National Debt

[Haggis@wk]

I don't think this is too much of a hijack; after all, California’s debt problems are pretty much on a national level in terms of amounts. Arnold Schwarzenegger is going to declare afiscal state of emergency in California after disastrously miscalculating the deficit condition.

Last August, he predicted that the state would have a $4.1 billion reserve at the end of this fiscal year, but now predictions show that California will have a $10 billion deficit.

Schwarzenegger now says it's even worse than that:

Gov. Arnold Schwarzenegger said Friday he will declare a "fiscal emergency" in January to give him and the Legislature more power to deal with the state's growing deficit.

Schwarzenegger made the announcement Friday after meeting with lawmakers and interest groups this week to tell them California's budget deficit is worse -- far worse -- than economists predicted just a few weeks ago.

The shortfall is not $10 billion, but more than $14 billion -- a 40 percent jump that would put it in orbit with some of the state's worst fiscal crisis, those who have met with him said.

The change from $10 billion in the red to $14 billion is bad enough, but in four months, Arnold missed it by $18 billion!!!

Arnie promised spending cuts to get elected but after a few bloody noses from the Democratic legislature, which caused the problem in the first place leading the Grey Davis’ recall, he started caving in.

Now Arnie’s declared an emergency, which will force the legislature back into special session and Californians will have to grab their wallets, because they can expect a whole bunch of new taxes since the legislature have shown that they are incapable of cutting the budget and the voters have shown they are incapable of forcing change.

I last lived in California in 1992 and until I retired in 1995 I received demands for tax payment on income that was

a. never earned in California and

b.military pay exempted from state and local taxes.

the MRHYN receives annual demands that she pay California taxes on earnings in her IRA contributed when she worked there when she starts drawing payments. The last nail in the coffin was when I had to pay $250 in taxes when I sold my house there even though I suffered an overall $35,000 loss.

All this while a PI I work with who's a retired CHP complains that retiring CHPers now are getting 100% pension while he "only" gets 80%

I have turned down two job offers to relocate to california in the past 7 years, mainly because of the crippling tax situation there; it appears it's about to get worse.

Unfortunately, Arnie has proven himself wildly incompetent. Not only has he failed to show enough backbone to stand up to a term-limited legislature, he apparently can't do math, either.

Recall time?

[Shapley]

My point was more how his budgets were the major contributor to the $4 trillion deficit at the end of his presidency.

(Okay, now you may jump in and blame it all on the Democratic Congress....)

I will. because, as I pointed out, each and every one of his budgets was declared "Dead on Arrival". Nor, as has been pointed out numerous times here on the board, the President cannot spend a dime without Congressional approval. So, yes, the debt was and is the fault of the Congress. The President proposes, the legislature passes, the President signs. The checkbook, as they say, is in the legislature's hands.

V/R
Shapley

[BigJon@Work]

BigJon - You are so fast to see how gov't oversight of health care will increase costs, decrease quality etc,

Did I say they would increase costs? Nah, healthcare will cost whatever the government decrees it will cost, once you let that camel’s nose under the tent, but you are correct that I fear quality decreases. I also fear loss of freedom, and retardation of innovation if we let the gubby run the healthcare payment system.

but so ready to let the feds spend money overseeing your investments.

Ready? I prefer resigned. I am being pragmatic when I say I believe that the only way a privatization program will be permitted to go forward in this country is if we write the laws with government oversight. Otherwise, all the Jamies of the country will pop up and shout that people can’t be trusted to manage their own money.

And sooooo ready to believe that nice low investment expense figure. How human, to believe what agrees with your point of view, unquestioningly.

While fully human, why shouldn’t I believe it? I’m already getting nearly those numbers at Vanguard on some of my accounts. The accounts I hold where the styles are very similar to the one proposed by the president. My actively managed accounts cost more, but none of those are in the proposal. T. Rowe Price isn’t far behind, and they are a regular, for-profit corporation. And as volume grows . . .

