I believe you know very well of the preliminary reports and ideas of Bush's proposal. Although quite preliminary, Bush has already outlined 3 things in his proposal:

1. No tax hikes (including no hiking of the salary cap, currently at $87,500)

2. Optional privatized accounts

3. No cuts in benefits

Personally I think the 3rd point Bush is eventually going to hedge on, because when it comes down to it the number crunching of his Cato/Heritage leaning team will likely have to throw this one in. But for now, let's just take Bush at his word and say there will be no tax increases and no cuts in benefits.


I ran across this blog recently of the estimated dates of the Trust Fund to run out:

1996 2030
1997 2030
1998 2032
1999 2034
2000 2038
2001 2039
2002 2041
2003 2042
2004 2042

http://www.bruceweb.blogspot.com/

You see how the dates are being moved out here. But what I did not consider here was the Trust Fund itself, which Conservatives are correct in pointing out that after 2018 the fund would run on gov't issued Bonds which are essentially IOUs that the gov't writes to itself, hence the reason why the term "Ponzi scheme" has been thrown around.

This has occurred because back in 1983, a new SS system was set forth (and actually needed at that time) by Greenspan in order to boost savings into the SS Trust Fund. In essence, a regressive payroll tax ceiling was created on salaries so that we essentially put MORE money than necessary into the SS Trust Fund, thus creating a surplus and pushing back the date of Trust Fund exhaustion. Congress agreed to this, and so it was set in motion. Now the obvious factor to this whole setup was that this taxing on the payroll is regressive, hence it pinches the lower and middle class worker a great deal more. For example, right now we pay 6.2% of our payroll to SS for those whose salaries are under $87,500, and are also matched equally the same percentage by the business. Above that salary no percentage is paid to SS, nor is it matched by the business. This effectively created a surplus in the SS on top of the Trust Fund, and the surplus has accumulated since. Again this is regressive, and according to the CBO families in the middle class pay twice as much taxes in payroll than they do in income taxes. That situation is reversed for the upper class, which I'll get back to later.

Once again, according to the CBO, that surplus will run dry in 2018, and we'll have to rely on the Trust Fund itself, which according to the CBO will run out of paying full benefits by 2052, and after that time will pay approx. 81% of benefits afterwards. So here's some things to consider with that history:

1. Our Administration and those Admins. before it since Reagan have raided the Trust Fund to pay for various gov't stuff, and effectively left IOU slips in their place. The argument could easily be made that Reagan effectively did this to cover up his deficit problems HE created with his gigantic tax cut, and which HE himself had to correct with something like 7 tax increases in his own right. I'd love nothing better than to put this up on a mark against Reagan's failed economic policies, but I can't - simply because other Presidents including Clinton soon followed suit by raiding the Trust Fund too. It's pathetic and fiscally irresponsible to the nth degree, and it was never meant for them to do this, but our Congress controlled by both parties at one time or another allowed this to happen. So everyone shares the blame.

2. Remember what I said about the regressive payroll taxes, that it pinches everyone in the lower in middle class a great deal more than the upper class? Well here's the catch about Greenspan and the SS surplus -

That surplus, along with the budget surplus we had prior to Bush's 2000 election was argued for tax cuts, right? So the push for tax cuts was made not once, but twice, and let's keep in mind that the last tax cut was push WHILE we were in a deficit (and the cut itself contributed a great deal even MORE to the deficit, thus negating the rationale for the first tax cut) and going into effect DURING a war (which was never done and highly illogical, considering how much we were paying out our noses to fund the troops).

So IOW, a surplus created largely by the middle and lower class workers was used as a rationale for the tax cut. Weeell, whom did the tax cut benefit the most by far? Ta daa! The upper class! And the follow up rhetorical question - whom did the tax cut burden fall on the most, according to the CBO? Take a guess:

http://www.washingtonpost.com/wp-dy...-2004Aug12.html

http://www.cbpp.org/4-12-04tax.htm

So to recap, the lower and middle class was told to pay the biggest burden out of their pocket for the SS surplus. They did, but then it was used AGAINST them for tax cuts, which of course benefitted NOT THEM the most, but THE UPPER CLASS and CORPORATE CONGLOMERATES! Ain't it great? One could argue that the surplus created funded Bush's tax cuts, or at least put money back into the Treasury that was lost revenue as a result of Bush's cuts. In fact, that's exactly what I'm arguing.

