Social Security Reform; an idea for Andymoon's independents

Sishir Chang · Mar 8, 2004

This is spun off from the independent party thread.

The only long term successful third party in US history was the Republican party which arose because they had an issue that the two major parties were either against or dealt with very poorly. This issue was slavery which the Democratic party at the time mostly supported while the Whigs were deeply divided on. Since the Republicans were able to provide a strong abolitionist platform that gave their candidates an issue to both focus on and rally support to eventually capture the presidency and survive beyond their founding members.

IMO for a third party to survive now a major central issue also needs to be addressed that is being dealt with poorly by the major parties but could garner widespread support. IMO that issue is social security reform which pretty much everyone recognizes is needed but both major parties refuse to do anything about.

The current social security system is pretty much fiscally unsound and is a sham as a trust fund since the rest of the government borrows so heavily from it. It is a total failure as a saving's program or for capital generation. Also since their is a cutoff on the amount that higher income earners have to pay into it it is also one of the most regressive taxes while at the same time the benefits are totally flat. No matter how much or little you put into it you get the same out of it. On top of all that once the amount of those collecting from it starts to match those paying into, or even more, it will become unsustainable.

Even with all of these problems almost noone in the major parties are serious about doing anything about it including considering relatively moderate reforms like raising the retirement age or means testing benefits. The Dems actively campaign against reform while the Repubs talk about reforms but then only offer tepid reforms which they don't bother to seriously push.

I think this is one issue that could draw socially liberal but fiscally conservative independents and moderates from both parties along with the overlooked younger voters who have become cynical about politics because of its pandering to status quo on issues like social security and narrow cultural issues.

SamFisher · Mar 8, 2004

The current social security system is pretty much fiscally unsound and is a sham as a trust fund since the rest of the government borrows so heavily from it
Click to expand...

That doesn't appear to be the case, apparently Social Security as currently funded will be able to go at least till 2042, its running a suplus. This s just an example of republican crapaganda succeeding again. (Sisir chang, I'm not accusing you, I used to think that Soc Sec was insolvent or was going to soon be insolvent too until quite recently; Medicare is the real problem child)

Read down to krugman's column in Deckard's post:

http://bbs.clutchcity.net/showthread.php?s=&threadid=73659&perpage=30&pagenumber=2

It's crazy; Republicans just repeat lies often enough and people, including myself, believe them. Shameful.

Major · Mar 9, 2004

That doesn't appear to be the case, apparently Social Security as currently funded will be able to go at least till 2042, its running a suplus.

Krugman is being very deceptive here. Yes, it can survive if you account for the trust fund surpluses we're running now. However, we're actually spending those surpluses as we go on other things.

In 2030 or 2035 or whatever, technically, Social Security will still have a surplus balance. However, it will be running a substantial annual deficit, and since we spent the surplus already, we'll have to borrow to fund it. Essentially, it will gobble up a ridiculous amount of resources - in order to fund it, massive cuts will have to take place in every single other program the government runs, taxes will have to be raised, and we'll still likely run substantial deficits. The numbers I've seen in the past would be a disaster.

All in all, it's not a viable program and if it's not dealt with soon, it will rip apart every other thing the government does, and it will not be a pretty sight. Right now, we're running $400B deficits even with $200B SS surpluses ... Imagine when we have $500B SS deficits instead.

mrpaige · Mar 9, 2004

Oh my God, Major has joined the Republican Propaganda Machine.

GladiatoRowdy · Mar 9, 2004

For me, I would fix Social Security by reducing deficits, paying down the debt, and paying back the Social Security funds we have "borrowed" over the last few years.

No Worries · Mar 9, 2004

Separating the SS funds from the general funds is politically untenable. The instance impact of such an action would be to add hundreds of millions of dollars to the annual deficit.

No Worries · Mar 9, 2004

Oh my God, Major has joined the Republican Propaganda Machine.

Close but Major fell short by not saying what GWB has implied: "SS has to die! F*ck the non-super rich! What a buch of whiners!"

bamaslammer · Mar 9, 2004

The Cato Institute, a libertarian think-tank, has come up with a plan for Social Security. Michael Tanner has authored a plan that would fix this disaster once and for all.

