Pozen Blasts Bush Privatization Plans
Pozen Blasts Bush Privatization Plans
President Bush’s Social Security plans just suffered another serious blow. Robert Pozen, whose “progressive indexing” plan was firmly endorsed by the president at a high-profile press conference last month, has said that Bush should drop his plans for private accounts.
Just out from CQ, password req’d:
[Pozen] said Wednesday that Bush should “back away” from the other half [of his Social Security plans] — the insistence that individual investment accounts be created in the program. …
“I would advise the president to say that carve-out accounts are no longer required,” Pozen said in an interview after a debate at the American Enterprise Institute with Brookings Institution scholar Peter R. Orszag, a leading critic of Bush’s proposal. Bush, Pozen said, should indicate that he is “willing to have a package that, if otherwise satisfactory, does not have carve-out accounts.”
Not only that, Pozen challenged the wider theme that Bush has used to justify private accounts:
For many conservatives, the philosophical importance of creating accounts from the payroll tax cannot be understated. They believe it would turn many lower-income workers into investors, ushering in a new “ownership society”…
Pozen disagrees. … Talk of an “ownership society,” Pozen said Wednesday, is “a weak basis” for arguing for an overhaul.
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Gulp… man, this thing is so so dead.
May 19th, 2005 at 11:16 amI sincerely hope it’s dead. But I won’t believe it until I see the stake protruding from its heart and the casket lowered into the ground.
May 19th, 2005 at 11:45 amThis really isn’t surprising. I can’t remember who the guy was who recently analyzed the effects of the Pozen plan and Bush’s plan and gave some numerical estimates about what it meant; but the guy made one thing clear. Bush’s private accounts complelely destroyed the benefits of Pozen’s plan. It took things in the opposite direction, making Social Security depend on the Trust Fund sooner, and did little to fix much in the long run.
And that’s the thing: Private accounts are being sold as if they make benefit cuts (like Pozen’s ideas) work better. But it’s the opposite. Pozen’s plan is necessary as the only thing that make Private Accounts work. So Private Accounts are a big drain on the Pozen plan, not a natural addition; and so it’s no big surprise that he doesn’t support Bush’s plans.
May 19th, 2005 at 11:45 amThe obvious fix is raising the cap or start the tax at the very top of all earned income. That way it’s likely that people making less than $30,000 would pay nothing. We can do it because we middle class earners are in the majority and it shouldn’t matter what the upper class thinks. Just ram it through like the current majority in congress.
May 19th, 2005 at 11:55 amYeah but the current majority in Congress represents the interests of those with the top 1% of incomes. (Plus those who wanted Schiavo kept alive and who felt “safer” from terrorists with Bush in office.)
May 19th, 2005 at 12:06 pmThis dead-horse beating President is off again today, wasting more taxpayer money to keep pushing his “dead” SS plan. So lame.
May 19th, 2005 at 1:01 pmre: Gulp… man, this thing is so so dead.
Now, what does that mean? That Social Security reform won’t pass this year? That it won’t pass during Bush’s second term?
That it won’t ever pass?
But, in that case, the system gradually goes bankrupt. In that case, after 2018, you have to channel general revenues into the trust fund, raising taxes and/or cutting other spending to repay the Trust Fund’s bonds. And then, in 2042, every American over 65 will be clobbered by a massive benefit cut.
The Republicans can’t lose this fight, in the long run. If the Democrats succeed in blowing smoke and demagoguing reform to death now, they’ll just give the Republicans the right to say “I told you so” for a couple of decades as the system’s long-foreseen slow-motion train wreck painfully unfolds. Bush’s plan might not entirely avert that train wreck anyway, but no one will know that. All they’ll know is: Republicans wanted to fix it, Democrats insisted till they were blue in the face that it was absolutely fine.
The Democrats are digging their grave on this one.
May 19th, 2005 at 1:02 pmBush’s Social Security phase out effort will not be dead until Bush is out of office, and the Presidency, Senate and House are all back in Democratic hands.
The mere facts that those proposals are unneeded, unworkable, unsupported by realistic people and experts. and very much unwanted is not enough reason for them to stop pushing the issue.
