 |
 |
Response to a skeptical visitor...
August 26th 01:01:30 PM
Earlier this week, we had someone stumble across our site who was very skeptical about our position on personal accounts. After a lengthy session of point-counterpoint, the poster forwarded several questions about the system that he or she would like addressed. Below, I have done my best to address the questions raised.
Anyone wishing to read the previous thread may do so at this link:
Old Thread Here
If your organization is truly bipartisan seeking to ensure there will be social security around for today's college students, why have you not considered other potential "fixes" to social security? Such as:
1. Make SS payments means tested. Warren Buffet does not need to be paid SS benefits. I'm sure you know, as a group, the eldery (asset wise) are the richest group of Americans. If Social security is social insurance (as it provides disability and death benefits) it should not be a system that pays hundreds of billions of dollars each year to many who do not need it.
2. Change the retirement age to 70. We are all living longer and healthier and most of us will be working longer. Someone who is 68, in good health, working and making an above average salary does not need to be getting SS payments from the Govt.
3. Remove the $90,000 income cap on the social security tax. If it was taxed on all income, not just the first $90,000, my guess is we could make the SS tax rate a lot *lower* and still have plenty more funding.
Before I attempt to answer your questions directly, let me say that S4 exists for the sole purpose of promoting Personal Retirement Accounts (PRAs) as a solution to many of the problems of Social Security. S4 as an organization takes no position, for or against, with respect to these other proposals.
That being said, it will probably surprise you to know that I don't take issue with two of the three points that you raise. Means testing is by all means "on the table" for any type of social security reform proposal. In fact, President Bush, as part of his plan, advocated that benefits for low-income workers should be indexed to wages while benefits for high-income workers should be indexed to prices. He refers to this as "progressive indexing". The difference between the growth in wages and the growth in prices is considerable, and progressive indexing would amount to exactly the "means testing" that you suggest.
Likewise, raising the retirement age is still "on the table". With Americans living longer and longer (and being healthier longer), it makes sense to raise the retirement age.
Now before we delve into tax policy, we must start from a common point. From Economics 101, it is a fact that long term growth is directly related to the amount of saving and investment in the economy. If saving and investment is high, more capital is available to increase productivity, and increased productivity leads to better standards of living and increased GDP. Secondly, one must also agree that increasing taxes reduces the money available for individuals to save (thereby reducing the amount of money available for investment).
Now, removing the cap would amount to a massive tax increase on many Americans, approaching an increase of 12.4% as income rises. It is no coincidence that the same people who would have these taxes increased are the same people that consitute the bulk of our "investing class". (Keep in mind that in the current pay-as-you-go system, there is no "saving", so every penny of the tax increase would go to reduce national saving). With a much smaller pool of money available for investment, interest rates would rise and make it more difficult for companies to fund capital improvements, eventually leading to retarded economic growth.
I hope that you can see that if one follows the facts, it is obvious that these tax increases would be detrimental to our economy.
Now for your next question...
3. Balance the budget. You know well that the reason the Govt has been stealing the SS trust fund monies and replacing them with Govt IOUs is to fund the huge deficits and debt this country has had since the trust fund concept was created in the 1983 SS reform act. The Government should raise taxes and cut spending, and balance the budget, so they STOP STEALING OUR SS TRUST FUND. I don't care who is in power. Right now it is Mr. Bush and the Republicans in power who stealing $150 billion from *our* SS trust fund every year, so they currently get the blame.
You acknowledged that more than $1.2 TRILLION has been stolen from the SS trust fund. Having those funds available would help the SS situation at least a little, wouldn't you agree?
I agree with you in principle here, but I think you are confused on several points. First, whether the budget is balanced or not has nothing to do with what Congress chooses to do with the Social Security surplus. In fact, if you think back to President Clinton's later years in office, we managed to have a surplus in Social Security payments and a budget surplus, yet Congress still chose to spend the money in the trust fund. I agree that getting closer to a balanced budget would be beneficial, but it has nothing to do with Social Security.