The 6.2 Percent Solution: A Plan for Reforming Social Security
by Michael Tanner

Michael Tanner is director of the Cato Institute's Project on Social Security Choice and editor of Social Security and Its Discontents: Perspectives on Choice (forthcoming).

Executive Summary
For the past several years there has been a growing consensus about the need to reform Social Security. Now, however, the debate has advanced to the point where it becomes important to move beyond generalities and provide specific proposals for transforming Social Security to a system of individual accounts. The Cato Project on Social Security Choice, therefore, has developed a proposal to give workers ownership of and control over their retirement funds.

Under this proposal:
Individuals would be allowed to divert their half (6.2 percentage points) of the payroll tax to individually owned, privately invested accounts. Those who chose to do so would agree to forgo all future accrual of retirement benefits under the traditional Social Security system.
The remaining 6.2 percentage points of payroll taxes would be used to pay transition costs and to fund disability and survivors' benefits.
Workers who chose the individual account option would receive a "recognition bond" based on the accrued value of their lifetimeto- date benefits. Those bonds, redeemable at the worker's retirement, would be fully tradable in secondary markets.
Those who wished to remain in the traditional Social Security system would be free to do so, accepting a level of benefits payable with the current level of revenue.
We expect this plan to restore Social Security to long-term and sustainable solvency and to do so at a cost that is less than the cost of simply propping up the existing program. And it would do far more than that.
Click to expand...

Read complete plan here

A good commentary that offers another way to fix social security.

Social Security SOS
by Jagadeesh Gokhale and Kent Smetters

Jagadeesh Gokhale, former senior economic adviser to the Cleveland Federal Reserve Bank, is a senior fellow at the Cato Institute. Kent Smetters is a professor at the Wharton School and a member of the National Bureau of Economic Research.

Social Security, considered to be the nation´s bulwark for ensuring secure retirements, is in urgent need of repair. Fed Chairman Alan Greenspan again emphasized the urgent need for Social Security reform in a recent speech. President Bush will likely make Social Security reform a campaign issue in the fall election and, if re-elected, a major priority during his second term.

There is likely to be stiff opposition, however, to reform proposals that correct Social Security´s financial imbalance but that also appear to create short-term deficits. Last Monday, House Democrats, in fact, sent a letter to Mr. Bush lamenting the creation of new deficits found in the president´s economic report´s recent analysis of personal accounts that could be used as part of reforming Social Security.

Social Security´s future financial shortfalls are so large that even when they are discounted in value to recognize interest costs they add up to a large total. According to the 2003 Social Security trustees´ report, Social Security currently faces a financial shortfall of $10.5 trillion in present value, equal to about 100 percent of GDP. Each year that passes without a reform makes that shortfall larger, and it increases the cost of fixing the program's finances hence the need for immediate corrective measures.

The economic report of the president promotes the case for Social Security reform by devoting an entire chapter to assessing the system´s financial status and exploring the feasibility of a personal accounts option. Although the report pushes for reform, the clear message from the numbers presented is that reform will first worsen the government´s budget for several decades before improving it. This is ironic in light of the large recent budget deficits. It is also incorrect. Indeed, the case for Social Security reform is even stronger than suggested by the administration.

As its primary example of a potential Social Security reform, the economic report considers reform Model 2, taken from the president´s recent Social Security Commission. Whereas Social Security benefits are currently scheduled to grow with inflation plus worker productivity, Model 2 proposes to limit benefit growth to no more than inflation. Model 2´s reform would also allow people to redirect some of their payroll taxes into personal accounts in exchange for a smaller future Social Security benefit. The future retirement benefit of a worker who selects a personal account, therefore, would come from his personal account plus a reduced benefit from the Social Security System. Allowing workers to redirect a portion of payroll taxes away from the existing system, however, incurs additional debt to pay for the benefits of current retirees. The economic report projects that adopting Model 2 would increase the nation´s debt level during the next several decades by 23.6 percent of GDP by 2036.

In explaining the consequences of reform, it is important to emphasize that this debt is not being created by the reform: It already exists. Yet it is not properly counted under current budget conventions, including those used by the economic report. The problem with the report´s deficit and debt projections is that these measures only show what has happened in the past: They do not show how Social Security´s future unfunded costs would be reduced under Model 2´s reform.