I can only repeat - the costs are not limited to the cost of managing the investment account itself. Nor to the cost of the payroll service splitting your check. Someone in Gov't will be checking that the split occurs as it should. Someone puts together those nice annual SS summaries we get (which by the way report my 2005 earnings at 0. Must talk to those folks...).... it all costs money. And expands bureaucracy.

I wouldn’t expect any accounting summaries or account record keeping from the government. That would be silly for a private account. Besides, Vanguard already supplies those, with a duplicate to the IRS, for their paltry management fee. All record keeping should be solely in the hands of the private entity I contract with to manage my money. That’s privatization.

Why would the bureaucracy have to grow significantly beyond what is already in place at SS and the IRS? They are already performing the same, or similar, functions. This new law could be written so those two organizations could segue into what little additional oversight would be required to prevent fraudulent actions. The SS would see that the employers are diverting the money to the right accounts, just as they do today. Remember, except for the tax break, you would only be hurting yourself by diverting the money anywhere but your private retirement account. The IRS would check up on you to be sure you are taking valid tax deductions, just as they do today.

The only growth in bureaucracy I foresee, (again, I’m resigned, not excited) is that the new law would most likely mandate certification and regulation of the companies and funds providing the investment accounts. I fear whatever PC claptrap our illustrious lawmakers would tie to those investments would need to be certified too. (Prayers for none.) The bureaucracy growth does not need to be excessive to make this work. Where are you seeing anything approaching large, new bureaucracies in a well designed law?

Investing for the long term and retirement is not rocket surgery; it's not even as complicated as surgery. This is not comparable to a national healthcare plan, except for the overly emotional responses from people who fear the freedom they innately possess.

RE grey hairs - just checking - what is your recommended cutoff age for procreation? I wanna compare it to the time my first grey hair was sighted. Just for grins.

Well, I had my last at age 40, so, somewhere around there . . .

[jamiebk]

Currently, the US govt. guarantees the funding of SS. There is no "market risk" per se. Who will make such guarantees under aprivatized system to ensure that people do not lose their investment due to market decline? Many people in the US do not have adequate market savy to be making investment decisions. Should they chose unwisely, who picks up the pieces when their little nest egg collapses? They won't have SS to fall back on because that was their social security and it could potentially be lost. Do you realy think that there would not be an outcry to develop some sort of safety net in the situation. That's what SS started out to be...a safety net.

[Shapley]

That's what SS started out to be...a safety net.

That's right. I have nothing against a safety net. But too many people have turned it into a hammock.

[BigJon@Work]

Do you know what a safety net is called? Welfare. I can't imagine welfare every going away in the U.S. but it is means tested. Means testing is something SS should be doing today. Then we would have a more honest debate and accounting.

[jamiebk]

That's what SS started out to be...a safety net.

That's right. I have nothing against a safety net. But too many people have turned it into a hammock.

Considering that the normal SS payout is between $1400 and $2000 per month, I would not call this a hammock. This is near or below the poverty level. It would equate to being "paid" $10-12 per hour. Can you live on that? I certainly would not chose to do so.

[Trumpetmaster]

That's what SS started out to be...a safety net.

That's right. I have nothing against a safety net. But too many people have turned it into a hammock.

Considering that the normal SS payout is between $1400 and $2000 per month, I would not call this a hammock. This is near or below the poverty level. It would equate to being "paid" $10-12 per hour. Can you live on that? I certainly would not chose to do so.

================================================================
Many years ago, my parents advised me to start investing in things like 401K's....
and not to rely on SS as my primary income. My grandparents relied on SS as their
primary income and I remember how difficult it was for them.

I look at SS as a supplement to the nest egg I'm building now....
If anyone out there has an employer who matches contributions to 401K's,then they
should take advantage of that.....

[Shapley]

That's the point. You're not supposed to 'live' on the safety net. You are still supposed to plan and invest and save for your retirement. Too many people have surrendered any responsibility for their own futures to the governmental promise of 'security', and expect that they will be taken care of in their old age with no foresight or sacrifice on their part. They have, in essence, made a hammock of the safety net.

