Tag Archives: Social Security

Private Savings Accounts: Great Idea

Great Idea

Private Retirement Accounts

As recently as 2005-2006 the subject of private savings or retirement accounts was discussed:

WASHINGTON, March 3 – President Bush dismissed the notion Thursday that his campaign to create private accounts in Social Security was in serious trouble, asserting he was still “at the early stages of the process.”

Vowing to push ahead and acknowledging that “I’ve got a lot more work to do,” Mr. Bush said he was open to ideas from both parties and tried again to allay the fears widespread in his own party that Social Security was “the third rail of politics.”

And just as then president Bush was pushing for the creation of these private funds – democrats were voicing their objection:

They said they would work with Mr. Bush on Social Security only if he would “publicly and unambiguously announce” that he rejected his proposal for private investment accounts financed by payroll tax revenues.

“Such a statement would eliminate a serious obstacle to the kind of bipartisan process that Democrats are seeking to deal with Social Security’s long-term challenges,” Democrats said in a letter that was circulated for senators’ signatures Thursday night and quickly acquired 42.

So – might we have a way forward?

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Commentary Income Gap And Private Social Security Accounts

Money

One of the reasons that the income gap is widening is the impact of the gain in the stock market – wealthy Americans invest disproportionately in the market.  The less wealthy, for several reasons, don’t invest in the market.

Because of this, those wealthy Americans that DO invest in the market are seeing gains to their income due to the power of the stock market – the gains are flowing to the wealthy.

Consider this fact when reflecting on arguments AGAINST private investment accounts in place of social security*.  The idea that we reform social security away from the government trust fund to a privately held account that could be invested at the discretion of the individual.

The arguments against this plan is that it would expose the money to the vagrancies of the stock market and places the individual at too much risk.

This is very similar to the arguments presented by the liberal when it comes to the importance of money.  It goes something like this:

There is more to life than money, therefore a degree in Renaissance Art of Western Europe is valuable in its own right and a career in that field can offer a full and rewarding life.  The rich get richer and the poor get poorer – we need more redistribution of the money!

On the one hand, the argument states that money isn’t important and then becomes surprised when people who do value money have more of it than people who don’t value money.

The stock market is a massively effective method of building wealth.  Buying stocks during the recession, not selling, was responsible for astonishingly large gains for many many people.

If you care about income disparity, and we know that a large reason for this disparity is the market, how can you disagree with private social security accounts?

* I say this knowing full well that the REAL argument against private social security accounts is the same argument against Obamacare – Individual Liberty.  Social Security is nothing more than a mandate to save money and a private account would be no different than forcing  people to buy health insurance.

The Republican Conundrum On Social Security – California

Savings Account

As the debate raged over Obamacare, I warned that republicans were painting themselves into a corner.  It has been correctly pointed out that the idea of the individual mandate was an idea first introduced by the right.  After all, by requiring everyone to purchase health insurance, the costs would be spread more equitably – those more likely to require care would pay more, those less so would be less.

While that debate was raging, republicans were pushing the idea of reforming Social Security.  The goal was to institute personal retirement accounts.  In other words, the government would still take 6% of your money, probably 6% of your employers money, and give you the option of investing it as you so desired.

Forced savings.

I didn’t see the difference between forcing someone to purchase health insurance and forcing them to  purchase savings accounts.

To be sure, both are good ideas – VERY good ideas.  But having the government force it on us?  No bueno.

Now see this:

California lawmakers are pushing a controversial, first-in-the-nation plan that would require private-sector employers to remove 3 percent from every worker’s paycheck. The money would go into a new state fund with a guarantee that all withheld funds plus investment gains will be available for distribution at retirement age.

The idea behind the Secure Choice Retirement Savings Program, which got preliminary approval, is for it to be a state-run supplement to Social Security, but only for people who don’t have traditional workplace retirement plans. For an estimated 6 million working Californians, the benefit of a pension or 401(k) is out of reach — so state lawmakers are trying to implement the new mandatory retirement fund for private sector workers.

Boom.

Now, to be fair, there is NO WAY that California doesn’t spend the money before the benefits come due causing a dramatic budget deficit.  Beyond that, however, there is little difference between this plan and the one republicans called for in social security reform.

Maybe the good news is that by being continually to the right of the crazy, the crazy will feel the need to move right.

Why Democrats Favor A Tax Cut

In the last few days and weeks we’ve been hearing a lot about the payroll tax hike/cut.  Lately the pitch has ramped up for two reasons.  One, the Senate was ale to negotiate a bipartisan agreement to extend the tax cuts.

For 2 months.

Now, most recently, the House Republicans have declined to accept that compromise.  They voted Tuesday to reject the Senate deal and are asking for the two bodies to meet in committee.  We’ll see who blinks.