Face it. The same set of descriptive adjectives apply to the people who are pushing the program, and they don’t recognize that, either.
May 19th, 2005 at 1:16 pmOr we could try to stop bleeding the trust fund dry, then raise the $90G cap to start infusing cash back into the fund. There are many sensible ways to address the issue without a complete overhaul. Unfortunately, the President has not offered a sensible plan and has ruled out all others.
May 19th, 2005 at 1:19 pmI’m amazed by some people’s willingness to renege on a deal.
Payroll taxes, which fall equally on everyone up to $90,000 and are an ever smaller portion of your income as you go past that point, were raised in 1983, in order to build up a trust fund. The understanding was (and is) that the claims in that trust fund would be paid back out of general revenues, which are primarily personal and corporate income taxes, paid more heavily by those in the upper half of the income distribution, in particular those at the very top.
To suggest that this repayment is a “problem” is to advocate walking away from the second half of that deal — with decent fiscal polcy between now and 2018, it’s not a problem for the economy, it’s only a “problem” for those who benefited from the first half of the bargain and don’t want to have to pay back on the second half.
Don’t buy a horse from anyone who points to 2018 as a problem.
May 19th, 2005 at 1:26 pmThis is a golden opportunity for Democrats to steal a march on the Republicans and declare …. a tax cut!
Lift the cap on payroll taxes so it covers ALL income and then cut the rate. Most people will get a small cut in taxes, including a lot of businesses. The net affect will be more income for Social Security, and the Republicans will have to argue why it’s a bad thing to cut taxes on most Americans, small businesses and a lot of big businesses. (Fries with that?)
May 19th, 2005 at 1:27 pmI’m amazed the Democrats have not capitalized on the fact that the National Debt (as a percentage of GDP) consistently goes UP under GOP administrations. The reason we’re in this mess in the first place is because of GOP overspending and tax cuts for the rich.
May 19th, 2005 at 1:30 pmBefore celebrating too much, you might want to read John Irons’ Budget Magic:
May 19th, 2005 at 1:37 pm
Lancelot is wrong about what happens in 2018, or whatever year. We do not start sucking money from the general fund. The trust fund just quits accumulating assets and starts the spending part of the trust, which was the original intent of the trust. It is true the other part of the government will have to start paying off its dept. But when a normal bond holder redeems a bond we do not generally caal that sucking of the general fund
May 19th, 2005 at 1:59 pmI find it humorous that the very people who are shouting “there is no crisis” are those who are going to get skewered when the crisis comes galloping in. Ouch.
The ’solution’ to the whole Social Security mess will be to vastly inflate the money supply, pay everyone off in inflated dollars, and march forward over the abyss..
The “trust fund” has been spent already. Clinton spent his share, in eight separate budgets. (you didn’t really think he ran a surplus, did you?)
In order to use the “trust” funds, they must be replentished – by borrowing (creating) new money.
There are big changes on the horizon. Those of us who have prepared will watch and be amazed at the bewilderment and the suffering. Those of you who spent your productive years creating a negative net worth will wail and gnash your teeth. (and cry about ‘broken promises’)
The time to prepare for your own future is NOW. This time you are spending sharing your wisdom to other “negative net worth” folks, is time you could be learning and preparing for your golden years.
Improve your skills and earning capacity. Get your home paid for. THEN come tell us all you know.
May 19th, 2005 at 2:06 pmHey buckshot – You know anyone who works for United Airlines? I guess it their own darn fault for counting on their pension as part of their retirement plans, huh?
May 19th, 2005 at 2:09 pmbuckshot, you almost sound gleefull as you predict suffering for other people. If you think inflation will be so bad, you’d be an idiot to pay off your mortgage (which is fixed in dollars) – instead, buy euros (I do it though international mutual funds).
Lancelot amuses when he says we’ll have to be “. . . raising taxes and/or cutting other spending to repay the Trust Fund’s bonds.” When our current president needs hundreds of billions for a war or trillions for a transition to private accounts, it doesn’t occur to him that we might want to do either of those things. He just borrows the money. Unless we have elected somebody more responsible by then, we’ll just sell that debt elsewhere.