The safety net exists to keep you from falling to your death. You're suppose to remain above it.

It would equate to being "paid" $10-12 per hour. Can you live on that? I certainly would not chose to do so.

Considering that the normal SS payout is between $1400 and $2000, I would not call this a hammock. This is near or below the poverty level. It would equate to being "paid" $10-12 per hour. Can you live on that? I certainly would not chose to do so.

I would not chose to do so either. However, if my investments failed and I had nothing else to live on, I would do so, because that is what the safety net is for. I might have to sell my house and move into a smaller one, I might have to work part time, if I am physically able, to have a little spending money above and beyond my 'safety net' checque. I might even have to rely on my family to take me in, as families have done for as long as there have been families. If that fails, I may have to rely on charity, which is why we have charities.

BTW, there are lots of people living on $10 - $12/hour.

[jamiebk]

That's the point. You're not supposed to 'live' on the safety net. You are still supposed to plan and invest and save for your retirement. Too many people have surrendered any responsibility for their own futures to the governmental promise of 'security', and expect that they will be taken care of in their old age with no foresight or sacrifice on their part. They have, in essence, made a hammock of the safety net.

The safety net exists to keep you from falling to your death. You're suppose to remain above it.

It would equate to being "paid" $10-12 per hour. Can you live on that? I certainly would not chose to do so.

Considering that the normal SS payout is between $1400 and $2000, I would not call this a hammock. This is near or below the poverty level. It would equate to being "paid" $10-12 per hour. Can you live on that? I certainly would not chose to do so.

I would not chose to do so either. However, if my investments failed and I had nothing else to live on, I would do so, because that is what the safety net is for. I might have to sell my house and move into a smaller one, I might have to work part time, if I am physically able, to have a little spending money above and beyond my 'safety net' checque. I might even have to rely on my family to take me in, as families have done for as long as there have been families. If that fails, I may have to rely on charity, which is why we have charities.

BTW, there are lots of people living on $10 - $12/hour.

Yes, there are lots of people living at or below the poverty level and my comments are not meant to denigrate them. My son is trying to make a go of it on such a salary and I can tell you...it's not easy. He shares a rental house with other guys and drives a beat up aging Saturn.

I don't follow your logic here Shap...on one hand you are saying that SS is a "hammock" yet in the same post you admit that it is a safety net (as I beleive it is). It's certainly not a hammock when the govt is merely paying back what you've saved all your life to build. (as opposed to common Welfare) SS is no panacea as it is. Only wise and consistent investment above and beyond that allows us to live comfortably in late life. There are already private investment vehicles available (401K. IRA etc.) to augment SS and while they are not mandatory anyone is certainly well adivised to use them. I just don't see what is gained by moving the SS portion outside of the Govt.

[piqaboo]

For comparision, my first grey hair was identified the year I turned 28.

BigJon, beaurocracies grow. thats what they do. Expect it.

[piqaboo]

Arnie.... silly man held a special election - those cost $$$$$$$$.
Worst of it was, all his proposals got spanked, AND he spent that extra money after being elected to get us fiscally sound again.

Its kind of mindboggling that the state is low on money, given how many homes changed hands in the past few years. There are lots of tax bites when that happens.
San Diego is fighting its own budget issues. Pretty pathetically too.

[Shapley]

I just don't see what is gained by moving the SS portion outside of the Govt.

What is gained is Constitutional principles. The Federal Government is not empowered by the Constitution to provide such a 'safety net'. The States could do so, if they desired. If the Federal government believes that such a program is needed, they should endeavor to provide it within the framework of Constitutionally mandated limitations. (i.e., they could allow the States to administer the program, or provide Federal funds to the States so that they can administer a program, similar to the manner in which welfare and medicaid programs operate. Not that I'm a fan of the operation of either of them, but the do attempt to be Constitutionally applied.)

The incrementally-applied privatization is to allow those already dependent on the Unconstitutionally emplemented Federal Program to continue without sacrifice, as we slowly move future generations into a Constitutionally-acceptable program.

