Social Security

[scrapinpeg]

Originally Posted by jBirch

Yes and no. Do you choose what taxes you pay or what programs your funds go into? Why not? SS is the only tax that you see go directly into a program. Perhaps you'd rather see the money go into general revenue to pay for hospitals, shelters, food and housing?

If you, however, look at SS as an insurance policy then it may certainly be beneficial to have the capability to invest in an equal private sector provider. It is important for the national interest that you have at least some sort of SS safety net in place so that you are paying for at least some of the costs you're likely to be when you're old enough, or destitute enough, to become dependent on the state.

I would say that if you decide not to pay into SS that you also waive the ability to use food banks, shelters and low rent housing.

The problem with that is, SS money DOES go towards general fund expenses. It doesn't go into a trust fund. The SS fund is full of Treasury I.O.U.s, basically. Non-negotiable I.O.U.s, at that. If a corporation ran its books like that, its directors would be in jail.

By the way, federal and local government employees get to opt out of paying into SS. They put the money into something called "deferred comp" or something similar, where the money that would have gone to SS actually goes into an investment account owned by the individual. They're not paying into SS, but they have real money, invested according to their wishes, that they get at retirement or on leaving govt employment.

So if federal and local govt employees can do that, why not the rest of us?

[jeff]

I'll further jBirch's point to prototoast by saying that I don't to choose whether or not to pay taxes that go to elementary schools, even though I have no kids. I pay for the fire department too, even though I haven't had a fire and I don't plan too. I'm obligated to pay those taxes - you can call that a "reduction in freedom". So is being forced to carry homeowners or automobile insurance. I call this "being part of society", which long ago elected governments that passed Social Security into law and hasn't revoked it in over 60 years.

I have no problem paying taxes to support services that benefit the general public - I think that our society should have these services, even though I may not personally make use of every single one of them. Since when is civic spirit reduced to a "what's in it for me?" cost/benefit evaluation?

To scrapinpeg's first point: US treasury bonds are a quite valid investment interest, providing long-term stability and predictable yields, unlike other instrument types. If the Japanese, Saudis and Chinese invest there, why shouldn't we? My only problem is that we use SS money to act as if the money pool in general funds was better than it is.

To his second point: I have no idea. On the other hand, they have excellent single-payer health care, just like Europeans. Later I plan to open a thread on health care and HMOs. If we're going to work the theory "if it's good enough for the government employees, then why not the rest of us", I'll want to bring up healthcare too. "Socialised medicine" aint so bad if that's what they got for themselves.

It surprises me a little that the responses so far have been against or defending Social Security itself, not the changes Bush has proposed for privatising it. Even the Administration doesn't take a policy of "destroy Social Security", at least, not officially.

[Soldier]

Originally Posted by scrapinpeg

By the way, federal and local government employees get to opt out of paying into SS. They put the money into something called "deferred comp" or something similar, where the money that would have gone to SS actually goes into an investment account owned by the individual.

We do? Cool!

[prototoast]

Originally Posted by jeff

I'll further jBirch's point to prototoast by saying that I don't to choose whether or not to pay taxes that go to elementary schools, even though I have no kids. I pay for the fire department too, even though I haven't had a fire and I don't plan too. I'm obligated to pay those taxes - you can call that a "reduction in freedom".

Well, yes... in general I oppose social programs. Particularly, though I oppose federal social programs, as they are illegal and irresponsible. In fact, I oppose most things being under control of the federal government. State governments would be much more effective at delivering nationwide compromise (that way, everyone who wanted these social programs and stuff could live in a state that offered them, and everyone who didn't could live in a state that didn't... then I could have my freedom and you could have your safety net).

[Inquartata]

Originally Posted by jeff

Before and after comparisons, and studies of poverty and their remediation, make this point rather than a post hoc ergo propter hoc argument. Even Republicans like Bush say how wonderfully SS did this.

You may have noticed that he's a politician, and that retirees are a rather large voting bloc.

No question, the Roosevelt social programs DO act as automatic economic stabilizers and dampen swings in the business cycle; greater stability reduces the precipitating events that push people into poverty and prevent them from clambering out of it. But to say that one specific program conducted just thusly does so and no other can take its place, or that if it is changed it will be less effective at so doing, is I think less obvious.

I consider this self-evident based on 60 years of evidence of its benefits rather than as a theorem that needs to be proved.

You are welcome to do so, of course. But---isn't that an assumption in and of itself? Don't assumptions have to be examined?

However, the worst once could say is that it hasn't been a Ponzi scheme up till now, since each generation's needs for Social Security outflow have been met.

