Social Security is not dead yet, unfortunately.

[jon]

Two more ‘rescue’ plans hit the Hill today, one from democrats and one from republicans. Neither includes private accounts that would keep the money out of the hands of the Feds. That is really the key to any plan: keep the Feds from spending our retirement money on the Cowgirl Hall of Fame and related pork. The problem is, the money goes into the Treasury and it is already spent before it gets there. There is no pile of cash in the Treasury, just a pile of IOU’s in the form of treasury notes that will have to be paid someday, and that money comes from our taxes.

One plan provided for what is supposedly a true ‘lockbox’ (not the Al Gore version) where individuals would own Treasuries after paying into the government. Nice try but it is all slight of hand because if it all goes into Treasuries then it is just a difference without substance. Supposedly we would own the treasuries, but a treasury note is nothing more than a promise to pay. The government can still spend the money and issue more ‘IOU’ treasury notes without having to cut spending. If private accounts were allowed and everyone bought treasuries, well, there would be no difference and the government could keep on spending as it always does and just print more treasury notes. In reality investors with private accounts would put their money to work in many different investments depending upon their stage in life and where they need to be by retirement. Thus the government could not rely on everyone buying treasuries and could not spend what it did not have (though that has never stopped the government before). Because the government would still have the money heading into Treasuries, this ‘new’ plan is really nothing but a sales job trying to repackage the transfer system that is already in place. Of course it raises the income levels subject to SS taxes, and that is the real source of the income to ‘fix’ social security.

Indeed, that is what most politicians want right now regardless of what they say about private accounts. They want to pass a modest tax increase now and then again the next time someone mentions SS is in trouble. That way they can soak those who pay for all of the social programs bit by bit as opposed to a big 20% tax hike in 15 years when the shortfall really hits. It is easier to raise taxes slowly than a big steroid jerk higher all at once. The latter would cause a tax revolt.

Not that the other plan is any better. It is the ‘indexed’ plan where benefit increases in the future are adjusted based upon income. If you made more in your working life then you get less upward adjustments later on. In short they are turning a marginally palatable unconstitutional program (because we all paid in the same and got the same out) into another welfare program that differentiates between the ‘rich’ and the ‘poor.’

This is all in response to the baloney spread about regarding private accounts being so bad for us. Greenspan said over and over that we need to get off this transfer payment system and get into ownership so we can invest in the real assets we will need to fund our retirements when the US is no longer the consumption center of the world. That is going to happen because the Baby Boomers are going to start dying and won’t be the great consumption engine they have been for the past 45 years. We will need the real assets and income generated by them to fund our standard of living, and investing trillions of SS money into various assets other than the current redistribution, transfer payment system we have now is the way to do it.

Further, we again heard the argument today that people are just too afraid of taking a ‘guaranteed’ SS benefit and putting it in jeopardy based upon the ‘whim’ of the market. Hogwash. If you get a private account you can choose what to do with it under even the most austere plans. If you don’t want it in the market, keep it in cash. Or, why not put it where the government was going to put it anyway, i.e. in treasuries? If you believe the government is going to pay up on the current mile-high stack of IOU’s in the Treasury right now, then you should not lose any sleep over it paying a few more. In short, you could put your money in the same place it would be even if it was still with the government; if you were comfortable with that then you should still be comfortable, plus you could then pass it along to your heirs as opposed to losing it all if you die. And don’t get caught up in the argument that SS provides a death benefit. It is a pittance; if you started investing at a younger age you would far, far, far, far outstrip any death ‘benefit’ under SS.

In short, these plans to ‘fix’ SS are nothing more than band aides on a system that cannot work without continued tax hikes to pay for the rising number of recipients. Congress knows this and that is why they are trying another modest tax hike by us to get the masses to go along with some reform. Then when they need it again they will pass along another tax hike. At some point it will have to be about 20% to pay for the shortfall, and Congress figures it best to do it in gradual stages because if it is done all at once in 15 years there will be a tax revolt by those who have to foot the bill. I would much prefer to leave my sons and daughter a big private account as opposed to nothing with respect to that 15+% we give to the government each paycheck. If everyone could do this we would solve the solvency problem for the future with some near term debt taken on to cover the transition for those who don’t have enough years left to build up an account. That is why the argument that private accounts do not solve the problem is absurd, and how it came to such prominence shows how good the spin doctors are in DC where the goal is, above all, to maintain the power base. If individuals keep this money and build up big accounts, how are they beholden to the government?

