Centerfield

I suspect most professional/managerial people won't be relying on Social Security but on some combination of 401 Ks and private savings. SS will be a supplement as it was originally intended. The problem is for lower-income people who don't have access to retirement accounts and/or the ability to save. These are the people that will be hurt.

As for whether it is outrageous, that depends on your view of society's responsibility. I don't think we have a responsibility to keep people in caviar and wine, but I think we want something more than bare minimum existence. I remember probably a decade ago or so, there were numerous stories about senior citizens eating cat food and the like. My impression is that seniors are generally no longer in such dire straights, but I don't think we want to have them living lives of genteel poverty.

So I guess part of my issue with Social Security is broader than just old people, but is entwined with what we consider our responsibility to lower-income citizens generally.

Posted by: MWS at January 4, 2005 03:02 PM

If private accounts become a reality there will be less seniors living in poverty, not more.

This one is pretty clear IMHO. With the creation of private accounts, changing the index makes sense because there is a high probability that the difference will be made up and in most cases it will be passed. Without private accounts retirees changing the index would mean that retirees are going to get screwed.

MWS brings up a good point about lower income individuals. The answer is clear to me on this one also. We should expect subsidization to an extent of social security accounts for those who need it. The fear here of course is how do you do define that. I think any plan should include some honest to god, sensible means testing. Bill Gates should not get a dime of subsidized retirement other than what he pays into into it from his own payroll tax, but at the same time I think it is right that your average, lower income, working single mother should expect help from her government to supplement what she pays into her account.

Posted by: Mathew at January 4, 2005 03:53 PM

"This may be my future, and yours too. I find it troubling, but not outrageous. What do you think?"

Rick,

I think I'd like to do business with you someday and sell you $100 worth of product for $1,000. And even after you found out you wouldn't be mad or even think it was outrageous. You'd be the perfect customer.

Concerning SS, because of the last SS reform, we the taxpayers, had our taxes raised to cover the cost of our larger generations retirement needs.

We did not take retribution on our representatives because this was a fair reform. The money is in treausury bonds and is sufficient to fund SS for the next 30 years.

Unfortunately, the government has borrowed the money and through you tax and spend centrists are trying to figure out how not to pay it back.

That is indeed an outrage, but still, I'm looking forward to doing business with you

Posted by: john at January 4, 2005 09:10 PM

John,

Your comment is not helpful, being a combination of mockery and name-calling. I don't know what you mean by "tax and spend centrists." We centrists are pretty much the biggest deficit hawks around, and do not favor borrowing from the Social Security Trust Fund.

I'm unable at this point to determine the overall fairness of Soc Sec for my generation. I receive an annual social security statement from the social security administration. It lists all my earnings since I started working, takes my last year's earnings and assumes I will keep earning that amount until I retire, and then provides me with a payout. If I were to type those figures into a spreadsheet, I could see what the imputed return is, and how long I'd have to live as a retiree in order to break-even. That would give me some sense of how "fair" it is.

It would be interesting if someone would come up with a spreadsheet showing exactly what this change would do to retirees in each specific retirement cohort. I'll turn 65 in 2024.

Posted by: rickheller at January 4, 2005 11:10 PM

I suspect this feature of it represents where the rubber meets the road on this issue -- we're in a tight fiscal situation, so this type of reform that requires big startup costs is very difficult to manage. The president will not want to even modestly increase the payroll tax to pay for it, and thus we're ultimately looking at benefit cuts.

I also suspect this is a real turning point for us as a nation. If we don't create private market accounts now, we never will, because we won't be able to manage it once the baby boom retirements begin.

I suspect this change would represent a major shift in American society -- and one for the better. It's quite possible that 30 or 40 years from now we would have a much broader ownership society and more substantial resources for folks in their retirement, including, as Mathew suggests, those at the lower end of the economic ladder.

I also think the major objection to this raised by opponents is odd. The claim is made over and over that such a system would introduce huge risks, and that people's retirements might be ruined by a downturn in the market. The reality is that the current system saves nothing for anyone's retirement. It provides no resources for it. That's fundamentally more dangerous than a system that saves, even if you suppose the investments might decline at some point. A 50% decline in something is worth more than 100% of nothing.

