Social Security

But Bush has not proposed abolishing social security. That's just what opponents of his plan want you to believe.

 

Then could you explain it a little further Pointbreak, because reading between the lines of all of the bipartisan mumbo jumbo isn't easy to grasp the concept. I'm just trying to break it down to what I and other average Americans can comprehend. From what I understand is that Bush would rather have us put our money into 401K's and 403B's and Roth Ira's and Traditional IRA's, etc and taking responsibility for our own retirement. Or a regular old savings account (which if you realize anything about rates of return, you would know that you won't be making shit at your banks savings account!) which I have no problem with like I said I have a 401K and a Roth IRA. I guess what I don't understand is why? Why now? Because there are more baby boomers retiring and soon to be retiring than people in the workforce right now? Well, why is that? And why is there no other way? And why do I keep hearing spoiled brats on tv at these young republican conventions saying that they don't want the burden of paying for their grandparents or parents. FUCKIN BURDEN! What do these kids think it was all fun and games dealing with the burden of a spoiled brat? All I'm saying is that in American society we do not value the elderly or their wisdom and we treat them as expendable, and I don't like it. Other cultures take care of the elderly, close by and family really is important to them, not just on the surface when it is convenient for votes.

 

Hi Cute havn't heard from you for some time hows things?

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I just know Point is going to call me a Guardianista for posting this put I thought it might be of interests.

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No free lunches for pensioners

Bush's deceptive plans for the US social security system show why privatisation is not the answer to the global pensions crisis

Joseph Stiglitz
Tuesday April 19, 2005
The Guardian

It is almost an optical illusion: looming on Japan's horizon, and on Europe's and on America's, is a pensions crisis. The problem is real, though exaggerated. The illusion is in some of the plans being devised to deal with it.
The main question is whether privatising pension systems, as George Bush has proposed for social security in the United States, would solve the problem or merely make matters worse. With many countries pondering whether to adopt variants of the Bush plan, the question requires careful examination.
By itself, privatisation is clearly not the solution. America's troubled private pension system - now several hundred billion dollars in debt - already appears to be heading for a government bail-out. There was a time when privatisation - allowing individuals to set up individual savings accounts - seemed better than social security, which invests in lower-yielding Treasury bills (government bonds). Advocates of privatisation argued that funds would do much better if invested in stocks, predicting a return of 9%.
But the stock market does not guarantee returns; it does not even guarantee that the stock values will keep up with inflation - and there have been periods in which they have not. America's social security system insulates individuals against the vagaries of the market and inflation, providing a form of insurance that the private market does not offer.
It does so with remarkable efficiency. The costs of managing the social security system are far smaller than those likely to be associated with privatised accounts. This is understandable: private investment firms spend an enormous amount on marketing and salaries.
It is possible that to reduce these transaction costs, Bush will propose restricting choice, which was the main argument for privatisation in the first place. But these limited kinds of choices - for example, a T-bill fund with 90% in T-bills and 10% in an indexed stock fund - could easily be introduced into the public social security system.
Bush says that reform is urgently needed, because the system will be insolvent in about a quarter of a century. But the problem depends on America's growth rate: if the growth rates of the late 1990s return, there is no problem. Even if there is a problem, it can easily be fixed: spending a fraction of the money that went into Bush's two tax cuts would have fixed social security for 75 years; slight benefit cuts, adjusting the age of retirement, or minor adjustments in the level of contributions could fix the system permanently.
Moreover, Bush's proposals won't fix social security - unless they are accompanied by drastic benefit cuts. For how could they? He proposes diverting almost a third of the social security tax to private accounts. That means less money coming in. If benefits are not reduced, the gap between receipts and expenditures will increase. One doesn't need a Nobel prize to figure that out.
So privatisation would not protect retirees against the social security system's insolvency; it would merely add enormously to today's fiscal deficit, because partial privatisation entails diverting money to private funds that would have been used to close the gap between government expenditures and revenue.
The anticipated increase in the fiscal deficit is striking. The central plan discussed by Bush's council of economic advisers would - according to the council's own estimates - increase America's fiscal deficit by $2 trillion over the next decade. Advocates of privatisation claim to believe in markets, but they are proposing budget gimmickry that would move those losses off the books, as if markets could be easily fooled.
America and the world should remember: Argentina's privatisation of its pension system was at the centre of its recent fiscal woes. Had Argentina not privatised, its budget would have been roughly in balance. The US is starting on its privatisation venture with a fiscal deficit of 4% of GDP.
Privatisation advocates insist, however, that investments in stocks would yield sufficiently higher returns to give individuals the same retirement income as before, with the surplus used to fill the gap. But if markets are working well, then returns will be higher only because risk is higher. There is still no free lunch in economics.
With higher risk, there is a chance that, 40 years from now, many individuals will find themselves with less than they need to retire. But if one really thinks that free lunches exist, there is still no reason to privatise: the government could get the additional returns by investing in the stock market itself. Indeed, President Clinton proposed doing just that.
With increased transaction costs, worsening solvency for the system, increased budget deficits and decreasing benefits and security for retirees, why the drive for privatisation? One reason is the interest financial markets have in grabbing a piece of all those transaction costs. A second is the Bush administration's ideological hostility to the modest amount of wealth redistribution implied by the public system. America's social security programme has been so successful in reducing poverty because the poor get back a little more than they contribute, and the rich get back a little less.
Even with social security's mildly redistributive effect, poverty and inequality in America are increasing. Privatisation will only make matters worse.
Bush has tried to scare America about the magnitude of the problem, and he has tried to fool America about how privatisation would solve it. The social security deficit pales by comparison with the deficits created by Bush's huge tax cuts for upper-income Americans or in comparison with the deficit in Medicare, which provides healthcare for the aged. Why has he ignored these problems? Is there another agenda?
· Joseph Stiglitz is professor of economics at Columbia University and a Nobel prize winner