3. But it gets better, and I think we can all piece it together now - Bush wants to shift this money paid and agreed to largely by middle and lower class towards private accounts. In order to do this, the estimation of shifting is approx. $2 trillion. Let's put aside the obvious problem of putting us more into the red than ever. The argument is to do this to avoid a $10 windfall over 75 years. Let's just break down the numbers here:

10 trillion paid in year 75, discounted to this year at 3% equals 1.08 trillion

vs.

2 trillion paid in year 10 discounted at 3% equals 1.5 trillion.

So the real argument is: pay 1.5 trillion now to avoid paying 1.08 trillion now? Huh? Fuzzy math anyone?

Now he puts this on as a "voluntary" decision for younger workers to do this, and the preliminary figures are 2% out of the involuntary 6.2% SS payroll tax, leaving 4.2% for SS. Let's be honest here, this IS the tip of the iceberg. The endgoal is to have ALL SS being privatized. So if it's just $2 trillion now for 2%, what do you think it will cost for the endgoal to have the remaining 4.2% privatized?

I think we can all put our hopes of funding a trip to Mars on hold with this Conservative group in power right now. Just ain't gonna happen, along with a myriad of other things I'm sure.

4. A couple of questions arise about the Treasury Bonds themselves. We are obligated to pay those off no matter what. So after 2018, our government has to find a way to pay these off, and the common consensus is that it's likely going to be a result of a hike in taxes, most likely income taxes. Here's the questions:

a) In the 200 yr. or so history of having Treasury Bonds, has the government ever once NOT paid these off? Have they ever gone back on their IOU word and not paid them? I'm guessing no, but I could be wrong.

b) For those in the lower and middle class (which of course are the majority of citizens), do you really have a problem with an income tax hike, considering what Bush's current income tax cuts are doing to our deficit and economy? Do you guys and gals really have a problem, considering it was YOU who've paid more out-of-pocket expenses to fund SS than the upper class, and that a hike in income taxes would be a much greater burden not on you, but on the UPPER CLASS? Considering it was the upper class who pretty much got the best deal out of the '83 SS Greenspan plan, I'm not going to lose sleep too much if we allow them to fund the bulk of the Treasury Bonds, are you?

Or what's better, why not eliminate the inheritance tax as well as roll back the tax cuts for the wealthiest 1% when needed? Will you, a middle or lower class worker really lose sleep over this?

5. Another point to consider about that 2018 date. Remember those numbers I posted above showing how the Trust Fund running dry-date is getting pushed back and is now at 2042 (or 2052, depending on who you read)? Well guess what - that 2018 date gets pushed back as well. I didn't research this too much, but I did notice that in 2001 that "doomsday" date of surpluses was at 2016. 3 years later it moved to 2018. So both dates get moved along according to how well our economy is doing. Anyone wanna bet that if we do nothing with SS, those dates will continue to be pushed forward?

6. And speaking of economic forecasts, doesn't the proposed budget Bush submits to Congress contain estimates of future economic growth? And wouldn't plugging President Bush's estimate of future economic growth (as put forth in his proposed budget) into the formula for estimating future Social Security solvency come out with the result that Social Security is solvent -- probably even runs a surplus -- FOREVER!?

Can't we hoist President Bush on his own petard here? Or is that just being "reality-based"?

7. Back to the funding of SS, here's a quote from Luskin via National Review, a pro-privatization for SS nut:

"The reality is that, crisis or not, the present system is inadequate and unfair. It denies Americans choice, control, and property rights in their own retirement savings. It offers a mediocre return on invested capital, lower than even the worst market investments. It sucks up the entire savings-and-investment capacity of tens of millions of lower-income Americans. And it is unfair to minority members whose life expectancies are lower, and thus can expect fewer payments over a lifetime.
Reform of Social Security with private accounts is an issue that shows compassionate conservatism at its best. I am convinced that the more the angry liberals like Krugman sputter and fume about it, the more inevitable it is."

