Social Security Reform Would Be Good – Just Not The Reform Proposed

I’m neither a demographer nor an actuary, and neither (odds are) are you. I have done a fair amount of time-based financial analysis, and discovered early in my career what I call The Miracle Of Compound Interest – the simple fact that projecting growth forward more than a decade is a fool’s game, because in reality what you’re testing are certain key starting assumptions and the relative growth rate of the components of the model.

I got to be pretty good at modeling, and once claimed that, given time and a large enough spreadsheet, I could make a model stand up and sing “The Star Spangled Banner” if I so chose.

So, personally, I’m wary of claims that Social Security will (or won’t) have a deficit of exactly $4,325,368,753.221.75 in 2055. You should be too.

But that doesn’t mean we can’t and shouldn’t look at trends.

There are a few key ones.
Demographically, we’re going to have a problem – not as bad as Europe and Asia – as the retiree/ worker ratios change due to declining birthrates and increased longevity. In our case, immigration – and more important, participation of immigrants in the labor force – will mask a lot of that.

We have a couple of financial issues as well. The trend of wages is slightly down, in real dollars – but my benefits will be pegged to my higher wages, while the numerically fewer new workers who will pay for me will probably have lower wages as well.

There’s also a basic ‘values’ type issue around Social Security. It was sold as ‘social insurance’ – in essence, a welfare plan. Many of us somehow had the impression that we were getting our own money back – that it was a pension plan – but we aren’t, and as far as my cursory reading can find, no one in Social Security ever did. It has always been a welfare program. It looks like a pension plan, and we act like it’s a pension plan, but it’s not.

We middle-class folks have a horrible savings deficit in this country, as we live increasingly on credit (ask me how I know…) and our net worth is increasingly concentrated in our homes.

It’s likely that some adjustments will need to be made in Social Security to pay for my late retirement and for the retirement of the cohorts after me.

Bush has a plan to do two things: convert it into a pension plan, away from a welfare plan, and to try and raise the rate of return (one of the magic growth rates) by allowing some investment in the stock markets.

I’m agin’ it.

But probably not for the reasons you’d assume…

First, I think there is a real issue with Social Security as a welfare program and not a pension program. The benefits are not means-tested – which would make sense if it was my own money that I will get back, but since it’s not, is a tribute to the lobbying power of AARP. The fact that it’s welfare does expose each cohort to demographic risk, which they could be insulated from if it were a true pension plan.

As a welfare program, it’s also somewhat regressive in that only incomes up to approximately $80,000 are taxed.

So there is some logic on transitioning Social Security toward becoming a national pension plan and away from becoming a pure welfare program – as it is constituted today.

But Bush’s plan has some obvious problems.

I’ll skip the macro market effects of pumping a few billion or so a year into the markets, and the obvious windfall this would represent to Wall Street. (we’ll come back to that, though)

The real problem is that he won’t politically be able to get away from the welfare aspects of the program.

Concern about market volatility has prompted some analysts and policy makers to explore the possibility of “guarantees” of pension accumulations. In many cases, the desire for a “guarantee” is premised on the mistaken notion that the current Social Security system provides a guaranteed benefit. This is untrue. While the defined benefit formula does not subject individuals to financial market uncertainty, the formula itself can be changed and has been changed in the US numerous times in the past. This political risk to benefits is all the more real because the Social Security system faces perpetual financing deficits starting in the middle of the next decade, such that currently scheduled benefits cannot be paid.

A different form of guarantee might promise participants they will receive their contributions plus some minimum rate of return. For example, the design might promise participants that they will receive their contributions plus a return on government bonds (e.g., the returns on a 10-year Treasury bond index fund).

Final Report, pp 143-144

So I’ll bet – since politically it’s damn unlikely that we’ll vote to starve the seniors who lose their pension nest eggs – we’re going to wind up with something that looks a lot like what we have now, shifts the nominal accounting over to a pension plan and away from a welfare program, and then layers on some form of a welfare program. The worst of both worlds – continued budget impacts of the welfare model, financial market losses, and overhead from fund management.

But there is some logic in shifting toward a pension plan.

There’s even more logic in rationalizing the welfare aspects of the current plan first.

Should Social Security benefits be means-tested? Absolutely. That’s not your money you’re getting back, it your kid’s money. Actually, as this paper (a PDF by actual actuaries) suggests, taxing Social Security benefits of higher-income retirees more aggressively makes a lot of sense.

Should Social Security wages stop at $80,000? Why? Income taxes don’t stop there. Why cap them at all? Why not lift the cap, and lower the rate for everyone.

I’m guessing that with those two changes (obviously, the numbers depend on the exact percentages) the program could retain solvency and maintain it’s existence as a welfare program.

But that doesn’t do two things, which are valuable in the Bush proposal.

First, we need to up the rate of savings in the society.

My conservative friends will choke, but why not layer on a Federal pension plan to the existing social security plan (particularly since I’d bet that when Congress is done, that’s what we’ll wind with anyway?)

Yeah, yeah, I know, it’s your money. But it’ll still be your money to invest and pull out when you retire – it’s not like they’re giving it to crack babies or buying arms with it or whatever your personal nightmare of government misspending may be. And sadly, looking at the statistics, none of us are doing our part in saving and capital formation.

Am I like Solomon or what?

Welfare and pensions; we can have them both – but why not make them explicit so that we can all understand them? Why come up with a blended program that makes it too complex for the average person to understand what’s being done?

