Feb 18, 2005

The Social (In)Security, Plainly Speaking

You may have heard that there is a big push by the President to privatize Social Security. Although, this complicated program is on paper right now, and it may change if it passes through Congress, you might want to find out what would this new system would have on you! Here's a handy calculator.
There are many misconceptions about SS and unfortunately there isn't much discussion, but rather fireworks going off left and right. Basically, Bush's idea is that you can take some money out of your contributions to SS and invest it privately hoping for better returns. In theory, you could do better in the marketplace. Of course, this won't mean guaranteed security later when you retire because you may chose badly where to invest. However, you currently do have the opportunity to establish private accounts like IRA, KEOGH, etc, to supplement your SS benefits later. But, you are guaranteed your SS benefits as the system stands today. Bush's own SS trustees say that SS will pay 100% of benefits until 2042 (conservative estimate) even if there are no adjustments today or in the years to follow!

What most people don't realize is that current SS contributions go to pay for benefits to the retirees today; it's not a savings/investment program. In other words, if you take out (or reduce) your contributions today, you will be withholding payments meant for your ..mother, father, everyone retired! Of course, the current and future benefits for people already on the SS program must continue.... What to do? This several-trillion-dollar deficit (if Bush's plan goes through) will have to be covered by additional borrowing, that is, more national debt! Of course, any debt is owned by all of us and our children!

Why is Bush doing this? Well, you might say that he's an idiot, or that big corporations, Wall Street, and other insiders are going to benefit greatly from all this money coming out of state treasury and into their pockets. I'd say you're partially right. In addition, Bush believes that the marketplace and all things private (except privacy!) are preferable to a state-owned contract of social security. This argument is shallow--as blindly minimizing the state hurts mostly the people who don't have power, aren't rich-- but the President is not exactly the person who leads an examined life nor that he bothers with the details!
We also have to understand that persons like Bush and others, (members of the socio-economic elite throughout the political spectrum) don't really understand what everyday reality is for most people. They don't have to deal with the consequences of failed policies. They don't know what the real quality-of-life issues are. [Remember president Bush, senior, being mesmerized by the scanner at a supermarket checkout? Yes, it had been around for 10 years or so!] Their beliefs are formed not by careful examination or study of the facts and of history. They don't even spend too much time debating the finer points. If it sounds good enough, jives with their own often-distorted views, then it's good enough to implement it.
However, we do have the power to stop this ill-conceived scheme of social (in)security. Contact your representatives in the House and the Senate. For more articles, news, and questions about Social Security, click this link to an excellent site!


Anonymous said...

It's a lot of smoke and mirrors, but I think this privatization scheme is in line with the concept of private health care and, soon, education. Oh,yeah, the US going back, way back.

Anonymous said...

In this complicated proposed program it's easy to be drowned in the details. For example, what's the average estimate of the "higher" returns form private investments as compared to the standard SS return?
How about the fees (upwards of 1%) charged by the managers of mutual funds or the other private investments? Wall Street and money managers make money on every trade plus on handling the account, regardless of performance.
Plus, I think, with all this new money flooding the stock market, all the options might actually lose value! (supply & demand).
Oh, and I don't want to think what would happen if the US economy continues to shrink on the world stage. We're being marginalized economically, slowly but steadily. It won't be long before the Chinese and other nations stop buying dollars and Treasury IOUs to finance our huge debts. Then catastrophy will happen.
Americans are blissful, believing the myth, "America, we're # 1!, forever!"..... I love this country, but despite the drawbacks SS might have, but this is one of the most successful social programs we've got.
Should we now dismiss public education too?


Anonymous said...

Great calculator of future SS benefits. Though I do hope that I'll make more money before I retire, nevertheless, with current income, I'll be losing close to $4,500 a year under the proposed plan. Wow!

Anonymous said...

You failed to say that in the last 25 years, the government is "borrowing" money from the SS trust fund to plug holes in the federal budget... presumably this money has to be paid back to the SS account, does it not?

John, NY

Anonymous said...

From www.thinkprogress.org

The White House claims that preserving Social Security in its current form “is unaffordable.” Yesterday, Alan Greenspan told the Senate Banking Committee that it would cost $3.7 trillion to preserve Social Security in its current form for 75 years. (Keep in mind, there is no shortfall what-so-ever until at least 2042). Let’s put that number in perspective:

75-year cost of the President’s prescription drug bill: $8.1 trillion

75-year cost of the President’s 2001 and 2003 tax cuts, if made permanent: $11.1 trillion

75-year cost of the President’s tax cuts to the top 1%, if made permanent: $2.9 trillion


Here are two things about Bush’s Social Security privatization scheme I’ve learned reading through Alan Greenspan’s testimony in the Senate today:

1. Private accounts won’t do anything to make Social Security more financially secure.

SEN. REED: Various administration spokespersons somewhat reluctantly have admitted that the private accounts plan that has been announced will by itself alone do nothing to improve the long-term solvency of the Social Security system. Do you agree with that?

