Friday, December 28, 2012

A damned good question.

Sunday, July 15, 2012

Top 10 Myths About Social Security

The best article I've seen in some time about Social Security is an opinion piece from the Morningstar website, "Top 10 Myths About Social Security." I think the best thing here is to cite all 10 myths and let you go read the full piece for the explanations of each.
Myth 1: Social Security is going bankrupt.
Myth 2: Social Security is a key driver of the national deficit.
Myth 3: The Social Security Trust Fund is nothing but a bunch of paper IOUs. It doesn't really exist.
Myth 4: Social Security is a Ponzi scheme.
Myth 5: We're all living longer, so we should raise the retirement age.
Myth 6: We need to "fix" Social Security in order to save it for young people when they retire.
Myth 7: Benefit cuts would be phased in; today's seniors won't be affected.
Myth 8: Social Security pays generous benefits.
Myth 9: Means testing can save Social Security.
Myth 10: Social Security costs are exploding, so we need to cut benefits.
Some of these really do require explanation. And he's not arguing that no changes should be made, but that relatively small changes will be sufficient -- we don't need to tear it up and start over, as privatization advocates would have you believe.

As you might expect, the comments get a bit heated.

Wednesday, February 17, 2010

It's ba-ack ...

Every time I think I might be able to delete this blog, there's a new reminder of why I shouldn't. The GOP is at it again, as Michael Hiltzik explains:
Like a zombie tromping through a Hollywood gorefest, the idea of privatizing Social Security still walks among us.

The last promoter of the idea that people should personally invest their Social Security assets in the stock market was President George W. Bush, in 2001. With the dot-com crash still ringing in people's memories, the idea died in 2005.

The market hasn't yet recovered from its most recent crash, but the monster unaccountably is back on its feet. This time it comes dressed up as part of the "Roadmap for America’s Future" recently unfurled by Rep. Paul D. Ryan (R-Wis.), the ranking GOP member of the House Budget Committee.

The Roadmap is a retort to the charge that the Republican Party contributes no ideas to the national debate on fiscal issues, only "no" votes in Congress. It's a road map to the dismantling of federal social programs under the guise of making them fiscally sound, while cutting taxes for the rich. (The plan eliminates taxes on capital gains, interest and dividends.)

Social Security comes in for particular abuse. Ryan states that "Social Security's shrinking value and fragile condition pose a serious problem. . . . To maintain the program's significant role as a part of the retirement security safety net, Social Security's mission must be fulfilled . . . without bankrupting future workers."

One doesn't want to be picky about an elected congressman's words, but with all due respect, these words are pure bilge. They come straight from the talking points of Social Security's historical enemies: conservatives who have never believed that the government should play such an important role in people's retirement planning, and mutual fund and insurance companies that hanker for the business generated by millions of Americans looking for a profitable place to park their retirement assets.

Labels: , , ,

Friday, February 13, 2009

Social Security isn't broken; don't "fix" it.

LA Times columnist Michael Hiltzik observes that if there's a silver lining to our current economic situation, it's that the strength and value of our current Social Security system:

They say that even the worst tragedies harbor the seed of something good. So here's something positive in the stock market's gruesome behavior over the last year: It may finally have driven a stake through the heart of the campaign to "fix" Social Security.

Let's be plain about one thing: This campaign, cooked up mostly by Wall Street investment houses and conservative Republicans,was always about “fixing” Social Security the way one "fixes" a cat. (...)

With any luck, the 2008 stock market crash will permanently restore Social Security's luster. Indeed, the program looks so solid and reliable compared with every other source of retirement income -- your pension, your portfolio, your house -- that people ought to respond well to the idea of expanding it, in part by permitting them to put more money into their Social Security accounts to obtain better benefits.

In fact, he suggests that it should be expanded by adding the ability to make voluntary contributions.

Labels: ,

Thursday, July 10, 2008

Here we go again.

Just when you thought that Social Security might be safe from a president determined to to change it, a would-be president joins in. John McCain told a gathering in Denver last Monday:
Americans have got to understand that we are paying present-day retirees with the taxes paid by young workers in America today. And that's a disgrace. It's an absolute disgrace and it's got to be fixed.

In other words, the way Social Security has worked for more than 70 years is a disgrace.

Maybe I'm taking this out of context? Nope, see for yourself.

Maybe he just misspoke? Maybe he meant to complain about how current workers may not be able to collect 100% of their benefits? Then why did he say the same thing the next day to John Roberts on CNN (emphasis added):
On the privatization of accounts, which you just mentioned, I would like to respond to that. I want young workers to be able to, if they choose, to take part of their own money which is their taxes and put it in an account which has their name on it. Now, that's a voluntary thing, it's for younger people, it would not affect any present-day retirees or the system as necessary. So let's describe it for what it is. They pay their taxes and right now their taxes are going to pay the retirement of present-day retirees. That's why it's broken, that's why we can fix it. We can do it together, republicans and democrats alike.

"John McSame" indeed.


Sunday, November 04, 2007

Why we pay taxes on Social Security benefits.