Further, having the 1.2 TRILLION available that has been spent out of the trust fund wouldn't help a little, it would help a lot. Imagine if we had instituted a system of Personal Retirement Accounts back in 1983. Because the assets in a PRA legally belong to the individual taxpayer (as opposed to one's Social Security account, the Supreme Court has ruled that Americans have no legal right to their social security balance), Congress would have been unable to get at the surplus. The result would be, indesputably, that the American people would have a REAL trust fund with at least 1.2 TRILLION in ACTUAL DOLLARS available to fund Social Security.
In fact, you make my point for me when you state, "Right now we should be putting $150 billion a year aside for the SS payments in the future. Instead it is being stolen to fund the deficits caused by tax cuts and increased spending. If we want to save SS, THIS MUST STOP.". The only way to "put the money aside" is PRAs. Everything else is just creative accounting.
Finally, you state a number of problems you have with PRAs. I will briefly address them.
1. What happens if you live longer than your personal account fund? Or your funds are lost through bad investment choices?
If you take a look at the proposals out there, many of them require that upon reaching a certain point, the PRA balance must be converted into an Annuity. This would provide guaranteed income for as long as the person lives.
According to Ibbotson Associates (http://www.ibbotson.com/), the S&P 500's historical rate of return, adjusted for inflation, is approximately 7.7% per year. Further, the stock market has never failed to provide positive returns during any 20-year period going back to and including the Great Depression. Arguing against PRAs by claiming there is going to be some unforseen fiscal disaster in our investment system is almost like arguing against driving a car because of the small percentage of vehicle fatalities each year. The benefits of automobiles to our society has been immense, and I doubt you would find very many people arguing we should go back to the horse-and-buggy because it is less risky. On the contrary, I would argue that failing to provide PRAs has deprived the poorest Americans of the chance to build real wealth and participate in the incredible prosperity that we have seen in the last several decades.
Besides, many of the proposals slowly roll over your portfolio to gradually lesser risk throughout your lifetime. Therefore the amount of security and predictability built into the system increases as you get closer to retirement.
Finally, most of the personal account proposals include a "safety net" guarantee that benefits will not fall below a certain level. In many of them, that level is higher than the current rate of return of Social Security.
2. What happens if someone becomes disabled?
My understanding of the vast majority of proposals is that they would affect only the pension part of Social Security and leave the disability and survivor benefits alone.
3. What happens if a worker dies?
If a worker dies before retirement, he can pass his balance on to his heirs, building generational wealth. If he dies after retirement, he forfeits his annuity, and fares no worse than under the current system.
4. How are SS personal accounts going to solve the funding crisis we have? You are replacing SS tax revenue with personal accounts revenue. What about the millions of boomers retiring over the next 20 years? How will personal accounts plan pay for the boomers' retirement benefits?
We currently pay approximately 12.4% of our earnings to Social Security. Most of the personal account proposals call for investing only the first few percent in personal accounts. The other 10% or so goes to pay for everyone else's retirement. Investing just the 2% in equities allows it to cover the loss of the other 10% over one's lifetime.
5. Why do we need personal accounts? We already have them. Open an IRA and put some money in there. That is what I tell kids coming out of college. If you want people to have personal accounts, just pass a law requiring everyone to put a certain percent of their income in an IRA.
There are people out there who would love to invest in an IRA or 401K system. However, their income is not sufficient to do so (I am one of those people). If we had the *option* of sending some of our earnings to a personal account, poorer people would get the opportunity to become an investor, an opportunity that they are currently denied.
So, again, many of these thoughts aren't the official position of S4, but I just wanted to get the idea across that we sincerely try to be open minded around here, and just because we're not advocating other approaches doesn't mean they don't have a place in a compromise plan that includes personal accounts.
Posted by Jeremy Tunnell
Comments
Couldn't agree more!!!
Posted by Adam Cahn on August 26th 01:43:46 PM
Patrick and I received an email of similar content. To show that we really do strive for an honest, non-partisan debate here at S4 I'll copy it below anonymously. Enoy!