 

Whether or not it's actually their fault, it's certainly NOT the government's fault. Social security isn't a "safety net" for people who have met with economic hardship. The way social security is set up now, people are paid for being old. Period. It doesn't matter how much they have saved, whether or not they've been responsible with their money, etc. They get paid once they reach a certain age.

Furthermore, social security is a pyramid scheme, plain and simple. If any private company structured a retirement program the way social security is structured, the CEO would quickly find himself in prison.

This is hardly relevant to the social security debate. No one wants to end it because they want old people to suffer; it simply is not economically sustainable.

Awfully hostile tone coming from someone who claims sympathy for the elderly who have mismanaged their money...

You can say thank you in other ways, which don't involve forcing taxpayers to pay for a pyramid scheme.

You're absolutely right that the program can be salvaged! But the best way to do that is to privatize it. I think many opponents of social security privatization have some misconceptions about it. If the system is privatized, the elderly won't just suddenly stop receiving benefits. If the Republicans get their way, we'll probably rack up even bigger deficits but the government will continue to pay out social security benefits to those who have paid into the system.

 

I agree, it is confusing, and lots of people on both sides of the debate want it that way.

Yes, he wants us to have the option of putting SOME money in accounts similar to 401k's. Basically, right now you have payroll taxes deducted from your salary or wages. Under the new system, while keeping the level of payroll tax the same, you can choose to have some of these taxes go to a 401k, although in return you'll have to accept lower social security payments in the future. Depending on your investment returns, your 401K probably would end up providing you with more income than you would have otherwise received from social security.

One important myth to dispel is that there is a social security system. There is no system to social security. All that happens is the government pays people benefits from general tax revenue. That's it, same as paying for highways, schools, the military, whatever. The myth is that there are special taxes for social security, that there is a "trust fund", and that it is "solvent". All of this is meaningless.

I think a privatised system is simply better than a state run system at all times and under pretty much all circumstances. So to me, timing doesn't matter.

But the reason it is happening now is that social security costs are rising and will eventually create major budget problems IF taxes aren't raised or other spending isn't cut. And yes, ONE problem is that the ratio of retirees to taxpayers is going to increase. That's just demographics, its happening in lots of countries, and nothing we can change other than by convincing peope to have lots of babies and letting in a lot more immigrants. It doesn't mean we couldn't carry on without doing anything, but it does mean the tax burden would eventually increase a lot.

