The events of the last two weeks have illustrated the volatility of America’s financial markets. Today, the Dow closed below where it was on George W. Bush’s first day in office.

And yet, John McCain still supports a Bush-style Social Security privatization plan that would encourage Americans to risk their retirement benefits on the stock market.

Social Security provides the majority of income for most seniors and is a vital insurance system for disabled workers and dependent spouses. Income provided by Social Security keeps 13 million seniors from living in poverty.

McCain’s proposal, which would allow workers to divert their social security payments into private accounts, is risky, expensive, a financial boon to Wall Street, and would undermine, not shore up, the long-term solvency of Social Security.

This is a debate that’s been had before. When Bush proposed a similar plan in 2005, analysts were able to assess its impact and debunk its myths. Here’s what they concluded:

Private accounts are risky: Bush and McCain tout the potential for higher returns as a reason to shift Social Security payments into the stock market. But an analysis by Robert Shiller of Yale University of a standard “lifetime” personal account, as envisioned by Bush and McCain, show they actually lose money one-third of the time. Furthermore, projections of rosy growth used to justify personal accounts stand in stark contrast to the projections of slower growth that indicate there may be an eventual shortfall in Social Security.

Private accounts are expensive: Bush’s 2005 plan, supported by John McCain, to divert Social Security payments to private accounts, would have unnecessarily added an additional $17.7 trillion to the national debt by 2050, according to an analysis by James Horney and Richard Kogan. This borrowing was needed entirely to fund the creation of private accounts, not to shore up Social Security solvency.

Private accounts provide a boon for Wall Street: Wall Street firms advocate Social Security privatization for a reason: they’ve got a lot to gain. A 1997 estimate by actuary David Langer for the Washington Post projected that Wall Street firms would make $240 billion in fees during the first 12 years of a privatization scheme– this number is undoubtedly much higher now.

Private accounts won’t fix Social Security: The CBO recently projected that Social Security will continue to pay full benefits for the next 30 years. After 2041, the system will pay out 78% of benefits. Private accounts wouldn’t address this shortfall, they would cause more damage by requiring benefit cuts and shortening Social Security’s long-term outlook.

What McCain won’t tell you: The cost of closing the long-term shortfall in Social Security is less than the cost of extending Bush’s tax breaks for the richest 1% of Americans, as John McCain has proposed.

But McCain seems less interested in saving Social Security than gambling it away.

During the presidential debate Friday night, Sen. John McCain (R-AZ) was asked for “major ways” in which his approach to the presidency has changed, in light of the budget problems potentially associated with the $700 billion federal bailout bill working its way through Congress.

McCain responded to the question by advocating a “spending freeze on everything but defense, veteran affairs and entitlement programs.”

McCain did qualify his answer a bit with his next statement, adding that he would fund “several other vital issues,” which remained unnamed. But if McCain were to freeze “everything” then, among other things, he would allow inflation to eat away at:

- Funding to the 908,412 children in the federal Head Start program.

- Funding for the 6 million students who receive federal Pell Grants for college.

- The $5.1 billion spent on the Low-Income Home Energy Assistance Program (LIHEAP), which provides households with financial “assistance for their home energy bills.”

- Unemployment benefits, even though unemployment is at a seven-year high of 6.1%.

- The $24.6 million currently funding “110 national park improvement projects and programs.”

This list is almost endless. Would McCain freeze spending on foreign aid to Israel and Columbia? Is he going to freeze the Community Development Block grants program or funding for NASA? Will he freeze funding to infrastructure projects, like those undertaken by the Federal Highway Administration?

McCain needs to be asked what, in the end, he considers a “vital issue” worth spending federal money on, and what programs would fall victim to his massive spending freeze.

Digg It!

According to the text of the draft bailout bill, the “troubled assets” that the Secretary of the Treasury is given $700 billion to purchase are not only mortgage-backed securities, but “any securities, obligations, or other instruments that are based on or related to such mortgages.” And Paulson is actually given authority to blow past even that vague limitation, since “troubled assets” also include:

Any other financial instrument that the Secretary, after consultation with the Chairman of the Board of Governors of the Federal Reserve System, determines the purchase of which is necessary to promote financial market stability, but only upon transmittal of such determination, in writing, of the appropriate committees of Congress.