There are also versions of this that do a nice job of providing a basic benefit floor. Check out the Kolbe-Stenholm plan.

Posted by: William Swann at January 5, 2005 08:10 AM

John,

I am not as pleasant as Rick is... Your comments are similiar to the ideoligical crap that is often spewed by right wing zealots in the Republican House... Much on the name calling and rhetoric, little on substance. These are the same right wing zealots that borrowed the money you speak of, under a tax-cutting conservative Republican President, and increased government spending more in one year since FDR. The liberals went a long with much of this, but I think it was the centrists that said "hell no."

Since when was a Government program fair to the taxpayers? BTW, I hate it when those who speak of we the taxpayers act as if they are speaking for all of us. Should we abolish Medicare, Welfare, and Education or should we accept that one roll of government is to take money from those who need it less and provide programs to those who need them and strive to provide those program in the most efficient way possible? If there is anything Social Security shouldn't become it is a system that only benefits certain Americans while those who can't afford it get left out in the cold. There has to be a safety net, probably provided by the taxpayers that takes care of lower income individuals even under a partially privatized system.

Posted by: Mathew at January 5, 2005 08:43 AM

"I also think the major objection to this raised by opponents is odd. The claim is made over and over that such a system would introduce huge risks, and that people's retirements might be ruined by a downturn in the market. The reality is that the current system saves nothing for anyone's retirement. It provides no resources for it. That's fundamentally more dangerous than a system that saves, even if you suppose the investments might decline at some point. A 50% decline in something is worth more than 100% of nothing."

Bill,

I don't really understand what you are getting at. Currently, anyone who works is guaranteed some amount of money once he or she reaches retirement age. So I don't really understand the argument that SS saves no resources. It's true, I suppose, that under the current system, it's more of a promise by government to pay than anything else, but given the political consequences of defaulting, I think that's pretty safe. Private accounts, on the other hand, would require at least some degree of investment savvy on the part of recipients and I suspect there are a lot more people than you think that don't have this savvy. It's true that, over the long run, the stock market does well and that most people who have their money in the market will be ok, but for people whose entire livelihood might depend on the vagaries of the market, I'm not so sure this would be a good tradeoff unless there was some sort of government-guaranteed income baseline under which people couldn't fall.

I'm not necessarily opposed to private accounts, but there has to be a safety net built in IMO.

Posted by: MWS at January 5, 2005 10:34 AM

Currently, anyone who works is guaranteed some amount of money once he or she reaches retirement age. So I don't really understand the argument that SS saves no resources. It's true, I suppose, that under the current system, it's more of a promise by government to pay than anything else, but given the political consequences of defaulting, I think that's pretty safe.

It's only "safe" if the government has sufficient resources to pay the benefits. We're currently not saving any of those resources -- the surplus in payments we receive every year. And we're running up big deficits in the general account, which means we're not preparing for the possibility of borrowing the money down the road.

I say a pay-as-you-go system is fundamentally less secure than any system that saves and invests. Pay-as-you-go relies entirely on the health of our future economy and the demographic balance between contributors to the system and retirees. It involves an assumption that the future economy will produce enough revenues to pay all the benefits we promise to retirees. It's a promise without any corresponding fiscal discipline. We make the promise, but we don't save anything or reduce our debt in a way that makes us able to meet that promise.

I think it's more secure to run a partially invested system, and those invested funds are more likely stay put if some taxpayer's name is on the account.

It's true that, over the long run, the stock market does well and that most people who have their money in the market will be ok, but for people whose entire livelihood might depend on the vagaries of the market, I'm not so sure this would be a good tradeoff unless there was some sort of government-guaranteed income baseline under which people couldn't fall.

I agree. And this is why the specifics of the plan are so important. Some have this kind of guarantee. And it's important (and difficult) to make a smooth transition between our current system and one that actually saves. The devil is very much in the details.

Posted by: William Swann at January 5, 2005 11:59 AM

I think maybe you guys are talking at each other a little bit. It's true both that none of the surplus taxes currently collected are set aside and that investment entails risk.

There is additional security in setting aside actual assets, compared to the current pay-go system. But that money doesn't necessarily need to be invested to be a more financial prudent system than not setting it aside.