In fact, the adoption of Model 2 would likely eliminate the entire current $10.5 trillion imbalance not eventually but immediately. The reason is simple: Containing the growth of Social Security benefits to no more than the inflation rate eliminates the large shortfalls mentioned earlier. While we are not endorsing Model 2, it would improve the budget outlook and help capital markets and it would do so today, not eventually.

To its credit, the economic report acknowledges that the initial deficits created by Social Security reform do not pose an additional burden on the economy. Instead the report argues that the appearance of deficits could potentially undermine the political case for reform. But that is only true to the extent that policymakers continue to focus on flawed budget measures, including deficits and debt, that do not include future net costs.

In contrast, the $10.5 trillion present value calculation made by the trustees includes all future costs net of dedicated revenues. If the focus were instead redirected toward this number, then the political case and economic case for reform would be the same and very strong.

This article was published in The Washington Times, Feb. 29, 2004.
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link

SamFisher · Mar 9, 2004

Originally posted by Major
That doesn't appear to be the case, apparently Social Security as currently funded will be able to go at least till 2042, its running a suplus.

Krugman is being very deceptive here. Yes, it can survive if you account for the trust fund surpluses we're running now. However, we're actually spending those surpluses as we go on other things.

In 2030 or 2035 or whatever, technically, Social Security will still have a surplus balance. However, it will be running a substantial annual deficit, and since we spent the surplus already, we'll have to borrow to fund it. Essentially, it will gobble up a ridiculous amount of resources - in order to fund it, massive cuts will have to take place in every single other program the government runs, taxes will have to be raised, and we'll still likely run substantial deficits. The numbers I've seen in the past would be a disaster.

All in all, it's not a viable program and if it's not dealt with soon, it will rip apart every other thing the government does, and it will not be a pretty sight. Right now, we're running $400B deficits even with $200B SS surpluses ... Imagine when we have $500B SS deficits instead.
Click to expand...

True, but the perception that social security currently sn't able to fund itself is what I was getting at; social security isn't able to fund itself when you pillage it like a Viking plundering and English coastal village. The debate is generally not focused on that additional factor, and hence results in misconceptions, many of which I had.

Vik · Mar 9, 2004

Even when not plundered and ravaged by the goverment, Social Security (in its present form) is only fiscally solvent until 2072 (not positive.. plus or minus 2 or 3 years). When the commission in 1982/83 was formed to figure out the future of social security, they only fixed it so that it would last until that point. Technically, Social Security is not solvent in the long run.

I think that the way to fix SS isn't through strict payroll tax increases or strict benefit decreases. A combination of the two is best. Furthermore, indexing retirement age to life expectancy would help things (although this would never happen, thanks to the all powerful AARP).

Peter Diamond and Peter Orszag just published a book called "Saving Social Security." It's kind of boring, but the analysis is lucid and spot on. I'd recommend it to anyone that's interested. Even a 10 minute perusal is beneficial. (By the way, Peter Diamond is one of the foremost economists of intergenerational earnings models.. he did come up with the Diamond overlapping generations model after all. Brilliant guy, Institute Professor at MIT, on the short list for the Nobel).

B-Bob · Mar 9, 2004

Hey, who is this guy "Vik?" I can't tell what team he's on!

J/K Vik. Thanks for that recommendation. I for one will check it out.

Sishir Chang · Mar 9, 2004

Originally posted by SamFisher
.(Sisir chang, I'm not accusing you, I used to think that Soc Sec was insolvent or was going to soon be insolvent too until quite recently; Medicare is the real problem child)

It's crazy; Republicans just repeat lies often enough and people, including myself, believe them. Shameful.
Click to expand...

I think Major and a few others have responded to this issue already but its worth repeating. As long as the social security trust fund is being plundered to cover general revenue expenditures it is not fiscally sound. Also projections are just projections. Any change in the birthrate and life expectancy will have a profound affect on the solvency of social security.

Here is my own further take on Social Security and what I think should be done about it.

