Social Security Reform

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This drives me nuts. Bush is still pushing a policy that would allow people to put some of their social security money into private investment accounts. First of all, I don't see how that helps at all in the short run, as this isn't going to be an option for the baby boomer generation, many of whom are already reaching retirement age. It is true that this system will make things easier when people MY age start to retire, but the big thing in the next 10-30 years is going to be paying for the baby boomers, and Bush's plan is not helpful to that end.

Here's what I don't understand: Currently there is a social security "cap". Everyone pays the same percentage of their salary into social security (6.2%) up to $87,900 in annual salary. If you exceed $87,900 in total salary, you still only pay as much tax into social security as if you're earning $87,900. This is true if you're making $100,000 or $100 million. You can check this by looking at your FICA taxes on your paycheck. NOTE: Everyone pays more than 6.2% into FICA because FICA also covers Medicare and Medicaid, and is 1.45% of your salary, and there is no "cap" on this number.

So to me, the solution is simple: There are many, many, Americans making far in excess of $90,000 annually. If you simply remove that "cap", Social Security would likely remain completely OK for years to come.

I mean, if Kerry's tax plan to raise income taxes on people making in excess of $200,000 per year equal to billions in additional revenue every year, wouldn't this change have the same effect?

 

I would rather have taken the money that has been stolen from me for soso security over the years and put it in a private account. I could probably retire very comfortably at the age of 43 with it.

 

@Aldeth: I've felt the same way. I also feel the social security payback should be scaled based on need -- if your net worth or annual income is high then you shouldn't need as much social security (although the AARP would never go for that). By even taking the FICA limit to $100,000 you should get a good bump in the revenue. I think capping at $200,000 would work for getting the program back on it's feet.

I think it's being resisted because how much it will cost the businesses (they pay half, you pay half).

[ December 16, 2004, 23:05: Message edited by: T2Bruno ]

 

But are high income earners eligible for the benefits of social security? For example, are retirement benefits means-tested? If so, then it's not really fair for them to be subsidising the retirement of people who were too lazy to provide for themselves. Hence the reason for the cap in the first place.

But I'm not fully familiar with the American social security system (even though I do have a social security number from the time I worked in the USA) so I'm happy to be corrected.

 

Social security is the US Government's way of forcing children to take care of their parents. The money we pay now is going into the checks of current retirees (and others such as minors who have had a parent die). The amount a retiree gets is based on how much they helped the previous generation -- it's not needs based that I'm aware of.

The system may be unfair, but it's unfair in a self-perpetuating kind of way.

 

You want to know something stunning? Sweden incorporated pretty much this system a couple of years ago. Pinko commie socialist wonderland privatized the retirement fonds. The biggest scam I have ever seen, billions of dollars were literally stolen from people and in return they got a pittance to "invest" in the open market.

The Swedish people is still in such a state of shock that they havent really understood what has happened. Heck, I am still gawking in stunned disbelief. It is so outrageous that there havent even been a big outrage or even a large debate, it just happened and no one really understood it. Most of these private retirement fonds have of course plummeted and people have lost a large chunk of even the pittance they were allowed to keep to invest...

 

@Harbourboy - Social Security is not a need based system. The main thing that determines your eligibility is how much you paid into social security in the course of your lifetime. If you removed the upper-level "cap" on how much you have to pay in, then in all likelihood they would also have to remove the maximum benefit cap that is currently in place. Right now, the maximum benefit (and I don't know the exact number) is somewhere around $24,000 annually. The thing is though, people with millions in the bank don't need an extra $24,000 per year.

I am likely to soon become one of those people who make in excess of $90,000 per year, and I wouldn't have a problem paying an extra percentage of my salary. Like T2Bruno said, even if they didn't remove the cap entirely, but just moved it to a higher figure, you would greatly increase revenue flow.

I don't agree with the arguement that the successful shouldn't have to subsidize the retirements of the unsuccessful, because if that is the case then there is no need for Social Security at all. The entire purpose of Social Security is to help out the people who "never made it", so to speak. It was never intended to help out the people who retired wealthy, but rather to provide sustenance income to the aging poor.