There definitely is risk in investment. And the more any SS reform relies on private accounts that vary from person to person as well as over time, the more exposure to risk there is to each individual.

My sense is that while many people want to grow the availability of assets by investing, most people at or below the median prefer a system where you get a minimum monthly guarantee regardless of how long you live. It's the people at higher income levels that are not especially worried about setting aside sufficient assets to finance an extra long retirement. These people would simply rather have an additional 6.2% of their income to invest.

I'm still hoping someone can come up with some figures to explore the break-even point idea.

IMO, most people who want the private investment component want it so that they will have more money available when retirement comes. the first specific Bush has floated is clearly one that means you'll less assets available that you would have available under current promises, leaving aside the nature of supplemental income streams (like an additional private SS investment account of your very own).

Posted by: bk at January 5, 2005 01:12 PM

William:

I think you can also compare the U.S. as a nation and an economy to the idea of "saving". Yes, currently it looks like we may have trouble keeping our "promise" to pay all of the SS benefits, if you believe in the worst case scenarios. The Washington Post ran a nice article yesterday that presented a likely scenario of 10% benefit cuts 20 years from now based on switching to the CPI growth model. It also mentioned the probability that the personal savings accounts would make up for that shortfall. This hardly represents "nothing". Nor does the current and past benefits that have been collected by 10s of millions of people.

OTOH, the U.S. has been around for a long time and has no history of defaulting on its obligations, while lots of people have lost lots of money in the markets. A prudent person may put more faith in the nation's future chances than those of Wall Street.

Of course, perhaps you're one of those that call SS a "ponzi scheme", which it isn't. If that's the case, this may be the wrong forum for you.

Posted by: tim at January 5, 2005 01:29 PM

Matthew,

I need you to explain the statement "If private accounts become a reality there will be less seniors living in poverty, not more.

This one is pretty clear IMHO. With the creation of private accounts, changing the index makes sense because there is a high probability that the difference will be made up and in most cases it will be passed. Without private accounts retirees changing the index would mean that retirees are going to get screwed." Given that the data show that on average the annaual return of the average private investor in America is less than 2.5% (according to The Economist magazine, a publication of the UK that has no vested interest in the results of Social Security legislation in the US), not enough to keep up with inflation, much less create a retirement account that creates "less poverty" according to your assertion.

What data are you basing your assertion upon?

Posted by: Jack at January 5, 2005 03:08 PM

OTOH, the U.S. has been around for a long time and has no history of defaulting on its obligations, while lots of people have lost lots of money in the markets. A prudent person may put more faith in the nation's future chances than those of Wall Street.

I think you're drawing a false comparison.

The first option (the current system) clearly relies on future government revenues (and the government's ability to borrow) to pay the benefits we have already been promised.

The second option, however, does not toss all that money into the stock market and leave people where they may. The plans usually involve moving a modest portion of the payroll tax (2% to 3%) into private accounts. The rest of the tax goes toward the traditional system.

More importantly, reform plans often include a floor -- a basic, guaranteed benefit like the one in the Kolbe-Stenholm plan. It's unlikely a plan without such a feature will pass (nor should it).

The comparison would then be between (a) a system that relies on future tax funds (and borrowing) to pay benefits, and (b) a system that saves current funds in private market accounts, but guarantees a minimum benefit.

In both scenarios, the government has an obligation. In the second scenario, it is more likely to meet that obligation because some funds have been saved over the years in accounts. It only needs to come up with the difference between the account and the promised benefits.

It's hard for me to get away from the sense that a system that starts to save part of the payroll tax is more stable than one that doesn't.

There is also, of course, the possibility that these accounts will succeed as much or more than we expect and end up substantially outsripping the Social Security benefit we've all been promised. That's particularly likely for younger workers. There's a real possibility that in a few decades this system will be a real wealth-builder and offer a much more comfortable retirement for the next generation.