However, for me, what has been lost in all of this is why the Democrats are fighting for a tax cut to begin with?  I certainly understand the whole “We-They” thing, after all, the whole payroll tax cut idea was the Democrats brain child.  But why, at all, do the tax more, big state liberals want ANY tax cut?  Especially one that funds their most precious social program, Social Security?

Why?  Because Social Security is SO broken, so in debt and so “no chance of survival” that the Democrats feel they have little to lose.  In fact, they KNOW the government will “bail out” Social Security.  So, in some perverse way, the payroll tax cut can be seen to be a stimulus program.  Albeit not a perfect one.  For starters the more you make the more it benefits you.  And, you have to actually be working to benefit.  But other than that, any money not sent to Social Security is just added to the bill that Congress will eventually pay.

Rascally Rabbits!

Social Security: Open Question To Conservatives

So, conservatives are seeking to over turn Obamacare on the basis that the government can not force you to purchase a product.  I agree with this stance.  If Obama can force me to purchase health insurance, control what that insurance looks like and even who sells that insurance, there is nothing to stop him from forcing me to purchase tickets to the Raleigh Philharmonic Orchestra.  Or a car from GM.  Or organic carrots from Democrat farmers.

But, as conservatives, we have to answer to our stance on Social Security.

Our answer to the current mess that is Social Security is to continue to collect 6.5% from the employer and the employee.  BUT we want some % of that 13% to go to personal private investment accounts.  These accounts would belong to the tax payer and he could even manage those accounts.

In short, we would be enabling the government to force us to buy a product; an investment account.

It seems there is no discernible difference.

Obama and Reagan: Tax Millionaires

Because I think that the debate over taxes has been going on for a long time, and while continue to go on through the election, we should take a break and chuckle:

Even though this pokes fun at my side, I enjoy a good laugh just as much as the next guy.

But let’s be very clear here as well.  There is simply no reasonable argument that can be made that we have a revenue issue that’s contributing to our nation’s debt.  The problem always has and always will be spending.

Further, the idea that Reagan and Obama share the same economic philosophy is laughable.  Even more so than that cute clever video.  Reagan believed in less government.  He felt that government could not and never could, be the solution.  It was government that WAS the problem.  Obama?  Well, he feels very different.  The more that government gets involved, the better off the people of this nation will be is center to Obama’s thinking.

We simply disagree.  And we can’t compromise on that.  How do you compromise with someone who wants to rob your house?  Is it a moral victory to let him “only take” your TV while you get to keep the rest of your property?

No.

Last, the House Republicans led by the fiscal conservatives are doing yeoman’s work.  Obama and the Democrats know that they have no chance what-so-ever of passing nonsense through the House.  So the aren’t even trying.  The bills they craft are being written in such a way that they HOPE they get through.  If the House were less conservative, Obama’s bill would be even worse than they are today.  But, BUT, I feel my comrades are making two critical errors:

  1. Refusing to add revenue simply on principle.
  2. Missing the opportunity to “cash out”.

First, if we can raise revenue without raising rates simply by making the code easier and removing crazy-ass “loopholes”, DO IT!  For gawd’s sake man, take “W”.

Second, i was very distressed to see all Republican candidates raise their hand during one of the debates when asked if the would reject a plan that had 10-1 spending to tax ratios.  Dude, take the flippin’ deal and push away from the table.  Especially if these guys are offering up Social Security and Medi-X.  In fact, if they let me reform either or both of those programs I’d give on taxes in a second.

Anyway.  Enjoy Obama quoting Reagan!

If You Don’t Believe Me – Believe Your Nobel Winner

Ask your Google who said this:

Social Security is structured from the point of view of the recipients as if it were an ordinary retirement plan: what you get out depends on what you put in. So it does not look like a redistributionist scheme. In practice it has turned out to be strongly redistributionist, but only because of its Ponzi game aspect, in which each generation takes more out than it put in. Well, the Ponzi game will soon be over, thanks to changing demographics, so that the typical recipient henceforth will get only about as much as he or she put in (and today’s young may well get less than they put in).

I’ll give you a clue.  His name starts with Paul and ends with Krugman.

Social Security and The Ponz[i]

Rick Perry made waves; lot’s of waves.  He compared Social Security to a Ponzi Scheme.  And in so doing, open a massive wave of defense for the gentle program.  I suspect that more people have issue with the implicit, or explicit, slight on Social Security than they do with the actual definitions of the scheme itself.

In other words, I firmly believe that people are afraid to admit that their faith in the program called Social Security is more based on emotion than on actual facts.  This can be demonstrated whenever you enter into a conversation with anyone on the topic of Social Security reform.