38 thoughts on “Social Security Reform Would Be Good – Just Not The Reform Proposed”

  1. The social security tax should be moved from an income tax to a sales tax ( exempting food and shelter ) for several reasons. first demographic trends are locked in for a declining worker to recipient ratio, but the population of consumers is far more stable.
    Second applying the tax only until 80,000 of income is regressive and while common thinking is that sales taxes are regressive, exempting food and shelter means the tax falls largely on discretionary spending. The people with high amounts of income are the big discretionary spenders as are their spouses and children. this kind of tax will be far less regressive in practice.
    Third one of the hidden effects of taxing income is that the tax falls on workers and companies manufacturing goods in America but not on workers and companies manufacturing offshore. The social security tax becomes a backdoor subsidy to foreign manufacturers. A sales tax format would fall on American and foreign companies equally helping american competitiveness without violating free trade principals.
    These ideas may not be popular but change is necessarry and secondary effects should be considered.

  2. I agree that the first step should be to re-invent Social Security as insurance rather than a pension. It should be means-tested. Doing that would lower the amount required to finance the program, and would give the country the chance to lower the SS tax. For this program we should basically be saying “Here is what we will provide for those who can not or will not provide for their own retirment or disability. Doesn’t depend on how much you paid into the program, this is the charity of a nation.”

    If that was done (notice I am not, repeat not, holding my breath) then the whole issue of gaining control over your pseudo-pension would be moot. An official pension plan could be set up for those who wanted to invest within the sheltering arms of the government, but otherwise we would be free to plan for our retirement (or not) as we saw fit.

    My ulterior motive in this would be to make it easier to move towards a fair tax, consumption tax, whatever, and away from an income tax. Reducing the SS tax burden would reduce the rate of taxation required to replace the income/SS tax, and going to a consumption tax might provide some incentive to increase savings as well. It would also place the burden of SS across all taxpayers, rather than only those working.

    To get this done there would probably have to be some sort of buyout, perhaps paying a lump some to some who have been paying SS tax for X number of years, and/or guaranteeing the current recipients their expected level payments until they die. That would lengthen the time needed to see real benefits to the change, but would likely be necessary politically to make it happen.

    I think it all boils down for me to a deep longing to hear straight talk from the government.

  3. It’s often said that we need to up the rate of savings in this society. But, here are some indicators in the other direction (a) Corporations are carrying hundreds of billions in cash equivalents on their balance sheets, (b) Venture capital firms are taking a long time to invest their recent funds, and in some cases even returning money to investors, (c) Returns on most types of investments are now pretty low.

    Doesn’t all of this imply that a couple of trillion in new savings/investment may not be as necessary as often claimed?

  4. I think if you look at savings as a whole you might have an argument that additional savings aren’t needed .. or even may depress returns for existing investments.

    Where I see the importance of additional savings is with individuals. It is important for individuals to increase their rate of savings, so that they aren’t paying interest on loans to cover the basics of life, so they can more easily grow their own wealth and so they don’t have to rely on others for charity … or Social Security

    I want self-sufficient citizens, and a surplus of corporate cash doesn’t necessarily buy us those.

  5. “That’s not your money you’re getting back, it your kid’s money.”

    And I knew it was a con game from the first dime I contributed. Cooked up by a wonderfully “progressive” minded bunch of scheming liars. But now that I’ve played for forty years, if you think my kids (or your kids) are getting off the hook, you’re crazy. My parents didn’t receive a dime from the Ponzi scheme (didn’t make it to the magic number). They both payed in for their entire working lives. Where do I sign up to get the inheritance that the progressives looted from me?

    A nice new tax and a reduction in benefits? Well, as the Dems said when Reagan sent up his budgets: “That baby is DOA”.

  6. For the dollar to drop to 1% of its current value in 50 years will require a sustained compound rate of inflation slightly in excess of 10% for the entire period. That is highly unlikely, especially since dealing with debt (either by repayment or by default) is by its nature _deflationary_ not inflationary.

    One key issue is indeed personal savings, the ultimate source of capital formation. Ideally _all_ savings and the growth thereon should be pre-tax money; but that will require elimination of income taxes, which is not about to happen.

    Ultimately government expenditures in real terms will have to decrease if we are to enable a savings-driven resolution of future Social Security problems.

    The core problem as I see it is that legislators are not forced to prioritise expenditures. What it will take is some constitutional mandate such as … except in time of Congressionally-declared war, federal government expenditures shall be limited to 16% of the officially posted GDP for the previous fiscal year.

    We must cap government expenditures — constitutionally — before we can shift to a tax system combining sales tax, highly simplified flat tax on incomes above, say, $50,000, and a _reasonable_ graduated sur-tax on maybe the top 5%.

    And in all honesty I think we have to implement those sorts of changes in the tax system before most Social Security reform attempts will be anything other than tinkering around the margins.

    In the interim, however, even something as simple as letting employees currently under age 50 direct a substantial percentage of their social security tax into an IRA-equivalent medium-term US Treasury Note fund would make a huge difference in their ultimate retirement income.
    .

  7. Social Security is a joke. It’s a glorified pyramid scheme that’s doomed to fail (and excuse me for stating the obvious – just a little venting). I’ve paid into it for decades and frankly don’t expect to see a dime of it in return. I think of it as a charitable contribution to today’s retirees.

    I’d like to see the whole system ultimately scrapped, but I’m not holding my breath. I like the idea of two separate systems as opposed to a combined one, as it better allows for the ultimate revokation of the welfare portion of the plan. I’d also like to see income tax scrapped and replaced with a consumption tax. The biggest problem with both ideas – reforming SS and taxes – isn’t about dollars and cents – it’s about people’s fear of change. That’s what we have to overcome in order to ever see real reform.

