The fallacy of "ownership" of Social Security

[question everything]

Many are under the mistaken notion that the tax we pay for Social Security and for Medicare is "ours" to be used by us when we retire. Hence, Bush's proposal to letting us "invest" it in the stock market.

The reality is that what we pay now is being used to support current retirees and our Social Security checks will be funded - maybe - by the next generation of working people.

This is why it will cost $10 million, I think, just to transfer from the current system to Bush's "ownership" program. But we are not going to hear it in any of his ads.

I am not sure whether Kerry is talking about this; I do hope that he will.

[sui generis]

1. I agree but we do have a kind of ownership

it's our "contract" with the government that because we are taking care of the current generation of retirees that future generations will in return take care of us when it's our time.

I don't think that we should be investing that ourselves, any more than I think I should rely upon our future grandchildren's private investments to support us with Social Security dollars. The reason it's an "administered" program is precisely because of the way it pays out.

[cam75219]

2. I don't think that anyone has any legal claim

to Social Security benefits from the Government. Individually, you can go to court to receive benefits, but you have no claim to a set dollar amount. If the program was ended tomorrow you would not get a check for the money you are "owed" because technically you as a contributor are not really "owed" anything. I'm not trying to knock SS. I think it's necessary, but there are no guarantees.

[sui generis]

3. but even without guarantees

We have to "believe" that the system will benefit us too for it to work. If I thought that in our mutual sandbox I was contributing to a social welfare system from which I could never benefit, I would leave this sandbox and go find another one that does, even if it means higher taxes.

I am not a serf living here at the pleasure of the local lord - even if GWB thinks that's the way it is. If I am being taxed for unemployment insurance, then I had better be able to take advantage of it if the time comes, and the same thing goes for money that is specifically "earmarked" for any government program.

I may not specifically be able to sue, but if I believed today that I would never see a dime of social security in my lifetime if I needed it, then I would pack up or otherwise liquidate my assets, transfer my accounts, and move on.

[AirAmFan]

4. Cash flow projections from the Social Security Admin support

what you're saying. I'd revise that "10 million" figure way upward, though.

Sometime between now and 2020, all hell is going to break loose when FICA payroll deductions (column 2 below) fall short of benefits promised to workers (column 3). That's when the general US budget is supposed to start picking up the slack, repaying past "loans", with interest, from a non-existent "Social Security Trust Fund".

Any diversion of FICA revenues to some new use--such as "privatized" individual accounts--just hastens the day when money people are relying on for retirement is ALL GONE.

From http://www.ssa.gov/OACT/TR/TR04/VI_OASDHI_dollars.html

Table VI.F8.--Operations of the Combined OASI and DI Trust Funds, in Constant 2004 Dollars, Calendar Years 2004-80

(1) Calendar year
(2) Income excluding interest
(3) Cost

(1)......... (2).............. (3)
2004 .... 564.7 ...... 500.3
2005 .... 596.3 ...... 509.9
2006 .... 613.1 ...... 520.0
2007 .... 629.4 ...... 531.4
2008 .... 644.2 ...... 545.1
2009 .... 656.4 ...... 563.9
2010 .... 670.3 ...... 581.8
2011 .... 685.7 ...... 601.4
2012 .... 698.9 ...... 624.7
2013 .... 710.6 ...... 648.7
2015 .... 736.0 ...... 701.0
2020 .... 799.7 ...... 856.0
2025 .... 861.4 .... 1,022.7
2030 .... 925.8 .... 1,181.6
2035 .... 995.0 .... 1,320.2

[WyLoochka]

5. Social Security is insurance

not a retirement fund. John Kerry emphatically stated, in his acceptance speech, that he would not privatize Social Security.

President Clinton just about had the future funding of Social Security wrapped-up. The surpluses that BushCo wasted on income, estate and dividend tax breaks to the ultra wealthy were the surpluses - not from income tax revenues - but from FICA taxes.