Anyway.  I was willing to let sleeping dogs lie, but then I found these two gems, back to back, in the Letters to the Editor page of my local newspaper.

Ugh.

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What Is Social Security

It’s ‘prolly not fair, but after just one debate I don’t think I’m a Perry fan.  I don’t think that he necessarily believes what he’s sayin’ and, in order to SHOW that he does, he defends it so vehemently that I don’t see an ability to … “flex”.  Be that as it may, he made a comment, or rather a collection of statements, that seems to have the interlinks a’buzz.

Social Security is a Ponzi scheme.

Interesting.  Never thought of it that way, bt now that ya mention it; sure.

Let’s check the tape:

  • A swindle in which a quick return, made up of money from new investors, on an initial investment lures the victim into much bigger risks.
  • A fraudulent investment operation that pays quick returns to initial contributors using money from subsequent contributors rather than profit.
  • Investment scam by which early investors are paid off from the contributions of later ones, 1957, in ref. to Charles Ponzi, who perpetrated such a scam in U.S., 1919-20.
  • An investment swindle in which early investors are paid with sums obtained from later ones in order to create the illusion of profitability.

A general characterization of the Ponzi scheme seems to be the fact that there is an illusion or an act deception.  If you take away the deception that Social Security is solvent, which we can do for this argument, then the comparison doesn’t hold water.  Social Security is up front about the fact that we are contributing today in order to care for the retirement of others.  And later, when we need that same care, the workers of tomorrow will be there for us.

However, the later definitions rely less on the illusion and more on the method of paying out.  And in this regard, Social Security is EXACTLY the definition of a Ponzi scheme.  Investors are paid out with money obtained by later ones.

This later point is taken up by Shika Dalmia over at Reason.com:

A Ponzi scheme collects money from new investors and uses it to pay  previous investors—minus a fee. But Social Security collects money from new investors, uses some of it to pay previous investors, and spends the surplus on programs for politically favored groups—minus the cost of supporting a massive bureaucracy. Over the years, trillions of dollars have been spent on these groups and bureaucrats.

Shika goes on to make a second point that I think is much weaker:

Two, participation in Ponzi schemes is voluntary. Not so with Social Security. The government automatically withholds payroll taxes and “invests” them for you.

It would be hard to say that participation in a Ponzi scheme is strictly voluntary.  The “fund” is founded on fraud.  Few would invest if they knew the truth.

And finally, his third point is close, he doesn’t go far enough:

When a Ponzi scheme can’t con new investors in sufficient numbers to pay the previous investors, it collapses. But when Social Security runs low on investors—also called poor working stiffs—it raises taxes.

What this means, of course, is that when a Ponzi scheme runs out of clients, it’s sunk.  But when Social Security runs out of clients, it just walks over to their house, draws their gun and forces EXISTING clients to up their investment.

Now, to be sure, there are those who wouldn’t agree with said characterization.  Kevin Drum offers his over at Mother Jones:

Here’s how Social Security works: every month we take in taxes from working people and every month we turn around and distribute those taxes to retirees. That’s it. That’s how it works, and everyone who actually knows anything about the program knows that’s how it works. Taxes come in, benefits go out. And the key to solvency is simple: making sure that those taxes and benefits are in balance.

Emphasis Kevin’s.

So his defense that Social Security isn’t a scheme is to demonstrate that it works JUST like a scheme.  Except that because it’s done in the light of day, it’s apparently okay.  After all, when you tax people for an Army man, you pay the Army man.  So, see?  No scheme here.

He continues this like of thinking:

For example: we have an obligation to today’s seniors to fund the Pentagon and keep them safe from al-Qaeda. After all, they did their bit and funded the Pentagon back when we needed to kick Hitler’s butt and stop the commies from taking over the world.

But this isn’t an equivalent.  He’s trying to connect the fact that I am paying into a system that doesn’t benefit me now in the hopes that it’ll benefit me later to a program that I pay into now for a definite benefit now.  After all, when the seniors funded the Pentagon way back then, they received the benefit of a Pentagon.  They continue to pay today and, as it so happens, continue to realize the same benefit.

I’m not saying that in this case that Social Security being a Ponzi scheme is bad; it may very well not be.  Personally, I’d like to see some more privacy associated with the money so that we can’t just spend it out from our investors, but whatever.  The point isn’t the worthiness of the scheme, only if it IS one.

And it is.

Man Crush

A continuation of my love affair with Chris Christie:

[youtube=http://www.youtube.com/watch?v=G1vrV9KdKI8&w=480&h=390]

A leader leading is something to behold.

Hat tip:  The Journal of the American Enterprise Institute