The early investors in a garden variety Ponzi scheme typically profit quite handsomely; it's those who come in later who get crushed when it collapses. SS is a generational Ponzi scheme conducted by a government, and naturally it has lasted longer than street cons of the same sort. But I don't see how the essential nature of the program has changed sufficiently to make silk purse into a sow's ear all of a sudden. Changes in demography are not entirely unexpected in the life of a society...

payouts are impossible due to geometric increases in the sums that have to be paid. This is certainly not the case with SS.

It isn't? Then how do you figure that 2 or 3 workers can support 1 retiree without reducing them to penury? The sums owed will eventually exceed those coming in, without rather large increases in taxes, reduced benefits, raised retirement ages and so forth. No politician is going to risk doing those things when retirees are such a potent electoral force. Something else must be done, something which can at least be sold as harmless to retirees, and a novel approach has the best chance of doing that, IMO. Not that I'm sure this is the one upon which to pin our hopes, but at least it IS thinking outside the "raise taxes cut benefits" box...

If the only point was that the equity market provides higher yields with equivalent safety, then the SS administration could solve the problem simply by changing their investments from buying government debt to buying listed equities.

Yes, and I'm not sure why that's being dismissed from examination. Certainly making whole occasional investment losses caused by market drops would seem to be less costly in prospect than the Bush plan to support current beneficiaries from the general tax revenues until his new system is wholly implemented...

I suppose the main rub is that while the returns would be higher, high enough to compensate for increased risk, the short-term fluctuations would be politically dangerous. The government people's money would be much less defensible if it has complete control of investment decisions than if individuals had some control---and could thus be made to share some of the "blame" for losses.

[mrbiggs]

Originally Posted by darius

I'm pretty solidly middle-class. I make a pretty average tech salary -- about $45K (which goes quite far in Rochester, NY). My Soc Security tax is ... wait for it ... about $2500, or 5%.

That's not a large amount when you consider those funds are earmarked for guaranteeing a safety net.

Look, if I want a "personal savings account", or whatever the GOP buzzword-approved word is, I can always create one on my own, without the government's interference. A 401K or SIMPLE plan allows you to invest several thousand dollars, tax-free, and most corporations match that up to a certain percentage. Let's say I can invest $8K and I max it out ... my work will match up to 3% of my salary, so I've put in $8k, gotten $1350 in company matching funds, and then avoided the taxes on $8k. So before spending a single dime, I've gone from $6400 in after-tax dollars to $9350. That's a decent ROI. Now, I can invest those dollars in mutual funds -- I'm not sure about 401ks, but my SIMPLE plan allows me to control which funds I buy shares of.

If I'm willing to take on more risk with after-tax dollars, then I can invest in stocks. There are plenty of tools which make that possible at a low-cost, as long as I'm willing to get an education in how to make that work (working on that now).

That's all the privatization I need. The one thing missing from this model is....a safety net! Maybe I make a series of bad investments, or my portfolio crashes because of a [rec|depr]esssion right when I'm retiring. Or whatever.

Social security provides that. FDR was a clever, clever guy.

darius

I agree with you completely on the concept. The problem is that Social Security is not financially responsible. It will not hold itself up. People are getting back more money than they paid in, including inflation. It's pretty easy to see that a system like that will eventually collapse, and guess who's going to get screwed? (me)

So I think that we should pay people what they paid in. Maybe a little more if the investments worked out. No privitization. That way, it's not dependant on successively larger generations, or on the return of investments. And I don't get screwed.

[Larrison]

I'll give my $0.02 on Social Security. The idea, as it was original set up was to have people put money aside for their old age. GOOD IDEA!

The problem was that the US never put the money aside and started bumping up the payouts, without considering if they matched the inputs, plus interest. First of all, the Feds spent the money that came out of people's and their employer's taxes, and issued promissory notes instead. Now these promissory notes are pretty good -- T-Bills -- but you have take tax funds out and pay them off. Secondly, they started bumping up the payouts, without considering that a lot of the payout funds were well in excess of what interest on T-bills would have accumulated to.

So.. we're in this stituation where the people paying social security taxes *today* are paying for the benefits of people who paid in years ago...

In my opinion and financial planning I've written off Soc Security as a retirement income. If you look forward 20-30 years, there's pretty good odds you're going to have to reduce your expected benefits (to *below* T-bills rates of return). And right now, I mentally treat Soc Sec taxes as my donation to the retired, widowed, and etc. I'm not going to take it away anyone, but you know I'm not going to plan on getting any payouts from the money I get taxes into that today.

In my opinion, if you wanted to make it fairer -- let people control their own damn accounts, with some constraints. If they want to invest (say 30%) of their funds into corporate bonds or S&p500 index funds let them!. And make sure that folks who paid in for the last 30 years or so get a reasonable payout -- just that we move from taxes in= taxes out, to personally controlled and owned accounts. And if you don't want to take any risk, you can invest in T-bills anyway, which will be lowest cost, lowest risk and lowest return option. Let it be adminstered by the gov't and you'll be in the same situation as you have today... Now, I wouldn't let someone invest in individual stocks or let them invest in foreign stocks, or speculate in futures or even pledge their Soc Sec account as collateral in a loan -- but the probability is that they will do much much better than T-bills. Look at Australia, Chile and Italy for how they do it.