The other problem is that social security payments are linked to wages, not inflation. Wages increase faster than inflation so we are guaranteeing that future retirees retire with constantly increasing standards of living. This is expensive. Bush is saying that we should either increase social security payments only by inflation or somewhere between inflation and wages - a change which has nothing to do with "privatisation". When people claim Bush wants to "cut" social security benefits, that is only true in the sense that he wants to cut the rate of increase of social security benefits. This alone, even with no privatisation, would make a massive difference in the sustainability of the current system.

The problem with social security, and what Bush is trying to fix, is that social security benefits start at a minimum level and scale up from there depending on how much you earned (and therefore paid in taxes) over your lifetime. But how does that make sense? The minimum should be the amount you NEED to get by. By definition everything else is above the minimum and therefore not necessary. So while it makes sense to GUARANTEE a minimum, what is the sense of taxing people to give them back benefits they don't really need? Wouldn't it be better if we taxed the minimum, paid the minimum, and then let people CHOOSE to save and invest more if they wanted to retire more comfortably? i.e. if you have a guaranteed income of $20,000 a year from social security (which you consider adequate to live on) and the government says "i'm going to tax you another dollar and guarantee you another $1.10 on top of your $20,000 when you retire", you would say "No, i can invest it myself and almost certainly get $1.15 when I retire, and even if I'm wrong and get only $0.90 back, I've still got my $20,000 so the risk is OK with me".

They are going to be disappointed because they will still be paying to guarantee a minimum for everybody.

 

Ummm yeah, would you rather see them work until they die? Is that what you suggest instead of just supporting them for a little while? In addition, who said the elderly have mismanaged their money? Just because they don't have much to live off of, doesn't mean they ran out and gambled it all away, they were probably paying for their spoiled grandchildren with the crazy notion that they might be taken care of one day. Or the money they made back then doesn't get anywhere today. As far as being hostile, you haven't seen hostile yet, but I was only pointing out that yes, I do have a 401K and I wasn't using the cop out that many use by saying they can't afford it. I'm not barking up that tree, and I didn't want anyone to suggest I was. I just don't have a problem sharing my money with the elderly that was my point. Just like I don't have a problem paying my fair share of taxes with hopes that the money will go somewhere that will benefit the country and that everyone is paying a fair share (yeah I'm delusional I know). I don't understand why so many other people can't grasp this concept of sharing and taking care of people who can't take care of themselves (meaning the elderly). Like I said if you respected the elderly and their wisdom you wouldn't have a problem with paying people for being old and shaping this nation into what it is. (whether you like it or not). And the fact that people will not take care of the elderly is exactly why we have social security. Get it SOCIAL:relating to human society and its members SECURITY:freedom from anxiety or fear. And I never said or even thought for one moment that by changing Social Security the way that Bush wants to now, is going to cut off benefits for the elderly right this minute. Where did I say that? I know you don't know me, but here is a quick run down, don't put words into my mouth, got it. I didn't say that he wants to take money away from all of the elderly that are out there now, for he can't or there would be a lot of pissed off old people I know better than that, so don't insult my intelligence. What he is doing however is talking to a lot of younger people such as myself and I am presuming you, and convincing them that they are not entitled to this any longer and that we all have to be responsible little adults and look out for our own future because no one is going to. He is making excuses for fucking up and then telling us we should be the ones responsible for it. This is easy, everyone takes care of himself, instead of sitting down and figuring things out. He doesn't have a clue, and he is listening to people who are not after the best interests of the citizens of this country, but rather the best interest of keeping the poor poorer and the rich richer.



And as far as economically sustainable goes, we could afford all of that money to go to war, really? Hmmm where did it come from again? Oh so, we could find money to kill and steal, but not take care of the elderly. I wonder where the priorities of this country lie. That was my point entirely.