MR. GREENSPAN: I do, Senator.

2. Private accounts won’t do anything to increase national savings.

SEN. REED: Would you also agree…that the private accounts will basically leave national savings unchanged, since the government is borrowing money to give to individual citizens to invest in the market?


Anonymous said...

What the hell is Bush doing if he's arguing that SS will fail, but his plan will do nothing to fix SS?
Or, is it like, the ship is shinking, here's a piece of wood, jump now...

Anonymous said...

It would be good if you included how similar plans fared elsewhere, like Chile, as some proponents of Bush's plan have pointed out.
Britain has a similar private retirement plan.
Any thoughts?


Anonymous said...

Immigration needed to boost Social Security...

A new report released by the National Foundation for American Policy suggests that an increase in immigration of one-third over the next 75 years is needed in order to minimize the Social Security deficit by ten percent. Should immigration decrease by a third, the deficit would grow by ten percent. The Social Security benefits that are paid out to retired workers are funded by the current workforce. As for immigrants, they typically arrive in the U.S. at a young age and contribute to Social Security for many years before they are eligible to benefit from the system....

The same is going on in Europe whose aging population needs "fresh blood"... and as the Europeans & Americans are shying away from difficult, menial jobs... somebody must do those!

This new study will add fuel to Bush's immigration plans (undefined as yet, but he's said he wants to bring in more immigrants). We'll see


Anonymous said...

If it weren't for the immigration, the US would have been aging much faster, not to mention an economic harm, because who do you think works in the food, hotel industries, who picks the fruits, who landscapes, who works the 18-24 hr retail businesses?....
It's shameful that we allow US employers take advantage of this labor force. As far as a national policy, we should allow as many immigrants in as we need (and do we need them!) on legal status so they can contribute to SS, but also have benefits for contributing to our economy.
I find most arguments heard today, primarily by the Republicans, as appealing to fears and the ignorance of the public. They need to have a scape goat and for the business community to have access to cheap and willing labor force.

Jason Casey

Andros said...

Every one who's contributed to Social Security through payroll taxes should be getting an anual statement from SS showing "Your Annual Social Security Benefit"
You'll need that to use the "handy calculator" whose link I posted in the beginning of the article.

In other words, according to Bush's plan, you'll be able divert SS contributions to your own investment plan, but with costs and fees and borrowing calculated, you'll see how much it will affect you.
Have fun.

Gothamimage said...

Bush said he wanted to get rid of SS when he was in Biz School and later when he ran for congress. He now realizes that you must do that indirectly, like all forms of war (attack Iran and Syria, by invading Iraq, thus setting up the provaction and the bases to respond, etc- attack Syria via Lebanon, etc) - with social security, you 'reform it,' and then let it 'whither on the vine' as Newt was caught saying in an unguarded moment.

Bush will win, we will lose.Dems still underestimate him.

Gothamimage said...

But maybe Dems will wake up in time.

Andrew L said...

What most people don't realize is that current SS contributions go to pay for benefits to the retirees today; it's not a savings/investment program. In other words, if you take out (or reduce) your contributions today, you will be withholding payments meant for your ..mother, father, everyone retired

There's a name for this. It's called a Ponzi Scheme.

And guess what? There is ABSOLUTELY no guarantee of "benefits" from Social Security. See FLEMMING v. NESTOR, 363 U.S. 603 (1960). Your Social Security payments are taxes, and the United States Government has no legal obligation to pay benefits. Social Security is a wealth transfer from the young to the old, on top of the deferred tax burden (the national debt) that young people and their children have.

It's a family's responsibility to take care of its members, not the "government."

But then, most people are too addicted to the nanny state to think for themselves or provide for themselves....the aggregate "We" wants to make sure that no one is listening to "offensive" things, that no one is engaging in "offensive" activity, that our income and spending meets with government approval, that children are indoctrinated correctly.

The American Revolution was about two main things -- the British taking away the colonists guns (The Battle of Lexington and Concord, and taxes.

Nowadays we rollover and let our government take them away, the product of our labour, and the only means that we have to enforce our natural rights. (Government does not grant rights -- they are ours naturally and the proper role of government is to secure them.