May 19th, 2005 at 2:38 pmBuckshot says we’ll just inflate away the debt. If we continue to elect Republicans, that’s a likely scenario, because hell will freeze over before they reaise taxes on the wealthy. If we get some real Democrats in office, there’s a fair chance they’ll uphold the second half of the grand bargain of 1983 and collect enough money from the part of the income distribution that got the break in the 80s and 90s to pay back the trust fund with real money. It’s up to the electorate to decide whether they want honest politicians or people who don’t believe in upholding the hard part of a bargain.
Oh, and the point about United Airlines and how people should just buck up and take responsibility for themselves is spot on.
May 19th, 2005 at 2:40 pmThe SS issue is the crisis of the day, no doubt. It will not be a crisis within 20 years, however, because the spectre of Peak Oil is looming and will obliterate everything we hold near and dear today, especially the Social Security ‘trust me’ fund.
The world, except those prepared for Armaggedon, will suffer as we slide down the right side of the Peak Oil bell curve. We are presently at or just past the peak. Henceforth, all fossil fuel related products and services will become gradually more expensive, including food supply, fuel for vehicles, anything made of plastic (ie. just about everything). Standards of living will decline greatly.
In the end, it means reduction (ie. death) of maybe half the 6.5 billion two-legged homo sapiens over the next 50 years, without replacement. The well-off will be ok (ie. those with money to burn), but the poor and middle class will be toast, unless they migrate into and learn the ways of the Amish or Mennonite communities.
Every issue, including Soc.Security, pale in comparison to the inevitability of the end of fossil fuels.
May 19th, 2005 at 2:41 pmIt would help if the headline in some way matched the content of the article. Hard to see how Pozen “blasted” the plan. You’ll have more credibility in the larger world around you if you act credible.
May 19th, 2005 at 2:42 pm“#
Gulp… man, this thing is so so dead.
Comment by Creff  May 19th, 2005 @ 11:16 am”
since bush is brain-dead, his ideas can never die, they are already undead (explains alot about why he never changes his mind on anything and is never wrong).
May 19th, 2005 at 2:42 pmI see the college leaver get up in the morning in a home built by a previous generation, get in his car loaded with technology developed over several generations, turn onto the freeway system developed over decades, go to a place of work created by the labor of others……and yet when asked to pay for the labors of that retired generation (through Social Security) the youth insists that any such money is his and has no place in the pockets of seniors but should be earmarked for a private personal account!
May 19th, 2005 at 2:44 pmYou can fool some of the people….
“The Democrats are digging their grave on this one”
Just like the Republicans dug their grave over health care in ‘93
I’ll take that grave any day
May 19th, 2005 at 2:55 pmIn order to use the “trustâ€? funds, they must be replentished – by borrowing (creating) new money.
There are big changes on the horizon. Those of us who have prepared will watch and be amazed at the bewilderment and the suffering. Those of you who spent your productive years creating a negative net worth will wail and gnash your teeth. (and cry about ‘broken promises’)
The time to prepare for your own future is NOW. This time you are spending sharing your wisdom to other “negative net worth� folks, is time you could be learning and preparing for your golden years.
Improve your skills and earning capacity. Get your home paid for. THEN come tell us all you know.
Comment by buckshot  May 19th, 2005 @ 2:06 pm
So your answer is the same as all republicans; JUST BORROW IT! Don’t you know this is how Ronald Reagan got us in this fix in the first place?
Cutting corporate taxes while raising payroll taxes and using the surplus for general expenditures. Why do supposedly “responsible” republicans always want to have the party and then duck out on paying the bill? “Oh, just charge it, we’ll worry about paying for it later.”
And you comments about “Those of us who have prepared will watch and be amazed at the bewilderment and the suffering. Those of you who spent your productive years creating a negative net worth will wail and gnash your teeth. (and cry about ‘broken promises’) – is spoken like a true child of privilege, who dosen’t think anything catastrophic could ever happen to THEM! When you grow up sonny, you’ll learn that no matter how hard you work and plan, a crippling disease or accident to you or a loved one can squash your plans for the future, muchlike a small boy stepping on an anthill.
