Whitehouse's Social Security Blinders

Everybody should print out this snippet of a John Mulligan interview with U.S. Senator Sheldon Whitehouse (D, RI) as a cheat sheet on Democrat talking points about Social Security. It's all there.

Continue reading on the Ocean State Current...

It's a Ponzi Scheme

Ramesh Ponnuru is wrong in the New York Times discussion where he claims that one reason that Social Security shouldn't be considered a full-blown Ponzi scheme is because it is involuntary.

Think of it this way: Suppose Bernie Madoff requested that he be allowed to do community service as part of his prison sentence, in the form of administering the Social Securty program.

In the Madoff-run Social Securtiy program, planning for the future would be based on 10% annual returns on money "invested" in the "trust fund" that he would promise to deliver. And since the "trust fund" would be doing so well, there'd be no need for any Social Security reform. In fact, the aniticpated surplus promised by Madoff would be so large, the government would be able to resume its practice of a few years prior and began immediately to spend social security payroll taxes on other Federal programs, in anticipation of the new investment revenues, while all current retirees continued to receive their checks. Madoff would also need some money for operating expenses, like a fleet of private jets to take him between the 7 or 8 beachfront mansions he would need to be able to monitor the program from various locations in the United States.

But suppose that in reality -- shocking as this may sound -- Madoff applied the same financial practices that made him infamous to the new funds he had access to, i.e. instead of investing the money, he simply used the money coming in from newer program participants (current workers mandated by law to send him their money) to pay off longer-term participants (current retirees) and took some for himself.

Voluntary versus involuntary has no bearing on the issue. Madoff would still be running the same kind of Ponzi scheme he was running before. He just would have found a new way to "convince" people to give him a part of their incomes.

A PolitiFact Social Security Stretch

One can only wonder whether the Providence Journal's PolitiFact team reads their own newspaper. The other day, they did what they love most to do (whacking Republican candidates) and graded Senatorial candidate Barry Hinckley "false" for saying that "there's no money in Social Security." Theirs is not a new argument — it's one that partisan Democrats have been making for years:

Those who say the fund has no money, or that it has nothing more than a bunch of IOUs from the federal government, are referring to the fact that Social Security doesn't have $2.5 trillion in cash sitting in a vault somewhere. The federal government has loaned the money to itself, using the cash to pay for other expenses.

But these aren't IOUs, which generate no interest. The loan is in the form of special-issue Treasury bonds that earned $117.5 billion in interest in 2010, according to the latest trust fund report.

The reader suspects from PolitiFact's stretched analogy that the Hinckley's point is being deliberately missed:

So maybe a better analogy would be: Saying that Social Security has no money is akin to saying that you're broke if you have 20 cents in your pocket but $20 million in the stock of a heavily leveraged company.

Only if you are the sole proprietor of that company and the company itself is broke. I could draw up papers from Anchor Rising promising me a million dollar bonus, but that doesn't make me a millionaire. Even more: Currently, the government can only pay itself the Social Security IOUs because it borrows almost half of every dollar it spends, making the system not unlike a Ponzi scheme.

Indeed, the folks at PolitiFact should have read this Q&A-style article, which the Providence Journal ran on the first page of its Nation section on July 29:

Q: What about the Social Security Trust Fund? Can't that be used to pay Social Security benefits?

A: No. The government will continue to collect Social Security taxes, but the taxes flow in across the month, while the checks go out at the beginning of the month. Normally, the Treasury advances money to Social Security at the start of each month to pay that month's checks, then gets repaid as the tax money comes in. But the Treasury can't make that advance if it doesn't have cash. And while the Social Security Trust Fund has more than $2.5 trillion in assets, that money is invested in U.S. government securities. Usually, that's a good thing because U.S. government securities are considered the world's safest investment. In this case, it's a problem because if the government doesn't have money, it can't cash in the securities.

It's too bad Hinckley didn't think to cite that article as a source. It would have been amusing to see PolitiFact take it on.

Froma Harrop Says Don't Believe that Spending More on Social Security Than it Takes In Drives Up Deficits. And Then it Gets Worse.

Undeterred by fiscal or economic realities, Projo op-ed columnist Froma Harrop continues to argue that there is an actual "trust fund" backing the Social Security system. Here is the analogy made in her Sunday column, where she criticizes Ohio Congressman Rob Portman for expressing concern that Social Security now pays out more money than it takes in...