This was a massive theft, in broad daylight, that will have devastating effects on the quality of all of our lives in the future, including those who will not even need Social Security to help them get by. The raiding of the surpluses, in order to hand them over to the wealthy who did not need them at all, was especially galling in that the wealthy stop paying FICA taxes on all income over $85K.

If we just had to have tax breaks to "stimulate the economy" - FICA tax breaks to low wage earners would have done a far better job.

[smb]

6. The Dirty Secret

The reality is that what we pay now is being used to support current retirees

The technical term is "Ponzi Scheme".

[question everything]

11. The way to look at SS really has to be about our responsibilities

for each other.

Instead of having the SS taxes as a separate line item on our income - after all, it is mingled with the general funds - it should be incorporated into the income tax. Currently it is a regressive tax: everyone pays the same percentage and many pay more for SS tax then for income tax.

Instead, all levels of income tax should increase by the same percentage. Thus the total amount paid would still be progressive.

Then, when people no longer work, the ones who are in need, should be able to get support from the Federal government. The ones with six-figure income and several houses - will not. Yes, this means that the rich and the have support the poor and the have-not. I don't see anything wrong with this. Rather, this is where real compassion lies.

[hippiegranny]

7. another stupid idea

that benefits only those who are lobbying for it.

[DaveinMD]

8. the insolvency of Social Security is a myth

propegated by Wall Street so they could get their hands on the money. The projections are based on economic growth of 1.9 percent over 30 years. If the economy grows at the normal rate of 3.0 percent, the system will be fine with minor tinkering.

[AirAmFan]

13. Where did you get this information? Not from the SSA

The Social Security Administration is not nearly as pessimistic as you suggest. The cash fow projections I posted in message #4 above use the "Intermediate", most-likely assumptions of the Social Security Actuaries. Not even their "High Cost" assumptions go as low as 1.9 percent growth. See http://www.ssa.gov/OACT/TR/TR04/V_economic.html

To believe there's no problem with Social Security requires trust in politicians of the future most Americans do not have. If you look at the figures in message #4, you see that there is a positive cash flow until about 2018. Where does that cash flow go now? It's "loaned" to the Treasury, but under the honor system. There is no dedicated, pre-funded account from which to pay promised benefits once the cash flow turns negative. The solvency of Social Security requires future politicians to honor TENS OF TRILLIONS of dollars in IOUs and interest promised by current and past politicians who just STOLE decades of positive cash flow.

Bill Clinton wanted to take some of the positive cash flow and create a REAL Trust fund, something like public employee pension funds in places like Wisconsin and California. But Republicans screamed that that would be pension-fund SOCIALISM.

[DaveinMD]

15. from a speech

I saw a while back by the head of the Economic Policy Institute, a liberal think tank.

[AirAmFan]

17. Even some progressive economists are confused by the lies and myths

that surround Social Security. You've got to dig into the Social Security Administration's website and filter out most of what they're forced to say to understand what's really going on.

I educated myself about Social Security by following Bill Clinton's proposals for true reform. Did you hear his speech the first night of the Convention last month? He touched on this issue:

From http://www.pbs.org/newshour/vote2004/demconvention/speeches/clinton_bill.html

"These policies have turned a projected $5.8 trillion surplus that we left, enough to pay for the baby boomer retirement, into a projected debt of almost $5 trillion, with over $400 billion in deficit this year and for years to come.

Now, how do they pay for that deficit? First, by taking the Social Security surplus that comes in every month and endorsing the checks of working people over to me to pay for the tax cuts. But it's not enough.

So then they have to go borrow money...."

When the Republicans stopped Clinton's attempts to capture the cash flow and dedicate it to future benefits already promised, Clinton did the next best thing. He used the positive Social Security cash flow, plus higher income tax revenues from the very wealthy, to pay down the publicly-held debt. That way, there would at least be Treasury borrowing capacity left when FICA revenues are no longer enough to pay promised Social Security benefits.