  8. “That’s not your money you’re getting back, it your kid’s money”…variations of this statement are often made, but I think it’s a questionable formulation. Analogy: Suppose I buy a 30-year corporate bond. The corporation gets the purchase price and spends it now. 10, 20, and 30 years later, future generations of corporate managers and workers are responsible for generating the money to pay the interest and principal on that bond. Would anyone say “That’s not the bondholders money he’s getting back, it’s the company’s money?” Of course not. Why is the SS situation different?

  9. Politically, the key point is that SS has been sold for nearly seventy years as a defined-benefits pension plan, not as welfare. That is why there is a separate payroll tax, so that the myth that benefits are somehow related to contributed can be sustained.

    If it were admitted that SS was welfare, the payroll tax could be abolished, and SS could indeed be funded out of general revenues. But if it were admitted that SS was welfare, many who are now unconditional supporters of it would then take a hard look at it.

  10. John puts his finger on it: Those of us who pay attention have long known that social security is a Ponzi scheme that would be illegal for all but the government. It has, however, been equally as long sold to the public as a pension scheme that would be there no matter what. Openly admit that it’s yet another transfer payment, and the eyes of the many of the electorate who have not been paying attention will be opened. Watch the consensus around SS collapse just at the time the real demographic stress hits.

  11. How to get out of this fix?

    Well, first and foremost, deregulate the medical sector from top to bottom. That ups the chances that technological advances will make retirement itself obsolete by the time Social Security becomes a problem.

    Second, we don’t need to add more mechanisms to take money away from us and give it back to us later. What we need to be doing is come up with a politically feasible way to reduce benefits, in order to avoid piling tax increase on top of tax increase to burden the next generation of workers.

    The best way I can think of is to raise the retirement age, and keep on raising it until no more shortfall looms. Also, indexing benefits to prices makes a lot more sense than indexing them to wages.

    Either way, 15% of our income is plenty for us to be paying in, and our children should not be paying more than that.

    As for the savings & investment rate – start deregulating various industries, and there’ll be lots of new attractive places for us to invest our money. Then just leave us the hell alone and let us pick the best use for our money, instead of dreaming up new ways to hold our money for us for 40 years “for our own good”.

  12. Means testing the benefits and removing the income cap would mean that Social Security would go from being a really bad deal for well-off taxpayers to being a really, really, really bad deal.

    The facts that

    1) there are limits to what anyone has to put into the system, and
    2) that everybody gets something out of it

    was instrumental in making SS popular enough to pass in the first place and probably is critical in maintaining support for it. If the system were converted to a means-tested welfare system with no max on the yearly taxes, there would be strong pressure for reform in the SS welfare program comparable to what happened with general welfare program. The likely direction would be to assure people would not become a burden in old age by some sort of forced individualized savings programs. Which, come to think of it, would mean ending up somewhere in the vicinity of Bush’s proposal.

  13. My own thoughts on reforming Social Security and Medicare (which together have an actuarial deficit of some seventy trillion) would be to ultimately reduce the relative size of both programs but in such a way that moves towards a system in which individuals assume more personal responsibility for their own retirement and health care while at the same time working within the political consensus that there ought to be some sort of safety net for the truly (and/or deserving) needy. Some staring points that I would suggest are:

    1) No tax increases for either Social Security or Medicare (including raising the earning limits on income or establishing some new “wealth” tax). These two programs already consume 43% of the federal budget and growing and there is no reason why almost half of the federal budget ought to be spent on something that most people could and should do for themselves.

    2) Phase in a higher retirement age for Social Security and Medicare that won’t affect current retirees or those about to retire while still providing some sort of “safety net” for those workers that are truly physically incapable of continuing to work (similar to the disability portion of OASDI and Medicaid). People are living longer and it is ridiculous (particularly since about the mid-1990’s most people are classified as white collar rather than blue collar workers) to keep the same retirement age.

    3) Slow down the rate of growth of Social Security while still keeping benefits current with inflation by fixing the COLAs (which overstate inflation) and/or indexing benefits to prices rather than wages.

    4) Means test the program so that those who truly “need” it receive benefits while those who cannot afford to go without receive none. I think Senator Kerry established the benchmark when he said that people earning more than $100,000 a year* don’t “need” to keep more of their own money. At the very least they don’t “need” to get more of someone else’s money by receiving Social Security and/or Medicare benefits. This would acknowledge that both Social Security and Medicare are ultimately welfare programs and you no more have a “right” to receive what you “paid into” these programs than you have a “right” to receive ethanol subsidies or food stamps.

    5) Let younger worker opt out (thereby reducing the programs’ unfunded liabilities) and invest a portion of their payroll taxes in order to provide for their own retirement and health care in exchange for less government “benefits” in the future. That’s the option we’re talking about now and while it means less benefit cuts than if we don’t do it, it alone is probably not enough to fix the entire problem. But it does reduce the problem to a more manageable size than if we don’t while at the same time putting more focus on personal responsibility and letting at least younger workers work towards building their own nest eggs.

    I have some other thoughts on Medicare reform (and health care reform in general) but I’ll save those for another thread so we can keep the focus on Social Security.

    * I’m not wedded to $100K a year and it may make more sense to look at assets rather than income for retirees, so I’m relatively flexible on suggestions for the best ways to means-test.

  14. Let’s be honest about what’s going on here: Old people are using the police to mug younger people at gunpoint.

    That’s it. That’s all.