[gojujay]

Social Security has become a victim of it's own (limited) success. To my understanding, it was never meant to be the sole retirement income. People were to use SS only as a bottom-out vehicle. However, as is usually the case when Government gets in the picture, people began to shift their own attitudes about the utility of SS. It changed, slowly, into the sole retirement vehicle for many of the poor and under-educated. The thinking shifted from individual responsibility to "the government will take care of it". It's my belief that this is the reason that SS has evolved into a "third rail" in politics. Many organizations have amassed political clout by putting forth the fearful spectre of change in what has become, for too many people, their only retirement plan.

I must admit that I am puzzled why the SS Fund is not invested into relatively low risk equity funds, as is PERS. There may be a reason such as the Federal G. having a conflict of interest, but couldn't that be ameliorated by utilizing a blind trust or simple index fund?

Philosophically, I am against Socialist Security (for reasons similar to prototoast. Also see signature... rep points to whoever gets the germaine quote), however, until a major change takes place in the American psyche, it will be with us. So we better do something to fix the darn thing.

[Prometheus]

Social Security has already been privatized in Galveston Texas.

Here is an argument for what they did.

...and one against

Here is some info from the treasury department... take it for what its worth.

Reports of the Board of Trustees of the Social Security and Medicare Programs

Performance and Accountability Reports

And here is something from the Social Security Advisory Board:

Social Security Financing Information

From this document

"What do your social security taxes pay for?

Retirement benefits to more than 28 million retired workers
Disability Benefits to more than 5 million disabled workers
Family benefits to about 3 million spouses and 2 million children
Survivor's benefits to more than 7 million survivors of deceased workers including more than 2 million children"

What is Social Security's current budget situation? [a little old]
In calendar year 2001 income to the social security trust fund is projected to be about $604 billion and outlays about $439 billion leaving a surplus in 2001 of over $165 billion. The trust fund at the end of 2001 is expected to be approximately $2.1 trillion, which equals about 34 months of social security benefits (including disability)."

The document goes on to discuss the impending budget crisis.

[jeff]

Originally Posted by Soldier

We do? Cool!

You also get the socialized medicine that's supposed to be so dangerous for everone. Lucky you!

[jeff]

Originally Posted by Inquartata

You may have noticed that he's a politician, and that retirees are a rather large voting bloc.

No question, the Roosevelt social programs DO act as automatic economic stabilizers and dampen swings in the business cycle; greater stability reduces the precipitating events that push people into poverty and prevent them from clambering out of it. But to say that one specific program conducted just thusly does so and no other can take its place, or that if it is changed it will be less effective at so doing, is I think less obvious.

Market economies have winners and losers. We don't really want the losers to starve in the streets, do we? I don't. Social Security has a 6 decade record of blunting the sharp edges of capitalism. I don't think writing it off as "politicians are just saying that to court retirees" is an adequate answer to the actual record. If you're going to impugn Bush as pandering to AARP (him, of all people!) instead of saying what he thinks, I think you should provide at least a smidgen of evidence that he's being duplicious. Now, that's a switch in roles for us, isn't it?

Originally Posted by Inquartata

You are welcome to do so, of course. But---isn't that an assumption in and of itself? Don't assumptions have to be examined?

It's been studied to death. Direct effects of the programs have been visible for a very long time. There's nothing hypothetical about it.

Originally Posted by Inquartata

The early investors in a garden variety Ponzi scheme typically profit quite handsomely; it's those who come in later who get crushed when it collapses. SS is a generational Ponzi scheme conducted by a government, and naturally it has lasted longer than street cons of the same sort. But I don't see how the essential nature of the program has changed sufficiently to make silk purse into a sow's ear all of a sudden. Changes in demography are not entirely unexpected in the life of a society...

The early participants in SS died in the years between 1934 and 1940, I would say, yet the program has held up for the intervening 65 years.

I really object to calling this a Ponzi scheme. It's a way of throwing mud at what is at least arguably the most successful social program in this countries history by labelling it as a criminal fraud. We know what Ponzi schemes are - criminal fraudulent schemes to deliberately defraud investors, with the benefits chiefly going to the scheme's planners. You can fairly say "unwise" or "I don't like it" or "I could do better", but it's unfair to poison the well by smearing SS with the name of deliberate fraud.

Changes in demography are not unknown, but they don't make something into a fraudulent scheme. It's possible that they might make something too expensive to run, and that's worth discussing - and also something that actuaries study and policy changes can adjust for. We live longer now. Maybe retirement age should be bumped. Maybe our vaunted "increases in productivity" add up to additional carrying capacity. Maybe we should observe how the much greyer populations in Japan and Europe manage, and learn from them. Do you think that Bush's proposed plans make this better?