It’s ironic that someone who espouses personal responsibility so strongly, schizophrenically supports BORROWING trillions of dollars to fix a system that is in trouble because republicans borrowed from it to support their pet projects in the first place.
May 19th, 2005 at 2:57 pmIf the system is in so much trouble, why not ask the people who benefitted most from it to pay back their fair share? Why not rescind the tax cuts – it’s already been shown that would make the system solvent.
There have been a couple of good examples of the differences between Republicans and Democrats above. Funny.
I got an idea for all the Republicans. You guys believe in the “trickle down” economic crap, fine.
But why can’t you see how out of control this corporate welfare has become?
Why don’t we have businesses EARN money the old fashioned way. Here’s how it should go:
Tax cuts only to the middle & lower class. With more money, they can BUY products and services. Hence, corp Amer gets wealthier too (and has to compete more, you guys like that competition thing). And for those of us that don’t care about this materialistic, buy a new stupid TV or dipsh!t fancy car thing, can save more (and invest if we choose).
And with the tax cut money the rich DO NOT get, we can fund social security.
EVERYBODY WINS.
But no, instead, Corp Amer owns more and more of the gov’t, so lets just skip the middle part of the equation and just GIVE tax revenue dollars directly to CorpAmerica.
(and don’t come back here saying its not tax revenue, its social security money and therefore different in some way, BS, its all still cash coming out of everybodies paycheck, I don’t care about the semantics)
May 19th, 2005 at 4:35 pmJohnny,
No, I don’t. But you raise a good topic. The unions allowed the pension system which is coming apart. They add ample opportunity to lock down the pensions during negotiations, and failed to do so.
Remember, the first priority of a union is to survive (to collect dues) and the second priority is to represent the worker. (I am not anti-union.)
Mark,
I’m not gleeful. Everything I’ve learned, everything I’ve gained, I paid for in sweat and loss. We all have to go through the same process. I’m just older.
2nd point. I don’t have a mortgage. I built my house out of pocket. I’ve owned it free & clear for 20 years.
Karl,
Your point about the Dems forcing the government to “repay the trust fund” is unrealistic. The money is long gone. It was spent as it came in. Don’t forget, Clinton spent many hundreds of billions of trust fund money (you didn’t really think he ran a surplus,did you?)
May 19th, 2005 at 5:01 pmJohnny,
Please excuses the typo. I meant to say the unions HAD plenty of opportunity to negotiate a pension structure that could not be taken away.
Dano,
I will try to respond to your points.
It is not “my answer” to just borrow more money. I’m simply stating what I believe will happen. (borrowing – creating, same thing)
As for your comments about “child of privilege”, let me tell you about my childhood. My Dad was a miner. We lived in a trailer court. Dad was killed in a car wreck. My mother worked at the DMV. I worked my way through college.
I lived for 8 years with no television, no running water, and wood heat. Nothing was given to me.
I was severely injured at age 38, recovered, and went on. I am comfortable now, but I had many lean years. I’ve paid a lot more than my share of taxes. I’m not a republican. I’m not religious.
Don’t assume too much. Your anger is misdirected if it is directed at me. I’ve cost you nothing, and contributed much more than my share to our system.
I did not vote for Bush. Or papa bush.
You talk about tax cuts as if they are something tangible that is GIVEN TO PEOPLE. The reality is that taxes are TAKEN AWAY FROM PEOPLE first, and then (and only then) can they be given to anyone.
The government cannot give anything to anyone until it is confiscated from someone else first.
May 19th, 2005 at 5:13 pmCynic says We do not start sucking money from the general fund. The trust fund just quits accumulating assets and starts the spending part of the trust, which was the original intent of the trust.
But he doesn’t answer where the trust money will come from. Since there is no “accumulated money” in the trust fund, the money has to be diverted from somewhere. That’d be the general fund.
Buckshot is right about inflating the dollar to meet whatever the US obligations are. That’s always what happens with a fiat currency eventually. There isn’t much inflation now, however.
May 19th, 2005 at 6:07 pmbuckshot wrote:
Don’t forget, Clinton spent many hundreds of billions of trust fund money (you didn’t really think he ran a surplus,did you?)