Dear Friends:
Your statement of purpose expresses the lofty sentiment that you want to engage in "honest, non-partisan debate". I'm afraid your advocacy and rhetoric undermine any claims to being non-partisan. With a script that comes straight out of the RNC/Hoover Institute and Heritage Foundation think tanks, it's nothing less than a party line rant.
As for the two guys who are the founders, their grasp of economics is shakier than their very clear ideological stance. By parroting Bush's silly claim that private accounts will make Social Security healthier is like saying that you'll be able to pay next year's mortgage more easier if you siphon money off, money you can't touch, someplace else now.
Give me a break, guys. Your pretensions at being "honest" are a masquerade.
Anonymous
And my response:
Josh,
Thanks for the email man.
I'm sorry you think we're being partisan or basing our arguments on tenuous economic foundations. I can assure you we genuinely want to debate this in a non-partisan, open-minded manner. And Patrick and I both are majoring in economics at Haverford and Yale so while we don't claim to be experts, we do have a basic grasp of the fundamentals.
On the non-partisan issue: I don't consider myself a Republican, I dislike with Bush on social issues, corporate welfare, I'm not sure what I think about Iraq...but I do think personal accounts are a great idea. I refuse to let my disapproval of Bush on some issues trump my commitment to intellectual honesty: Bush may be wrong sometimes - or frequently, depending on your viewpoint - but that doesn't mean he's always wrong.
On the economic fundamentals behind personal accounts: To fix the solvency problem with Social Security you have to either cut your and my benefits by 25% or increase our taxes by 50%. That's an undeniable fact of our demographic reality. I do understand where you're coming from when you say 'Bush's silly claim that private accounts make Social Security healthier is like saying...' Yes, Social Security's solvency needs to be brought into line. But without personal accounts that just means lots of pain (benefit cuts and tax increases). Personal accounts, by generating greater returns, would allow us to mitigate these painful, but ultimately necessary, changes.
And in addition to the benefits of generating greater returns for all Americans (no longer will only the super-rich be able to accumulate wealth) but personal accounts also have the ancillary benefits of injecting ownership, choice, and inheritability into the Social Security system. I could go on about all three of those aspects for pages...but, for me, increasing choice is most important. I very much believe that we should not force someone to do something that is uncomfortable to them - so if you don't want to save your payroll taxes in a personal account, that's fine by me, and no one should force you to. But to argue against personal accounts is to argue to force your viewpoint on others. Personal accounts are voluntary - if you don't support them Josh, I will obviously disagree with your position but I certainly respect it. But advocating a position to force others to adopt your preference is much harder for me to accept.
Thanks again for your thoughts. If we are presenting ourselves in the way you describe we want to change and are very open to your suggestions.
Take care,
Jonathan
Posted by Jonathan Swanson on August 26th 05:46:36 PM
Dear Sir:
As the skeptical visitor, I appreciate your comments and responses. Here are mine:
Your state: "Before I attempt to answer your questions directly, let me say that S4 exists for the sole purpose of promoting Personal Retirement Accounts (PRAs) as a solution to many of the problems of Social Security. S4 as an organization takes no position, for or against, with respect to these other proposals."
I don't understand why then your are purporting to be representing "students for saving social security" when your sole purpose is to advocate the President's personal account proposal.
Would it not be more forthright to indicate your limited purpose on the front page of your website?
I appreciate, however, that you are willing to at least report and address alternative solutions.
I proposed removing the $90,000 cap on SS taxes as an alternative to increase funding. You state:
"Now, removing the cap would amount to a massive tax increase on many Americans, approaching an increase of 12.4% as income rises."
It would be no increase in tax at all to those who make less than $90,000: They already pay the full 12.4% rate. It would only represent a tax increase for those making more than $90,000. Furhtermore, by eliminating the cap, we could REDUCE the SS tax rate, which would benefit all Americans who pay SS tax.