 

I just don't know if changing the system to a more privatized system is such a good idea.To me it seems like it will help people that don't really need it more than the people that I think social security was inteded for as Aldeth said those that slipped the cracks.
Also as Joacquin pointed out I think it opens the system up to more fraud.
Aldeths idea seems fairly logical to me,about raising the cap ,but I don't know the nuts and bolts of the system so I can't say for sure if that would keep it alive or not.
MY wife and I both have 401 k plans but hope the system is still around to give us some added income when we are old.It seems you never start getting ready soon enough to retire.
I think we could survive without it but I wonder how many lower income families realy rely on the system te help them pay the bills after they retire.

 

Bush still hasn't outlined how he would privatize the system either. The extent of the draining effect would depend upon how much you would be allowed to privately invest. However, one thing is clear: every dollar that is invested privately is one less dollar the government has to pay to current retirees. Given that the ratio of retirees to non-retirees is expected to grow extremely rapidly over the next decade or so with the impending retirement of the baby boomers, there will be obvious shortfalls. We're already expecting the program to be short on pay-outs, so diverting even more money from the system is only going to worsen the situation.

Here's the problem I have. The poeple who rely the most on social security are the lower income workers. They rely more on social security because they earn less during their lifetime and thus, have less income to invest in IRA's, 401ks, pension funds, etc. Basically, they make less so they save less. Are these people truly in a position with limited economic resources (and most likely limited education) to make wise investment decisions? These are the people most in danger of "not making it". So what happens if they invest poorly? Or what happens if the stock market tanks the year before they were planning on retiring (through no fault of their own)? What the hell are they supposed to do now? There's nothing to break your fall once the safety net of Social Security has been taken away.

 

Aldeth,

So now it is big brother's job to make sure we don't make any bad decisions or choices? The Fed Gov’t should wrap us all up in a nice tight security blankets and put us in a safe place? Didn't you say you would take the red pill a couple of years ago? I don't think so...I think you would take your security and be happy to walk away from the rabbit hole.

Why don't you just take the Constitution and Bill of Rights and burn them?

This is why conservatives don't get you liberals. We take responsibility for ourselves, and all we ask is to be allowed to keep the majority of the money we earn, and all it seems you all want to do is take it away from us to give to people who have made "bad choices".

SS is nothing but an ill-conceived ponzi scam that the government uses to buy the allegiance of the elderly. Well, the pyramid just turned over, and now we will all get to pay for it, because the baby boomers are such a large voting block that they are basically going to vote themselves more benefits, or at least make sure that theirs aren't cut. Bush is wrong in his plan to privatize part of the SS system. His plan should be to phase in privatization of ALL OF IT!!! The baby boomers have to realize that they will put the next 2 generations in the poor house, and create an economic downturn that will make the Great Depression look like the 90's if they don't agree to significant cuts to their benefits.

For those who make poor investment choices, too bad, take responsibility for yourself! And for those poor souls that have the market take a big drop right before their retirement, well, that fits in the above, as you shouldn’t have had all your money in one basket, so I guess you get to keep working for a few more years, don’t ask me to weep for you.

So all of you US citizens under the age of 50, go start up your 401k, invest in IRAs, buy Savings Bonds, silver, and gold, because you are about to get “helped over the fence” by Uncle Sam. Hope you enjoy it more than I am going to.

 

Darkwolf,

If your arguement is that SS should never have been started, then I understand your points. However, blaming the baby boomers for the current SS crisis is so stupid. It's not like SS is something you can opt out of. Since it started back in the 30s, Americans have been REQUIRED to pay into SS. So I think it's entirely reasonable that baby boomers, who have been paying into the system for the past 40 years expect to get some kind of return on it.

Look, I understand SS is not for people like you and me who save for our retirement. SS is for people who either lack the foresight, the financial means, or both to save for their retirement. That's what SS was created for. I'd be happy to walk away from the rabbit hole because I've planned things out.

