G.W. Bush's Social Security Reform plans

I likewise have an opinion. SS is a welfare program designed to keep old people off cat food. It's paid for by taxes, just like all the other government programs. Unfortunately, the pols have managed to dupe most people into thinking that there's a little cubbyhole in Bawlmer with "their" money just waiting for them to come claim it in retirement.

-- Phil Marti Clarksburg, MD

Oh my, where to begin?

You could not have read about W's proposed changes because, with the exception of the so called "personal" (nee "private") accounts, he has yet to announce any proposed changes. And, because of the furor they have caused, he has shown signs of backing off from the formerly non-negotiable personal accounts. [It has occurred to me that we already have private/personal retirement accounts. They are called IRAs and 401Ks.] Many of his high income supporters -- and opponents -- (as well as their payment matching employers) would not be thrilled to have ~all~ income subjected to FICA and Medicare taxes. Or with means testing. An increase in the current income limit of $90,000 is certainly a possibility. It has been speculated that a simple increase to somewhere in the $125,000 to $150,000 range would suffice to cure all that ails Social Security. Social Security a Ponzi scheme? Well, the structures are similar, with new income being used to pay off the older investors. But in Ponzi, the manager is pocketing much of the income, and the whole thing collapses in time. No one has yet been defrauded by SS. Social Security in trouble? Calmer voices -- including the non-partisan Congressional Budget Office -- posit that even if nothing is done, SS is good until 2042. Some say 2052. Without getting too political, there are those who claim that this whole exercise is an attempt to kill Social Security altogether -- something that some political conservatives have wanted to do ever since it was first established in 1935. And now, back to my medication.

Bill

I` agree that 401(k)'s and the various types of IRAs are "private accounts" of the type that W is proposing. So, why is it that almost all the politicians and reporters have not noticed this obvious fact? In fact some of the opponents of W's SS plan are proposing something called Social Security Plus which adds private accounts to the current SS system. They are presenting this as something new. How does it different in any fundamental way from the current SS + IRA or 401(k) plans?

-- Vic Roberts Replace xxx with vdr in e-mail address.

Right. Except that they aren't mandatory, and they don't deprive Social Security of income necessary to fund benefits.

I wouldn't be a bit surprised.

Stu

It is a "lockbox!" How soon we forget. [Ducking and running.]

Each to his own of course.

I've just decided not to read this thread.

ChEAr$, Harlan Lunsford, EA n LA Wed 9 Mar 2005

You're thinking of SS as an investment. It isn't. It's an insurance program. FICA taxes are the premiums. The payments to retirees, survivors and the disabled are the benefits under the coverage. Under any insurance, some (if not most) policyholders will pay more in premiums that they will ever collect in benefits. My parents are an example. My father paid SS taxes for more than 40 years and never collected because he died at age 62. My mother never collected on his account because she died four days after he did at age 61. You might argue that that's unfair, but that's the way insurance works. It's a Ponzi scheme only if you define an underfunded insurance company as a Ponzi scheme. Yes, there are problems with SS. But what few details Bush has offered for "reforming" it would do absolutely nothing to solve those problems. A member of the Clinton administration's Social Security Advisory Council laid out a plan in the Washington Post to make up the SS deficit with four simple steps:

-- Lift the cap on earnings subject to the SS payroll tax;

-- Keep the tax on estates worth $3.5 million and more and dedicate the proceeds to SS;

-- Bring all newly hired public employees under mandatory SS coverage, and

-- Adopt the more accurate formula for cost-of-living increases designed by the Bureau of Labor Statistics and already in use by many programs. No need for private accounts. No increase in the payroll tax rate. No cut in benefits. No increase in retirement age. No means testing. And no change to the disability/survivors insurance coverage. There are no doubt other plans to eliminate the SS deficit. But privatization won't do it and isn't, at its heart, intended to do so. The goal of privatization is to abolish SS. The plan outlined above assumes that in 2018 Congress and the administration take the steps necessary to start paying off the Treasury bonds in the SS Trust Fund. But the need to do that is a function of the 1983 agreement to save SS and the subsequent decision to use the money raised under it to offset federal budget deficits, not because of any inherent insolvency in SS. Can the government dodge that responsibility? Not that I can see. It would involve defaulting on those T-bonds, and that would cause such financial chaos here and abroad that the SS deficit will be among the least of our problems.