 

Thanks Balbus and Pointbreak, I know I've asked you guys to clarify some of this stuff for me before. I'm getting the hang of it a little more. Still got my opinions though... hehehe.

 

I'd rather they plan their retirement with a private plan that's economically sustainable, rather than the government's pyramid scheme which will eventually go bankrupt no matter what.

You did. You said "Give up happy hour and plan for your future" or something to that effect.

As I said before, it's a common misconception that social security is a "safety net" for people who can't take care of themselves. It's merely a system where the young (regardless of their income) pay for the old (regardless of their income). Social security has nothing to do with helping the downtrodden.

It will also become an unbearable burden on taxpayers in the future, due to simple demographics. American society is getting older and older, and that's very unlikely to change. By 2050, every two-income family will have their own elderly person to care for...even though that person may be better off than they are.

Well, it's not just George Bush who has "fucked up" social security. Every President and Congress since FDR has been simply horrible at dealing with it. That's the nature of politics, and it's not to be ignored when discussing privatization. Rather than saying he's "making excuses" for the government's failure, why not say that he RECOGNIZES the government's failure to deal with this matter over the last 70 years, and is trying to solve the problem?

Listen to yourself. You say that like it's a BAD thing that everyone takes care of himself instead of having the government telling him how to live. What makes you think that individuals are less capable of managing their finances than the government (which is merely a bureaucracy of individuals)? If it's as easy as you say for the government to "sit down and figure out" the problems of 280 million people, what makes it so difficult for individuals to "sit down and figure out" their own problems?

Usually the onset of meaningless populist slogans means that you've run out of useful arguments...

Privatizing social security has nothing to do with wanting to keep the poor poor. It has to do with releasing taxpayers from a needless burden, or at least investing the money in a more worthwhile program.

What? When did I even mention war in this thread? Where on earth did you get the impression that I thought this? Your post started out with perfectly reasonable questions and criticisms, but quickly descended into emotional arguments with little basis in reason...

 

I'd like a privatized Soc Sec account.

Be it Iraq or whatever the goverment will just spend it.
There is always sone excuse.
War spending is a diversion from the real issues.
My Soc Sec was spent before Bush came to Washington.

It comes down to : Who do you trust less, The Gov or Wall St.

 

That is funny both Balbus and Pointbreak who have two very differing opinions on the topic found that my questions were quite valid and that I am a very reasonable person. Must be your problem because they didn't start talking to me like I'm an idiot, they took my questions for what they were and answered them. Apparently, you have misunderstood what I was saying in more places than one. First of all, I already explained the happy hour comment, maybe if you go back and re-read my posts again you will understand. I was not speaking of the elderly going to happy hour. Try slowing down this time and actually reading rather than having an opinion about me already formed. Its more helpful when trying to understand. If in fact you are trying to understand my point, rather than just being condescending and telling me how many misconceptions I have.

Now, on to other matters I completely comprehend that it is a system for the young to pay for the old. Again I ask you what is so wrong with that? And I still don't see how it is a burden, can you explain that further, please. I have SS taken out of my paycheck and I can still afford to eat. If I couldn't I'd get another job, which would also have SS taken out of my check. So I'm not sure I do understand this burden. And if the elderly person that I have to take care of is "better off" than I am, why wouldn't I just use their money? I mean I already know that we are going to be taking care of Jer's parents because his brothers and sister are selfish and hateful and don't want to be bothered where as we both know that there is no way we could let them just die in a home. They are flat broke, actually, their kids pay their bills as it is. But just for arguement's sake here, let us say they are stinkin rich. Why would I have to take care of them with my money then? But say we are both broke (as it is) at least they will have SS to help a little bit. Now I love my in laws a lot, but they are not exactly savy when it comes to saving money and they didn't plan for a retirement, like a lot of people their age nor did they plan to get very ill at such a young age of 50. And you are correct, Bush is not the only one to blame, and I do give him credit for attempting a plan, but I don't believe that this plan has my best interest at heart. And I did not say that I wanted the governement to tell people how to live, however when they promise something they should be able to provide it. If people put their money in these private accounts, they might not have anything to retire on! And obviously people can't manage their own accounts or we wouldn't be having this discussion at all. And I have not run out of useful arguements, I am full of opinions, however I came here with legitimate questions and to share what I think with the hopes of having someone help me. You on the other hand obviously came here on your high horse looking for someone to argue with and put down. Yippee. Feel better now? Its all good though, I've delt with worse than you here, I've been here a very long time. And I don't have any emotions when it comes to this place, I've learned that a long time ago. and btw, I didn't say that you said anything about a war. I was asking a question. If there is money for war, why is there not enough money for social security, or healthcare or education or food for the hungry. Just curious.

