Blackhacker

You might recall that I figured out how to to save Social Security as we know it a little while back but let us face facts. The President and the rest of the conservatives DO NOT want to save SS as we know it. They can not tolerate the stink of this "Socialist" program to abide in the shrine of Capitalism that is the United States of America, no matter how successful and well received it is.

OK fine. But lets look at some hard truths about SS reform.

If the goal is to get the US off the "pipe" that is SS it can not be done without:

1. Raising taxes:
   This is a no brainer. We are not going to escape this. The CBO has set the date at 2018. The Govt borrowed a lot of money from the people in the form of the bonds held by the SS trust fund. In 2018 they will start asking for that money back. Unless the Federal Govt does some serious adjustment to it spending habits this is an inevitability.
2. Shafting at least one generation:
   By shaft I mean that at least one generation will have to pay into the SS system and will not be able to receive all, if any of, what they contribute. What else can you expect? SS is a "pay-as-you-go" system. I am paying for dad. If SS is around my kids will be paying for me. The trick is to get the "Vaseline" generation to like it, or at least accept it. That is of course is easy to do. Pay them off. Generation "V" will have to get "crazy" tax breaks. Possibly a Generation V tax bracket that is lower than the generation before and after. Or maybe even the Federal Govt match contributions in to PRAs (I like this idea), this plus possible exemptions for money that is put in and any returns that are pulled out.
3. Restricting payout to just the PRA until it is empty:
   What do I mean by this? During the transition period the "V" Generation(s) will have both traditional SS as well as the new PRA. But to make it work they will probably only be able to draw from PRAs until it runs dry then they will be able to collect SS. This has the effect of stepping the SS "dosage" down slowly so that the bonds in the trust fund don’t have to be cashed in so quickly.

SS will not be flat broke in 2042. Payroll taxes can support 70 % of promised benefits at least until 2080. So says the CBO.

Q: If 2% of SS payroll taxes could be diverted into private accounts, how would SS make up that 2%?
A: TAXES

Doesn’t it make beter sence to simply increase SS payroll taxes and let retirement accounts exist as an addition to the current SS? Infact it makes NO sence to me to take money out of SS only to replenish it with general fund money UNLESS the long term plan is to reduce SS funding later. If your listening, somebody set me staight.

Q: What’s the President’s plan to pay off the T-Bills that are in the SS trust fund.
A: TAXES

The trust fund is what I don’t hear anyone talking about.
If there was no trust fund, when payroll taxes would no longer cover benefits, they would be just cut them, and continue to cut them until SS was no more. The conservatives would be cool with this but the trust fund puts a monkey wrench in that. Because the Federal Government is by Law required to pay that money back with interest when they are cashed in. Taxes MUST go up to or borrow more money and incur more debt.

NO PLAN I HAVE EVER HEARD ADDRESSES HOW THE GOV’T WILL PAY THE TRUST FUND BONDS.

The President has modeled his SS reforms after A system in Chile. The NY Times

Dagoberto Sáez, for example, is a 66-year-old laboratory technician here who plans, because of a recent heart attack, to retire in March. He earns just under $950 a month; his pension fund has told him that his nearly 24 years of contributions will finance a 20-year annuity paying only $315 a month.

"Colleagues and friends with the same pay grade who stayed in the old system, people who work right alongside me," he said, "are retiring with pensions of almost $700 a month - good until they die. I have a salary that allows me to live with dignity, and all of a sudden I am going to be plunged into poverty, all because I made the mistake of believing the promises they made to us back in 1981."

The situation in Chile is not exactly like that in the US.

The program in Chile differs from the voluntary model that President Bush is considering. Participation here has been not voluntary for people entering the labor force since 1981.

On the other hand, Chile was careful before it started its private system to accumulate several years of budget surpluses, in contrast to the recent large deficits in the United States.

At least the Chilean Govt show confidence in the system right ?

Chile spends about $2 billion a year to pay retirees from its armed forces, according to Mr. Scolari. The military imposed privatization on the rest of the country, but was careful to preserve its own advantages and exclude fellow soldiers from the system. Despite calls that the military be forced to give up its exemption, no civilian government has been prepared to pursue that.

Thank God I already have a 401(k).