-- D.F. Manno snipped-for-privacy@spymac.com "The work goes on, the cause endures, the hope still lives and the dream will never die."

"Dick Adams" wrote

Dick:

As with most things in life, how a person comes out on this issue is a matter of perspective. As such, I respectfully disagree with your opinion on the three aspects of SS you mention above.

1) SS is more of an insurance program (albeit forced) than anything else; it is certainly not a welfare program. As such, there are people who get more than they put in, while others get less. 2) Means testing to receive benefits for which people have paid does not reconcile with point 1 above. 3`) Because of my perspective, your felony position does not hold water, although I know it still will from your perspective.

Like Mr. Healy, I ran a projection, but with my own actual numbers. A) I've been paying into the system since 1976

B) I took what I have actually paid for OASDI and then ran a projection based on SSA estimates of future wage bases assuming that the OASDI rate of 6.2% would not change. C) I assumed that I will continue to earn more than the max wage base. D) I assume I will retire at 67. (Based on my birth date, I get full benefits at 66yr 10mo). E) Upon retirement, I assumed the annual COLA would be a constant 1.5% thereby increasing my benefit and accelerating my "drain" on the system. My initial benefit is what was projected on my last SS statement if I began taking payments at 66yr 10mo. F) I assumed that the government has "earned" a constant 3% on the money I put in. Looked at another way, the money I have been putting in is worth 3% less (due to inflation) every year, so I am bumping up the "value" of my contributions. G) I am not worried about the "disconnect" between the COLA and the "earnings" rate. The COLA takes into account only a theoretical bag of groceries and I believe some other items; inflation is more realistic.

---> Based on the above, it's not until year 23 (when I am

90) that I start getting benefits that someone else has "paid" for.

---> If I assume 0% earnings, I run out of "my" money at the beginning of year 10 at age 77.

---> If I assume 0% earnings and 0% COLA, it takes me until the end of year 10 to run out of "my" money. People seem to want a "perfect" system. However, because of the perspective issue I mentioned at the outset, there can be no agreement as to the structure of that system. For what it's worth, my very first job, even before I got a paper route, was at a pharmacy ($1.95 per hour!). However, because I was only 12 years old, SS was not taken from my paycheck. If it had, perhaps I would have gotten on the meds at an early age. Since I was lucky, I am entirely lucid as I type this. Knock on wood. Sorry, I've got to go, someone's at the door. Regards,

Peter C. Gatto, CPA

that might bring in more money, but certainly would not "cure" "ALL that ails social security". Any program that indoctrinates generations of Americans that they do not need to save, and the government can work magic, has real problems. I have a better proposal. Why not add on a surtax to all who earn their income doing tax preparation, tax software, and tax publications? with a suitable level of surtax, the problem would be "solved", and would only burden a few (and since I am not one of those "few", I'm all for it). Of course, some would not like the surtax (can't understand why), and change businesses. We could then increase the surtax to make up the lost revenue. Eventually, people would be forced to do their own taxes, and we would very quickly see tax simplification.

The earlier generations were the "managers" and pocketed much of the "income". Thus, it is a Ponzi scheme.

I've said that (except I prefer the term "pyramid scheme" - as it avoids the reference to Mr. Ponzi and is better understood) for years now - and if it weren't run by the Government, someone would indeed be in prison.

His changes won't work. If he wants to encourage private savings, let's raise the IRA limits to $10K or more - and for those just getting by, let's allow part of the annual contribution to be from unearned income (but no tax deduction for such). HSA's should be increased too - to match the HDHP's deductible (I consider it a crock that only $2,650 is allowed for a $5k/yr deductible plan).

[Our moderator may have started this, but I thought that "political posts" weren't supposed to be here....?]

