pretzel shape they want," said Sen. Chuck Schumer, D-N.Y. "As long as privatization is on the table, there will be no compromise on Social Security."

Whatever its prospects, officials said it was possible the leadership would embrace the measure in the House, elevating it in stature above other proposals.

Until the details of the plan are available to the general public, it’s difficult to critique the bill. Nevertheless, it seems that this is an extremely watered down plan that fails to create sustainable private accounts or address the issue of solvency.

It is also abundantly clear that the Democrats are going to blindly oppose any form of privatization, no matter how minor. Do they really believe that a program developed sixty years ago in a completely different economic and social environment needs no real reform? Is the current Social Security system to be regarded as some great, unalterable truth, perfect for all time?

The more I’ve thought and studied on this the more I’ve come to support strongly the idea of some form of privatization. While many details need to be hashed out, the concept is a solid one and much better geared for the modern economy than the system now in place. Unfortunately, the Democrats have declined to even consider it and have instead spent their energy marshalling a prideful resistance. Sometimes I wonder if the Democrats are more concerned with preserving a dying legacy than ensuring we focus on the needs of the future.

From all indications, the best we can hope for this year is some small and generally ineffective version of private accounts. If nothing else, perhaps this will get the ball rolling and make it easier for a future President and Congress to create a real solution.

15 Comments:

At 4:57 PM, Blogger Craig said...

Actually there is a way to start a "private account" if you want one. It's called a IRA, you might want to check it out.

 
At 5:05 PM, Blogger Alan Stewart Carl said...

An IRA is on top of what I already have to pay for SS. In my 14 years of paying SS I've actually paid MORE into SS than I've been able to put in an IRA or 401k. Simply, paying SS makes it hard to save for retirement. Why can't I divert some of my SS into an IRA and agree to accept reduced or even no SS when I retire?

 
At 5:24 PM, Anonymous Anonymous said...

Social Security is an insurance policy, not an investment vehicle. As a seasoned (and sucessful) private investor I have to come to understand the neccessity of maintaining this important difference. Do not let the positive long term averages of return allow you to forget the fact that there have been significant blocks of time when equities returned losses in both short and mid-term time spans.
The lesson holds: Never invest money you are going to need in order to live.

 
At 5:27 PM, Anonymous Anonymous said...

Can't there be reform of Social Security that does'nt involve privitization?
Why do the wealthiest americans, who don't need SS anyway, get a break on the SS tax?
Would'nt privitization put SS money into the hands of rich people (investment bankers) who don't need it? (Greedy Bastards)

 
At 5:36 PM, Anonymous Anonymous said...

Anonymous #2 is just a plain old hippie. Wealth does not imply greed; just as being a hippie does not imply long hair and smelliness. SS money is money earned by the individual designed to be paid back to the individual in the future. All the while it's their money, let the working class have the money they earn.

 
At 5:53 PM, Anonymous Anonymous said...

To answer the question "Why do the wealthiest americans, who don't need SS anyway, get a break on the SS tax?"

The consider the fact that one "wealthy" person probably pays more SS tax than you, your family, and your friends combined. Is that fair?

 
At 6:05 PM, Anonymous Anonymous said...

"Sometimes I wonder if the Democrats are more concerned with preserving a dying legacy..."

They are. It's called America.

"...than ensuring we focus on the needs of the future."

They are looking towards the future. It's Republican policies that turn a blind eye and only look at the present.

flame on!

 
At 6:05 PM, Anonymous Anonymous said...

"Sometimes I wonder if the Democrats are more concerned with preserving a dying legacy..."

They are. It's called America.

"...than ensuring we focus on the needs of the future."

They are looking towards the future. It's Republican policies that turn a blind eye and only look at the present.

flame on!

 
At 9:22 PM, Blogger EG said...

'In my 14 years of paying SS I've actually paid MORE into SS than I've been able to put in an IRA or 401k.'

Doesn't your employer make any matching contributions to your 401(k)? Don't forget that portion and the accumulated interest on 14 years. You may have paid more into SS but if you are injured at work tomorrow, which one of these programs will give you disability payments for the rest of your life? That's right, SS.

'Can't there be reform of Social Security that does'nt involve privitization?'

Two quick and easy solutions that have been mentioned:

1. Change the retirement age from 67 to 69 years old.
2. Change the cap on SS income from $90K to some other number ($150, $200, and no cap have all been thrown out).

These two fixes solves most of the solvency problems we face.

'The consider the fact that one "wealthy" person probably pays more SS tax than you, your family, and your friends combined. Is that fair?'

Excuse me? SS or FICA tax is based on the first $90k of one's earnings. A person who income is $200K a year will pay $5625 (6 1/4% of the first $90K). His/her employer will match that amount. Take a couple, whose combie income is one half the total salary of the executive, $100K. These two people will together pay $6250. Their employers will pay the smae amount. Who paid more taxes, the $200K executive or the family of combined income of $100K?