What he and many pro-privatization nuts fail to understand is that Social Security is a SAFETY NET. It was never meant to be a source of choice revenue for retirement. One is supposed to learn to walk the tightrope on their own (i.e. provide their OWN retirement account by investing wisely and continuously). If they fail to provide for their own means, and fall catastrophically off the rope of financial solvency, the SAFETY NET catches them. If the "compassionate conservatives" (i.e. oxymorons) were really worried about increasing the 'savings-and-investment capacity of tens of millions of low-income Americans...they would suport the ideas like the "living wage" and try to keep the still growing income disparity in this country from continuing to widen (and yes, it is widening according to the CBO).

But to those who fall onto the Safety Net, SS is a pretty damn good thing - More than 90 percent of those over age 65 receive Social Security benefits. In contrast, the Bureau of the Census reports that less than half of retirees receive income from pensions. Of those who receive Social Security, about one-quarter get 90 percent or more of their income from it. Pension income accounts for about 20 percent of total retirement income, while Social Security accounts for about 40 percent of the income of older retirees as a group, and the percent increases with age. The average monthly Social Security benefit today is $767. As the only guarantee of income in retirement, Social Security has performed admirably over the years, keeping roughly 40 percent of older Americans out of poverty:

http://research.aarp.org/econ/dd79_socsec.html

8. What are some examples of SS privatization elsewhere? Pro-privatization Conservatives look at Chile as a good example, and I've seen a number of Conservative bloggers point to this story:

http://seattletimes.nwsource.com/ht..._chiless15.html

However, some other interesting tidbits about Chile:

-Investment accounts of retirees are much smaller than originally predicted — so low that 41 percent of those eligible to collect pensions continue to work.

-The World Bank found that half of the pension contributions of the average Chilean worker who retired in 2000 went to management fees. The brokerage firm CB Capitales...found that the average worker would have done better simply by placing their pension fund contributions in a passbook savings account.

-The transition costs of shifting to a privatized system in Chile averaged 6.1 percent of GDP in the 1980s, 4.8 percent in the 1990s, and are expected to average 4.3 percent from 1999 to 2037.

http://www.tcf.org/4L/4LMain.asp?Su...4&ArticleID=799

Or how about Sweden? A progressive country by most accounts:

-General benefit levels have been significantly lowered, future benefits are impossible to forecast, and administrative costs have quadrupled — mostly because of the mutual fund part — to 2.0% of total benefits. (If real investment return is 3% per annum, the amount accumulated after 30 years of regular annual savings will be 22% lower if the cost factor is 2.0% instead of 0.5%.)

-....Everyone in the new system is forced to speculate in mutual funds and results in the first years have been disastrous. From March 2000 until March 2003, the Swedish stock market declined by 68%. As of 31st January 2004, 84% of all accounts had lost money, despite the upturn in the market since March 2003.

http://www.buffinpartners.com/2004%2005.pdf

And whether you like Krugman or not (personally I don't care too much for him), he does bring up some poignant points about Britain and Chile, and how the government is ending up funding for their SS privatization scheme, which in the long run is costing the gov't more:

http://www.nytimes.com/2004/12/17/o...html?oref=login

These examples should definitely give us pause.

9. One aspect I truly wonder about is the insurance and disability SS gives. For a worker with average income, a spouse and two small children, Social Security's survivor protection is equivalent to a life insurance policy with a face value of $374,000. For the same worker, Social Security's disability benefits are worth more than a $234,000 disability policy.:

www.ssa.gov/employers/newempl.htm

The costs of transition to privatized accounts must take into account this lost finances of insurance and disability pay. Anyone wanna bet me that Bush will NOT consider this in his estimate of borrowing? If I read things correctly, right now when someone dies their SS finances go toward everyone else, esp. the disabled (feel free to correct me here). But Bush wants that money to go toward the family members instead of going towards others in the SS pool, correct? Soo we're going to offset that pay to the disabled how?

But what's more, what say the pro-privatizers about insurance and disability coverage that will be lost? Surely stocks and funds do not cover this aspect, do they? Now the argument, albeit quite preliminary, that I hear from pro-privatizers is that with a higher return, you can afford paying private insurers for health and disability.