Today's Washington Post includes a column by Martha Hamiliton that explains why we pay taxes on Social Security benefits:
The policy argument was that, while workers paid taxes on the amounts they contributed to Social Security, nobody paid taxes on the amounts their employers put in. The employer received a benefit, however -- a reduction in taxable income equal to the amount contributed. Advocates of the change argued that taxes on that money should be paid when it was received, just as taxes are paid on traditional pension checks.

What became law wasn't pristine policy, however. Instead it was a political compromise designed to exempt lower-income recipients of Social Security from taxes. The rule was written to cover combined income of at least $25,000 or more for an individual and $32,000 for a married couple filing jointly. The figure for combined income was a total of adjusted gross income, interest on tax-exempt bonds and 50 percent of Social Security benefits.

But that figure was never adjusted for inflation, so now many more beneficiaries pay taxes than did originally. In today's dollars, far more people than before exceed the lower income limits. While only 9 percent of Social Security recipients were covered in 1984, 31 percent of beneficiaries will pay taxes on a portion of their benefits in 2007, according to the Social Security Administration. Essentially it's a stealth tax increase. If the floor for taxing benefits had kept up with inflation, only those who make more than $52,331.83 today would be paying taxes.

The Alternative Minimum Tax (AMT) wasn't indexed for inflation, either, and that's why it's hitting so many more people than originally intended. Why did Congress ever pass such significant financial legislation without indexing for inflation?

The article touches on some other aspects of Social Security, as well. Recommended reading.

Tuesday, August 16, 2005

Social Security Lessons

Things have been quiet on the Social Security front lately -- too quiet, to invoke the movie cliche -- but the program's 70th anniversary last weekend stirred things up a bit. Paul Krugman provides a useful recap of what the Bush Administration has been doing.

Thursday, June 16, 2005

Wanted: A Way Out

Today's Washington Post says that Republican Congressional leaders are looking for a way out on Social Security, because the way things stand, nothing will happen:
Democrats are united in their opposition, and the Finance Committee does not have the Republican votes to approve a Social Security plan that would divert some payroll taxes to private investment accounts. But the committee, which has jurisdiction over the issue, also does not have the votes to pass a plan that would preserve Social Security's solvency without the personal accounts because too many GOP conservatives want them.

President Bush has responded by dispensing his cautious calls for bipartisanship in favor of far tougher rhetoric that blames the Democrats for the stalemate. "On issue after issue, they stand for nothing except obstruction," Bush said at a GOP fundraiser Tuesday night. "And this is not leadership. It is the philosophy of the stop sign, the agenda of the roadblock."

It takes two to make this roadblock, Mr. President, and your side is one.

Further down in the same article is evidence of what I've argued from the beginning:
Some White House domestic policy officials have suggested that the savings that would flow from reducing future Social Security costs would go a long way toward fixing the government's long-term financial problems.

Translation: They want to rob Social Security to pay for their ill-advised tax cuts.

Friday, May 20, 2005

Another hack argument from pro-privatization forces.

In his last press conference, George Bush cited Robert Pozen as an inspiration for his Social Security plans. When Pozen expressed disagreement with Bush on some (not all) important issues, conservatives couldn't very well reverse course and say Pozen is dumb. So they resorted to that tired old argument: liberal media deception.

Adviser Splits With Bush on Social Security Accounts

Robert Pozen still likes private accounts, but he thinks they should be smaller, accompanied by tax increases, and not a deal-breaker if everything else in the package is correct.

From the NYT:
Unlike Democratic lawmakers who oppose on principle including investment accounts as part of Social Security, Mr. Pozen believes some form of private accounts could be useful.

But explaining his position in an interview after the forum at the Treasury, he said the president's plan to let workers divert up to 4 percent of their payroll taxes to private accounts would reduce tax revenues and lower guaranteed retirement benefits too much.

"The accounts are just too large," Mr. Pozen said.

He suggested Mr. Bush consider a surcharge on payroll taxes for people who earn more than $90,000 a year, currently the ceiling on which Social Security taxes are paid, and the possibility of using some of that added revenue for private investment accounts.

"I believe some new revenue in the system is probably necessary for a legislative solution," Mr. Pozen said at the Treasury Department forum, which was called to generate enthusiasm for the Bush administration's approach to Social Security.

Sunday, May 15, 2005

The $4.7 Trillion Pyramid.

Prof. Michael Hudson argues in Harrper's that the Bush Administration's Social Security plan is to create a stock market boom that will provide impressive returns that will -- temporarily -- solve a multitude of problems, such as bailing out the Pension Benefit Guarantee Corporation (PBGC), which unlike Social Security, is in terrible fiscal condition. The problem, of course, that that financial bubbles collapse:
Given the widespread problems confronting pensions outside the embrace of the federal government, now would seem an odd time for the administration to campaign for Social Security privatization. Why would anyone want to invest America’s last line of pension defense in so perilous a market? Are Bush and his advisers unaware of the odds?