[jmjj215]

Enter VJW...

[VJW]

Originally Posted by jon

Two more ‘rescue’ plans hit the Hill today, one from democrats and one from republicans. Neither includes private accounts that would keep the money out of the hands of the Feds. That is really the key to any plan: keep the Feds from spending our retirement money on the Cowgirl Hall of Fame and related pork.

Except the “Feds” don’t spend any of the “retirement money” (otherwise known as the Social Security Trust Fund). By federal statute, those monies can ONLY be spent on Social Security benefits.

The problem is, the money goes into the Treasury

No, the money is invested in U.S. Treasury Bonds.

and it is already spent before it gets there.

Fantasy.

There is no pile of cash in the Treasury

Thankfully.

just a pile of IOU’s

There are no “IOUs”.

in the form of treasury notes that will have to be paid someday, and that money comes from our taxes.

Exactly the same manner that all the U.S. Treasury Bonds that are held by American banks, mutual funds, insurance companies, and brokerage houses will be redeemed, except that a Social Security Trust Fund bond is the most privileged of Treasury bonds issued to Social Security by the U.S. Treasury, as it is REDEEMABLE AT ANY TIME AT FULL FACE VALUE, unlike any other bond that the U.S. Treasury issues.

Further, we again heard the argument today that people are just too afraid of taking a ‘guaranteed’ SS benefit and putting it in jeopardy based upon the ‘whim’ of the market.

A rationale concern given that the market is down for the fifth calendar year in a row.

If you get a private account you can choose what to do with it under even the most austere plans. If you don’t want it in the market, keep it in cash. Or, why not put it where the government was going to put it anyway, i.e. in treasuries? If you believe the government is going to pay up on the current mile-high stack of IOU’s in the Treasury right now, then you should not lose any sleep over it paying a few more. In short, you could put your money in the same place it would be even if it was still with the government; if you were comfortable with that then you should still be comfortable

Except you would lose a large amount of it to commission and maintenance charges.

plus you could then pass it along to your heirs as opposed to losing it all if you die.

Sorry, but no. According to the administration:

“Most workers will be required to purchase government lifetime ANNUITIES, financial instruments that provide a guaranteed monthly payment for life but that EXPIRE AT DEATH. Money in these annuities CANNOT BE PASSED ON TO HEIRS.”

LINK

At some point it will have to be about 20% to pay for the shortfall

Actually, there’s only a “shortfall” if you utilize the model that the Trustees that the Bushies appointed use, which assumes a level of economic growth of only 1.8% over the next 75 years, which is less than half the level of economic growth average over the previous 75 years and even less than the average during the Great Depression in the 1930s. How STOOPID is that ?

That is why the argument that private accounts do not solve the problem is absurd

How could it be absurd ? You cannot “solve the problem” by removing money from the system.

If individuals keep this money and build up big accounts, how are they beholden to the government?

By coming to the government with hat in hand when their accounts DO NOT “build up big accounts”.

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BTW, I noticed you referenced Bill Gross of PIMCO in another thread. You might find his take on the Bushies plans for Social Security enlightening:

GROSS CRITICIZES SOCIAL SECURITY PLAN

(CNN/Money) - Bill Gross, manager of the world's largest bond fund, is criticizing President Bush's plan to privatize part of Social Security.

Gross, managing director at Pimco, called the argument about the solvency of Social Security "silly" and said it was an example of the president not focusing on more important issues, such as the budget deficit.

"By reducing budget deficits now, and especially that portion of the deficit owed to foreign governments, we would be able to keep more of our domestic production within our borders and therefore available to senior citizens."

http://money.cnn.com/2005/02/04/mark...ex.htm?cnn=yes

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