Posted by: William Swann at January 5, 2005 03:51 PM

Just to clarify, when William talks about a "modest portion" of the existing tax, and says 2 to 3%, what he's actually referring to is the percent of income taxed, NOT the percent of dollars collected that gets siphoned off. The SS tax is just over 6% of income. The "2 to 3%" I've heard bandied about represents somewhere on the order of 1/3 to 1/2 of the money that gets collected. Whether or not that's modest is a subjective judgement. I just want to be be clear that if we siphon 1/3 to 1/2 of collected SS dollars into accounts, that's a pretty substantial change, regardless of its merits.

Jack, it feels very fair to me that you point out that ordinary Americans get low returns on average. If that's the way it has been, we should look the data in the eye. However, it seems to me that this info could be taken into account by constraining the nature of one's available SS investment options. I don't think this info is an argument against integrating investment accounts into SS. I think's it's an argument against total freedom of investment with these accounts. Many have mentioned TiAA-CREFF as a conceivable model. In other words, you could have money in an investment account, but your options for investment would be limited to lower risk investments. Some portion would be in bonds ands securities, and maybe there'd be some diversified fund options. No individual stock picking, derivatives, futures options, etc.

Posted by: bk at January 5, 2005 04:16 PM

Jack,

That is because the average American isn't investing wisely, it has nothing to do with the security of the Stock Market. Those who invest in 401K plans or something that is more or less handled for them, actually do quite well with their investments. An example would be the Federal Employee Thrift Savings Plan where employees have the option in investing in a number of stock plans ranging from really conservative to really liberal. In the moderate plans investors saw gains from 6 to 10% over the last ten years which included the downturns due to the recessions in the early nineties and after September 11th. It is not that shocking actually that a publication from a socialist country would provide such a misleading statistic on private individual American investments.

This brings us to another issue that must be addressed in any reform package. This cannot be about simply allowing individuals to take their payroll tax and invest it in what every they so choose. It has to be more controlled like a private investment plan that you would get through your job, like a 401K. To do otherwise could be a disaster. You could potentially have an individual who invests their payroll tax in some doomed to failure dotcom that a stock salesman sold them on.

My statement that less Seniors would be in poverty is a theory not a fact, but I think it is a fairly educated one. Social Security is not a sustainable way of life. If Seniors currently don't supplement that check with something else they are usually just getting by... Especially those who have medical issues and/or problems to deal with. Allowing individuals to take their payroll tax and make private investments would potentially, IMHO, make them better off than they would be in the current Social Security System... If it is done right. I guess that is the point of this conversation on this blog... We are attempting to ensure that it gets done right. Reforming Social Security for the sake of rubber stamping George W. Bush's legacy will be a mistake, and not one I am willing to make, but not doing anything isn't a wise option either.

Posted by: Mathew at January 5, 2005 04:46 PM

BK -- You're right that the 2%-3% isn't exactly "modest". I just want to clarify that we're not "privatizing" Social Security so much as we're partially privatizing Social Security, and the funds involved are less than half of the system.

You and Mathew also both point out that the investment options aspect of it is important, and there are various ideas. The Kolbe-Stenholm plan has the money going into the Thrift Savings Plan, which is a simplified system with a few broad options. For accounts over $7,500, you get the option of moving it to an outside investment firm, with unlimited investment options.

Basically, it automatically sticks you in a simple plan, but gives you the option of managing your own money.

Posted by: William Swann at January 5, 2005 04:59 PM

/

As you stated, either way there is an obligation. Certainly there is the possibility that private accounts will yield at least an equal benefit to what has already been promised. I'm not opposed to partial privatization precisely because the last time they "fixed" SS in 1983 they immediately started spending some of the surplus instead of paying down debt to improve the future borrowing position, as the "fix" was intended to do. So I don't particularly trust the feds to do the right thing this time if all they do is increase revenues via some combination of increasing the tax rate or expanding the income limits subject to taxation.

But I do take exception to the view that personal accounts represent "savings" while a government promise doesn't. That's like saying a person who purchases treasury bills or savings bonds isn't "saving". Even though the government often does things inefficiently or is affected by corruption, history shows us that most of the time their policies work pretty close to the way they are intended to work, otherwise we wouldn't be the leading world economic power that we are.

To me, it borders on ideological dogmatism to believe the government cannot be trusted to meet its obligations when that has never been the case before. And I know something about dogmatism as I've come a long way in my postion regarding partial privatization of SS.

