Social Security Reform - Today's News............

[Marshac]

I think everyone will be shocked by Bush's 2006 Budget to be released shortly. *People will soon be calling him not a spendthrift but a Scrooge!

I'll believe it when I see it.

[Nords]

Bush picked the worst time in the world to get himself elected the first time around.

Hunh, I didn't think he won an election until 2004...

What would you have done in the last four years?

I wouldn't have accelerated the 2001 tax breaks. More than enough stimulus could have been achieved with the child credits and the reduction of the dividend tax rates. But that 2003 decision was more about re-election politics and Iraq distraction than it was about economic probity.

I believe that when Buffett & Greenspan disagree with the administration's proposals, it's worthy of further research before action. But then again, they made their decision on fundamentals and not election momentum.

[Donner]

JG--

I agree. Not an immediate crisis. And I agree nobody's going to like the outcome much. Benefits are going to be cut. Who's for that? But I have a hunch that the longer we wait the more its going to hurt. Usually works out that way.

Donner

Donner - Sorry, but I fail to see how cutting taxes and "pouring on the fiscal stimilus", i.e. running huge deficits" has served the country well these last 4 years. We could get into a long debate about fiscal policy, but to bring this back to the thread, I find it ironic that you are worried about your kids and grandkids relative to SS, when we have a president in office who has run up some of the largest deficits ever (that your kids and grandkids will have to pay for). And even if his 2006 budget is scrooge-like (which it probably will be on the domestic side, in order to pay for this ill-advised war), there's no real hope of making significant dents in the deficit before he leaves office, domestic cuts notwithstanding. And if he decides to borrow more $$ to fund the transition cost from the current SS system to a more privatized system (as he has hinted he may do), the situation will only get much, much worse. So the next pres. will likely inherit an incredibly large deficit(Bush inherited a significant surplus, so I dispute your statement that it was "the worst time in the world to get himself elected").

Let's face it, this administration is all about getting govt. out of people's lives as much as possible. They make no bones about that. The SS privatization thing is just another example of that, in a long line of examples since W took office. There is no crisis in the system, and they know that (yes, it needs some tweaks to remain viable over the long haul, andother posters in this thread have suggested modifications that would greatly alleviate the problem). If you think that their main motivation for revamping SS is to protect benefits for your grandkids, I think you are sadly mistaken. We're headed in exactly the opposite direction.

RAE

Overhauling SS, is Washington's way of not paying back the money they already owe SS. They are against Private acct. because it will be on record , even if only 2-4%, what is in the SS fund, and they may not be able to spend that. The aarp speaks for us, but try talk to someone at aarp and voice your oppinion ,you cant do it. I wonder if congress stopped spending the SS funds money today ,on things other than SS ,would we have to do anything?

Hello RAE and all, slightly off-topic if I may.....................
RAE, where in the UP do you reside? I lived and worked
in the Menominee area for about 11 years and owned
property near Escanaba and Ishpeming. For all of you
"flatlanders", yes those are real Yooper towns.
Anyway, I loved the area except for the winters.

JG

[sgeeeee]

I don't know what you call a system that taxes the rich at 35% or higher and the poor at 0% or less, but I think the current system does promote a middle class. *What would you suggest to fix the current system?

Well . . . you have to look at the right statistics.

First - Talking about taxes without talking about benefits is like stating what a shopping trip costs without specifying what you bought on that trip. If I pay higher taxes but get proportionally more benefits from the government that the tax supports, I still come out ahead. Similarly, if I pay no taxes, but the government programs actually work to push me further into poverty, then I still come out behind.

Second - No one pays 35% tax rate on total income in this country. What happens is that some people pay at a 35% rate on the high end of their adjusted gross income (AGI). But AGI is not equivalent to the standard english definition of income. It excludes certain kinds of income and provides deductions and reductions to other types of income.

It is interesting that 20% of the population owns over 80% of the wealth (US Census statistics), but they have never had to report more than about 60% of the AGI (IRS statistics). How does that happen? I mean, wer are all born naked and without wealth. The wealthy have manged to get the government to pass favorable laws that define AGI so that it ignores certain kinds of income that only they recieve in any significant amount. They have further managed to get the government to pass laws that provide them with deductions and loop holes to protect more of their income. It is true that the poor and middle class also have access to certain AGI protection, but not to the extent that the rich have. Thus, the rich hold a much higher percentage of the country's wealth than they have ever had to report as income. This is not true for the poor or middle class.

By the way, the statistics look even more lopsided if you look at only the top 10% or top 1% of the country.

Regarding your question: "What would I do to fix the system?" The advice that comes to mind is, "If you realize you are in a hole, first, stop digging."