In the last 25 years, which president had the deficit steadily fall each year of his administration? Reagan? Bush I? Bush II? Gong! It was Clinton.
We did have a non-SS surplus, but it was for just one year (not the 3 years politicians like to claim) and it was only about $80 billion, but it WAS a surplus. Then Bush II took us from that
to the last nearly $600 billion deficit (if you count the “official” deficit and the SS surplus he spent).
You can’t possibly be serious by trying to compare Clinton’s fiscal numbers to the current ones. Bush needs to look at the old saying, “When you find yourself in a hole, the first thing you should do is stop digging.”
May 19th, 2005 at 6:15 pmHi all,
I have been following this debate since it began, and I see many people, from all political persuasions, arguing their points. Most of these people are sincere about their belief of what constitutes the ‘Right Thing’ to do.
I must say, I am of many minds on this. I am–and I’m sure many of you are the same–not a dyed-in-the-wool conservative or liberal. For most of us, it really depends on the issue. When I think of Social Security, I agree with people like buckshot, that it is a great benefit to increase one’s financial knowledge, but I also cannot imagine not having a built-in sense of duty to those who ‘paved the road’ before me, as articulated by Antony Lewis.
So, when this issue comes up, I like to think, “How would I treat my brothers and sisters, my friends, my neighbors?” to guide my thoughts on how our nation should behave. I like to think that, to those closest to me, I would invest in helping them learn what the do not know, help them to recover from mistakes, and yes, pick them up when they are down. You know: “There, but for the grace of God, go I”, or something like that. This is a big country, and no matter how many times we are forced to see how interconnected we are, we forget, and tend to refer to others as, well, Them.
I value the notion that Social Security can be a vehicle to knit our social fabric together, tying generations to one another. I think it is proper to feel indebted to, and responsible for, the elders among us. I also value the notion that it is incredibly gratifying to participate actively in your own future affairs, and succeed at doing so.
I see no reason that these two notions cannot be held in the national consciousness (and conscience) at the same time.
May 19th, 2005 at 6:21 pmmaybe congress can simply pay back all the friggin’ money they stole from social security to begin with ? novel idea…
May 19th, 2005 at 6:35 pmI find it interesting that the right’s argument for private accounts continues to be that we need to solve this crisis now, and not “just do nothing”.
I don’t see many on the left arguing to “just do nothing” about Social Security. True, we have pointed out that the “crisis” is exaggerated and pales next to some other things like Medicare and Medicaid, but we’ve also proposed solutions, such as lifting the cap, or rolling back the tax cuts.
Of course, you’d never know this from listening to the conservative pundits and politicians who have the nerve to claim that “democrats have yet to propose a plan”. First of all, we’ve presented several, and secondly, that seems a bit hypocritical in light of the president’s own reluctance to offer more than vague concepts.
Of course, let’s not worry about any of that, and just inplement private accounts. That’ll save the system, right? What? The Bush administration has admitted that private accounts won’t actually address the solvency issue at all?…Since when does that matter?
It’s all part of using a crisis mentality to sell the American people snake oil ideology. Thankfully, the majority of Americans aren’t buying.
May 19th, 2005 at 6:56 pmCheck out Andy Roth over at socialsecuritychoice claiming the liberal media lied – but never noting the CQ report. So typical of Le Club for Rich People.
May 19th, 2005 at 7:40 pmMuckdog,
Refreshing to hear that someone understands that an inflated currency is the only likely “solution” to the Ponzi scheme we know as “social security”.
Robin,
No, Congress cannot “pay back” the trust fund. Those billions ($1.6 trillion, I believe) are all long gone. Reagan spent some of em, Papa Bush spent em, Clinton spent em, and GWB is spending em, and the next kid on the block will be spending em until 2018, then it will be break even.
The only way congress can pay em back, is to create new money. Inflate the money supply. There is no other answer.
Tim, good comments. We are headed towards a real clash of generations, the likes of which have never been seen since this country was founded.
The elder boomers are living on the future taxes of those just entering the workforce. Much angst lies ahead, as one can see from the emotional posts on this subject.