On October 11, 2002, the Senate approved the following:

The President is authorized to use the Armed Forces of the United States as he determines to be necessary and appropriate in order to–
(1) defend the national security of the United States against the continuing threat posed by Iraq; and
(2) enforce all relevant United Nations Security Council resolutions regarding Iraq.

Digg it!

UPDATE: Paulson — and his successors — “is authorized to take such actions as the Secretary deems necessary to carry out the authorities in this Act” . . . “without limitation.”

UPDATE II: A Wonk Room reader writes in that Paulson’s authority is restrained because he has to consult with Congress. In fact, the Iraq war resolution required the same:

In connection with the exercise of the authority granted in subsection (a) to use force the President shall, prior to such exercise or as soon there after as may be feasible, but no later than 48 hours after exercising such authority, make available to the Speaker of the House of Representatives and the President pro tempore of the Senate his determination that

(1) reliance by the United States on further diplomatic or other peaceful means alone either (A) will not adequately protect the national security of the United States against the continuing threat posed by Iraq or (B) is not likely to lead to enforcement of all relevant United Nations Security Council resolutions regarding Iraq, and

(2) acting pursuant to this resolution is consistent with the United States and other countries continuing to take the necessary actions against international terrorists and terrorist organizations, including those nations, organizations or persons who planned, authorized, committed or aided the terrorists attacks that occurred on September 11, 2001. . . .

The President shall, at least once every 60 days, submit to the Congress a report on matters relevant to this joint resolution, including actions taken pursuant to the exercise of authority granted in section 2 and the status of planning for efforts that are expected to be required after such actions are completed, including those actions described in section 7 of Public Law 105-338 (the Iraq Liberation Act of 1998).

UPDATE III: The oversight provisions in the Emergency Economic Stabilization Act of 2008 include reports from the Treasury Secretary; an Special Inspector General appointed by the President; an Oversight Board of cabinet-level Presidential appointees, including the Treasury Secretary; reports and audits by the Comptroller General, appointed by the President; reports from Office of Management and Budget (White House) and the Congressional Budget Office; and a bipartisan Congressional Oversight Panel appointed by Congressional leadership.

UPDATE IV: The House defeated the bill 225-208.

During Friday’s presidential debate, Sen. John McCain (R-AZ) argued that if the United States lowered its corporate tax rate, American businesses would “be able to create jobs, increase your business, make more investment”:

Right now, the United States of American business (OOTC:ARBU) pays the second-highest business taxes in the world, 35 percent. Ireland pays 11 percent. Now, if you’re a business person, and you can locate any place in the world, then, obviously, if you go to the country where it’s 11 percent tax versus 35 percent, you’re going to be able to create jobs, increase your business, make more investment, et cetera. I want to cut that business tax. I want to cut it so that businesses will remain in — in the United States of America and create jobs.

Watch it:

The Irish corporate tax stands at 12.5%, not 11, but that’s almost besides the point. McCain’s argument is full of so many other holes, you can drain spaghetti with it:

- America’s Effective Tax Rate Is Comparable To Other G7 Nations: According to a recent U.S. Treasury report, the effective tax rate on equipment financed by equity is 24 percent, the same as the G-7 average. The rate on equipment financed by debt is minus 46 percent, meaning that the government actually subsidizes these investments rather than taxing them.

- America Is The Number One Country To Do Business: The World Economic Forum’s Global Competitiveness Report for 2007-2008 concluded that the United States is most business friendly, followed by Switzerland, Denmark, Sweden, Germany, Finland and Singapore. Ireland came in at number 22.

- Two-Thirds Of Corporations Did Not Pay Taxes: According to last month’s Government Accountability Office (GAO) report, between 1998 and 2005 “about two-thirds of corporations operating in the United States did not pay taxes” because of a variety of corporate tax loopholes.

- US Raises Less Taxes From Corporations Than Ireland: In the United States, corporate revenues as a percentage of GDP was about 2.2 percent; Ireland raised close to 4 percent.

The past eight years of Bushonomics have refuted McCain’s trickle-down argument. In fact, from 2000 to 2006, increased corporate profits did not grow middle class incomes — as “corporate profits grew nearly four times as fast as GDP,” increasing by an estimated 66 percent, the median household income fell by $963, even after inflation.

Unfortunately, rather than “create jobs,” corporations retained their extra profits, invested little in new commercial structures such as factories and office buildings, bought back their own stock, and “increased dividends rather than expand capacity.”

Digg It!