 

Nor did I. I pointed out the places where your emotion got the better of your reason, but I never once implied you're an idiot.

For one thing, it's completely arbitrary. You may as well establish a system for accountants to pay doctors, or dog-owners to pay cat-owners, or Mormons to pay Scientologists. It has nothing to do with wealth redistribution toward the poor, it's just wealth redistribution toward an arbitrary group of people.

It's a burden because it costs taxpayers money, it's as simple as that. Whether or not you personally feel the pinch of this burden is irrelevant.

That's a very good question. I suggest you ask the reactionairies in Congress who are against reforming social security, because that's exactly what you're doing under the current system.

I've always been of the school of thought that whether or not a politician has the people's best interests at heart is of secondary importance. What is most important is the policy itself and the implementation.

I agree. As I've said, social security benefits would not necessarily have to stop once the system was privatized.

The same can be said of the government's retirement program. The way it is structured, it will go bankrupt eventually no matter what. It almost certainly will not outlive today's young people.

I've answered most of your questions in a relatively emotionless tone, so if you think I'm "putting you down" it's only in your imagination.

Your last two sentences still imply that I've stated I thought there was money for a war. I don't think you'll find anything I've written if you scour these forums that would imply such, but regardless it isn't relevant to the social security debate.

 

CLDB, one thing to remember is that part of the money coming out of your paycheck is paying for other people's retirement, but the rest is to pay for your retirement (although the money is not actually set aside for that, that's the "agreement" - you pay now, someone else will pay for you later).

So the government is taxing you now and promising to pay you back your own money later. Beyong the minimum level, which I described earlier, what's the point of that? Why can't you keep your own money, save and invest it yourself, and then use it to fund your own retirement? That's all the Bush plan is doing - giving you that choice.

This is not about being unwilling to "share" with other people. There would still be a social security system, and it would still provide a minimum income for all.

 

Ok Point

Say someone takes their money out of the government scheme and doesn’t set aside provision? He or she then hits old age do we then cull them or does those that paid into the government have to fork out?

What if they invest in stokes and share but through no fault of their own (corruption or stock market crash) they find themselves without provision? Do we then cull them or do those that paid into the government have to fork out?

 

Please read my posts rather than ask questions which have already been specifically addressed.

Everyone is guaranteed a minimum which they cannot lose. Private investments are a supplement to a guaranteed minimum. Furthermore, nobody has a choice not to set the money aside for investment. They never see the money, it is taxed from them and then directed to designated investment accounts.

It would be virtually impossible to lose all your investment money. Your investment choices would be restricted to well diversified funds, and the odds of losing all your money in a well diversified fund over a long period of time are about the same as the odds of the economy completely collapsing into ruin, in which case you can forget your government provided benefits too.

 

Oh you know me Point I like to get into the hypotheticals

So everyone gets this minimum.

So how much control do you have of where the money is invested?

If not who controls the portfolio?

 

You pick from a government approved list of funds which will probably charge government approved levels of fees.

