December 7, 2004 OP-ED COLUMNIST Inventing a Crisis By PAUL KRUGMAN rivatizing Social Security - replacing the current system, in whole or in part, with personal investment accounts - won't do anything to strengthen the system's finances. If anything, it will make things worse. Nonetheless, the politics of privatization depend crucially on convincing the public that the system is in imminent danger of collapse, that we must destroy Social Security in order to save it. I'll have a lot to say about all this when I return to my regular schedule in January. But right now it seems important to take a break from my break, and debunk the hype about a Social Security crisis. There's nothing strange or mysterious about how Social Security works: it's just a government program supported by a dedicated tax on payroll earnings, just as highway maintenance is supported by a dedicated tax on gasoline. Right now the revenues from the payroll tax exceed the amount paid out in benefits. This is deliberate, the result of a payroll tax increase - recommended by none other than Alan Greenspan - two decades ago. His justification at the time for raising a tax that falls mainly on lower- and middle-income families, even though Ronald Reagan had just cut the taxes that fall mainly on the very well-off, was that the extra revenue was needed to build up a trust fund. This could be drawn on to pay benefits once the baby boomers began to retire. The grain of truth in claims of a Social Security crisis is that this tax increase wasn't quite big enough. Projections in a recent report by the Congressional Budget Office (which are probably more realistic than the very cautious projections of the Social Security Administration) say that the trust fund will run out in 2052. The system won't become "bankrupt" at that point; even after the trust fund is gone, Social Security revenues will cover 81 percent of the promised benefits. Still, there is a long-run financing problem. But it's a problem of modest size. The report finds that extending the life of the trust fund into the 22nd century, with no change in benefits, would require additional revenues equal to only 0.54 percent of G.D.P. That's less than 3 percent of federal spending - less than we're currently spending in Iraq. And it's only about one-quarter of the revenue lost each year because of President Bush's tax cuts - roughly equal to the fraction of those cuts that goes to people with incomes over $500,000 a year. Given these numbers, it's not at all hard to come up with fiscal packages that would secure the retirement program, with no major changes, for generations to come. It's true that the federal government as a whole faces a very large financial shortfall. That shortfall, however, has much more to do with tax cuts - cuts that Mr. Bush nonetheless insists on making permanent - than it does with Social Security. But since the politics of privatization depend on convincing the public that there is a Social Security crisis, the privatizers have done their best to invent one. My favorite example of their three-card-monte logic goes like this: first, they insist that the Social Security system's current surplus and the trust fund it has been accumulating with that surplus are meaningless. Social Security, they say, isn't really an independent entity - it's just part of the federal government. If the trust fund is meaningless, by the way, that Greenspan-sponsored tax increase in the 1980's was nothing but an exercise in class warfare: taxes on working-class Americans went up, taxes on the affluent went down, and the workers have nothing to show for their sacrifice. But never mind: the same people who claim that Social Security isn't an independent entity when it runs surpluses also insist that late next decade, when the benefit payments start to exceed the payroll tax receipts, this will represent a crisis - you see, Social Security has its own dedicated financing, and therefore must stand on its own. There's no honest way anyone can hold both these positions, but very little about the privatizers' position is honest. They come to bury Social Security, not to save it. They aren't sincerely concerned about the possibility that the system will someday fail; they're disturbed by the system's historic success. For Social Security is a government program that works, a demonstration that a modest amount of taxing and spending can make people's lives better and more secure. And that's why the right wants to destroy it. http://www.nytimes.com/2004/12/07/opinion/07krugman.html?oref=login