Unless we restrain our government and force it to comply with Contitutionally-imposed mandates, it will continue to grow and consume the fruits of our labour. Remember - if you accept that there are no limitations on what the government can do for you, you have to accept that there are also no limitation on what the government can do to you....

I don't follow your logic here Shap...on one hand you are saying that SS is a "hammock" yet in the same post you admit that it is a safety net (as I beleive it is).

I thought I was quite clear. The safety net is there. Many people, however, choose to jump into it and recline there rather than trying to remain above it, safe in the knowledge that it is there if they fall. What I mean, sans metaphor, is that too many people are making no effort to plan or save for their own retirement, intent upon relying on the Social Security checque to provide for them in their retirement.

V/R
Shapley

[BigJon@Work]

It's certainly not a hammock when the govt is merely paying back what you've saved all your life to build.

Ah, the fundamental fallacy of the SS system finally rears its ugly head in this conversation. This is also the fundamental reason this issue is so emotional for so many people. Jamie, you haven’t been saving anything at all in SS. You haven’t been building anything but credits towards a future payout formula. What you have been paying is a tax designed to provide minimal support the folks who survived work through to retirement age. Your bank account at SS is zero, always has been , always will be, unless we can privatize a portion of it. Now you are really saving something and building something. Guess what, its real dollars that you can use as you see fit and/or pass on to heirs and loved ones should you expire before retirement. Now do you see the difference? What would you prefer, cash in hand (even if it comes with a small handcuff,) or the fiscal promises of a government that can’t seem to keep its fingers out of the till.

(as opposed to common Welfare) SS is no panacea as it is. I just don't see what is gained by moving the SS portion outside of the Govt.

The government gains nothing, you gain something (control) and the economy gains something (real investments in our future instead of empty IOUs and wasted government spending.)

[Haggis@wk]

Considering that the normal SS payout is between $1400 and $2000 per month, I would not call this a hammock. This is near or below the poverty level. It would equate to being "paid" $10-12 per hour. Can you live on that? I certainly would not chose to do so.

$1400-$2000!?!?!? if only. The last figure I found from 2004 was $1076 for retired men and $826 for retired women. My mother-in-law just got a raise to $812 (after receiving payments for more than 30 years) and the MRHYN just started drawing payments of $817 after contributing 35+ years.

Both the MIL and the MRHYN would love to get the low end of your 'average"!!!

[Trumpetmaster]

Isn't it based on from a scale on how much you put into the system over the years?

[Shapley]

Isn't it based on from a scale on how much you put into the system over the years?

There is a maximum retirement benefit, which is why there is a salary cut-off on social security taxes.

Social Security Benefits Page

[Trumpetmaster]

Isn't it based on from a scale on how much you put into the system over the years?

There is a maximum retirement benefit, which is why there is a salary cut-off on social security taxes.

Social Security Benefits Page

Understood..

But if you put in less.... then don't you get less?

Example

Wouldn't a person who earns 200K per year put more in than someone earning 50K...
subsequently, a lower payout based on the scale...

Am I in left field on this one???

[Shapley]

The person earning $200,000 will only pay taxes up the cap - currently about $96,000, I think. Thus, their payout will be based on that amount, and how long they've earned that high of a salary. In answer to your question, yes ,the person making $200,000 will receive a higher benefit than a person making $50,000 but not more than a person making $100,000, provided their salary histories and retirement ages are comparable.

Here is a financial calculator. You can play with the wages and ages and compare the results.

V/R
Shapley

[jamiebk]

You are correct TM. If you put in less, then you are able to draw less. I would venture that most people have not met the max income limit each year and therefore have not contributed the max to the program. That's why I do not understand Shaps contention that SS is tantamount to a "hammock". I guess if one choses not to save outside of the system and simply fall back on SS, that's their business. I don't why that would be any of my business. Based on prior postings, I would think that others would agree with that since it is the individual's choice as to how to invest their money (outside of SS).