I would not exacerbate the potential underfunding issue by reducing the taxes going toward it (ie. don't send some of the funds to private accounts which will cause us to run shortages sooner). I would get rid of the tax breaks that have made the overall national deficit problem worse (if I still had a surplus, I could use that to bridge the short-term short-fall that I may face several years from now). I would stop spending away the surplus like a drunken sailor (this is more difficult to do than it would have been had we not invaded Iraq without justification or world support). I could go on, but you get the picture. . .

Hi salaryguru! I agree that government spending is
totally out of control and bordering on the
incomprehensible. However, although I have relatively little, I begrudge the rich nothing, no matter how they get/got it. They take advantage of whatever they can
(tax-wise and otherwise). That is as it should be IMHO.
As for the rich getting richer............more power to them I say. This reminds me of the film "Farenheit 9/11".
I think there was some footage of a Bush speech
where he says "Here I am with the haves and the have-mores, otherwise known as my base." Some truth to
that.

JG

[unclemick]

You guys need to get serious.

When I was eleven or so - my Dad took me aside - " There are two kinds of crooks in the world - Democrats who go to jail and Republicans who go to the country club and sit around figuring out how to pass laws to make their stealing legal."

I also got my first BB gun - which I sighted in on smear posters against Nixon (everybody liked Ike). The poster showed Nixon's face with the sub title 'Would you buy a used car from this man?' 1954 dirty politics. I think in those days, the Dem.'s were for govt. deficit spending.

On a lighter note - skimmed the MIT lecture(Kotlikoff) - his generational accounting and simulation methods take into account all spending, income, taxes including state sales, SS, and so on. If that could morph into something akin to the Hurricane models(simulation with dynamic feedback) - then 77 million boomers eating a little dog food once in while might not be be to high a price - provided the model gives them enough time to shop ahead and watch for sales.

I am serious.

[RAE]

John - I live near Iron River. Small town about 100 miles or so west of Escanaba. I love it here except for the winters, also (and we get a lot more snow here than Escanaba or Menominee do!). RAE

Yeah, I recall when I moved to the Upper Peninsula
(1982) I was told that the Yoopers called that area the
"banana belt". Pretty cute! Turned out it was true, at least as compared to areas on Lake Superior. Marquette
County for example. I saw the other day where
Marquette was the 2nd snowiest city in the lower 48
states.

JG

[MJ]

However, although I have relatively little, I begrudge the rich nothing, no matter how they get/got it.

Hi JG,
There you go again with your generalities. I guess the robber barons, Al Capone, and Sadam just to name a few rich men, would have been lucky if you were in charge and society would have been better off.Then again if you were in charge, you would be filthy rich too. Since you would have no need of that miniscule SS check, SS would be out as well!

MJ :-/

Hi MJ. You are right about the "generalities". Guilty
as charged. But, my point was sincere. BTW, class
envy is very unattractive. Soaking the rich is not the answer.

JG

[MJ]

BTW, class envy is very unattractive. Soaking the rich is not the answer.

Hey Mr. JG,
I may be guilty at times of class envy (just human,I guess), although I suspect if I were very rich, I would feel guilty of my class privileges (just human,I guess).
I generality don't care about people being rich (G-d bless them) but the method by which they attained their wealth (enron, world com, Sadam) usually on the backs of hard working and sometimes oppressed people.

MJ

on Today at 9:24am, John Galt wrote:BTW, class envy is very unattractive. Soaking the rich is not the answer.


Hey Mr. JG,
I may be guilty at times of class envy (just human,I guess), although I suspect if I were very rich, I would feel guilty of my class privileges (just human,I guess).
I generality don't care about people being rich (G-d bless them) but the method by which they attained their wealth (enron, world com, Sadam) usually on the backs of hard working and sometimes oppressed people. MJ

Then why are The Rich always envying Ralph Kramden's tax bracket? THAT kind of class envy is definitely unattractive. The other kind is never unattractive if it is justified.

As far as who's brgudging whom... I don;t begriudge the Rich anything either. Buty of cours ethe Rich are seem always to be begrudging everybody else everything. But then, what good is being rich if everybody else is rich too?

[Donner]

RAE--

I appreciate your thoughtful reply to my post. You have made several points which I understand concern a lot of people. I guess we will just have to agree to disagree on some of these things.

1. Need/Usefulness of fiscal stimulus. I think most economists would agree that there is a time and place for fiscal stimulus. Certainly FDR felt that way. I believe we were looking at those conditions in the last 4 years. But the economy has improved to the point where we ought to be dialing back the stimulus. (and the monetary policy as well)

2. No real hope of cutting deficits/things will get worse.
Deficit is already coming down. Domestic programs will be cut further. Economy is growing at a real 2.5 to 3% (6% nominal). Additional revenues will be coming into the Treasury. Deficit situation will get better not worse.