I'm sure you're not suggesting payroll taxes either. If you went down your street and added up the salaries and taxes of ten homes, you would not match Bill Gates' income but you would probably surpass his tax payment.

 
At 9:35 PM, Blogger Alan Stewart Carl said...

EG--

I would say disability should be a separate issue than retirement payments when we're talking about reform.

And while raising the age and the cap could "fix" solvency for awhile it doesn't address my primary concern which is that I don't think the program, as designed, is what we need for the future. I think some form of privitization would be better for our future.

As for what my employer pays, I was actually considering employer contributions into the one 401k I've had. Ad for SS, I'm now self employed. I pay double in Social Security. It's called the Self Employment Tax. That's right, we penalize Americans who want to start their own businesses by making them pay 12% of their earnings into Social Security.

 
At 1:11 AM, Blogger Ted Carmichael said...

Alan ... from what I've read, I really like Sen. Lindsey Graham's proposal. IIRC, it raises the retirement age a bit and increases the taxable amount from 90k to 120k, to fund the private accounts (which is voluntary). In other words, it would be revenue-neutral, which is my biggest concern.

But I've also read recently - and I can look it up for you if you want - that the current system actually is working fine. The gist is, the SS commission uses very conservative data when determining when the trust fund will run out. (Currently, the trust fund has about $1.7 trillion dollars in government bonds.) That's why the year that the trust fund "runs out of money" keeps getting pushed back. In 1996, it was predicted to run out in 2030. In 2000, the bankrupt date was 2036. And today it is 2042.

In other words, thanks to the prudently conservative estimates by the SS commission, the year the trust fund runs out of money has moved back 12 years over the last nine.

Really, ever since I looked that up, I stopped worrying about Social Security.

BTW - I've read quotes from complainers about the UK version of private accounts ... they often hold up the American system as a model of effeciency! How weird is that??

 
At 7:06 AM, Blogger Alan Stewart Carl said...

Ted,

Really, all I'm looking for is a way to move some of my SS payments into a privte account and I'm more than willing to accept decreased payments in retirement. People keep saying it's an insurance program, which is fair, but MAN is it an expensive insurance program. I'd like to buy a little less of that insurance.

That's why it irritates me that almost all the congressional democrats are dead-set against any kind of private account. I don't see why it would be so dangerous.

As for when the current system goes bankrupt, who knows?!? Too many people have played politics with the numbers.

And, as for the Brits, they offered some private accounts under Thatcher but I believe those accounts were government regulated (as in there were only a few choices) and they have performed poorly so far. Their system would be good to review because there is some public disatisfaction with the plan.

 
At 8:46 AM, Anonymous Corey said...

The biggest problem I see with privitization is the fact that it would encourage politicans to meddle in the market. If a high percentage of the population had these private accounts, and the market went down during an election year, I don't want to think about the kind of stunts some pols would pull in order to make it look like they are helping us out. I want the pols to stay out of it and let the market takes its ups and downs as needed.

That being said, I would like the see the Dems actually counter the plans being put out by the GOP instead of just saying "No" all the time. There are ways to try to fix SS that do not involve private accounts.

 
At 12:49 AM, Blogger Ted Carmichael said...

Alan ... I mistakenly wrote "Social Security Commission" when I should have referred to the Social Security Board of Trustees. Their report - called the OASDI Trustees Report - can readily be found online.

I also mistakenly wrote that the trust fund is expected to run out in 2042 ... it's actually 2041.

Your right about people "playing politics with the numbers," but these particular numbers are generally thought to be solid, and all of the trustees' assumptions are stated in detail. Part of the confusion may be due to the fact that the SS tax will begin to take in less money than is paid out in benefits in 2017. (2017 is the year President Bush generally uses when talking about this issue.) But since - as I stated - the trust fund currently has $1.7 trillion in accumulated surpluses, it won't run out of money until (conservatively) 2041.

Now we could take that trust fund and create private accounts, or simply use it to buy some stocks instead of Treasury Bonds. Except ... buying Tresury Bonds is how the government "borrows" the money in the SS trust fund. If we cycle out that money - take it out of T-Bills - then interest rates in T-Bills will have to dramatically increase in order to attract replacement capital.

So ... not only would we have to borrow $1.7 trillion to replace what we now "owe" the trust fund, but we'd also have to spend more - due to higher interest rates - on our $7.8 trillion dollars of accumulated debt.

I know ... it's all very complicated. But basically, I would advocate very careful baby-steps, and a revenue-neutral plan.

 
At 1:06 AM, Blogger Alan Stewart Carl said...

Ted, first let me say, your comments are great. Very thoughtful. I hope you keep coming back and keep commenting.

As for SS, baby steps are the best way to go. Our deficit is too large as it is. I don;t support any plan that would significantly increase an already horrible problem.

I wonder what happens when we stop bringing in more money that we're paying out? We've been addicted to that surplus for a long time. When it's gone, do we raise taxes elsewhere? Interesting to think about.

 

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