You agree with me regarding our stolen trust fund: "Further, having the 1.2 TRILLION available that has been spent out of the trust fund wouldn't help a little, it would help a lot."
We agree out this fundamental point. Then why do not you make this as part of your website along with personal accounts? Let us start a movement to have Congress pass a law that would prevent it from stealing any more from *our* SS trust fund, and pay back what they have already stolen!
I asked: What happens if a worker dies?
You stated: "If a worker dies before retirement, he can pass his balance on to his heirs, building generational wealth. If he dies after retirement, he forfeits his annuity, and fares no worse than under the current system."
That is the easy part. What happens if a worker dies before he has built up a significant account. Or to put it another way: with a personal account the death benefit provided by social security is eliminated, and without private insurance, the family is on the street.
Re: Investment of funds: I agree with your analysis regarding investment in the stock market as being superior in return to US debt instrument over time; perhaps you would agree with me that this would be an excellent way for the Government to invest OUR SS trust fund, if we can just get the politicians to stop STEALING it.
Regarding the effect on current retirees: You propose reducing part of the SS tax by 20%, so it will be 10% instead of 12.4% of an employee's salary (up to $90k). As you know, the SS program is already severley underfunded, in part because the politicians have stolen our SS trust fund. Cutting the SS tax and thus revenues to pay existing obligations in no way resolves this problem but makes it a lot worse. What will be required is both the current SS tax and a *new* tax to create personal accounts.
Regarding a person outliving the value of his account: Forced conversion of a personal account into an annuity as you propose will severely limit the funds available for the person to use in his retirement. Most annuities pay less than 4-5% of face value. The result will be the persons annual income will be far lower than what he has with social security -- he may have $250,000 in an account but only able to access $12,500 a year.
To Jonothan: If you want to have ownership, choice, and inheritability, my advice is to simply open an IRA or 401k and put your own money in it, and don't rely upon the Government for your retirement.
Thank you for consideration of these matters.
Posted by Iriemon on August 31st 04:56:11 PM
Iriemon:
We don't pretend to speak for all students, just the 2/3 who support personal retirement accounts. Anyone clicking on the "about us" link on our website will see the following as the first words on the page:
"Students for Saving Social Security is a grassroots network on college campuses across the country. We represent the interests of our generation by advocating for genuine Social Security reform through personal ownership."
Granted, it's not on our front page, but we have limited real estate there. Besides, mission statements are boring anyway.
"It would be no increase in tax at all to those who make less than $90,000: They already pay the full 12.4% rate. It would only represent a tax increase for those making more than $90,000. Furhtermore, by eliminating the cap, we could REDUCE the SS tax rate, which would benefit all Americans who pay SS tax."
So you want to make the system more progressive. That's fine, but I still disagree for the reasons outlined in the original post.
"Let us start a movement to have Congress pass a law that would prevent it from stealing any more from *our* SS trust fund, and pay back what they have already stolen!"
Because a law can be repealed, but personal accounts cannot be repealed any more than the government can dip into your 401k to pay down the national debt. We are in complete agreement on this point. What you say we should do is exactly what a personal account does (see GROW accounts), you just refuse to call it that. I don't know how to respond.
"That is the easy part. What happens if a worker dies before he has built up a significant account."
The question is a little ambiguous, and the answer is pretty complex. Basically you still have to work for upwards of 10 years for your family to even qualify for the survivor benefit in the current system.
"perhaps you would agree with me that this would be an excellent way for the Government to invest OUR SS trust fund, if we can just get the politicians to stop STEALING it."
Sure, i'm totally with you here, but I still can't figure out why you would oppose giving people ownership in their accounts (which would, by the way, accomplish the second part of your statement).
"The result will be the persons annual income will be far lower than what he has with social security -- he may have $250,000 in an account but only able to access $12,500 a year."
I'm afraid this isn't persuasive to me without some kind of facts to back it up. I just don't buy that personal accounts/annuities would give worse returns than the current system.
Posted by Jeremy Tunnell on August 31st 05:29:26 PM
|
|
|
|
|