While I agree that there is a need for some form of social security I have alot of problems with the way it is now. I wouldn't recommend a voluntary opt out even though that is the most intellectually honest reform because probably most people will opt out then when they are old or feeble there will be a massive upcry over the lack of an adequately funded social security. Also I have no faith in privatization programs because it won't be truly private, under the plans I have seen Govt will give you a list of which companies you can invest in so people won't be blowing their money investing in fastcash.com. Also this will end up being massive direct Govt. intervention in the financial markets because it will be the Govt. who decides which companies you can invest your social security money in. My answer to social security is to raise the retirement age to 70 because with better health most people are able to work well past 65. Next end the sham of having it as a trust fund and put it into the Govt. general fund. Cut the social security tax so people actually have some of that money to invest as they see fit and then means test it so people like Bill Gates who don't need it won't get it and there is more for the people who do. With those reforms Social Security will become what it was intended to be a Govt. funded elderly welfare program to insure that those who weren't fortunate enough to make enough while we were working won't be begging in the streets in our old age.

Some of these ideas came from James Gibson who was the MN Independence Party (the short lived party of Jesse Ventura) Senatorial candidate in 2000 and I'm not sure who he got those ideas from but I've heard some of these ideas kicked around by others.

What is important is that people need to start looking into the inherent problems of social security and stop playing around with the shell game of funding, like claiming its solvent when its being raided to fund the rest of government. IMO social security is eventually headed for a disaster and it will have to change either because of disaster or because we can start addressing inherent problems in it now.

glynch · Mar 9, 2004

Hey, who is this guy "Vik?"

He's the guy who made Jorge, with his limited knowlege of only business economics cry "mama". After that all we have got out of Jorge are antics and variations of Bamaslammer's posts.

It is good to see the 2072 date. Is this the long run? I guess it is tough to predict too much further. How about 200 years? Well a lot can change.

Major's analysis, while true is misleading. If you assume that the government will default and social security will not be paid back by the government then it fails in 2042. Why assume this? Why assume almost 30 years of inaction on this matter?

Well if you assume that the government will not back t-bills or the currency say by 2012, then we should all cash out while there is time and move to Mexico or somewhere else as all hell will break lose when the government does that.

- in order to fund it, massive cuts will have to take place in every single other program the government runs, taxes will have to be raised, and we'll still likely run substantial deficits. The numbers I've seen in the past would be a disaster.

I'm sorry, Major, I don't believe you. Please give some supporting documentation. You are doing the same thing you accuse Krugman of, and let's face it, he has more credibility.

glynch · Mar 9, 2004

Sadly the economics of conservatives trying to show that we need to turn over social security to the financial industry is starting to look like the science of gobal warming denial that they preach.

DaDakota · Mar 9, 2004

When they put it in the general fund I knew we were in trouble.

I think people should be able to manage up to 50% of their own SS monies.

Get it out of the innefficient government and into our own hands....since it is OUR money to begin with.

DD

bamaslammer · Mar 9, 2004

Originally posted by DaDakota
When they put it in the general fund I knew we were in trouble.

I think people should be able to manage up to 50% of their own SS monies.

Get it out of the innefficient government and into our own hands....since it is OUR money to begin with.

DD
Click to expand...

Exactly. My money does not belong to the govt. or to the masses. It belongs to the one who earned it, ME. Everything govt. touches turns to dust.

No Worries · Mar 9, 2004

Originally posted by DaDakota
When they put it in the general fund I knew we were in trouble.
Click to expand...

I thought that SS has always been a trust fund and like all other federal trust funds the SS trust funds exist only on paper.

No Worries · Mar 9, 2004

Originally posted by bamaslammer
Everything govt. touches turns to dust.
Click to expand...

except for military spending, right?

No Worries · Mar 9, 2004

Concord Coalition beats this topic with a stick. I do not agree with all of their points but understand the reasons for them.

No Worries · Mar 9, 2004

Also I have no faith in privatization programs because it won't be truly private, under the plans I have seen Govt will give you a list of which companies you can invest in so people won't be blowing their money investing in fastcash.com.

and there goes the safety net pillar for SS. Self directed private accounts are a non-starter. Professionally, time-line managed "private" are another matter.

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