I have to disagree with the first part: SS is how the elderly AFFORD their cat food while living in their rent-controlled slums and letting "Morris" survive off the rats he can catch. [That's for those who live exclusively from SS.]

I do agree that "accounts" are an illusion - and the annual SS statement is now the worst part of this lie. It may serve other good purposes (i.e. verification that one's employer did file his W-2's/W-3 and other paperwork - AND that someone else hasn't worked under one's name), but call it what it is.

The problem is not with the private accounts per se. The problem is that it will take money away from the system that provides SS benefits to those who have qualified. In addition, based on the results of countries that have already tried this kind of thing, there is a high liklihood that what was supposed to be a safety net will, for many if not most people who elect the option, end up being far less money in their pockets when they retire. Stu

It was made to resemble insurance, or a pension plan. But in reality it never has been anything but a tax those working to pay those who are not working.

The purpose was to provide a safety, a minimal income to avoid abject poverty, for those who either could not or did not provide for themselves. From that perspective means testing is quite reasonable. Why should minimum wage workers pay taxes that end up in the pocket of George Bush Sr.? Stu

Except that the example of RALs shows us there's a large pool of people who are happy to give the government an interest-free loan for 8 months, then pay a tax practitioner an exorbitant fee to get their refund 8 days faster. Making that fee more exorbitant isn't going to get those people to lobby Congress for tax simplification. ;) Phoebe :)

The typical client of my employer has a net worth in the millions and income (including muni interest) in the mid-six figures. And that's just for the people who are retired. I see people with income exceeding $1 million and collecting $25,000 (both spouses combined) in Social Security. Why should only 85% of the Social Security income be taxed? At that income level why not tax 100% at a 100% rate? It's not like they would have to adjust their lifestyle! Alan Greenspan has always (or at least for the past 50 years) wanted to get rid of the Social Security system. My mother dated him in the late fifties and years later told me that she didn't challenge him on that, but as she got older she was more in favor of keeping Social Security intact. Gary

-- E-mail to the above address is rarely read. If you want to contact me directly, please send an e-mail to: gary at gdgoodman dot com.

Whatever the initial purpose of SS, it certainly has transmogrified into what it is now by virtue of Congress never meaningfully who gets benefits. This happens virtually any time government gets money. For example, here in the SF Bay Area, we have two main bridges, the Bay Bridge and Golden Gate Bridge. When both were proposed and subsequently finished in the first half of the 20th century, drivers were promised that once the bridges were paid for the toll for crossing would discontinue. 70 years later we are still paying. That is just one example of, what I am sure are, many.

As most of us know, no one has an account and SS is a "pay as you go" system. That being said, the way the level of benefits are calculated, minimum wage workers do not pay taxes that end up in the hands of GHWB. That is because the SS taxes paid into the system by minimum wage workers is not enough to pay the benefits of recipients who only earned minimum wage while they worked. So, in essence, the "GHBWs", the "Stus" and the "Peter Gattos" of the world are paying SS taxes that are ending up in their own pockets. That is, in the hands of retirees who were once earning over (and sometimes greatly over) the SS wage base. However, since there are not enough workers to fund the pay as you go system the taxes you and I pay are not enough to pay for the now-retired minimum wage workers and GHWB. Therefore, just as I have to pay a bridge toll even though that was not the original intention once the bridges were paid for, if I was of age to retire today, I would qualify for benefits and I would gladly take them. Regards,

Peter C. Gatto, CPA

Why should George Bush Sr. or anyone else for that matter be forced to transfer a portion of his wealth to support others? Charity should be voluntary, not mandated.

-- David M. Woods, EA, ChFC, CLU Woods Financial Services Norwood, MA 02062

For the same reason you're not taxed on 100% of all annuity payouts. A portion of any SS benefits is the result of taxed dollars going in. Are you seriously suggesting that not only is the money taxed on the way in, but also on the way out? Any politician who voted for that would have to face me in person. Not a pretty sight. For them.

Stunning.

-- David M. Woods, EA, ChFC, CLU Woods Financial Services Norwood, MA 02062