 

How many times do I have to tell you that I never said anything about what you thought about money and war. For god's sake can't you read! I was ASKING A QUESTION, a rhetorical one at that! Your name did not appear in my question. And I do feel that it is relevant, because that money could have been used for other things like Social Security. See. And like I said I don't put emotions into these posts except perhaps sarcasm, can't help that I'm a smart ass. What you perceive what I'm feeling, well that is all up to you. I've been here long enough not to give a shit, thought you would have figured that out by now. And there are a lot of things that cost taxpayers money. I happen to think some are more important than others. And Social Security is a more worthwhile cause in my opinion than many other programs (including war, and no I am still not implying that you condone war, or whatever you thought I was saying). I wasn't speaking of just my personal burden either, I was saying that paying taxes shouldn't be looked at as a burden. Course there are tons of people who will disagree, but I'm just trying to convey that I don't have a problem with paying my fair share. And I don't think that it is completely arbitrary, I mean everyone is going to age, or die. Those are the options, no matter how much we attempt to delude ourselves. That isn't exactly the same as a cat owner paying a dog owner or what have you. A cat owner isn't necessarily going to one day own a dog, but I know for a fact that we are all either going to age or die. Policy is of course important, but not if it only benefits a select few. The point of representing the citizens of this country is to actually represent what we want. Of course I'm not naive enough to believe that will ever happen, but one can hope can't they? And don't worry I write and write and write to my representatives constantly. I'm surprised they haven't just made a label to send me back all of those silly thanks for your opinion, but I'm in charge letters. I guess I'm just looking at the whole thing from the point of view of do unto others type of idea. Does that help to clarify what I'm saying? In any event, don't get your undies in a bunch over me. I mean no harm.

 

So what you are saying is why let the government make money off of my money via interest or in this case gains from stocks, bonds, etc? Like all taxes, right? So, I still don't understand what the point of putting it into private anything if you are still going to get the minimum. So you can make more money (maybe)? I think I understand what you are saying and I am forever grateful that you explained it the way that you did, but I'm still not so sure its the best thing. Guess I have to learn more about it.

 

LOL Aha so the government still makes out like a bandit? I have no idea, but that part sounds shady. It also sounds like more work for everyone, so is this going to create more government jobs? Just so I get this straight, the government isn't coming up with this plan out of the goodness of their heart, they are getting something out of it too? Right?

 

No, I just didn't explain it too well.


In the current system, the more you earn, the more payroll taxes you pay, and the more social security you get. The money you pay in payroll taxes is not invested or saved by the government, it is just spent. When you retire, somebody else's taxes are spent on your social security checks.

So that's fine. But what we could do is calculate approximately what hypothetical "return on investment" you get from your payroll taxes. I.e. how much taxes you expect to pay over your lifetime and how much social security you expect to get when you retire. It turns out that the return is pretty bad, much lower than you would expect to get from even a conservative investment portfolio over a similarly long investment time frame. So if you had invested that money instead of paying it in taxes, you would have retired with more money.

So the theory is that it would be better if everyone pays only enough taxes to guarantee a minimum social security income - say $20,000 a year - and then instead of paying MORE taxes in return for promises of more social security income (like the system currently does as your earnings increase) you should be able to have the option of saying "OK I want to stick with the $20,000 guaranteed minimum and instead of paying more taxes in return for more social security (at the lousy hypothetical return on investment for my tax dollars I suggested above), I want to not pay those taxes and instead invest that money in my own private account, where I will earn a better rate of return. I.e. in the end instead of paying taxes and getting a 2% return in the form of social security payments, get a 5% return in the form of investment income.

The idea is that once you have a guaranteed minimum, you are in the position to handle the higher risks of investing, so you should at least have that choice.

In practice, what this would mean is that you would pay payroll tax on income up to a certain level, say $25,000. After that, you would have the option of saying, i don't want to pay payroll taxes on my income above $25,000, I want that money to instead go into my 401k. So you would never actually see the money until you retire (the government wants to make sure you save it instead of spending in on a new SUV) and the government would restrict where you can invest it (so you don't put it all in internet stocks) but other than that it would be the same as a 401k - its your money, you invest it how you want with mutual fund companies (Fidelity, Vanguard, whoever).

So the people who chose NOT to divert this money to 401k's and instead kept paying taxes on their income above $25,000 would in return get higher social security payment at retirement, BUT on the other hand you would instead have this big pot of 401k money which you expect would end up being worth more than higher social security payments because your expected rate of return would be higher.

i hope i am not making this more complicated...