3. Getting Gov't out of people's lives as much as possible. I think this is a pretty noble objective. Thomas Sowell has an article in the Washington Times today entitled Social Insecurity. His concluding paragraph:

Liberals are desperate to keep Social Security as
it is, because that would mean they can continue
spending your money as they see fit and keep you
dependent on them. That is what the welfare state
is all about.

Some truth to this although I think Gov't programs are about a lot more than keeping us all dependent on the state.

4. No crisis in the system/ just needs tweaks. Leading paragraph of Sowell article:

The latest liberal spin on Social Security is that
there is no problem. Of course, there is no
problem with any obligation if you are willing to
welsh when the time comes to pay it.

I agree that there is no immediate crisis. But there is a long term problem that ought to be addressed sooner rather than later. We should take advantage of a presidency that is willing to take this on.

It will be interesting to see how this debate works its way out in the coming weeks and months. We all have a big stake in the outcome. I hope they get it right.

Donner

[JLP]

What you say makes a lot of sense. We do have to do something about Social Security and we have to do it now. We can't just keep raising taxes.

I am all for allowing a portion of our taxes to be invested in a stock index fund. I don't think we should give a lot of options to people. I think we give the choice of a stock index, bond index, and money market. If you give people too many choices, it will just confuse them.

JLP

http://AllThingsFinancial.blogspot.com

[RAE]

Donner - I do agree with you that there is a long-term problem with SS that needs to be addressed at some point. Perhaps "tweaks" is not the right word for the changes that are needed, but the point I was trying to make is that privatization of SS is not the panacea that some seem to think it will be (and I'd go further to say that it doesn't really even address the main problem). And so far, I hear this president talking mostly about privatization (since it fits his overall philosophy of getting govt. out of our lives), and less about other (albeit more painful) changes that will have much more of a positive effect on the long-term solvency of SS. To illustrate, here is an excerpt from a recent column by Jonathan Clements, of the WSJ:

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No matter how successful privatization is, we are still in a heap of trouble.

To get a handle on the problem's magnitude, consider some numbers from economists Jagadeesh Gokhale and Kent Smetters. They calculate that, if the federal government today were to pony up all the money needed to cover Social Security's future shortfall, it would have to fork over $8 trillion. By contrast, the entire value of the U.S. stock market, as measured by the Dow Jones Wilshire 5000 index, is some $14 trillion.

Yet Social Security's $8 trillion headache is a pittance compared to the money needed to cover Medicare's shortfall. The two economists estimate that liability at some $61 trillion.

Sound alarming? In truth, the looming Social Security and Medicare deficits are just symptoms of a far bigger problem: One way or another, people will have to retire later.

"I'm a big fan of privatization," says Robert Arnott, a money manager in Pasadena, Calif. "But it won't save Social Security." His argument: We are facing not a financial conundrum, but a demographic crisis. By 2035, we will have just 2.7 working-age people for every person age 65 and older, down from 4.8 to 1 as of 2000.

Sure, this aging of the U.S. population means the federal government won't collect enough taxes to pay the health and retirement benefits promised to seniors. But more critically, if everybody continues to retire at age 65, the U.S. economy won't produce enough goods and services to meet society's needs.

How all this plays out isn't clear. Maybe Uncle Sam will raise the eligibility age for Medicare and the existing Social Security system, and that will pressure baby boomers into retiring later. Maybe, as retirees sell off their stocks and bonds to buy prescription drugs and airfares to Arizona, we will get lower investment returns and higher inflation, and that will compel boomers to stay in the work force longer.

But whatever happens, privatizing Social Security won't save us from the inevitable demographic crunch. Want to beat the squeeze and still retire at age 65? You will need to be a whole lot savvier with your money, and that means clamping down on investment costs, avoiding foolish investment mistakes and -- most important -- saving like crazy.

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Anybody hear W saying anything about increasing the retirement age, raising taxes, or decreasing SS benefits?

RAE

Let's face it, this administration is all about getting govt. out of people's lives as much as possible. They make no bones about that.

Hello Rob,
If this were true I'd have a lot more respect for the Bush administration. I'd rather see SS downsized and tax deferred accounts increased, than partial privatization. The suggested approach unnecessarily increases complexity while making the fiscal problem worse, not better.

Then there 'morals' (eg. gay marriage) debate. This certainly isn't consistent with keeping government out of peoples lives -- especially gay people.