Social Security plan opposed by AARP Group criticizes Bush's private-accounts option By Jim Drinkard USA Today http://www.deseretnews.com/dn/print/1,1442,595110340,00.html WASHINGTON — AARP, the nation's largest seniors organization, is coming out strongly against President Bush's plan to allow private individual accounts within Social Security. In the newsletter it sends to its 35 million members, the group says Bush's plan would damage the most successful government program in history and abdicate on a promise made to future retirees. "Taking some of the money that workers pay into the system and diverting it into newly created private accounts would weaken Social Security and put benefits for future generations at risk," says the December issue of the AARP Bulletin, which went to members this weekend. The group's position is consistent with its longstanding opposition to privatizing the nation's retirement program. But it was the strongest statement yet to its members and comes as Congress and the White House gear up to tackle the issue. Opposition from one of the most formidable advocacy groups in Washington could make it much harder for Bush to make headway in setting up private accounts. White House spokeswoman Pam Stevens declined to comment directly on AARP's position but said, "The Social Security system is unsustainable," and the president "believes in solving problems, not passing them on to future generations." Last year, the AARP gave crucial backing to Bush's plan to create a controversial prescription drug benefit under Medicare, a move that drew heavy fire from members and Democratic allies in Congress. That in turn led to speculation that it might hedge on its opposition to the push for private Social Security accounts. "This is not a new position, but the fact that they are stating it in a very clear manner to their millions of members has to be considered quite significant," said Robert Greenstein of the Center on Budget and Policy Priorities, an anti-poverty group. "This is our signature issue," AARP's head of policy and strategy, John Rother, said in an interview. Social Security relies on payroll taxes deducted from workers' checks to pay benefits. Excess payroll taxes are held in a trust fund for future benefit payments. When baby boomers begin to retire, costs will rise and payouts will begin to exceed revenues in 2019, the Congressional Budget Office projects. In its message to members, the group acknowledges that the system, last overhauled in 1983, will need to be shored up again in the near future. While Bush has promised to make revamping Social Security a top priority for his second term, the administration has offered no specific plans. Opponents say when Bush does flesh out a proposal for private accounts, it will become clear that it will entail benefit cuts, additional risk for retirees and a ballooning national debt.
"The Social Security system is unsustainable," and the president "believes in solving problems, not passing them on to future generations." Funniest thing I read all day. I wonder why AARP didn't come out with this prior to the November election (not that it would have mattered btw).
Wouldn't privatization actually help lower and middle class people, as they would no longer be carrying the burden of supporting the nation's elderly and would instead be keeping more of that money for themselves? Another overhaul they should make to the system is to have the benefits kick in later. When most people are dying around 65 or 70, then the system works fine, but when we have to keep paying 3-4 times as long, there isn't enough money. Push back the age to receive SS benefits to 70 or 75, then people who are depending on the government for their retirement can just work an extra 5-10 years and not be a drain on the economy. People that want to retire earlir than that can plan for themselves.
Not if they get to manage their money. Privatization without professional money management should be a nonstarter. (Privatization without funding it should also be a nonstarter.) Don't fret. It's not like we are going to have a real national conservation about what is best for SS. We are going to be told what is best and the bill will be written behind closed doors with no attempts at bipartisanship. I do expect the financial services industry will get a say in the bill, since they paid for that privilege
With one big difference: you get to drive on the maintained highway that your gasoline tax helps to improve. Try that with Social Security and you will be arrested.
Did you read the column? Can you point out what is wrong with it? And is anyone preventing you from putting money into the stock market? Keep D&D Civil!!
Isn't the issue that dollars first must go into Social Security? There may not be leftover dollars to invest as you say; there certainly will be fewer.
Did you read the column? Can you point out what is wrong with it? And is anyone preventing you from putting money into the stock market? Look, either we throw SS out the window, and screw everyone who has put money into it for decades, at least old S.O.B's like you and I, and go through this charade the Administration wants to go through "fixing" our "broken" safety net, or we make it secure, and tell those who want to destroy it to take a hike. I prefer to keep it as it is. I like planning retirement around knowing we're going to have a certain income from SS, to add to the other income streams we will have. Others will be more dependent upon SS than my wife and I, and I think they should be protected as well. I just don't see it as rocket science... Bush and friends want to make even more money for their friends. People like me want to preserve what we have, and there is no reason we can't preserve it long enough to last until you and I are dead. My 2 cents. Keep D&D Civil!!
My point was simply that by <b>requiring</b> people to put money into SS <b>first</b>, there will certainly be fewer dollars for private investment and there may be none available for private investment. The key word here is "first." What may be preventing you from privately investing is the requirement to pay into SS.