What I find unconscionable on your part is saying that the baby boomers, who have had no choice but to pay into SS their entire lives, and the ones that are going to get put over the barrel and have to take cuts.

Like I said, unless your arguement that there is no need for SS at all - which it may be, as I'm simply not sure based on your sentiments - then your solution is in fact a non-solution. If people had a choice whether or not to pay into SS it would be one thing, but we don't. For your feelings on people making bad investment choices, it's the same thing - unless your arguement is that SS shouldn't exist, it's moot.

 

Good points Aldeth. The issue is matching up the group of people who have made the payments with the group of people who are to receive the benefits. And that's where the difficulty lies because of the relative changes in the mix of working and retired elements of the population - it is now very difficult to make changes to the system without disadavantaging one or other group (regardless of what your opinion is on the validity of Social Security itself - as Aldth points out).

 

Sorry that I wasn't completely clear, but in saying "His plan should be to phase in privatization of ALL OF IT" I meant it will be eliminated in its current form. At that point there would be no need for it to be mandatory, as it would be completely out of the gov'ts hands.

The fact is that every year the payout for retirees, after adjusting for cost of living, has gone down, so effectively every person has received less benefits as it went along. The fact that our parents or grandparents are going to receive less than they used to or than those who received benefits is already a reality.

What is sad is that they effectively did choose to keep paying into it. Again, time for a little personal responsiblity, after all, this is a "Gov't of the People", and we can't force the majority to do anything they don't agree to.

We have known for decades that this is a pyramid scheme and that when the baby boomers went into retirement that there would not be enough money coming in to support them. Hell, I studied this problem 13 years ago. If the baby boomers and AARP would have done the right thing, they would have addressed this 20 years ago when there was still enough time for the baby boomers to save up for retirement, but the “me” generation refused, so they will pay the price one way or another. The question is will the take us down with them?

Let me explain another problem that we are about to run into. Ever hear of the SS Trust Fund? For those that haven't, this is a fund that all the money paid into SS is supposed to be held in. Do you know how much money there is in the Trust right now? Materially, -0-, zip, zilch, nada, jack squat. It is full of IOUs from the Fed Gov't. The only way that the Gov't is going to be able to pay out even a prtion of the benefits that current retirees receive is to take the cap off the withholding, and double or triple the withholding rate. Imagine 30 or 45% of your check going to the Federal Gov’t, in excess of the Federal taxes you are already paying!!! The other option, issue more debt, to the tune of trillions! Goodbye world economy! Hello to the worst recession this world has ever seen. Actually I bet we get to see some of each, which is just as bad because the US economy will tank, and then the Gov’t will just go ahead and issue the debt anyway.

So the question is, will the baby boomers have the foresight to bite the bullet and accept the fact that they will not receive the benefits they expected, or will they chose to be selfish and take us all down with them???

 

Investing in the private market is much like buying lottery tickets or gambling. It is at least as much luck as it is skill and intelligence.

What really pissed me off about how the government did it in Sweden was that all the money which was in the retirement funds wasnt handed out to be invested by each and every one, instead the government took the large chunk of that money for other needs and only gave back a small part of it to be invested by the individuals in the open market.

Also Darkwolf, you dnot seem like a current American conservative for me, your economic policies about small government and the like doesnt seem to coincide with the current conservative government in the US.

 

Darkwolf raises a pertinent point about the SS trust fund. Even if there was enough theoretically in this fund, it would be completely inaccessible given that the US government has borrowed that money as well as borrowing that astronomic sum from other countries that is the Current Account Deficit. The question that needs to be asked is: where is the money going to come from for ANYTHING, let alone Social Security?

 

Taxes! Tax and spend! The Americans are spoilt with low taxes. Several billions could also be taken from the bloated military budget. One single fighter jet could secure the retirement for tens if not hundres of people.

 

The US National Debt is well into the TRILLIONS now so a few billion here or there is not enough. Also, taxation is hardly an answer given that it is the country as a whole that is waist high in debt. No point taking money from one indebted person to give to another indebted person. The only logical way that this can be reversed is if the US people and their government Stop Spending More Than They Earn....

