National Debt

[analog]

Back when his topic was active I read quite a bit on the Social Security site. Also I was about to go on SS.

Among the interesting stuff there is the legislation that established social security. Among the things laid by law out is a duty for the executive branch to look ahead and take action to assure long term solvency for the system. Had Bush not done anything he would have been in violation. I think he got a really bum rap on the issue.

AS originally established SS was a savings plan with the money put away at interest, as Bush proposed moving back toward seventy years later. It took the pre-WW2 congress less than two years to discover what a bonanza SS was for government, and change it to an ordinary tax, making it a 'collect a lot and pay out a little, keep the change as you go' system.

Politicians never change. When SS breaks the treasury congress will blame executive branch for not looking ahead, and probably impeach whoever's there.

Gosh - am I always so cynical?

[Shapley]

My best recollection is that the President admitted that the privatization plan would do little to help those currently retired or nearing retirement. That is only logical, since changes implemented today will have little impact for many years.

However, since it's been a while since I've looked at the proposals, I'll try to research it a little bit and find out what was proposed and what the analysts say about what was proposed.

I found this link right away, but I'll do a little more digging.

V/R
Shapley

[Shapley]

Here's the White House page on Social Security. It's basically just a sales pitch, but includes this statement:

The President has assured Americans that he will not change the Social Security system in any way for those born before 1950.

And this:

Social Security is sound for today’s seniors and for those nearing retirement, but it needs to be fixed for younger workers – our children and grandchildren. The government has made promises it cannot afford to pay for with the current pay-as-you-go system.

In 1950, there were 16 workers to support every one beneficiary of Social Security.
Today, there are only 3.3 workers supporting every Social Security beneficiary.
In 2008 – just three short years from now – baby boomers will begin to retire. And over the next few decades, people will be living longer and benefits are scheduled to increase dramatically. By the time today’s youngest workers turn 65, there will only be 2 workers supporting each beneficiary.

Under the current system, today’s 30-year-old worker will face a 27% benefit cut when he or she reaches normal retirement age.

Here is the 2005 report on social security, which forms the blueprint for the President's plan to include private accounts in the Social Security system. This was not formally submitted to Congress as a part of the budget until the FY 2007 budget proposal was submitted, which is discussed in the Washington Post article I've linked above. The 'sleight of hand' Mr. Sloar refers to in the article refers to the fact that the plan was included in the budget with no fanfare.

V/R
Shapley

[BigJon@Work]

This is what you are afraid of, OT?

Personal retirement accounts would not be eaten up by hidden Wall Street fees.
Personal retirement accounts would be low-cost. The Social Security Administration’s
actuaries project that the ongoing administrative costs for a TSP-style personal account
structure would be roughly 30 basis points or 0.3 percentage points, compared to an average
of 125 basis points for investments in stock mutual funds and 88 basis points in bond mutual
funds in 2003. (http://www.ici.org/issues/fee/fm-v13n5).
• The low costs are made possible by the economies of scale of a centralized
administrative structure, as well as limiting investment options to a small number of
prudent, broadly diversified funds.
• Most of these administrative costs are for recordkeeping which would be done by the
government, not investment management done by Wall Street. (Report of the 1994-
1996 Advisory Council on Social Security, p. 171 & January 31, 2002 Memorandum
from the Social Security Actuary in the Final Report of the President’s Commission
on Social Security, p. 19).

[piqaboo]

Most of these administrative costs are for recordkeeping which would be done by the
government,

It is this that all along has made me wonder why you are in favor of it. These costs are in addition to existing costs to manage SS.

[OperaTenor]

See Piq, you just don't understand.

That kind of doublespeak, back-handed corporate welfare is good for us. Having the taxpayers not only provide Wall Street with a guaranteed source of massive perpetual income, and pay for the booking to boot is what makes free markets so great.

Don't let your judgment be clouded by silly facts and common sense when it comes to this stuff.

Silly girl....

[OperaTenor]

BJ, I'm not afraid of anything.

Highly angered by our transformation into the Corporate States of America, yes, but afraid, no.

[Shapley]

It is this that all along has made me wonder why you are in favor of it. These costs are in addition to existing costs to manage SS.

The anticipated return on the investment should more than offset the difference in cost. Even with a moderate return on investments, the management costs are nearly negligible. Why else would one invest?

Social Security, on the other hand, has a high cost, and has no ownership advantages.

Personally, I think the privatization plan is a great idea, for reasons the proponents won't discuss even if they support it. Initially, the private part of the investment will be minor, something like ten percent, with those over 55 seeing no change in their coverage. Every five years or so, the investment percentage increases, with those under the older system 'grandfathered in', so they see no change in their plan. In a few decades, the bulk of the coverage is private, with Social Security acting solely as a 'safety net'. People owning their own retirement monies, with the ability to pass remaining assets to their heirs. What a concept. It's almost (but not quite) like capitalism!