Interesting that 2 months ago the liberals was trying to push SS as a major issue that needed addressed. Now that teh election is over and it is being adressed it is now "inventing a crisis"
What is interesting is how little attention you pay. Kerry said in the debates that Congress could continue to fix SS as it had in the past. Now Kerry was completely wrong to say that, but as a liberal two months ago Kerry was not pimping it as a major issue, outside of letting the Chucklehead-In-Chief have his way with it.
I have no idea what point you are trying to make here. The suplus SS funds each go into the general coffers and could very well pay for maintaining a highway or two, so I do not see why driving on one of those highways would be a legal offense.
Of course, I disagree. http://www.libertyhaven.com/politic...thcarewelfareorsocialsecurity/galveston.shtml How Galveston Opted Out of Social Security Ed Myers In south Texas, along the windswept Gulf Coast where multitudes of hurricanes have made landfall over the centuries, there are three history-filled, ahead-of-their-time counties: Galveston, Brazoria, and Matagorda. Until the early 1980s government entities, such as cities and counties, had the right of opting out of Social Security and establishing their own retirement system. This option had been provided when the Social Security Act was passed in the thirties. Galveston County in 1979 looked into this idea when then - County Attorney Bill Decker contacted Don Kebodeaux, highly successful Houston businessman, and asked him if he could devise a plan so that Galveston County could opt out of Social Security. At that time Social Security was on the verge of bankruptcy and no one knew what the future held. Don pondered the problem and called in his friend Rick Gornto, a leading financial expert, who was later to become his partner. These two hard-driving and foresighted businessmen, realizing the coming problems in Social Security, designed a new program for political subdivisions that would provide a retirement plan for employees that was many times better than the existing Social Security program. Satisfied with the new program, and in order to properly present and handle this program, these two Texas entrepreneurs organized several companies that became the First Financial Group. The men from First Financial took their ideas, which they called The Alternate Plan, to Galveston County and presented them to County Judge Ray Holbrook and the Commissioners Court in 1980. When Judge Holbrook, a quiet, soft-spoken Texan, and County Attorney Bill Decker, a man dedicated to the betterment of his county, saw the wisdom and foresight of this concept they took charge and shepherded the plan through its various stages. The beauty of the plan was simplicity itself. The 6.13 percent rate that the government had been taking out for Social Security in 1981 now would go into the pension fund for employees and would be matched by the county. Life and disability insurance were included at first to match exactly the Social Security benefits. In recent years the county increased its participation to 7.65 percent, which included payment of all premiums for life and disability insurance. The life insurance benefit for those under age 70 is 300 percent of one's annual earnings with the minimum benefit of $50,000 and a maximum of $150,000. Many spirited debates were held throughout the county between Social Security representatives and the men from First Financial for the benefit of the county employment of 78 percent to 22 percent, the Galveston County employees endorsed the idea and the county opted out of Social Security. The local unions fought the idea at first, and several Galveston County officials also opposed the action. As time went on and they learned more about the program, nearly all of them saw the sound judgment in this course of action. Years later Decker, by then retired, told the story of how a number of unionized county workers thanked him for his wisdom and guidance. They said at first they had serious doubts about giving up the fixed income of Social Security, but now that they were getting ready to retire they were very happy they did. "The Alternate Plan has been a godsend for Galveston County and clearly improved employee benefits," said Judge Holbrook recently. He continued, "The 22 percent who voted against it in 1980 are all supportive now and see the many benefits of having a retirement program other than Social Security, which most employees under age forty believe will not be existing when they retire because there will not be enough workers to contribute to this pay-as-you-go system. And now no one objects to the mandatory feature which was made part of The Plan a few years after it started." Judge Holbrook, who retired in 1994 after 28 years of distinguished service, concluded his narrative by saying, "Of all the things I accomplished while county judge, setting up this retirement system for Galveston County employees is one of my proudest achievements." Now in retirement, Judge Holbrook also pointed out that after just 12 years of service under The Alternate Plan he is now receiving twice as much as he would have under Social Security. Seeing this tremendous potential in 1982 Brazoria County followed suit and