Portman’s assertions are like parents saying that when they tap their college savings account to pay tuition that they couldn’t afford with that year’s earnings, they are spending money they don’t have.

What this rationale fails to acknowledge is that, in the case of social security, long before it comes time to pay out the benefits that the program was created to pay, the trust fund has already been spent and therefore cannot be spent again.

The reality is painfully obvious if you walk the college-fund analogy all the way through. Begin with a set of parents who decide that 15% of every paycheck should be dedicated to the college fund -- but who don't act that way. As each paycheck arrives, the parents spend everything that comes in on non-college related expenses while placing an IOU in a secure location to remind themselves to pay back the 15%. Maybe the immediate spending is necessary, maybe the spending is frivolous, it doesn't matter from a fiscal perspective. The point is that the money is spent.

Now, years after the parents began writing themselves IOUs, the time comes to start making payments to a college. The parents look over the history of their pay stubs and their IOUs and say "the records in the trust fund say we have 15% of our lifetime income to spend on college". But can they hand the box of IOUs they wrote to themselves to a college bursar? No, they have to go get real money from someplace to pay back the IOUs they wrote themselves. And if they hadn't written themselves the IOUs, or created their mythical "trust fund", there would be no difference. IOUs written to yourself don't mean anything, whether you are an individual or a government or anything in between.

When the government has to go to get money to pay benefits that it has not saved real assets for, there are only a few choices; they have to raise taxes, cut programs, or borrow the money. The exact same actions would have to be taken in the absence of the "trust fund" accounting gimmick.

Harrop goes on to punctuate her flawed description of social security with a whole new level of fiscal insanity, arguing that Rep. Portman's making accurate statements about the nature of the mythical "trust fund" equates to a desire to "stiff" (Harrop's term) the taxpayers. Apparently, in the worldview of Froma Harrop, politicians who inform the public how the finances of Social Security actually work should be looked at with suspicion, while politicians who promise benefits without concern about whether the government has the resources to pay them are the ones to be trusted.

If nothing else, understanding this thought-process does provide some insight into the Projo editorial board's decision to support a candidate like David Cicilline for Congress, despite the fact that during his tenure of Mayor of Providence, he was famously untroubled by such concerns as government spending more than it was taking in, or whether government accounts actually contained the money that they were supposed to. If Sunday's column is any guide, these were amongst his positive quantities in the eyes of some! (Of course, the real lesson to take from all of this, as always, is that progressives and public finance don't mix).

Finally, the analogy between a college fund and social security raises an ethical question: Is it honest for parents who are not saving real money into a college fund, to tell their children that they are, while the real plan to pay for college depends on getting money from some source in the future? I wonder, is there a specific name for this kind of scheme?

Another Problem With Entitlements Is That People Feel Entitled to Raises, Too

I've been meaning to comment on this casting of the non-increasing Social Security payments for a couple of weeks:

As if voters don't have enough to be angry about this election year, the government is expected to announce this week that more than 58 million Social Security recipients will go through another year without an increase in their monthly benefits.

It would mark only the second year without an increase since automatic adjustments for inflation were adopted in 1975. The first year was this year.

Look, there's a method by which the Social Security Administration calculates whether and by how much it is more expensive for recipients to live and adjust their payouts accordingly. Two years ago, that method yielded a higher-than-justified increase. Now, with a stagnant experienced economy no increase is justified.

The solution is to eliminate policies that increase costs (such as taxes) that don't factor into the equation and that hamper the healthy growth of our economy. Demanding more money as a handout just because a raise is expected and might be wrestled out of the political system will prove counterproductive.

Can We Trust David Cicilline's Style of Budgeting To Work For Social Security?

Social Security is a pay-as-you go program disguised by conceptual accounting gimmicks. Reporter Mary Williams Walsh of the New York Times described the primary gimmick this past March...

Although Social Security is often said to have a “trust fund,” the term really serves as an accounting device, to track the pay-as-you-go program’s revenue and outlays over time. Its so-called balance is, in fact, a history of its vast cash flows: the sum of all of its revenue in the past, minus all of its outlays.

Given this structure, when a political candidate like Democratic First District Congressional candidate David Cicilline promises to "protect social security", if by that he means that he will oppose any change in the basic structure of the program, questions of both short and long term fiscal responsibility are raised.