But Dubya is using up borrowing capacity to pay for tax cuts to the rich and global military adventures. Now on top of that, he wants to divert even more of the Social Security cash flow to something other than benefits already promised to workers. IMO the Republicans want to move up the date when they plan to renege on benefits already promised to Americans--2018 is not soon enough for them.

[DaveinMD]

18. the speech

said the system will be fine with normal economic growth.

[Yupster]

14. The system will be fine

as long as the government uses its social security surpluses to supplement the lean years coming up.

Oops -- that money has already disappeared though. Pffft - it's gone.

Therefore, the projections which assume the surplus will be used are less than useless.

For instance, I can say that I project that my retirement will be fine as long as my brother-in-law repays me the money he owes me. Unfortunately, my brother-in-law will not repay that money since he bet it on black in Vegas and lost it all.

Still, it makes me feel better saying that based on my projections I'll be fine as long as he pays me back.

[thisismyboomstick3]

9. Raise the age of SS entitlement.

That is the most resonable - yet less PC answer. When the age was set a long long time ago people weren't expected to live much past 65.

[question everything]

10. The age has been raised

The oldest baby boomers will be eligible for full SS benefits at age 66, and then it gradually rises.

[Snoggera]

12. I understand how it works

but wonder. If it is privatized, do I get back all I invested since the age of 15 in one gigantic lump sum?

HAHAHAHAHAHAHAHA! I know. My money will have gone down the toilet, because it has already been spent.

If it's not made retroactive, then I don't even want to talk about it!:silly:

[Yupster]

16. The proposal being floated is

that it would only pertain to people aged 40 or younger. Those over 40 would stay in the exact same system they're currently in.

Those younger than 40 would be phased into privatization. For example a 30 year old would have half his normal FICA benefit and half a privatized account.

A 20 year old would have 80 % of his premium go into his privatized account.

The people it would help most would be those least likely to live to age 67, which is currently African-American males. They work the most years, and live the fewest on social security. If a person died at age 63 with a privatized account, his family would get his account as a lump sum. Currently if you die before recieving benefits, you get nothing.

The group that would be hurt most by privatization would be white females. That group works the fewest years and lives the most years in retirement.

It's an interesting theoretical idea, but the changeover costs are staggering. Maybe if we had a huge ongoing surplus it might be worth taking a look at. No way today.

Eventually, benefits are going to have to be lowered and the age needs to go up again.

Two more things that would help would be to raise the cap of 85,000 per year, and also put back teachers and other workers who currently do not contribute into social security back into the system. Those two changes alone would do much to help the program's solvency. I think the two things would have to be done together as each group is a key constituency of either party. Neither party is going to allow its special interest to get screwed unless the other side gives something too.

[AirAmFan]

19. NO, privatization would not necessarily HELP anyone--

it would gradually take away younger workers' current "defined benefit" Social Security plan and replace it with a "defined contribution" plan with no guaranteed benefit.

Teachers and many other workers with strong unions have had definied benefit plans for decades. Defined contribution plans are a way private corporations have stripped their workers of guaranteed pension benefits and converted corporate liabilities into profits. Dubya wants to make all the elderly vulnerable to what Enron and other private corporations have done to their retirees 401ks.

We don't need to move away from defined benefits. We do need to "pre-fund" benefits already promised to workers, instead of letting politicians STEAL current positive FICA cash flows

Any proposed Social Security reform that omits "pre-funding" simply raises the amount of loot politicians can steal from workers' paychecks through FICA.

We don't need privatized individual accounts--just think of the TRILLIONS in unnecessary fees Wall Street would charge for "management". We DO need a centrally-managed dedicated account to make sure the current positive FICA cash flow is not stolen. Rather, central management of Social Security cash flow, much like the management of public employee pension funds at the state level, would pre-fund benefits due after the cash flow turns negative in fourteen years or so. There still may be time to fix this problem, as the cash flow projections in message #4 above show.

See the discussion of "Myth #3" at http://www.ourfuture.org/document.cfm?documentID=224