May 19th, 2005 at 8:24 pmTaxing of incomes over $90K for Social Security will be the act that kills the Golden Goose of wealth redistribution.
The ponzi scheme already has loads of progressivity built into it like the benefit calculation formulas and the taxing of benfits for incomes over $32,000.
Give it a rest!
May 19th, 2005 at 8:56 pmNo Pozen, no plan
May 19th, 2005 at 10:13 pmFrom the subscription-only CQ, via Think Progress: Robert Pozen, whose “progressive indexingâ€? plan was firmly endorsed by the president at a high-profile press conference last month, has said that Bush should drop his plans for private accounts. [P…
People keep saying this will happen and that will happen. Let’s remember that the government’s track record at predicting the economy or federal budget even 5 or 10 years out is miserable. The idea that they can predict what will be happening in 2041 is laughable.
Also, note that the prediction everybody talks about assumes lower-than-historical productivity growth and lower-than-historical immigration. I don’t see why productivity growth should slow (my company is innovating and advancing productivity – are the rest of you slacking off?) and I sure don’t see why immigration should slow down – that’s a guess about future politics which is even less certain that economic forecasts.
buckshot, you are simply mistaken when you say “Congress cannot ‘pay back’ the trust fund. Those billions ($1.6 trillion, I believe) are all long gone.” Would you also suggest that Congress cannot pay back the rest of the federal debt? Our market system disagrees with you, because millions of investors, institutions, and foreign banks are right now buying US treasury obligations at low interest rates – rates which show their faith that they will certainly be repaid.
The predicted long-term shortfall between SS taxes and promised SS benefits works out to about 2% of GDP. Bush’s tax cuts were also about 2% of GDP, so reversing them would approximately cover the shortfall. That doesn’t cover the existing debt, but there is no reason that taxes can’t be raised further. That is, no reason other than a lack of votes in Congress and a president to sign on. In any case, to avoid a crisis it is not necessary to pay back all the debt, merely to keep the debt reasonable relative to GDP, so that it can be carried without disrupting the economy.
As a practical matter, the SS trust fund debt will be repaid. No politician of any party is going to vote to default on debt held by the trust fund while continuing to repay debt that is held by Chinese and Japanese banks.
May 19th, 2005 at 11:09 pmCould any Democrat reading this please explain to me why Social Security was a problem that needed to be solved when Bill Clinton was in office but has since disappeared?
May 20th, 2005 at 12:08 amIf Bush follows Pozen’s advice and backs away from private accounts, the Democrats must work for the defeat of any plan–including Pozen’s own or that of Diamond and Orszag–that would entail cuts in
May 20th, 2005 at 1:11 amSocial Security benefits or increases in the retirement age. The Democrats should demand that Social Security benefits be preserved or enhanced, and that any cost above revenues furnished by the payroll tax be covered exclusively by wealth and income taxes on the richest 5-10% of the population. We must reject any proposal, no matter what claims it may make to be “balanced”, that demands sacrifices from the bottom 90% of Americans. These sacrifices are wholly unjustified in light of America’s maldistribution of wealth and income which, always bad, has been getting worse and worse in the past 3 decades.
fraq, there are plenty of Democrats who would like to do something right now to reduce the predicted shortfall in SS, like raise the income cap on the wage tax. But, with Republicans controlling both houses and the presidency, the idea that Democrats should do something about SS is a canard.
The really humorous part of this canard is that Bush has made SS the centerpiece of his adminitration’s second-term agenda, but it is he who will not make a concrete proposal. He made some suggestions in his press conference, and I bet lots of people think that he has presented a more detailed plan that government is debating out of the spotlight, but he doesn’t. He says it is congress’s job to write the laws – he just signs them, but he’s wrong. Article II, section 3 makes it his responsbility to “recommend to their [Congress's] Consideration such Measures as he shall judge necessary and expedient.” That is, he can (and should) propose legislation.
The other thing that Democrats would like to do to strengthen SS is to reduce the non-SS budget deficit. Poor Mr. Bush is losing sleep because SS might have a shortfall in 2041. The rest of the government has a gigantic shortfall right now, and it apparently bothers him very little. Reducing the budget deficit would give us more and easier choices later, if SS does indeed have a shortfall as is now predicted.