The short term issue relates to the Congressional Budget Office's March projection that about 60 billion dollars more will be needed to pay benefits than will be collected from Social Security taxes over the next 5-6 years. Since there is no "trust fund", the 60 billion dollars will have to be raised through taxes, debt or Federal program cuts. Does Mayor Cicilline believe that making up this 60 billion dollars is a concern, or perhaps a warning signaling that some kind of future changes will be necessary, or does he think that this is simply a problem for someone in the future to worry about?

And speaking of the future, on the longer term issues, the liberal wing of the within-government Democratic party seems to be coalescing around a position that also opposes just about any change to Social Security. Here is CBS news' report on the Dem position...

A group of Democrats today pressed President Obama's bipartisan fiscal commission, which is will be putting fourth recommendations on December 1st to reduce the deficit, not to include any cuts to Social Security when they do.

The National Commission on Fiscal Responsibility and Reform "should keep their paws off" Social Security, Rep. John Conyers (D-Mich.) said on a phone call with reporters, calling for "no benefit cuts, no raising the retirement age, no privatization."

The general long-term question is identical to the short-term question: with the options listed above off of the table, what methods do Mayor Cicilline (and other Dems) propose for paying for Social Security's future shortfalls?

Finally, beyond the long-term outlook of Social Security alone and relevant to the issue of retirement security in the US in general is Mayor Cicilline's statement reported by Randal Edgar of the Projo that one source of his opposition to Social Security reform is that income taken from younger workers is needed to keep the current system "stable"...

Cicilline, the acknowledged front-runner in the race, also said allowing younger workers to put some of their contributions into private accounts would “destabilize the system” because some of that money is needed to pay current benefits.

Actually, with Social Security currently running a deficit and no "trust fund" in existence, all of that money collected annually is needed to pay current benefits; nothing is saved for the future. More to the point, two years ago the US House of Representatives Committee on Education and Labor held hearings on retirement security that included discussion of a proposal to replace the tax-breaks allowing 401(k)s with mandatory government accounts instead...

Going forward, I propose Congress establish universal Guaranteed Retirement Accounts and the federal government deposit $600 (inflation indexed) in those Guaranteed Retirement Accounts every year for every worker.

Every worker (not in an equivalent defined benefit plan) would save 5% of their pay into their Guaranteed Retirement Account to which the government pays a 3% inflation-indexed guaranteed return. Workers would earn pension credits based on these accumulations...

[W]orkers’ contributions would be mitigated by a $600 a year contribution from the federal government indexed for inflation which will be paid for by scaling back substantially the tax breaks for 401(k) type accounts.

The question is, when the next set of Congressional hearings on retirement security are being held, and decisions on whether to scale back or even end private retirement savings incentives are being made, do you want a Congressman who believes 1) that no change to Social Security is possible and 2) that income from younger workers is needed to "stabilize" the system to be the Congressman representing you?

Unless It's in a Trust Fund that has Magic Powers, You Can't Spend the Same Dollar Twice

In Wednesday's Projo, op-ed columnist Froma Harrop defended (well, more like asserted) the idea that Social Security is our collective national trust fund...

Republicans have never loved Social Security, but they know that plans to privatize the program remain deeply unpopular. A few holdouts still carry the privatization flag, but most others prefer another tack: undermining faith in the program’s solvency. Hence all this loose talk about the Social Security Trust Fund’s being “a fiction.”

Matt Bai of the New York Times, on the other hand, is more specific about why the concept of the "trust fund" should be considered a fiction (h/t Peter Suderman)...

The coalition [of defenders of the Social Security structure status-quo] bases its case on the idea that Social Security is actually in fine fiscal shape, since it has amassed a pile of Treasury Bills — often referred to as i.o.u.’s — in a dedicated trust fund. This is true enough, except that the only way for the government to actually make good on these i.o.u.’s is to issue mountains of new debt or to take the money from elsewhere in the federal budget, or perhaps impose significant tax increases — none of which seem like especially practical options for the long term.

For further information, I went to the official Social Security website, to get the official word on how Social Security works...

By law, income to the trust funds must be invested, on a daily basis, in securities guaranteed as to both principal and interest by the Federal government. All securities held by the trust funds are "special issues" of the United States Treasury. Such securities are available only to the trust funds...

Tax income is deposited on a daily basis and is invested in "special-issue" securities. The cash exchanged for the securities goes into the general fund of the Treasury and is indistinguishable from other cash in the general fund.

I think what this says is that money comes into to a special "Social Security" area (account?) of the Federal Government and from there is transferred to the U.S Treasury, where it can be used for any purpose that Treasury funds might be used for. In its place, government-backed "securities" are left behind, to keep track of how much money that originated with Social Security might eventually need to be put back (with interest).