Posted by: tim at January 5, 2005 06:18 PM

here's concise summary of SS and the privitization proposal by Josh marshall. I can't say it any better so I'll print this entire post. from Marshall. Please take the time to read it.
------------------------------------------------
As pretty much all the sensible articles on Social Security have made clear, to the extent that we have a problem, it is not a Social Security problem, but an accumulated national debt problem. And this isn't just a looking at one side or the other of the coin issue, but a category difference.

There are various ways to illustrate this point. But the following, I think, is the best.

The United States has a bit over $7 trillion in accumulated national debt. You can say that's been built up over the history of the country. But overwhelmingly it was borrowed over what happens to be the span of my lifetime -- the last thirty-five years -- and especially over the last twenty-five years.

After 1980 we started borrowing money big-time to finance our deficits -- in large part because of tax cuts on high-income earners. However you want to slice it, we started spending substantially more than we were taking in in tax revenue.

So where'd we borrow the money?

This is from memory, so I may have the numbers a bit off. But I believe about $4 trillion of that debt was borrowed on the open market -- individual Americans have them in their investment portfolios, or pension funds hold them, or the Chinese, Japanese and the Saudis and others have them in bonds.

But about $3 trillion of those dollars we needed to fund the 1980s and 1990s deficits we managed to borrow closer to home. We borrowed it from the Social Security (and a few other government) trust fund(s).

Almost the entirety of President Bush's Social Security phase-out plan comes down to a simple proposition: finding out how not to pay it back.

Now, admittedly, this is an approach that the president is rather familiar with from his own business career at various failed energy companies. But it is, in so many words, a straight up con -- one of vast scale, and one which virtually no one in the media ever frames in just these terms.

Before discussing that aspect of the question, consider a hypothetical. Let's say there'd not been a Social Security -- President Bush's dreamworld. We'd still have had the same deficits. The difference would be that we'd have had to borrow from private borrowers in the US and abroad.

Think we'd just be able to decide not to pay them back? Not likely. The Joneses and the Smiths with their 401ks probably wouldn't like that. And the Japanese and Saudis probably wouldn't like it much either. Of course, defaulting on our entire national debt would also certainly trigger a seismic international financial crisis. So you can probably figure that no one would be a huge fan of it.

So why does the president figure he can get away without making good on the debt to the folks who pay Social Security taxes, who are overwhelmingly low and middle-income wage earners (since no one pays Social Security tax on investment income or wage and salary income over about $85,000 a year)?

Isn't it obvious? Because he thinks they're an easy mark.

If anything, the fact that a sizeable portion of our huge national debt is owed (in the aggregate) to ourselves would seem to be a good thing since it gives us in extremis at least some flexibility on repayment. But to the president this is a reason to abolish Social Security so the money doesn't have to be paid back at all.

As I said at the beginning of this post, the challenges we face over the next several decades aren't really Social Security problems but national indebtedness problems, though the issues are clearly related.

One obvious and immediate way to relieve long-term pressures on Social Security financing is to reduce the national debt ... by ending our habit of running huge annual deficits or even better by paying down some of our accumulated debt (there are complicated macro-economic questions related to this second point; but in general it's correct.)

But what has President Bush done? He's presided over the biggest fiscal turnaround in American history, taking the country from modest annual surpluses to the biggest deficits -- at least in non-adjusted dollar terms -- in American history. And that's only one reason why you can make a decent argument that President Bush has done more than any other president and perhaps any other single American ever to endanger Social Security's future.

Across the board, it's just one big scam.

The guy who's the biggest threat to Social Security says he wants to 'save' it by abolishing the program and replacing it with private accounts.

-- Josh Marshall

http://www.talkingpointsmemo.com/index-old.php

Posted by: john at January 5, 2005 08:34 PM

Marshall parrots Krugman. Both are making the same claim--that there is no problem, because the debt has to be paid. Disingenuous. Their point being, of course, that SS is fine because the gov't can just tax us to death to pay it.

Come 2018 or so, or even sooner, the SS revenue surplus turns to a revenue deficit, and the government has to decide whether to cut benefits or raise more money. There is no legal commitment to maintain SS benefits at the current levels. Benefit levels are politicians' promises, not legal commitments.