    Do we approve of this? If so, you won’t mind if I carjack you later on this week, right?

    This ridululous mutual plunder scheme should be abolished immediately and totally, if for no other reason than it’s corrosive to the ethics of the general population.

  15. Frankly, I think most of those above who are advocating more radical reform don’t recognize the enormity of the societal change that would be required. Let’s just take one example. You say you want to raise the retirement age? Fine. In technical jobs—other than those protected by licensing like medicine—workers face a higher and higher likelihood of being laid off the more years they are above 50. So what are you advocating that a 50 year old worker do between the time he or she is laid off and the 20 or 30 years until they can afford to retire? Get a law degree? Who’s going to hire a 50 year old starting lawyer? Work at McDonald’s? How will they put their kids through college?

    And you’re also ignoring the reality that real disposable income just isn’t what it was 25 years ago. Save from what? The average income for a family of 4 is just over $36,000 in this country.

    Can anyone here give an example of a federal tax that’s actually been abolished? I can’t think of one. The likelihood of FICA actually being eliminated is zero. So that means that all of the additional savings you’re talking about will come about by reducing consumption. We might be able to survive a sharp decrease in consumer spending in this country but the economies of the Third World (where a lot of our consumer products are made) never will.

  16. _Old people are using the police to mug younger people at gunpoint._

    True, but my parents and grandparents are in one of these gangs. I’m so embarassed.

  17. Social Security(SS) is not CURRENTLY in crisis. The excess money has been lent to OUR federal government(spent by both Democrats and Republicans for different things) which owes SS a substantial sum of money. In order to pay it back OUR federal government must either raise taxes to pay us back our own money(assuming we paid in what we get back which isn’t the case) or reduce spending by OUR federal government(insert cynical comment here).

    Depending how the economy grows over the next five decades, for arguments sake, we will reach the point where there are more of US receiveing SS than paying into the system. So in order to keep the current levels of benefits we have to make some changes. Taxing all income, raising the age WE can receive SS, reducing the COLA’s which determine the rate SS is increased every year, changes to the time period over which COLA’s are calculated are all possible and probably all are necessary to keep the current payout. What we don’t know is what the economy will bring, what demographics(how long we live) might change and how that will effect WHEN the number of people working and the level of their wages subject to the current level of taxation will not support this CURRENT system.

    What I perceive as the REAL PROBLEM is that SS is a committment to EVERYONE in this country and there are people in the USA who do not like the idea that EVERYONE in AMERICA receives some financial gain from it. Yes I may die and not get back a penny but my widow does, so do my children below a certain age and my countrymen one and all whether I know them or not, agree with their religious beliefs, politics, et al. SS pays back at the same rate of investment to EVERYONE in a given year. It is one of the social compacts for US all.

    So let’s begin with a recogniztion that we can delay the problem of enough workers by small gradual changes in how we pay out SS taking into account the fact we live longer. We will have to monitor often.

    Two, recognizing this change and the fact that retirement income has changed(from defined-benefits from a corporate or government pension to IRA’s, Keogh’s, deferred income plans for example)for many people who have either and not much at all for those whom have saved the best they can, HOW DO WE CONVINCE EVERYONE OF THE NEED TO SAVE MORE FOR RETIREMENT? WHAT CONSEQUENCES DOES THIS SAVING HAVE FOR OUR ECONOMY AS IT IS CURRENTLY OPERATING?

    Three, the money our federal government owes SS has to come from somewhere. That place is welfare.
    Welfare is more difficult to deal with because it carries so much baggage. Is it the money that goes to children of fatherless families? Is it the tax benefit that lessens ones income because one has mortgage interest expense? Is it the subsidy to the drug industry that comes via NIH grants? What about Medicare for the elderly and Medicaid for the low-income and non income earners among us? So I am for making welfare explicit and easy to understand as government expenditures. I just want us to recognize that WELFARE is ALL government expenditures. The way the expenditures benefit US individually is different and not always obvious.

  18. Dave Schuler wrote:

    Frankly, I think most of those above who are advocating more radical reform don’t recognize the enormity of the societal change that would be required.

    There was an election in which two candidates representing the two major mainstream parties each presented their respective proposals for dealing with Social Security. The conservative candidate advocated allowing younger workers to invest a portion of FICA, opposed any tax increase, had a commission that advocated slowing the rate of growth of the program, and said he would not rule out raising the retirement age. The liberal candidate said that working class people are too stupid to control their own money, that we could always raise taxes (again), and then stuck his fingers in his ears and said “la, la, la, what problem? Vote for me, I went to Vietnam.”

    In essence, their respective supporters and those on either side of the political spectrum have taken pretty much the same position.

    Let’s just take one example. You say you want to raise the retirement age? Fine. In technical jobs—other than those protected by licensing like medicine—workers face a higher and higher likelihood of being laid off the more years they are above 50. So what are you advocating that a 50 year old worker do between the time he or she is laid off and the 20 or 30 years until they can afford to retire?

    I’d advocate that this hypothetical 50-year old worker does pretty much the same thing that s/he would have to do under the current system where s/he would have to wait another 16 years to fully retire on Social Security, except that they would have to do it for an additional 3-6 years since most of the proposals for raising the retirement age are to raise it to about 70-72 from the current 66* (for people born in 1950) or 67 for full-retirement. The “20 to 30” years cited by Dave Schuler is simply a strawman argument that has nothing to do with the actual retirement age or any of the proposals for raising it.