If this is any more than the concept of loaning yourself money, someone has to explain to me how.

And even most people who loan themselves money (for instance, from their own 401(k)) realize that once they've loaned themselves X dollars, the pile of money they've loaned from is now X dollars lighter, even if they leave a note saying 'remember to pay back the X dollars taken from here'. Likewise, the same dollar cannot be in a "trust fund" and in the Treasury Department's "general fund" at the same time. You can't spend the same dollar twice.

If there really is a Social Security "trust fund", in the sense that most people understand it, this extra step of replacing the initial funds with government-backed securities shouldn't be necessary. But since the step is there, for the government to pay real money to SS beneficiaries from "the trust fund", it has go get real money from somewhere else first -- i.e. pay back its loan to itself -- by issuing debt, cutting spending somewhere else, or raising taxes -- the set of options succinctly put forth in the Bai article.

So how does the Social Security Administration justify the trust fund concept? By saying that...

Far from being "worthless IOUs," the investments held by the trust funds are backed by the full faith and credit of the U. S. Government.

This sounds to me, given the current state of Social Security, like an argument which boils down to "when the government does it, that means it's not a Ponzi scheme", which I find to be as compelling as Richard Nixon's old line that "when the President does it, that means it is not illegal".

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What Now? Social Security Debt Due

So, the federal government has deficits as far as the eye can see and higher than the Statue of Liberty. What could we layer on top of that? How about the Social Security "trust fund" debt that's now coming due?

... This year, for the first time since the 1980s, when Congress last overhauled Social Security, the retirement program is projected to pay out more in benefits than it collects in taxes — nearly $29 billion more.

Sounds like a good time to start tapping the nest egg. Too bad the federal government already spent that money over the years on other programs, preferring to borrow from Social Security rather than foreign creditors. In return, the Treasury Department issued a stack of IOUs — in the form of Treasury bonds — which are kept in a nondescript office building just down the street from Parkersburg's municipal offices.

I've long said that I don't expect ever to collect a penny of Social Security, in part because the federal government's schemes for taking money now with no real plan to pay it back makes Bernie Madoff look like a dabbler. This could be the century that our society finally must learn the error of its progressive ways, or it could be the century of our collapse.

Mark Zaccaria: "If the laws governing Social Security benefits provide inadequately for the needs of retirees, the answer is to revise the law, not to paper over the problem with a one-time payment that puts us all farther into the hole."

On Friday, October 16th, 2009, the Providence Journal and other news outlets highlighted a story with great impact on senior citizens. Due to negative economic growth over the last 18 months recipients of Social Security retirement benefits will not receive a Cost of Living Allowance, or COLA increase, in their monthly checks during 2010. This is the first time since COLA increases were added to the benefit that economic conditions have not warranted them.

It was reported also that Rhode Island’s Second District representative in Congress, James Langevin, echoed the president’s call for a special one-time payout to Social Security recipients to compensate them for the otherwise flat rate of payment. While anyone would welcome an extra $250 next year, there are other approaches that our sitting Congressman might have taken under these circumstances.

As currently enacted, the law authorizing the payment of Social Security retirement benefits is intended to provide for stable purchasing power during times of price inflation. Since there has been none in the last 12 months, as measured by the Consumer Price Index (CPI), that goal should have been achieved with the level payment. So Mr. Langevin’s call for a cash bonus to our senior citizens must have been made for some other reason.

He might argue that Social Security retirement benefits are inadequate to keep seniors living comfortably. I might argue that, too. But does that mean a one time payment that probably will not bring seniors into a real comfort zone of income but will go away again in 2011 is the answer? Certainly not.

During his re-election campaign of 2008 Mr. Langevin complained bitterly about the multi-billion dollar deficits run up by the Bush Administration. Now, however he has willingly gone along with every heart stopping spending measure proposed by the Obama Administration, which now has our nation ringing up multi trillion dollar deficits. With numbers of that size being bandied about it seems that Mr. Langevin feels we can overlook the $20 billion increase in those deficits that will result from the one time spending he proposes to soften the blow to Social Security recipients.

His proposals ignore the fact that we do not have the money to pay for them. The United States of America can no more live on its high interest credit cards than you or I can, especially when we cannot foresee any future income that might help pay them off.