What Marshall & Krugman are really saying to voters is "Block any reforms, just rely on the trust fund legalism to ensure that your benefits will be paid at current levels, whatever the cost to working taxpayers or damage to the economy." But there are more taxpayers than retirees, and will be then as well. Think about it.

And then start thinking about alternatives.

Posted by: Tully at January 5, 2005 10:02 PM

Tully,

what marshall is really saying is SS privitization is a scam that allows the government not to honor the trillions of dollars of debts that taxpayers have already paid to the government.

Think about that.

Posted by: john at January 6, 2005 06:39 AM

But I do take exception to the view that personal accounts represent "savings" while a government promise doesn't. That's like saying a person who purchases treasury bills or savings bonds isn't "saving".

Let's look at two sides of this. On the one, you have a healthy extended discussion yesterday on Kevin Drum's site where he offers this post arguing against privatization.

On the other, you have the Concord Coalition, a bipartisan group dedicated to fiscal realism. They issued this letter recently complaining about what they see as false comparisons on this issue.

Kevin's post offers a CBO chart comparing the current system with the likely plan the president supports. He points out that the line representing benefits paid by the current system runs higher than the line for the partially privatized system. He also says the projection for the current system is a "worst case estimate".

The comment thread discussing Kevin's post has over 100 comments examining all kinds of aspects of this comparison. I'm not sure anyone on that thread identifies the 800-pound gorrilla in the room, though. And it's what Tully just alluded to.

The CBO projection suggests a critical point in the system occurs in 2053, the year the system becomes insolvent. However, the system starts running a deficit in 2018, according to the 2003 Social Security Trustees report. Between 2018 and 2053, it uses all those IOUs socked away in the Social Security trust fund to pay the difference between promised benefits and incoming payroll taxes.

That money will come from somewhere. It might involve benefit reductions. It might involve tax increases. Or we may just borrow the money to make those payments. Those are our options. Taking money from the fund and using it to make those payments is not an option, because there's no actual money in the fund.

If we keep the current system (no benefit reductions or tax hikes), we will add $7 trillion to the public debt by 2042 and $52 trillion by 2077.

If we change the system, we have to lower benefits by 26% or raise taxes by 34% by 2042 to close the gap, according to the Social Security Trustees report.

Those are the kinds of comparisons we're making in this debate. The CBO is required by law to assume that the current system will do what it is legally obligated to do -- begin making payouts from the Social Security trust fund in 2018. There is no apparent mechanism for making those payments, however, other than further borrowing.

The Concord Coalition treats the trust fund as an obligation, not as savings. The CBO does the opposite -- producing nice studies with graphs that assume the trust fund will make all these payments. And Kevin Drum (and other opponents of privatization) cite those graphs as indicating the present system beats a privatized system, even going so far as to call the projection line for the present system a "worst case estimate".

I think the Concord Coalition is looking at this much more clearly.

Posted by: William Swann at January 6, 2005 09:17 AM

"Almost the entirety of President Bush's Social Security phase-out plan comes down to a simple proposition: finding out how not to pay it back."

Of course that's his goal. Unfortunately, it doesn't really matter, because we already spent a lot of the money.

William:

I think we only diagree on the size of the obligation. You still support a government guaranteed minimum payout. That's still an obligation. But to continue to imply that government obligations are not "savings" while putting money in private accounts are "savings" ignores the fact that an obligation still exists, it's just shifted from the government to some collection of non-government institutions. Further muddling the picture is the liklihood that a significant portion of the private account balance may very well be made up of government-backed securities.

So we put some of our SS dollars in a large-cap mutual fund or TIPS. It's still an obligation that may or may not be met in the future, and is no more or no less "savings" than what we now have.

Posted by: tim at January 6, 2005 10:25 AM

But to continue to imply that government obligations are not "savings" while putting money in private accounts are "savings" ignores the fact that an obligation still exists, it's just shifted from the government to some collection of non-government institutions.

The obligation is still the government's. It's just that there's an extra private mechanism for building resources that will cover part of those obligations.