    And you’re also ignoring the reality that real disposable income just isn’t what it was 25 years ago. Save from what? The average income for a family of 4 is just over $36,000 in this country.

    Which is a great argument in favor of letting them invest all or part of the 11.67 percent that they’re being forced to fork over for OASDI and getting a higher rate of return while being able to bequeath it to their heirs should (G-d forbid) something happen to the primary earner.

    Can anyone here give an example of a federal tax that’s actually been abolished? I can’t think of one. The likelihood of FICA actually being eliminated is zero.

    That’s nice but it really has nothing to do with any of the serious proposals being floated about. There are some who would suggest replacing FICA with a different tax either a consumption tax or a “wealth” tax, but even so, those proposing that are suggesting replacing one tax with another rather than a simple elimination of a tax with nothing to replace it.

  19. You’re largely right, Robert M. And it also bears mentioning that the trust fund that could have been saved for the retirement of the Baby Boomers has been spent on college loans, highways, and the military that we have today or any of the thousands of things that the federal government spends our money on. So if you got a federal college loan, commute to work on an Interstate Highway, or appreciate the military that we have, it’s a little late to be complaining about the burdens of Social Security.

  20. Thorley, I agree with you that both political parties have been completely irresponsible on the subject of Social Security for all of my not inconsiderable lifetime. And I’ll acknowledge that my retirement age argument was a bit of a strawman. But you really should consider that most people do quite a bit of their saving in what used to be referred to as their “prime earning years”. I’m not exaggerating the situation WRT technical workers in this country. According to the EE professional organization 8% of electrical engineers are unemployed in this country. That’s the highest in history.

    The Bush Administration is considering borrowing to pay for the transition to some level of private accounts IIRC. Nobody is talking about abolishing FICA. You really need to have some basis for believing that the tax will actually be eliminated. Saying that is just has to be is nice but if it’s without precedent you’re on thin ice.

  21. Robert M wrote:

    Social Security(SS) is not CURRENTLY in crisis. The excess money has been lent to OUR federal government(spent by both Democrats and Republicans for different things) which owes SS a substantial sum of money.

    It should be stated (for those who still buy into the “there wouldn’t be a problem if Congress had kept its hands out of the trust fund” argument) that the projections as far as when Social Security will begin paying out more than it takes in are independent of the trust fund and when the program runs out of money are based on the assumption that the trust fund is replenished. In other words, suggesting that the problem is that the trust fund has been raided by Congress is a non-starter. It may make fixing it more difficult but the problem is there regardless.

    What I perceive as the REAL PROBLEM is that SS is a committment to EVERYONE in this country and there are people in the USA who do not like the idea that EVERYONE in AMERICA receives some financial gain from it. Yes I may die and not get back a penny but my widow does, so do my children below a certain age and my countrymen one and all whether I know them or not, agree with their religious beliefs, politics, et al. SS pays back at the same rate of investment to EVERYONE in a given year. It is one of the social compacts for US all.

    Which is an utter lie since (a) younger workers receive a much smaller (e.g. negative) rate of return than older workers and (b) people who die without children or a spouse get zero benefits.

  22. BTW, Thorley, in my ideal world we would never have initiated the Social Security program. But that decision was made long before I was born and I see no politically realistic and practically workable way of dismounting that tiger. I’m not opposed to some of the FICA receipts being invested in equities. IIRC something of that sort was proposed during the Clinton Administration. It’s unclear to me that individual accounts have an overall benefit to the society. And I’m not as concerned about the corporate governance issues that were raised in opposition to the proposal I just mentioned as its opponents were.

  23. Dave Schuler wrote:

    You’re largely right, Robert M. And it also bears mentioning that the trust fund that could have been saved for the retirement of the Baby Boomers has been spent on college loans, highways, and the military that we have today or any of the thousands of things that the federal government spends our money on. So if you got a federal college loan, commute to work on an Interstate Highway, or appreciate the military that we have, it’s a little late to be complaining about the burdens of Social Security.

    The idea that if you agree with military spending (one of the few things that the federal government does that is authorized by the Constitution) that it follows that you must accept wealth redistribution as well is such a crock of bull****. We would still have a military even if we did not have Social Security and there is no reason why one must accept the latter to have the former.

    Thorley, I agree with you that both political parties have been completely irresponsible on the subject of Social Security for all of my not inconsiderable lifetime.

    Which is a strawman since I said no such thing. Bush has clearly done what no one such Goldwater has done and stepped us to address the issue in stark contrast to both of his opponents and their party who are largely responsible for creating this mess in the first place.

    And I’ll acknowledge that my retirement age argument was a bit of a strawman.

    More like completely a strawman argument that frankly made you look ridiculous for trying to conflate a 3-6 year increase in the retirement age to 20-30 years.

    The Bush Administration is considering borrowing to pay for the transition to some level of private accounts IIRC.

    Which even if it did so and it is not a foregone conclusion that it will do that, would put us money ahead since the “transition costs” (which are really putting the already-existing unfunded liabilities on the balance sheet rather than pretending they don’t exist) are smaller than they would otherwise be if kept the status quo. The reason being that on the aggregate each worker is promised more in benefits than s/he pays in “contributions” (read: FICA) and letting a worker opt out and invest part of their FICA in exchange for a lower benefit (even if you have to borrow to make up the difference which at the risk free rate is pretty much the time value of money) makes us better off than before.

    Personally I would prefer that we cut spending to finance the “transition” but would accept borrowing to move towards a PRA system. More than likely it will be a combination of the two since Bush is more likely to (a) support phasing in a higher retirement age and (b) support slowing the rate of growth of the program either through COLA adjustment and/or going from wage-indexing to price-indexing. Either of which mitigates the transition as well as the already-existing actuarial deficit of the program.