 

OK, first of all, paying off the national debt by and large will not make the country any richer or poorer, because the majority of the money owed is owed to the SS Trust Fund, and in the form of U.S. Savings Bonds - i.e., the American people. One very big problem that Darkwolf brings up is the hundred of billions of dollars in IOU's the government owes the trust fund. These figures are NOT counted in with the total debt, because the government is essentially borrowing from itself. That's all well and good until you have to pay that debt back, when you have to pay with real money.

This is why I recommend removing the cap on SS. While removing the cap won't provide enough money to pay back all that the government owes the Trust Fund, it will allow SS to remain solvent for years to come. That's the thing a lot of people don't understand - SS right now has plenty of money. In fact, every year since it started, SS has taken in more money than it has paid out. It is in the next 10 years, when the baby boomers start retiring in waves that the ratio of people paying into social security will not be able to offset those collecting social security.

So here's my plan:

1. (Raise the bridge) Remove the cap on social security. There's no reason why my wife and I can afford to pay 6.2% of our annual salary into SS, but a millionaire can only afford to pay what someone making less than $90K per year pays.

2. (and lower the river) Don't change the cap of the maximum benefit. In other words, the maximum benefit of around $24,000 annually, will gradually increase with inflation as it has in years past, but you won't be able to receive a check for say, $30,000 per month just because you paid a few million dollars into SS during the course of your life.

3. One final piece that is necessary for this plan to work is that businesses will still only be required to pay what they are paying now. Businesses, companies, etc. in the U.S. currently match what their employees pay in - so 6.2% of the employees' salary up to around $89K. (As an aside, if you are self-employed in the U.S., you are required to pay your own share and the "company's" share, so you pay 12.4% in SS tax.) Unless we want the economy to go into the tank immediately, we can't pressure businesses to match the employee contribution regardless of how much the employee is paying.

EDIT: I forgot to respond to Darkwolf! The problem I see with privatizing SS entirely is the effect it will have on the upcoming wave of retirees. If you're in your 40s or younger, it's not big deal, but if you're within 5-10 years of retirement, it's totally unfair. The government is essentially changing the rules of the game after the game is over.

Unlike Darkwolf, I feel like the current working generation does in fact have an obligation to the older generation. It's the way the system works. We take care of our parents, and our children will take care of us. Privatization in and of itself isn't a terrible idea. And allowing people under 50 to privatize some of their money is fine, but it does nothing to address the immediate problem of the people that didn't have that choice available to them.

 

joacqin,

You are right, we are totally spoilt, I mean, asking to keep most of what we earn, god how pompous of us!!

Asking people to take responsibility for themselves and demanding that people not use the government as a militant machine to steal money at gunpoint from the wealthy among us is so unreasonable!!

Hopefully there will always be enough Americans who believe it liberty, property rights, and personal responsibility to keep us from joining the EU nations in the status of "welfare states".

As far as our spending on our military, if a squadron of $100 million dollar planes saves the life of one GI in combat, it was money well spent. This is especially true as we don't exactly pay the GI's what they deserve to risk their lives for us.

There is a reason that no other nations think of invading or attacking the US directly, and it is our military machine. You are very naive if you think that nations are evolved enough that they would not initiate a war to take the assets of another nation. In fact, the only reason that the Soviets didn't roll over all of Europe was because of our military machine, because Europe certainly couldn't have defended herself against the might of the Red Army. Even now Russia would steamroll the Ukraine if Putin thought he could get away with it, and I am fairly certain that it is not the EU that he is scared of.

The fact is that it is cheaper in dollars and human costs to maintain a strong technologically advanced military than it is to try to build one after a threat is realized (as is plainly evidenced by history).

 

Darkwolf,

I agree with your stance on military spending. My plan requires no cuts to the military though. What do you think of my idea?

Also, I have a philosophical question for you. What level of social responsibility to you subscribe to? Are you just against SS? What about Medicaid? Goodwill organizations? Charities? Giving to churches? I'm assuming you're not completely devoid of social responsibility, so where do you draw the line? (There is definitely a new topic in this.)