So we put some of our SS dollars in a large-cap mutual fund or TIPS. It's still an obligation that may or may not be met in the future, and is no more or no less "savings" than what we now have.

Well, hmmm. A portion of those private account funds will go into bonds -- a government instrument -- and that portion is indeed similar to the current system in that it imposes a future obligation on the government.

However, the portion that goes, say, to a large-cap mutual fund is used to buy a portion of those companies. You then own a portion of those companies. The value of your holdings will vary over time, depending on the value of the company. But you're not acquiring a future payment obligation from the company. You're buying a piece of the company that exists right now. You own something. You have assets.

Posted by: William Swann at January 6, 2005 10:56 AM

No, the bonds in the trust fund are not "savings" in any sense of the word. They are not market obligations, and the party owed is the party issuing, the US government. They are no more "savings" than are IOU's to yourself from yourself, put in a cookie jar on your kitchen shelf to mark money you meant to save, but spent instead.

You have no legal claim on those SS bonds. You have no legal ownership of your contributions. If the so-called "trust fund" did not exist at all, absolutely nothing would change in terms of federal finance. The amount of additional money needed to pay benefits would not change. The time when the money is needed would not change. And the source of that money, huge increases in taxes or cuts in spending, would not change. This would be true if the "trust fund" did not exist, or if it had ten times the current "balance."

You currently have a legal right to the SS entitlement, but make no mistake--SS benefits are an entitlement. They can be changed or eliminated by Congress with the stroke of a pen. Congress can do this regardless of any "trust fund" balances. The "trust fund" is simply an accounting mechanism to track the amount of money you've been taxed in excess of money needed to pay beneficiaries to date. You can not spend money and save it at the same time, and COngress has already spent that money.

Any "fix" that proposes pumping more money into the "trust fund" in order to extend the "actuarial life" of same is a con. A Ponzi scheme, just like the 1983 "fix" that set up the "trust fund." To the extent that SS taxes have exceeded (and will exceed) current payments, the SS tax is nothing but an income tax levied from dollar one of income, making it the most regressive income tax we have. And it's even more regressive than on first glance, because there's an upper cut-off. To high earners, that income tax is a smaller percentage of their income than it is for most of us.

Which leads me back to a question I keep asking, and that none of the "ain't no problem" crowd seem to want to answer. Why is the purported party of the working stiff, the party that is continually touting "economic populism" these days, so adamant about continuing, even expanding, the absolutely most regressive tax we have?

Posted by: Tully at January 6, 2005 11:31 AM

It is my understanding that SS is a "pay as you go" system.
Namely my tax dollars go to pay my retired aunts monthly checks.

On the social security web site is a chart that shows:

Total income in 2003: 631.9 Billion
Total expenditures in 2003: 479.1 Billion

It is also my understanding that the boomers have not started collecting benefits in force yet.

It doesn't look like it would take much tax cuts (creating private accounts) or boomers retiring, to crash the system.

As for the Trust fund: What a joke. It's a couple of filing cabinets with IOU's printed out and placed in them. They showed then on the "News Hour" once. From what I could see on the TV, the IOU wasn't even signed. It was just a piece of paper someone made up on a word processor.

Posted by: Bob J Young at January 6, 2005 01:37 PM

Here is the "News Hour" segment that explains the trust fund and actually shows the "Lock Box". Its from 2001 but is still informative.

Thou I misspoke; they do looked like someone signed them, although you can't tell who it is.

Posted by: Bob J Young at January 6, 2005 03:56 PM

William:

You are correct about the mutual fund ownership being an asset, not an obligation.

It's also not saving. It's investment. There is a difference between the two, mainly the level of risk vs return.

I guess the question should be, is "investment" proper public policy for millions of wage earners, or is "savings" more responsible? I'm all for personal investment because I'm personally willing to take a risk with some of my money, and I don't fear privatization of SS. I also don't trust the GOP running it because I think their motivation is to get rid of a public program they have always opposed, not to fix it for the good of all the little people.

Public policy is a little different though. The goal is to make sure everyone has enough for bare minimum survival. I'm not sure "investment" is the best guarantee of that happening.

Posted by: tim at January 7, 2005 09:23 PM