  24. “Frankly, I think most of those above who are advocating more radical reform don’t recognize the enormity of the societal change that would be required. Let’s just take one example. You say you want to raise the retirement age? Fine. In technical jobs—other than those protected by licensing like medicine—workers face a higher and higher likelihood of being laid off the more years they are above 50.”

    Drop the tax advantage for group health insurance, and get individuals to buy their own instead of everyone getting it from the company store, and employer’s won’t have nearly as much reason to care how old you are or how much you cost to insure.

    “So what are you advocating that a 50 year old worker do between the time he or she is laid off and the 20 or 30 years until they can afford to retire? Get a law degree? Who’s going to hire a 50 year old starting lawyer?”

    Someone who isn’t on the hook for his medical bills.

    “Work at McDonald’s? How will they put their kids through college?”

    They won’t. The kids can borrow to put themselves through college. If it’s a profitable investment, they’ll still come out ahead. If it’s a losing investment, why should Daddy or anyone else pay for it?

    “And you’re also ignoring the reality that real disposable income just isn’t what it was 25 years ago. Save from what? The average income for a family of 4 is just over $36,000 in this country.”

    Real disposable income has been subject to two countervailing influences. Products from lightly regulated industries have had their prices dropping like rocks while their features and quality have become positively science-fiction-like. Products in heavily regulated industries have had their prices stay constant or increase while their quality and features improved much more slowly. And, of course, you can’t buy the same things you bought 25 years ago – in several product categories, including houses and cars, you are often required by law to buy a significantly upgraded version from what was considered acceptable back in those days, and that costs real money, especially when you’re talking regulated products that haven’t been posting very impressive price/quality improvements.

    “Can anyone here give an example of a federal tax that’s actually been abolished? I can’t think of one.”

    I can think of a couple that should be abolished. If all you want to talk about is what’s already been done, then what’s the point of talking about what should be done about the increasing costs of providing Social Security benefits?

    “The likelihood of FICA actually being eliminated is zero. So that means that all of the additional savings you’re talking about will come about by reducing consumption.”

    There’s an awful lot of territory between FICA being eliminated and FICA staying exactly the same (or, Heaven forbid, increasing further). If FICA is reduced, but not eliminated, the difference can be saved with no reduction in consumption.

  25. bq. “Frankly, I think most of those above who are advocating more radical reform don’t recognize the enormity of the societal change that would be required.”

    I do advocate radical reform of the free-wheeling ways of our various governments, and understand that to do so would impact all of us quite profoundly.

    I am afraid that such reforms are impossible because the societal change needed will scare many. In this day and age where we seek the proverbial free lunch with government-sponsored lotteries and tobacco (what next) litigation payouts, what hope does a platform of personal responsibilty have?

    Even the President can’t bring himself to say the R-word, and has to use the less frightening phrase “ownership society” in the hopes of slipping it by while we aren’t looking.

  26. >>True, but my parents and grandparents are in one of these gangs. I’m so embarassed.

    Indeed you should be. These people consider themselves to be decent and reasonable, yet think nothing of using the State to plunder their fellow citizens.

    Whatever name we use to describe these forms of socialism — welfare, transfer payments, etc — it’s still theft.

    Let us be rid of it, once and for all.

  27. Dave Schuler: “BTW most of Thorley’s $70 trillion is Medicare rather than Social Security. Medicare is already in default i.e. spends more than it takes in. That’s the one to solve.”

    Attack the source of the problem, rising health care costs for the elderly.

    Alzheimer’s Disease is projected to significantly increase the Medicare burden. Life style changes, nutrition, and cheap drugs (e.g. aspirin) can reduce the probability of developing Alzheimer’s Disease. Research into a cure is very promising. The US should aggressively fund efforts to prevent and cure Alzheimer’s Disease.

    Similar efforts are possible for heart disease and cancer.

    The government should aggressively target every disease that is projected to become a major Medicare burden in order to develop inexpensive prevention or cure.

    If you want people to accept delayed retirement then you will need to prevent, cure, or compensate for the mental and physical aging effects. (People age at different rates. Some people in their seventies are active, vital, creative, and sharp. Others are losing it by their fifties.)

    Turn the elderly into an asset rather than a burden. Modern biotech and medicine make it possible.

  28. For everyone jumping up and down about how SS is theft, and its imposition was – at best – a criminal act, let me suggest reading some history about the political state of the country during the Depression.

    FDR was facing populist and Socialist movements that threatened to collapse the political system – as political systems in Europe collapsed, and managed his way through the problem pretty well.

    I’ll also suggest that it’s been almost 100 years since the imposition of things like income taxes, and at some point it’s more worthwhle to discuss how to improve the nation we have than to dream of the nation we believe we once were.

    A.L.

  29. “Products from lightly regulated industries have had their prices dropping like rocks…Products in heavily regulated industries have had their prices stay constant or increase..” Regulation is one factor that distinuishes between industries where price is going “up” and price is going “down” but it is not the only one. In general, manufactured goods tend to go down much faster than services…the production can be more highly rationalized and can be done with less concern for location. Even if there were no regulation at all, I don’t think the prices of restaurant meals, haircuts, appliance repair etc would be dropping like VCR prices.

  30. “FDR was facing populist and Socialist movements that threatened to collapse the political system – as political systems in Europe collapsed, and managed his way through the problem pretty well.”