If the laws governing Social Security benefits provide inadequately for the needs of retirees the answer is to revise the law, not to paper over the problem with a one-time payment that puts us all farther into the hole. Mr. Langevin is a professional legislator, after all. Shouldn’t he work at his craft to forge a long term solution? Shouldn’t we consider his offer of a one-time check quite disingenuous since he knows very well it does nothing to fix the structural problems of the program? Is he really trying to make our proud retirees into indentured servants who have to come back to him every year asking, “Please, Sir, may I have more?”

Or do you think that there’s politics afoot? Could it be that the artificial concern over the long term independence of retirees on Social Security is there to mask some other purpose? Senior citizens, after all, have recently recognized that they have by far the most to loose under any of the multitude of national health insurance plans being floated this fall. Is the idea of a single $250 payment to pensioners really a Public Relations ploy to quiet them down on another subject?

We need financially sound, long term solutions to our problems, not trial balloon headlines that camouflage the real agenda of our political leadership. There is only one issue facing us as we begin to think about the 2010 Election. It is the financial stability of the nation. Unless we resolve that favorably we will be unable to tackle anything else. The deficits America has notched over the last few years, and especially over the last few months, are a cancer on each of our bank accounts. The coming price inflation they will trigger will certainly get our seniors their COLA bump in 2011. Unfortunately, even that will be of little practical benefit as the prices of everything we need are skyrocketing.

New England Patriots Coach, Bill Belichick, has an oft quoted motto painted on the wall of the team’s locker room: Do Your Job. We need our political leaders to pay heed to that sentiment now, more than ever. Unless they do, they will not properly represent the needs of the people who elected them. The result will be economic servitude for all of us, not just those trying to get by on Social Security.

Mark Zaccaria of North Kingstown is running for Congress in Rhode Island's Second Congressional District.

Not Broke... Just Without Money

Wow. It's been awhile since we've had an opportunity to use the "Social Security" tag for a post, so for that much we should thank Bryant Math Professor Robert Muksian. However, once he moves beyond the calculation of benefits, into the reality of the program, his declaration that "Social Security is far from 'broke'" should begin to spark "wait a minute" reactions:

It is the trust fund expanded by the Social Security Amendments of 1983 that is being depleted to the broke level. To quote the trustees of the Social Security Administration in their 2009 report, "Projected OASDI tax income will begin to fall short of outlays in 2016, and will be sufficient to finance 76 percent of scheduled annual benefits in 2037, after the combined OASDI Trust Fund is projected to be exhausted."

You may recall several relevant factors, from that long-ago period when Social Security was actually a topic of conversation (in contrast to our current contentment to let it fester like an infected wound). For one thing, there is no actual money in the trust fund, only government IOUs. Come 2016, the feds will have to cut benefits, trim some other government spending, or raise taxes. That will no doubt spur a cordial debate at about the same time that cap'n'trade, auto efficiency standards, healthcare "reform," and who knows what other policies begin to show their teeth. For another, the trajectory of Social Security is entirely in the wrong direction. When the government finishes paying off its IOUs to the trust fund in 2037, a perpetually shrinking workforce will be funding a larger retiree pool (especially if longevity continues to ratchet up).

Writes Muksian:

As an investment, it far exceeds anything the average American, or perhaps even professional investors, could achieve over the lifetime of a retired worker.

Rather than impressing us, that fact should raise questions about the method. How could it be possible? Muksian touts the Social Security Administration as "the most efficient entity in the federal government," but all it's doing, at this point, is transferring money from younger workers to older workers and retirees. It doesn't take much back-office acumen to accomplish that. Whether the supposed efficiency will continue when the SSA must begin demanding payment from the rest of the government and then when it runs out of money altogether is an open question.

Muksian tries to convince his fellow Americans to ramp up their investments in the scheme, with a mere 1% increase in the Social Security tax, to 7.2% of taxable wages. For those keeping score, that 1% of wages would represent a 16% increase in the tax. It is Muksian's determination — on our behalf — that another four to five hundred dollars per year is "tolerable" given the benefits. In context, though, we should recall that we'll be tolerating that confiscation of our earnings on top of the taxes that the government raises to pay for the money that it's filched from the "trust fund" — not to mention the countless other drains on our income that the current administration and Congress are piling on our backs as a sort of investment derivative of labor yet to be performed.

The Selfishness of Thinking Ahead

Financial columnist Michelle Singletary pauses amid the economic crisis to give a hard kick to the notion of privatizing Social Security as a method of preserving its long-term prospects.