I must admit. I am just getting around to learning how SS really works. For all those who are dumb like me, the SS payrole taxes come in and benifits go out. What’s left over goes in to the SS trust fund which is invested in Treasry Bonds. The governemt is obligated BY LAW to pay that money back. According to the SS trustees, payrole taxes will continue to exceed benifits until 2018. At that point they will have to start dipping into the trust fund. The trustees say they can do this until 2042 at which benfits will have to be cut by about 1/3.

Ok in 38 years I wll start to be looking for those benifits that I have been paying for my whole adult life, So I DO want something done, but ripping out the whole thing and replacing it with a system that pays out LESS. There MUST be simpler ways to handle this.

1. Incease Payrole Taxes
   I know. Nobody likes the T word but in 2018 when SSA starts cashing in though T Bills, what is the governemt going to do to pay them back? You guested it. So raise a little now or raise alot later.
2. Cut Spending
   This is one of those things that conservtives say needs to be done, but we have YET to elect one to the whitehouse in recent memory who actally does this. It must also be noted that when cuts are mentioned, programs that benifit the poor and elderly are usually the target of the cuts not the benficiary.
3. Diversify the trust fund
   The government is scared of 2018. All that money coming due at one time. They could little by little divest from those bonds and buy corporate bonds, or mortgage backed securities. They are a little more risky than TBills but very stable. This way when 2018 comes around the impact wont hit the Gov’t wallet (which is to say our wallet) quite as much.

The fact that the President wants to privitize Social Security is no secrete by replacing this benfit with retirement accounts. I have never understood how this could work and still make payments to people who are already on SS.
This from the NY Times Op-Ed section eluminates some things:

1. SS is not as bad off as the President would have you believe.
   

   Starting last year, as the groundwork was being set for the emerging debate, the Social Security trustees took the liberty of projecting the system’s solvency over infinity, rather than sticking to the traditional 75-year time horizon. That world-without-end assumption generates the scary $10 trillion estimate, and with it, Mr. Bush’s putative rationale for dismantling Social Security in favor of a system centered on private savings accounts. The American Academy of Actuaries, the profession’s premier trade association, objected to the change. In a letter to the trustees, the actuaries wrote that infinite projections provide "little if any useful information about the program’s long-range finances and indeed are likely to mislead any [nonexpert] into believing that the program is in far worse financial condition than is actually indicated."

   Over a 75-year time frame, Social Security’s shortfall is estimated by the Congressional Budget Office at $2 trillion and by the Social Security trustees at $3.7 trillion

2. Bush plans to cover current retireee benifits by increasing national debt.
   

   Instead, the administration wants workers to divert some of the payroll taxes that currently pay for Social Security into private investment accounts, in exchange for a much-reduced government benefit. To replace the taxes it would otherwise have collected - money it needs to pay benefits to current and near retirees - the government would borrow an estimated $2 trillion over the next 10 years or so and even more thereafter.

3. Each individual will incur more risk.
   

   In effect, the administration’s plan would get rid of the financial burden of Social Security by getting rid of Social Security. The plan shifts the financial risk of growing old onto each individual and off of the government - where it is dispersed among a very large population, as with any sensible insurance policy. In a privatized system, you may do fine, but your fellow retirees may not, or vice versa.

4. The new system does not pay as much as the current system.
   

   In any event, doing well under privatization is relative. Congress’s budget agency analyzed the privatized plan that is widely regarded as the template for future legislation and found that total retirement benefits - including payouts from the private account plus the government subsidy - would be less than under the present system. The amount available from the privatized system was less even after midcentury, when the current system is projected to come up short.

5. Securities Managers & current investors are the only sure winners
   

   The only hands-down winner would be Wall Street, as fees to manage millions of accounts poured in. (Those fees, not incidentally, would come out of your return.) Current stockholders would also stand to benefit, as increased demand pushed up stock prices, giving existing owners a gain at the expense of newcomers who would be forced to buy high. The affluent, who could afford professional investing advice, would also be advantaged, even though everyone would be taking the same risks.

Favorite quote:

The zeal over privatization is fueled by the belief of Mr. Bush and his supporters that free-market fixes are appropriate for virtually every problem. That faith is misguided. For a society to be functional and humane, it’s not enough that some people have a chance to be rich in old age. Rather, all old people must have the dignity of financial security, and that requires universal coverage.