    FDR was leading a socialist movement! It was the Supreme Court that limited FDR’s socialism, not FDR that limited anyone else’s socialism.

    Not to mention that, even if you assume that he was not a socialist in outlook or intent, he hardly covered himself in glory by engaging in appeasement. These characters were not honorable political opponents with differing interpretations of American political traditions – their goal was to overturn and destroy any part of America’s constitution and political theory that stood in the way of them grabbing their loot. Rolling over and letting them get away with even part of their plans was not exactly America’s finest hour.

    But you’re right that we’ll probably have to wait for America 2.0 to get off the ground (literally) to undo all of the damage.

  31. Ken –

    4 people for you to check out:

    Upton Sinclair
    Francis Townsend
    Huey Long
    Father Coughlin

    …this was the force that Roosevelt was balancing, and unlike Europe, none of them managed to create a ‘Labor’ party – because of the actions of Roosevelt’s Presidency.

    A.L.

  32. AARP President Marie Smith Tells Black Leadership “No Social Security Crisis…”

    Atlanta was the hot spot. Tavis Smiley hosted his annual symposium “The State of the Black Union.” The forum was held at Rev. Eddie Long’s New Birth Missionary Baptist Church. The program focused on defining the African American Agenda. Rev. Jesse Jackson, Rainbow/PUSH Coalition took opportunity to explain to those gathered that the Black Congressional Caucus has in place a ten (10) point plan of action. But regardless of the question of whether or not the agenda set forth by the Caucus is the substance of this group’s covenant the forum did establish that the process will include a community unity.

    Today, black leaders voiced a need to advance the community. Freedom was the agenda until 1864. Civil rights, voting rights and access to public accomodations followed from 1864 to 1964. Leveraging the black community’s collective capital appears to be the new covenant.

    They voiced a concern that Democrats have taken the black community for granted and the republican party “just takes, using blacks who really have no power to lead.”

    The highmark of the event was when the Honorable Louis Farrakhan, Nation of Islam, explained to the group that “regardless of where we have been, we want to advance our people.” He said, ” black children can’t eat at the table of illusion and hypocrisy.” He added, “we can’t focus on the house that denied us access for 400 years.” He closed, “the hell with democrats and republicans.”

    These African American leaders, carrying the history and weight of the black experience want group unity. They appear to have found meaning in their individuality and heritage. It’s more than a common skin pigmentation. It has now become a community based on a social phenomenon of systematic and comprehensive forces that only those challenged by a longstanding history of discrimination and violence may understand.

    The Need:

    The level playing field remains more illusion than reality… Since the start of George W. Bush presidency in January 2000 a general concern in the African American community was voiced that on issues that are of the greatest importance to millions of Americans, the President’s policies are misplaced priorities. The uncertainty continued into 2004 election.

    But there’s one truth above all others in second term elections. They are referendums on the incumbent. So as hard as it is to accept, there are other Americans outside the African American community that like the job that George W. Bush is doing. And, with re-election he’s not an asterisk anymore alone among American presidents. That is, riding the votes of 59 million (other)Americans, he’s the president regardless of the fact that majority of African Americans who voted would rather have had the other guy.

    So… it’s time to move on. African Americans must put their differences aside. American identity is not a function of birthright but a way of life. The African American community must keep moving toward the America identity it believes is possible. Isn’t democracy great?

    Some argue “African American leaders judges America from the utopian standard, never comparing America to anything other but the Garden of Eden (immigrants, for example, are said to compare America to their old country).” But, it has been only forty years since separate water fountains of Jim Crow prohibitions and many Americans would now like to proceed as if the slate is clean and the scale is balanced.

    The upward strides of many African Americans into the middle class have given the illusion that race cannot be the barrier that some make it out to be. However, one in four African Americans continue to live below the official poverty line (versus approximately one in nine whites). The optimistic assumption of the 1970s and 1980s was that upwardly mobile African Americans were quietly integrating formerly all-white occupations, businesses, neighborhoods, and social clubs. Black middle- and working-class families were moving out of all-black urban neighborhoods and into the suburbs. But, the one black doctor who lives in an exclusive white suburb and the few African American lawyers who work at a large firm are not representative of the today’s black community. And although most white Americans are also not doctors or lawyers, the lopsided distribution of occupations for whites does favor such professional and managerial jobs, whereas blacks are clustered in the sales and clerical fields.

    In short, the inequalities run even deeper than just income. One must compound and exponentiate the current differences over a history of slavery and Jim Crow, and the nearly fourteenfold wealth advantage that whites enjoy over African Americans—regardless of income, education, or occupation—needs little explanation, and add the failure of the education system where African Americans children are the clear victims.

    The explanations for economic inequality perceives the American political economy as being fundamentally fair with virtually everyone guaranteed an equal opportunity to compete, work hard, and excel in American schools, labor markets, housing markets, and other American social institutions. However, using wealth as a measure of economic inequality, the same top twenty percent of American households controlled over sixty-eight percent of the net worth of the United States, leaving virtually no wealth in the hands of the bottom twenty percent.

    Economic inequality that characterized the United States at its inception continues to influence contemporary institutional practices and American social institutions routinely discriminate against African Americans denying them the means of acquiring human capital (innate individual capacities such as talent and motivation combined with achieved qualities such as educational qualifications and employment experiences). Limited to segregated neighborhoods, educated in inferior schools, and lacking access to the good jobs that are increasingly located in inaccessible suburban neighborhoods, African Americans bear an unfair share of the costs and economic inequality in the United States constitutes economic injustice.