Anyone see the amount an individual over 65 has to pay for insurance lately? Will this honestly offset? And what's more, since we're leaving another $2 trillion to us and our kids on top of the gigantic deficit they're already going to have to pay off, who the hell is gonna afford insurance or anything else by the time they retire?

10. Another point to consider here - right now the estimates by this Administration for transition costs are approx. $2 trillion. Let's consider the record of this Administration giving estimates on how much their proposals would cost. Anyone want to venture a guess as to their original estimation of the Iraq War, and compare it to what we're paying now?

How 'bout Medicare? Anyone remember their original estimates, and how they willfully "hid" the actual cost and threatened to fire the accountant if he opened his mouth and gave out the actual cost?

I'm sorry, but trusting this Administration with finances and estimation of finances of any kind just isn't in me, and I sincerely do not comprehend how it could be in anyone else.

11. The most obvious point of privatization that scares the crap out of me is trusting Wall Street. Sure in the long run they make a better percentage off of returns than SS Trust Funds, but let's also consider that ever since SS was introduced, we've had something like 9 recessions or major dips in the red on Wall Street. How bad would it be for someone trying to draw out SS money during one of those times if we privatized it back then?

And then of course is the overhead, which is making Wall Street brokers drool, as they should. They are going to make money whether you win or lose, and there WILL be lots of losers. Some losers will come from those bettin' high on high risk funds and stocks, but many losers will come from those who simply are uneducated enough to understand stocks and funds enough (and are likely taken advantage of by WS brokers and managers).

Ultimately the most financially educated will come out on top. That begs the most obvious question - who in our society are the most financially savy and educated?

Just one guess will do.

12. Last point to consider - is it possible that we and our government may end up paying MORE for privatization rather than less, and getting us the raw end of the deal? Most certainly. The following is from Mike Kinsley, editor of Slate and the New Republic. Yeah, I know, a liberal source. I grant that argument, but please show me if you can contend with his numbers:

quote:

"My contention: Social Security privatization is not just unlikely to succeed, for various reasons that are subject to discussion. It is mathematically certain to fail. Discussion is pointless. The usual case against privatization is that (1) millions of inexperienced investors may end up worse off, and (2) stocks don't necessarily do better than bonds over the long-run, as proponents assume.But privatization won't work for a better reason: it can't possibly work, even in theory. The logic is not very complicated. 1. To "work," privatization must generate more money for retirees than current arrangements. This bonus is supposed to be extra money in retirees' pockets and/or it is supposed to make up for a reduction in promised benefits, thus helping to close the looming revenue gap. 2. Where does this bonus come from? There are only two possibilities: from greater economic growth, or from other people. 3. Greater economic growth requires either more capital to invest, or smarter investment of the same amount of capital. Privatization will not lead to either of these. a) If nothing else in the federal budget changes, every dollar deflected from the federal treasury into private social security accounts must be replaced by a dollar that the government raises in private markets. So the total pool of capital available for private investment remains the same. b) The only change in decision-making about capital investment is that the decisions about some fraction of the capital stock will be made by people with little or no financial experience. Maybe this will not be the disaster that some critics predict. But there is no reason to think that it will actually increase the overall return on capital. 4. If the economy doesn't produce more than it otherwise would, the Social Security privatization bonus must come from other investors, in the form of a lower return. a) This is in fact the implicit assumption behind the notion of putting Social Security money into stocks, instead of government bonds, because stocks have a better long-term return. The bonus will come from those saps who sell the stocks and buy the bonds. b) In other words, privatization means betting the nation's most important social program on a theory that cannot be true unless many people are convinced that it's false. c) Even if the theory is true, initially, privatization will make it false. The money newly available for private investment will bid up the price of (and thus lower the return on) stocks, while the government will need to raise the interest on bonds in order to attract replacement money. d) In short, there is no way other investors can be tricked or induced into financing a higher return on Social Security. 5. If the privatization bonus cannot come from the existing economy, and cannot come from growth, it cannot exist. And therefore, privatization cannot work." Ripped from Josh's Marshall: www.talkingpointsmemo.com

It is for these reasons that I think we need to seriously reconsider any privatization proposals by Bush and the GOP.

___________________
Whence September dusk grows crisper still,
with leaves all crimson conquered,
I yearn to shout,
and dance about,
and stick pickles in my honker...