[Shapley]

Highly angered by our transformation into the Corporate States of America, yes, but afraid, no.

You prefer the Socialist States of America? We're supposed to be founded on freedom. Corporations, at least, are composed of citizens, not agents of the government.

[jamiebk]

Corporations, at least, are composed of citizens, not agents of the government.

Corporations are driven by greed and profit...certainly not the best interest of either employees or the people (customer?) they serve.

[Shapley]

Corporations are driven by greed and profit...certainly not the best interest of either employees or the people (customer?) they serve.

That's a terrible stereotype. I'm part of a corporation. While I am driven by profit (why else incoporate?), I am not driven by greed. Taking care of the employees increases productivity and thus improves profitability, so many of us are interested in taking care of our employees. We do, however, weigh the financial ability to do so against the profitability of the corporation. We cannot provide employee compensation and benefits beyond the ability to maintain a profit, or they (and we) will be unemployed and thus no longer taken care of. Taking care of the customer is likewise business smart - at least in most businesses.

[jamiebk]

That's a terrible stereotype.

It's a stereotype because it is most often true. I have worked for a number of corporations (as I do now). Most will do anything to make a buck and companies like Enron and others, prove it. I worked for a company for 28 years...we were a "family" or so we were told...at least until they decided to cash in the pension plan and basically screw every one of us...all legal of course. I have seen this happen at least twice in my career. All in the name of sharholder value. If you think corporations work to the benefit of employees and customers, you are sadly mistaken. Their "god" is the shareholder and they will do anything to create value for them. This includes paying millions upon millions to THEIR (shareholder/BOD) employees...the CEO's, who feather their own nest at the expense of employees. I will never encourage my kids to work for a large public corporation and you know what?? I don't even have to advise them on this...they already see it for themselves and are smarter than their old man in that regard.

[Haggis@wk]

I will never encourage my kids to work for a large public corporation

"Public Corporation" I agree, NPR and PBS are terrible....Oh, did you mean "Private Corporation"?

Sorry to hear your experiences weren't positive. I've worked for several "corporations" and thoroughly enjoyed the jobs. In Texas Instrument "stock options" are distributed down to the newest employees (my secretary earned 125 options the first 6 months on the job). UPS is an employee owned corporation and the pay, benefits and bonuses were only second to TI's.

I'm a "corporation" of one now and while I appreciate the management, they're kind of cheap with the bonuses.

I assume from your tirade that you didn't qualify for stock options, bonuses, or other perks associated with the more profitable corporations?

[Shapley]

NOw you're saying large, public corporations, earlier you said simply corporations.

The majority of corporations in this nation are not large, public corporations. They may or may not be large, and they may or may not be public. Small business is the backbone of this country, and most small businesses incorporate. Those small businesses may be a franchise holder of a large corporation, but they, themselves, are a small company.

There are bad apples in every bunch. Ultimately, however, a corporation is just a group of citizens that have banded together to make money, and have incorporated to take advantage of the tax and legal benefits that incorporation offers.

From the backyard bicycle shop to all they way up to Microsoft, most businesses are corporations. They are not all, and I doubt if they are mostly, driven by greed.

I've heard more about labour unions robbing the employee pension funds than I have of corporations. However, if the company (or union) retains ownership of the pension fund, then they are at liberty to access it, which sometimes leads to misappropriation. There are laws to protect the pensioners, but the laws are not always perfect. If the employee has ownership of his pension fund, the corporation or the labour union has no access to it to plunder it. This is why the President has been so adamant about 'ownership' of the Social Security funds. The Democrats want the government to own them, which leaves the government free to plunder them. The President's plan (backed by some Republicans, not all) allows the workers to own that share that is invested in private funds.

I don't know where the idea that corporations are corrupt and the government is noble came about, but it is terribly wrong.

I should point out that, after the fall of Enron, Enron stock was still worth more than the Social Security Trust Fund.

V/R
Shapley

[BigJon@Work]

OT, your typed words sure sounds like fear.

I don't think the government should have any costs at all, except regulatory. There is no reason that employers can’t contract directly with private entities to participate in federally mandated savings programs. In fact it would be more efficient that way. I’d think someone like ADP would be delighted to perform that service along with issuing the paychecks. Vanguard and T. Rowe Price could do it too to keep the cost structures low.

How much does the current SS system cost in administration. I understand that their overhead is grossly inflated compared to similar private enterprises.

[jamiebk]

"Public Corporation" I agree, NPR and PBS are terrible....Oh, did you mean "Private Corporation"?

I assume from your tirade that you didn't qualify for stock options, bonuses, or other perks associated with the more profitable corporations?

I should have been more precise...publicly TRADED corporations is where I was going with that.