    Recurring discrimination in workplaces and elsewhere wastes human capital and seriously restricts and marginalizes its victims. The negative impact of racial animosity and discrimination includes a sense of threat at work or elsewhere, lowered self-esteem, rage at mistreatment, depression, the development of defensive tactics, a reduction in desire for normal interaction, and other psychological problems. The costs of racial animosity and discrimination extends well beyond the individual to families and communities. While many African Americans may have managed to overcome discrimination, their struggle will take a toll in their personal health or on the ability to maximize contributions to the larger society.

    Discussion:

    Are some blacks becoming a “black bourgeoisie?”

    Are some blacks controlling the wealth and power within the black community and turning its back on its own people?

    Are many members of black America adopting the values, standards and ideals of the white middle class, and are trying to distance themselves from the black poor?

    In the 1960s, federal entitlement programs, civil rights legislation, equal opportunity statutes and affirmative action programs broke the open barriers of legal segregation. The path to universities and corporations for some blacks was now wide open. More blacks than ever did what their parents only dreamed of – they fled blighted inner-city areas in droves. The new frontier, business where the dollar is made and where significant wealth and resources are at stake.

    But, is there a widening rift between the black haves and the black have-nots that has been blurred by racism, ignored by blacks and hidden from white society?

    Is black wealth, like white wealth, now concentrated in fewer hands?

    A study by the Harvard Civil Rights Project, shows progress toward school desegregation peaked in late 1980s. That is a half-century after the Supreme Court ordered the desegregation of American education, schools are almost as segregated as they were when Martin Luther King, Jr. was assassinated. The report said that a massive migration of black families toward the suburbs is producing “hundreds of new segregated and unequal schools and frustrating the dream of middle-class minority families.” According to the National Assessment of Educational Progress (NAEP) test report, by the 12th grade, on average, black students (in the United States) are four years behind those who are white or Asain.

    The “NAEP” test report not only average scores for each racial or ethnic group; they also place each individual test-taker in one of four different “achievement levels.” The bottom is labeled below basic, which is reserved for students unable to display even “partial mastery of prerequisite knowledge and skills.” In five of the seven subjects tested, a majority of black twelfth graders perform Below Basic. In math, the figure is almost seven out of ten, in science more than three out of four.

    While this gap may not be hidden from public, black republicans have been inhibited from describing the problem in its full dimensions. But closing the skills gap is the answer to real racial equality in American society.

    What, in fact, are black republicans doing with what they aggregate?

    Access to positions of power and prestige – and to well-paying jobs in general – are limited because blacks typically leave high school with an eighth-grade education. The status of blacks today is different than it was a half century ago, when almost 90 percent of blacks lived in poverty. By now more than 40 percent of blacks describe themselves as middle class, and a third live in suburbs. College attendance rates are as high although a high percentage drop out before getting a four-year degree. African-Americans are CEOs and occupy lofty positions in the federal government. But all is not well.

    The most discouraging news of all is that which has been barely discussed by black leaders: the appalling racial gap in academic achievement in the K-12 years. Without an education, black children are slaves to the world they live in. Fifty years ago, the U.S. Supreme Court’s Brown vs. Board of Education decision struck down legalized school segregation to give equal educational access to African Americans and other minorities. But, today’s major American educational issue still involves race.

    Blacks have no choice but to prepare its young. At least three black men ascended in the aftermath of civil rights movement to become CEOs of Fortune 500 companies and an additional 275 or more senior black executives are now no less than three steps away from the CEO. They’ve attended the nation’s most prestigious schools, learned how to navigate the highest reaches of the systems, and they have thrived.

    But, for all their great wealth and enormous resources, it appears most sucessful blacks remain absent from the struggle of educating our young. Recently, Kmart Holding Corp. chose Aylwin Lewis to improve the giant retailer’s image and operation. Lewis joins Stanley O’Neal of Merrill Lynch, Richard Parsons of Time Warner, Ken Chenault of American Express and Franklin Raines of Fannie Mae as the only African American chief executives heading top publicly trading companies in the U.S.

    Corporations today say they do look to a talent pool largely comprising minorities and women for their senior and middle managers. But the level of education and the caliber of schools blacks attended are not equal, and the competition for market share is so ferocious that companies must recruit the best talent.

    George W. Bush appealed to Americans’ best instincts when he declared that no child should be left behind.

    But?

    All agree that every child in America should have the same opportunity to reach his or her full potential regardless of the color of skin, gender or the income level of the child’s parents. The president’s plan has set up millions of vulnerable kids for failure, leaving black youth with another dose of mostly symbolic politics. The education reform accountability system based on annual testing in grades three through eight that financially sanctions schools that do not show quick improvement, will do a great deal of additional damage to the children in America’s most-troubled public schools. It is wrong to expect schools to succeed virtually overnight when so little is done to attack inequalities in education.

    How can he expect the poorest children, who face every disadvantage, to do as well as those who have every advantage?

    Given Bush’s spending priorities there is little left to finance his efforts to leave no child behind. Further, by the time students enter the third grade, when the Bush testing plan would kick in, much already has been determined about whether individual children will succeed or struggle academically.

    America’s schools must be accountable to the children being educated in them and to their parents. But making high-stakes annual tests the sole determinant for students and their schools, and imposing major costs on those who fail, is counterproductive.

    In closing, assessment should measure, not drive, education reform. Why force schools to spend thousands on consultants to teach test-taking strategies instead of substantive learning? The magic that can happen between a creative teacher and engaged students is too often lost in schools driven by test preparation.

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