Monday, January 31, 2005

The Last Word on Social Security: Hands Off!

from A Tiny Revolution
Conservative Republicans have hated Social Security since before it began. In 1935, Republican Senator Daniel Hastings said Social Security would "end the progress" of America. Ever since, conservatives have been claiming Social Security is about to collapse. When people who are now receiving Social Security checks were starting to work in the 1960s, conservative Republicans were telling them they'd never see a dime. Bush himself, when he was running for Congress in 1978, said Social Security would "go broke" within ten years.

However, until now conservative politicians have never made any serious attempt to kill Social Security. That's because Social Security is extremely popular. And as much as conservatives dislike Social Security, they dislike losing elections even more. Social Security has often been called the "third rail" of American politics—touch it and you die.

But things have changed. Not Social Security itself; it's fine. But conservatives think that—after saying since 1935 that Social Security is about to collapse—they've finally gotten Americans to believe it. As a recent internal White House memo put it, "For the first time in six decades, the Social Security battle is one we can win."

The person who wrote this was being honest: conservatives have been fighting against Social Security for 60 years. It didn't have anything to do with a "crisis" in 1945, 1965, or 1985. And it doesn't now.

Now, you may be wondering: why exactly do conservatives hate Social Security? Why do they think something so many Americans like is so terrible?

Here's one answer: $$$$$$$$$$$$$$$$$$$$$$$$

President Bush's plans for Social Security would mean Americans would be required to hand billions and billions of dollars over to Wall Street. As Fortune magazine recently put it, Wall Street is "salivating" over this. Even the Cato Institute, a Washington think tank that has pushed for privatization for decades, says that "financial institutions in particular" would benefit.

7 comments:

Sheryl said...

"President Bush's plans for Social Security would mean Americans would be required to hand billions and billions of dollars over to Wall Street."Hey, that's what I said in your comments the other day. Maybe you should quote my blog too. ;)

No wait, on second thought, that's probably not a good idea at the moment.

gecko said...

I find flaws in this piece of information. Isn't there a requirement for employers to match funds in the payroll tax?

I'm against privitization, but I have never heard of a requirement for personal accounts in the Bush proposal. Can you dig that up for me?

I think the general basis of the piece is true, however it is presented in the gloom and doom manner I so detest, and most often disregard.

J.R. Boyd said...

Good questions, Gecko. I've forwarded them on to the author, who is eager for feedback.

I agree with you about the matching funds, by the way, and I'm also confused about what's voluntary and what's required, after all.

Anonymous said...

Gecko,

You're right, I oversimplified some things. The little book I'm working on will give the precise information, but I felt an online post couldn't get bogged down in details. Still, I should probably clarify it based on your comments.

"Isn't there a requirement for employers to match funds in the payroll tax?"

Yes. Formally speaking, the Social Security payroll tax is not a 12.4% tax on each employee. Instead, 6.2% is deducted from your salary. Then your employer must match it with another 6.2%. However, it's generally accepted that the employer's share comes out of the employee's pocket. That is, if the tax didn't exist, the employer wouldn't keep the payroll tax; it would be paid to the employee as salary. So people often speak of it as a 12.4% (6.2% + 6.2%) tax on the employee's salary.

However, if you like fractions, you'll notice that this isn't quite right either. An employee whose whose official salary is $1000/week pays $62 in payroll taxes, and their employer throws in another $62, for a total of $124. But under the "employee pays the whole rate" assumption, the employee's REAL weekly salary is actually $1062. ($1000 + $62 employer's share.) Thus, the effective payroll tax rate is 11.676%, rather than 12.4%. (124 / 1062 = .11676)

To be ultra-accurate that's the right way to talk about it. But I thought it would be confusing.

"I have never heard of a requirement for personal accounts in the Bush proposal. Can you dig that up for me?"

The plan Bush has endorsed is formally known as "Plan #2 in the December 2001 report of the President's Commission to Strengthen Social Security." This is usually shortened to CSSS Plan 2.

It's true CSSS Plan 2 would not legally REQUIRE people to divert money to private accounts. However, it sets up incentives so that you'd lose lots of money if you don't. You'd really be crazy not to. That's why evaluations of CSSS Plan 2 by the Social Security Administration and Congressional Budget Office usually assume 100% participation in private accounts.

You can read about the details of CSSS Plan 2 in the CBO's report at http://www.cbo.gov/showdoc.cfm?index=5666&sequence=0

Here are the details, made incomprehensible by CBO-speak:

"Starting in 2007, individuals aged 57 and younger would be allowed to invest 4 percentage points of their payroll taxes, up to a specified level ($1,000 at first and then an equivalent wage-indexed amount)... However, Social Security benefits would be reduced by an amount equal to the annuity that the worker would have earned had the IA earned the Treasury bond rate less 1 percentage point... Therefore, participating in IAs would increase the total expected value of an individual's lifetime benefits."

Thanks for your thoughts. Please let me know if anything else strikes you as wrong or confusing. And if you have a second, I'd particularly like to hear more about how the tone put you off.

Jon Schwarz
http://www.tinyrevolution.com

gecko said...

Jon,

For the record I want to point out that I am against privitization or personal accounts or whatever you want to label the idea.

As to matching funds, I would dispute your arguement that money paid by the employer, the employer's share, comes out of the employee's pocket. This same arguement is made by military members about such things as Basic Allowance for Housing and Commuted Rations. These are entitlements which would only be paid if the circumstances require, you don't just rate them because you are in the military. There would be no requirement for employers to pay this money in wages if it were not required.

As far as a crisis, if there is none (and I mean in the forseable future) then why have I even heard alternatives to "fixing" the system (raising the cap, age, or payroll tax) at all?

My problem with the tone is the assumption that a) Republicans are trying to do away with SS, and 2) the assumption that people would be required to use the personal accounts. If I had been able to use the Thrift Savings Plan, I would not have; my philosophy is not to take chances with money that I would miss if I lost it. I for one will not be playing around with the "retirement insurance" I rate in SS.

When presenting useful information it is unwise to assume things about groups of people unless you are only after a target audience. Here's my perspective on the whole Republicans vs. Democrats thing: Take two children at the local park that you know a little bit about. These children have been in a perdicament and you have to determine which child is tellinjg the truth. You know child A (we'll call him Reppy) has always shown kindness to others when you saw him, but you know little else about him. Child B (Lefty's the name) you also know little about, but when you do see him, all you see is whining, name-calling, temper-tamtrums, etc. Who is the discerning adult supposed to believe? Lefty may be right, but he isn't very beleivable.

I liked your article, just not the bias.

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