Probably not. Therefore, they must have a particular idea in mind. Presumably they believe that some kind of market recovery is needed not only to rescue the PBGC but to rescue the pension funds, to rescue the stock market, and, for that matter, to rescue the political fortunes of the ruling party—that what is needed, in fact, is a Bush boom. After all, such a boom would allow us to “grow our way out of trouble,” as we have done so many times before.

(via Robot Wisdom)

Wednesday, May 04, 2005

Who is Charlie Munger and why is he saying these things?

From a Bloomberg story:
"The Republicans are out of their cotton-picking minds on this issue,'' said Munger, a self-described right-wing Republican. Social Security is "one of the most successful things that the government has ever done.''

Charlie Munger is the Vice Chairman of Berkshire Hathaway -- you know, that little company Warren Buffett runs. Not that they could possibly know as much about finance and investing as the geniuses in the Bush Administration. (via Brad DeLong)

Tuesday, May 03, 2005

How Bush's version of "progressive indexing" would kill Social Security.

In Slate, Brad DeLong argues that "when you combine Pozen's progressive indexing with Bush's separate proposal for private accounts, it becomes something different: a way of phasing out Social Security altogether."

Surprise, surprise.

He argues, and I agree, that Bush's latest tactic is designed to weaken support for Social Security among middle- and upper-class Americans. Once they get tired of paying for something from which they don't receive much benefit, they'll want to kill it too.

Update: On his blog, DeLong says, "I actually don't think it's a plan to kill Social Security -- it's floundering around in the hope of gaining traction by proposing something progressive." Uh, ok.

Monday, May 02, 2005

Why you can't fairly compare Social Security returns with those of private accounts.

Here's another tidbit from the same article in The Hill. It's an important enough point that it deserves its own post: the answer to those who argue the Social Security provides a weak return on what users pay into the system, compared with private investments:
Note 144 also states that making rate-of-return comparisons with private investment plans is inadequate because Social Security offers benefits that most private plans do not, such as guaranteed cost-of-living adjustments based on the consumer price index and benefits for life in the event of disability.

I found this so interesting that I decided to hunt down the original document, Note 144. Here's what that official document says (emphasis added):
Internal rate of return does not reflect the full value of insurance in reducing the risk for extreme outcomes, like death or disability at very young ages or survival to very old ages. In addition, calculations of the internal rate of return from Social Security benefits are not fully adequate for making comparisons with private-sector plans, since many features of Social Security benefits are not typically available in private-sector plans. Examples include guaranteed cost-of-living adjustments based on the Consumer Price Index, and benefits for life in the event of disability.

So the next time a privatization advocate argues that he can do better playing the stock market, ask him if the stock market will provide benefits like COLA and disability insurance.

Treasury experts split on Social Security plan.

The Hill reports that career economists at the Treasury Department question the assumptions made by political appointees and other supporters of Bush's plans:
The conflict emerged last week when Edward Prescott, a winner of the Nobel Prize in economics, briefed Treasury Department economists to discuss Social Security privatization as part of the department’s effort to build support for its plan in academia and on Capitol Hill.

But sources familiar with Prescott’s presentation said that Treasury’s professional economists sharply questioned Prescott’s findings that private retirement accounts would increase the incentive to work longer, which would lead to higher economic growth.

Research by government economists contradicts some of President Bush’s assertions, especially his claim that African-Americans fare poorly under the New Deal. That research shows that blacks earn similar rates of return as whites under Social Security.


A former Social Security official said, “I don’t think there is any question if you look at the estimates that the administration is putting together for long run economic growth and how those tie into the return on private accounts, there is a disconnect there.”

The administration is assuming a 4.6 percent return on private accounts.

“That’s the basic contradiction,” said Shapiro [Robert Shapiro, an economist and former undersecretary of commerce in the Clinton administration]. “In order to get that kind of return, the economy would have to be growing fast enough so that most of Social Security’s financing problem would have gone away.”

We've noted that before. Many times. (via Talking Points Memo)

Tuesday, April 26, 2005

Bowing to reality? Or just a foot in the door?

A Senate committee is about to take up the subject of Social Security, and Republicans are signalling that legislation might not have to include private accounts. They're not looking for additional details from Bush, either.
In a briefing arranged by Republican staff on the committee and given to 60 reporters yesterday, a committee official involved in the Social Security discussions also said the legislation will move through the committee in June or July. The briefing was given on the condition that the official, who is an aide to Finance Committee Chairman Charles E. Grassley (R-Iowa), would not be named and that his remarks would not be directly quoted.

The official's account, given in preparation for today's hearing on various Social Security proposals, appeared to soften many of the statements Grassley had previously made. Earlier this month, Grassley said that he would like to see "principles and alternatives" from the White House such as reducing benefits, raising the retirement age or raising the cap on income subject to Social Security payroll taxes.

The problem is that Republicans cannot be trusted on this issue. For example, the Senate could pass a bill that does not include private accounts, while the House version does; they could be included in the conference that resolves conflicts between the two versions, making it arguable harder for Democrats to oppose them.

No, I don't want this Congress touching Social Security. I'll wait and see what the next one looks like, thanks. We have time.