Think about it – SS is OVERFUNDED to the tune of a trillion dollars or so. The rest of the government is UNDERFUNDED to the tune of what, $600 billion? Tell me why this makes SS the problem?
May 20th, 2005 at 6:43 amMark G., well said!
The demise of SS has been predicted for decade upon decade always with approximately the same time window ahead, about 35 years. It is like my father always predicting a depression around the corner for the 60 years of his adult life. He is bound to be right at some point. Not to say that there aren’t fiscal problems with SS or the rest of the budget (those we can already see in the latter today), but these problem don’t require radical surgery, just some common sense sorely lacking in the three branches of government.
Of course, none of this argument is likely to matter in the next 20 years anyway as other economic, social, environmental incidents and results will overtake this. The trouble is, none of us see what those are right now, they are always somewhat surprising. – C
May 20th, 2005 at 1:09 pmThank you, Randy Silverman. While it might be fun to see Pozen speak out against Bush’s privatization plan, we can’t lose sight of the fact that Pozen’s own plan, with or without private accounts attached, stinks. It is too early to be talking about benefit cuts. Benefits are not generous enough already. It’s time to find a real solution that adequately rewards people for spening so much of their time working.
May 20th, 2005 at 1:46 pmThank you Mark Gilbert for the comment -”Think about it – SS is OVERFUNDED to the tune of a trillion dollars or so. The rest of the government is UNDERFUNDED to the tune of what, $600 billion? Tell me why this makes SS the problem?”
I am also unable to think why this makes SS the problem and I hope a poster will amuse us by answering your question.
As an individual who has ensured that I do have some private retirement investments I am in that group who when they see the lacklustre performance of stocks realises that they will likely need to work several more years before cashing in for retirement. This may well be the case with SS – that increased longevity will lead to a delay in the receipt of SS.
However when I read that in 2031 that for every one person receiving SS there will be only two people paying in – this will also mean that for every one person who is trying to sell their home and trade down to realise some capital for retirement there will only be two people who are working and able to purchase. This will lead to greatly falling real estate values.
If the route of setting up personal retirement accounts now is persued and the SS fund is not additionally dipped into to cover the shortfall of the diverted income then that money has to be borrowed. That means higher interest rates and the now frothy real estate market could collapse.
Anyone know where I can get a free lunch?
May 20th, 2005 at 3:12 pmbuckshot writes:
Robin,
No, Congress cannot “pay back� the trust fund. Those billions ($1.6 trillion, I believe) are all long gone. Reagan spent some of em, Papa Bush spent em, Clinton spent em, and GWB is spending em, and the next kid on the block will be spending em until 2018, then it will be break even.
buckshot is not alone in having this fundamental misconception of what is in the trust fund. No, it’s not money, it was never intended to be money, money would be worthless. It’s claims on future tax revenue, which are as valid as we make our political representatives make them.
Think of it this way: In, say, 2027, the Social Security Administration will have to redeem $200 billion in bonds, to ad to its tax revenues from that year in order to pay promised benefits. Gosh, where on Earth will we find $200 billion? Well, if the economy isn’t perpetually in the tank, we’ll find that money the same place we’d find any other $200 billion, whether it’s for a tax cut or a war or whatever.
There is a sense in which we ARE spending the trust fund, which is that we’re building up large debts not held by the government. That’s stuff that we have to pay interest on outside the government (not just moving money among government accounts, as with the interest on Soc. Sec. bonds), so the bigger we make those debts, the more we have to either tax or borrow in 2027 to pay that $200 billion AND pay the interest payments on our other debts. But that’s just one more claim on government revenue, not fundamentally different from any other.
The contention that we’ll find we “can’t” pay back the trust funds is just false (unless you agree with something like the peak-oil scenario up-thread). ALL of the projections of Social Security’s future assume a growing economy where, even though the worker-reitree ratio gets worse, the increased producitivity means that we can pay promised benefits AND workers can have a higher standard of living than now. There WILL be enough production in the economy to afford that, and current tax law plus the trust fund provides a mechanism to do so, at least through 2041 or so (2052 if you believe CBO). The only thing that might happen is we WON’T pay those benefits, but that’s a different kettle of fish from “can’t.” Anyone who says “can’t” either needs a better economics class or doesn’t believe in paying debts.