Originally Posted by Inquartata

It isn't? Then how do you figure that 2 or 3 workers can support 1 retiree without reducing them to penury? The sums owed will eventually exceed those coming in, without rather large increases in taxes, reduced benefits, raised retirement ages and so forth. No politician is going to risk doing those things when retirees are such a potent electoral force. Something else must be done, something which can at least be sold as harmless to retirees, and a novel approach has the best chance of doing that, IMO. Not that I'm sure this is the one upon which to pin our hopes, but at least it IS thinking outside the "raise taxes cut benefits" box...

I don't know what combination of numbers would do the trick. I would like "the miracle of compound interest" to do the trick, and the answer for that is the aggregate rate of return over the population. Let's take out the implicit accusation of bad faith and fraud, and discuss the strategies and numbers.

Originally Posted by Inquartata

Yes, and I'm not sure why that's being dismissed from examination. Certainly making whole occasional investment losses caused by market drops would seem to be less costly in prospect than the Bush plan to support current beneficiaries from the general tax revenues until his new system is wholly implemented...

I suppose the main rub is that while the returns would be higher, high enough to compensate for increased risk, the short-term fluctuations would be politically dangerous. The government people's money would be much less defensible if it has complete control of investment decisions than if individuals had some control---and could thus be made to share some of the "blame" for losses.

There is a strategy called "asset allocation" in which investments are spread over different classes of investment instrument. Maybe SS should be partially invested in equities, corporate debt as well as government bonds. Bearing in mind that the first category in particular is subject to risk - and can lose the principle amount invested ("Congratulations - you have lost all your money. Thanks for playing!"). Considering that Social Security came out of the Depression - when the equity market went into the toilet - it's quite understandable that it has been invested in the most rock-solid investment paper you can get, even with the lower return. BTW, part of the reason equities have traditionally had higher return on investments could be that they were undervalued after the shock of the Depression. P/E rations have gone through the roof in the past decade, so that particular effect is dead. One could equally argue that the stock market is a Ponzi scheme since it is based on the need to continually raise stock prices to sell to the next fool.

Standard advice on asset allocation is to switch from equities to high-grade debt instruments (especially government bonds) the closer you get to retirement. A fund whose job is specifically geared to that purpose naturally would be in government debt.

You mention Bush's plan to support transition costs from the general budget - it's actually worse because the money for that is borrowed. In essence, this plan proposes margin purchases of stock, something that is a very high-risk strategy.

[Soldier]

Originally Posted by jeff

You also get the socialized medicine that's supposed to be so dangerous for everone. Lucky you!

Lucky me?

You've obviously never experienced the wonders of TriCare...let alone the Cadet Clinic.

"Sir, help me, please! My arm's been severed by one of the snowplows on the Terazzo!"

"Do you have an appointment, cadet?"

"Umm...no sir..."

"Then I'm going to have to give you an LOC and report you to your AOC. In the meantime, here's a three-day supply of Motrin."

[Soldier]

To clarify Inq's position (as I understand it) -

I don't think he's trying to smear Social Security with the name. I think what he's pointing out is that, intention aside, the mechanics of the system work exactly the same as a pyramid scheme. True, Social Security has worked so far. How does that mean it can't still collapse in the future?

[Larrison]

FYI -- here's what looks like a non-partisan description of several different national social security plans. Interesting reading, although nothing on how well they work

http://tinyurl.com/6qnf7

Here's an article on how well the Australian Soc Security plan has worked (it went from government to private adminstration starting in 1986)

http://www.heritage.org/Research/Soc...ity/BG1149.cfm

[jeff]

Originally Posted by Soldier

Lucky me?

You've obviously never experienced the wonders of TriCare...let alone the Cadet Clinic.

"Sir, help me, please! My arm's been severed by one of the snowplows on the Terazzo!"

"Do you have an appointment, cadet?"

"Umm...no sir..."

"Then I'm going to have to give you an LOC and report you to your AOC. In the meantime, here's a three-day supply of Motrin."

At least they gave you the Motrin. 3 days worth!

[jeff]

Originally Posted by Soldier

To clarify Inq's position (as I understand it) -

I don't think he's trying to smear Social Security with the name. I think what he's pointing out is that, intention aside, the mechanics of the system work exactly the same as a pyramid scheme. True, Social Security has worked so far. How does that mean it can't still collapse in the future?

I hope not, but it doesn't help discourse to immediately describe a program as a criminal deliberate fraud. As you point out, SS has worked so far - so it's not a Ponzi scheme. Anything, and I do mean anything, can collapse in the future.

[Soldier]

But some things are mathematically expected to fail in the future.