opted out of Social Security in favor of The Alternate Plan. A year later Matagorda County climbed on board. Tolbert Newman, operations manager for the First Financial Group who handles the overall responsibility for these plans for the three counties, cites the following example of the growth that can be achieved in this Alternate Plan pension fund. If an individual is 25 years old and makes a $2,000 annual contribution for just ten years, assuming an 8 percent earnings rate, this individual will have $314,870 when he or she retires at age 65. If he works continuously for 40 years, he may well have accumulated a million dollars, depending on his contributions. This idea began taking hold in a big way. The entrepreneurial spirit was alive and well. In a short period of time the idea spread and some 200 other counties, as well as many cities, in Texas and throughout the entire country, saw the latent possibilities of the program and were ready to become candidates to opt out and join the plan that First Financial Group had devised. Then as these other political subdivisions began to set the wheels in motion for this farsighted change, up jumped the devil, Congress. Social Security had gone broke the year before and our legislators were now looking for ways to bail out the system. Capitol Hill had already decided to include the federal employees and then got a rude shock when it looked as though all employees of the various counties in Texas, and others throughout the country, were about to opt out of Social Security. That was a calamity it could not allow, so Congress canceled the opt-out clause in 1983. Fortunately Galveston, Brazoria, and Matagorda counties had their systems up and running and so the grandfather clause applied, and they were allowed to continue their Alternate Plan, much to the chagrin of all these other Texas counties. The Alternate Plan that began as a fledgling, upstart employee benefit plan has stood the test of time and has shown that it can and does outperform Social Security. The plan that started in Galveston County ended the first year with a modest balance. Today, with over 5,000 employees from these three counties The Alternate Plan has grown to a very healthy and sizable portfolio. Those who retire after 20 years will receive three to four times the rate as under Social Security. This Alternate Plan is not just an isolated act of a group of responsible and dedicated Texans. There are countless other examples of other local and state government entities showing the same responsibility and initiative throughout the United States. There are now five states that are not under Social Security and have their own plans: California, Nevada, Maine, Ohio, and Colorado. In the Colorado plan they now have over $14 billion in assets. Local govern-ment entities such as police and fire depart-ments have long handled their own retirement plans. These plans clearly demonstrate that if left alone enterprising Americans can set up re-tirement systems, second to none. The private sector, including the self--employed, will benefit from privatizing Social Security as never before. Phasing out the employer's share of the Social Security tax will, over time, return to the business com-munity more than $169.2 billion per year. Not having to pay these FICA taxes in future years will be a tremendous boon to the business climate and the creation of untold new jobs. Larry N. Forehand, president of the Texas Restaurant Association and founder of Casa Olé Mexican Restaurants, a fast-growing Texas restaurant chain, had this to say: "We currently pay over $1.3 million in matching Social Security taxes annually. If our company had that $1.3 million a year to invest in new locations, we could build six additional res-taurants, employ an additional four hundred fifty people and add $7.2 million to the economy every year. Based on current figures it is estimated that all restaurants in Texas will save $1.2 billion per year." Privatization will bring a win-win situation for all.
My point was that you immediately participate in the benefit of your monies spent on gasoline tax. You don't get the benefit of your monies paid into Social Security-- someone else does.. and you can only hope to get to benefit from someone else's money being paid into benefit you. If you try to get some of your SS money now, you would have to steal it. The author of the story made them sound so very similar when I find them much more different than similar.
How was Kerry going to fix it? Was it: A - Raise taxes on the rich B - Quit funding the war so we could run a war on a budget It's so confusing to us in the red states. I mean all these "plans" from the left with no idea what they encompassed or how they were funded. Must be because I don't live on teh coasts that I couldn't get my ESP to work to truly understand (or as you said pay attention)
It's hard to put money in the stock market after the government takes it away from you and gives it to some old people.
If you make enough to put enough money in the stock market to make a difference then the amount wouldn't change it.
Where your red state faux concern about GWB's funding for the war, medicare, etc.? If red states truly fiscally conservative, GWB would be the last person that they would vote for.
