Two Articles
http://money.cnn.com/2005/02/04/markets/gross_social_security/index.htm?cnn=yes
http://www.cbpp.org/2-2-05socsec4.htm
Three More
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As pretty much all the sensible articles on Social Security have made clear, to the extent that we have a problem, it is not a Social Security problem, but an accumulated national debt problem. And this isn't just a looking at one side or the other of the coin issue, but a category difference.
There are various ways to illustrate this point. But the following, I think, is the best.
The United States has a bit over $7 trillion in accumulated national debt. You can say that's been built up over the history of the country. But overwhelmingly it was borrowed over what happens to be the span of my lifetime -- the last thirty-five years -- and especially over the last twenty-five years.
After 1980 we started borrowing money big-time to finance our deficits -- in large part because of tax cuts on high-income earners. However you want to slice it, we started spending substantially more than we were taking in in tax revenue.
So where'd we borrow the money?
This is from memory, so I may have the numbers a bit off. But I believe about $4 trillion of that debt was borrowed on the open market -- individual Americans have them in their investment portfolios, or pension funds hold them, or the Chinese, Japanese and the Saudis and others have them in bonds.
But about $3 trillion of those dollars we needed to fund the 1980s and 1990s deficits we managed to borrow closer to home. We borrowed it from the Social Security (and a few other government) trust fund(s).
Almost the entirety of President Bush's Social Security phase-out plan comes down to a simple proposition: finding out how not to pay it back.
Now, admittedly, this is an approach that the president is rather familiar with from his own business career at various failed energy companies. But it is, in so many words, a straight up con -- one of vast scale, and one which virtually no one in the media ever frames in just these terms.
Before discussing that aspect of the question, consider a hypothetical. Let's say there'd not been a Social Security -- President Bush's dreamworld. We'd still have had the same deficits. The difference would be that we'd have had to borrow from private borrowers in the US and abroad.
Think we'd just be able to decide not to pay them back? Not likely. The Joneses and the Smiths with their 401ks probably wouldn't like that. And the Japanese and Saudis probably wouldn't like it much either. Of course, defaulting on our entire national debt would also certainly trigger a seismic international financial crisis. So you can probably figure that no one would be a huge fan of it.
So why does the president figure he can get away without making good on the debt to the folks who pay Social Security taxes, who are overwhelmingly low and middle-income wage earners (since no one pays Social Security tax on investment income or wage and salary income over about $85,000 a year)?
Isn't it obvious? Because he thinks they're an easy mark.
If anything, the fact that a sizeable portion of our huge national debt is owed (in the aggregate) to ourselves would seem to be a good thing since it gives us in extremis at least some flexibility on repayment. But to the president this is a reason to abolish Social Security so the money doesn't have to be paid back at all.
As I said at the beginning of this post, the challenges we face over the next several decades aren't really Social Security problems but national indebtedness problems, though the issues are clearly related.
One obvious and immediate way to relieve long-term pressures on Social Security financing is to reduce the national debt ... by ending our habit of running huge annual deficits or even better by paying down some of our accumulated debt (there are complicated macro-economic questions related to this second point; but in general it's correct.)
But what has President Bush done? He's presided over the biggest fiscal turnaround in American history, taking the country from modest annual surpluses to the biggest deficits -- at least in non-adjusted dollar terms -- in American history. And that's only one reason why you can make a decent argument that President Bush has done more than any other president and perhaps any other single American ever to endanger Social Security's future.
Across the board, it's just one big scam.
The guy who's the biggest threat to Social Security says he wants to 'save' it by abolishing the program and replacing it with private accounts.
-- Josh Marshall
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(Ed.Note: The following is a guest post from long-time New Republic and Slate editor Mike Kinsley, who now edits the editorial page for the LA Times. He invites your responses at
[email protected]. Note too
My contention: Social Security privatization is not just unlikely to succeed, for various reasons that are subject to discussion. It is mathematically certain to fail. Discussion is pointless.
The usual case against privatization is that (1) millions of inexperienced investors may end up worse off, and (2) stocks don't necessarily do better than bonds over the long-run, as proponents assume.But privatization won't work for a better reason: it can't possibly work, even in theory. The logic is not very complicated.
1. To "work," privatization must generate more money for retirees than current arrangements. This bonus is supposed to be extra money in retirees' pockets and/or it is supposed to make up for a reduction in promised benefits, thus helping to close the looming revenue gap.
2. Where does this bonus come from? There are only two possibilities: from greater economic growth, or from other people.
3. Greater economic growth requires either more capital to invest, or smarter investment of the same amount of capital. Privatization will not lead to either of these.
a) If nothing else in the federal budget changes, every dollar deflected from the federal treasury into private social security accounts must be replaced by a dollar that the government raises in private markets. So the total pool of capital available for private investment remains the same. b) The only change in decision-making about capital investment is that the decisions about some fraction of the capital stock will be made by people with little or no financial experience. Maybe this will not be the disaster that some critics predict. But there is no reason to think that it will actually increase the overall return on capital.
4. If the economy doesn't produce more than it otherwise would, the Social Security privatization bonus must come from other investors, in the form of a lower return.
a) This is in fact the implicit assumption behind the notion of putting Social Security money into stocks, instead of government bonds, because stocks have a better long-term return. The bonus will come from those saps who sell the stocks and buy the bonds.
b) In other words, privatization means betting the nation's most important social program on a theory that cannot be true unless many people are convinced that it's false.
c) Even if the theory is true, initially, privatization will make it false. The money newly available for private investment will bid up the price of (and thus lower the return on) stocks, while the government will need to raise the interest on bonds in order to attract replacement money.
d) In short, there is no way other investors can be tricked or induced into financing a higher return on Social Security.
5. If the privatization bonus cannot come from the existing economy, and cannot come from growth, it cannot exist. And therefore, privatization cannot work.
Q.E.D.
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Let's not miss the big news in today's article in the Times about Dick Cheney. The vice president supports putting over 95% of the employee-side contribution to Social Security into private accounts.
Unfortunately, the authors construct the sentence in a somewhat murky fashion. But the key passage is this one: "Mr. Cheney is said by associates to favor creating investment accounts into which workers could deposit 4 percent to 6 percent of their earnings that are subject to the Social Security payroll tax."
In orther words, Cheney supports putting 4 to 6 percentage points of each individual's 6.2% contribution into a private investment account and taking it out of the Social Security system.
(Just for maximum clarity, that means about 97% of the employee's payroll tax contribution, which is 6.2% of their salary up to $90,000. And it's about 48% of the total Social Security money going into the program for the given individual since the employer also kicks in another 6.2%.)
So, in other words, the initial 'partial' phase of the Social Security phase-out, turns about to be 50% phase-out. And the only money going into Social Security comes from the employer. How long do you figure that lasts?
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