May 20th, 2005 at 3:57 pmMike: ” Benefits are not generous enough already. It’s time to find a real solution that adequately rewards people for spening so much of their time working.” There is. It’s called letting people keep the money they earn so they can invest as they see fit. Pozen’s plan is just recognizes that it’s ridiculous to take 15% of a burger flipper’s paycheck so that Warren Buffett can get a bigger welfare check than somebody who worked in a factory for 40 years.
Abolish the regressive payroll tax, means-test benefits, and you get a much more progressive system, and one which makes people less dependent on government. The left claims to want the former, but are so scared of the latter that they have to defend welfare for the rich.
May 20th, 2005 at 4:43 pmBrian needs to review or learn how the system works. First, the burger flipper pays 12.4% of his income (6.2% directly, 6.2% by his boss, but you’re right in considering those both as being paid, for practical purposes, by the burger flipper, because the 6.2% “from the boss” comes out of reduced official wages to the burger flipper) The number is not 15% — you’re rolling in Medicare as well, which Warren Buffett pays proportionately more for, since Medicare taxes are levied on your whole income, not just the first $90,000.
Second, yes, Buffett will get a bigger check than the burger flipper, and pays a smaller percent of his income (because of that feature of not levying the OASDI tax on income over $90,000). But guess what? The burger flipper gets a better deal than Buffett. His Social Security check will be abotu 90% of his annual earnings, whereas Buffett will get $24,000 a year — I don’t know Buffett’s income, but it’s got to be at least $2.4 million, right? which means his “ridiculous” payout is at most 1% of his annual income.
Social Security taxes are flat up to $90K, then regressive; benefits are highly progressive; the net result is a moderately progressive system. Anyone who raises this thing about how horrible it is that Gates or Buffett gets a Soc Sec check is blowing smoke. How can you tell? Because the people upset about the current system aren’t the burger flippers and middle-income people that are always invoked. If they’ve studied the system at all, they know they get a good deal already. And if they’re politically astute, they understand that the system’s current degree of progressivity is in the range of the most that our political culture will allow. The Pozen Plan would make the system much more progressive and therefore such a bad deal for the upper part of the income distribution that its political support would indeed become tenuous.
Next time you try to help out working folks by destroying a system that benefits them, see if they want your help first.
May 21st, 2005 at 2:51 pmIf Bush was serious about strengthening Social Security, the first thing he would do is to propose removing the current trust fund surpluses from the general fund. (Remember the “lockbox” promise he broke so easily? Or maybe some of you still believe the “trifecta” comment he claimed to have made, despite the fact that he can’t cite where or when it was made.) Then we could invest future trust fund surpluses in real financial instruments. If the trust fund invested in a mix of private, local government, and federal bonds, it could easily be earning 4-5% instead of something like 1.8%.
Bush won’t do that, of course, for several reasons. First, the current situation keeps the cost of servicing the debt he’s racking up lower, so he doesn’t look quite so bad. Second, making the trust fund money untouchable would show that last year’s budget deficit wasn’t $412 billion (3.5% of GDP) but actually $609 billion (5.2% of GDP). He won’t make a move that makes it more obvious that his fiscal policies are a disaster for the long-term financial health of this country.
Let’s stop using the current annual trust fund surplus to finance general debt, and let’s invest the money more wisely. We could even start paying some of it back in small amounts, maybe even just $10 billion or so a year, for better investment. That would certainly make up at least some of the predicted shortfall.
May 23rd, 2005 at 2:20 pmFlip flop GOP
June 23rd, 2005 at 11:39 amSeveral months ago the Social Security fund was in such dire straights that in several decades is would be busted.
Now the proposal is that there is so much surplus, that private savings accounts can be set up with that surplus. And better the surplus is handled that way rather than some wicked Government go and raid that surplus for current Government spending.
Can anyone lend the GOP a mirror?
And where’s my free lunch?
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