And yes, I did and still do qualify for options/bonuses and some pretty nice perks. However, there is too much monkey business going on with such things. It would take several pages to explain, but bottom line is that I do not feel that most large companies live up to their obligations/promises to employees.

And to Shapley's point, I agree that merely being a "corporation" does not make it evil. The corporation is simply a form of organization. Any business can be corrupt or honorable. And I also do not mean to say that the govenment is any more honorable. Politicians seem to have their own agendas these days.

[piqaboo]

Splitting one's SS deduction into invested (with cost to manage) and regular SS is not going to reduce the cost of managing the social security system. It will add to it, the cost of ensuring the money is sent where its supposed to go, and any cost associated with the investment itself. Those costs are covered via taxes, and you will have no direct control whether they are reasonable or not. To keep em low, you probably wont be able to move your money around often either. Tracking the moving of money incurs considerable costs.

If you want your money invested, invest it.
I'd prefer to see the gov offer an 'opt out' for SS, in which you could choose to put into the 'savings bank' 0 - 100% of the recommended deduction.
Investment of what you dont put into the 'savings bank' would be up to you. Costs would be yours.
SS benefits upon retirement would be prorated according to 'contributions'.

I absolutely can not grasp why the vocal defenders of what they term the free market (BJ and Shap in particular) are so eager to let the Gov't direct and manage their investments for them.

[Shapley]

[url]I absolutely can not grasp why the vocal defenders of what they term the free market (BJ and Shap in particular) are so eager to let the Gov't direct and manage their investments for them.[/url]

I'm not. I'm old enough that any change in SS now is not going to have enough of an effect one way or the other as to making or breaking my retirement.

I'm interested in the long term. Not for me, but for the long-term financial health of the country, and of future retirees that may find themselves trapped in the system. I explained that in a recent post.

First, I don't want the social security system to go belly up, since we don't have a backup source of financing except higher taxes. Are you comfortable that your retirement income will be safe from the additional taxation needed to finance the system? I'm not.

Second, I don't think the Federal government has any business being in the retirement business in the first place. Unfortunately, we can't just cancel the SS program. As I pointed out in my earlier post, I hope that 'creeping privatization' will infect, and eventually end, the government-run Ponzi scheme we call Social Security. It probably won't happen and, if it does happen, it probably won't happen in my lifetime, but it needs to happen.

Third, I'm all in favour of anything that takes that large chunk of the people's money out of the hands of the politicians. If the plan is properly implemented (which it probably won't be), the privatized funds would be in the hands of investment managers, free from the greedy hands of the politicians who 'borrow' from the current 'trust fund'. This would provide incentive for the politicians to 'live within their means', since there would no longer be the large pool of ready cash to borrow from to reduce the impact of deficit spending. (And, no, I'm not reversing my position on deficit spending, I'm always in favour of cutting the cost of governement and reducing expenditures, particularly on those items that the government engages in that are beyond the scope of what the government is supposed to engage in.)

I'm still amazed that, after all this time, you would continue to believe that my interests in politics are all self-serving. I do not intend to have to rely on SS for my retirment, and I pity those that do. I believe in self-sufficiency, and I think the SS system robs too many people of any sense that they have to be responsible for their own future. If privatization restores even a small amount of that sense of responsibility, it'll be a d**n good start.

V/R
Shapley

[OperaTenor]

I'd prefer to see the gov offer an 'opt out' for SS, in which you could choose to put into the 'savings bank' 0 - 100% of the recommended deduction.
Investment of what you dont put into the 'savings bank' would be up to you. Costs would be yours.
SS benefits upon retirement would be prorated according to 'contributions'.

I don't think this would be a feasible option. Part of the success of the SS system is having a contribution pool the size of the entire U.S. population to utilize to get a return on investment. IOW, size matters....

:leaving:

[Shapley]

IOW, Those most likely to 'opt out' would be the higher-wage earners, the ones who will most likely pay more into the system than they will ever draw out of it.

This is the reason the initial proposals for privatization are relatively modest, usually about 10% of the funds removed from the 'pool' and placed in personal savings accounts. The remaining 90% would be sufficient to prevent any undue hardship to the funding of the current system. Since the current 'pool' of money is really a 'pool' of IOU's, the ability to meet current and future demand on the system requires that income be maintained at or near current levels.

As the mass-retirement of 'baby-boomers' begins, the demand on the current system will rise to meet, and then to exceed, the income. The only way to prevent long-term failure is to either a) increase income (higher taxes) or b) decrease payments. Democrats support the a) alternative (no surprise there), while many Republicans prefer b). However, in order to not create undue hardship when SS payments are decreased, it is necessary to supplement that income with an alternative source, such as retirement income from a personal retirement fund. This is the goal of privatization.

Unless someone can find a c) alternative, I would say you have to be willing to live with either a) or b). It is my position that b) will be much less painful, both to the individual citizens and to the economy, than a).

V/R
Shapley