The column resists selective quoting, so I recommend that you read the whole thing, but the essence is that Singletary describes retirement planning as a three-legged stool:

One leg of the stool is supposed to represent retirement savings. In the past, this meant a company pension. Now for many workers, it's a retirement plan they fund themselves, such as a 401(k).

The second leg represents personal savings, such as cash bank accounts or certificates of deposit. The savings component might also include other assets, such as your home.

The third leg is Social Security, which provided at least half the income for 64 percent of seniors in 2006.

She goes on to admit that fewer people have any sort of pension plan or retirement savings, and more and more people, far from saving, are in debt. As for Social Security, it "remains problematic":

"Social Security's current annual surpluses of tax income over expenditures will begin to decline in 2011 and then turn into rapidly growing deficits as the baby boom generation retires," the report said.

Growing annual deficits are projected to exhaust Social Security reserves in 2041.

That doesn't quite tell the whole story, as I recall, because the "Social Security reserves" aren't actually money. They're IOUs that the government — debt-laden, itself — is going to have to raise revenue to make whole. In other words, either taxes are going up or benefits are going down. By the time I reach the age at which this and previous generations have retired, the likelihood is that my financial stool won't have three "wobbly legs," but no legs at all.

And yet Singletary offers no solutions. She calls President Bush's attempt to allow workers investment access to some of the thousands of dollars that they pay into the system "selfishness." Social Security, she writes, "isn't just about you." It's about establishing "a net that [is] in place for times like what we're going through now."

Actually, at times like this, the social security net resembles a trawler in shallow waters. It takes from generations with a precarious future in order to pay out to older generations that are doing and have done better financially. Personally, I'm in that teeter-totter position at which the hundreds of dollars taken from my family's paychecks for social security would be enough to cover bills that we currently can't pay, making it more difficult to avoid increasing an already crushing debt. Apparently, though, altruism requires that we continue to struggle, with no real prospects of retirement, so that the Baby Boomers can sit pretty in their Golden Years.

Social Security: The Scam That Keeps on Taking

Alex Epstein rightly decries the fraudulent premises of Social Security:

Social Security is commonly portrayed as benefiting most, if not all, Americans by providing them "risk-free" financial security in old age.

This is a fraud.

Under Social Security, lower- and middle-class individuals are forced to pay a significant portion of their gross income — approximately 12 percent — for the alleged purpose of securing their retirement. That money is not saved or invested, but transferred directly to the program's current beneficiaries — with the "promise" that when current taxpayers get old, the income of future taxpayers will be transferred to them. Since this scheme creates no wealth, any benefit one person receives in excess of his payments necessarily comes at the expense of others.

Under Social Security, every aspect of the government's "promise" to provide financial security is at the mercy of political whim. The government can change how much of an individual's money it takes — it has increased the payroll tax 17 times since 1935. The government can spend his money on anything it wants — observe the long-time practice of spending any annual Social Security surplus on other entitlement programs. The government can change when (and therefore if) it chooses to pay him benefits and how much they consist of — witness the current proposals to raise the age cutoff or lower future benefits. Under Social Security, whether an individual gets twice as much from others as was taken from him, or half as much, or nothing at all, is entirely at the discretion of politicians. He cannot count on Social Security for anything — except a massive drain on his income.

Frankly, I'm expecting never to see a dime of return on my Social Security "investment," and to have scarcely any opportunity to save in my life. Taking four hours of my workweek away from me every week for the Ponzi schemes of older and larger generations is immoral to the borderline of criminality.

Hands Off Harrop

Nobody wants to upset the imposing beast of a retiring Me Generation, and Froma Harrop joined that nobody with her Sunday column:

What should we do about Social Security?

"I would just say, 'Let's sit on this,'" Baker answers. If come 2030 Americans see problems looming, he adds, "we can do something."

Much could change in over 20 years. Productivity gains have helped fewer workers pay for more retirees in the past and could in the future. And longer life spans may also alter the dynamics.

"How long into their lives should someone born in 2020 work?" Baker asks. "I have no idea."

The Baker whose prescription Harrop takes without question is Dean Baker, "a founder and director of the progressive Center for Economic and Policy Research," and his advice is premised on the assertion that 2017, when the Social Security system will have to start dipping into its trust fund, "means zero to the program." Of course, it does mean something to the people whose government likes to spend in the red and will have to come up with the money to honor the IOUs that wholly constitute that fund.

For the sake of argument, though, let's assume that 2041 — when the trust fund bonds will run out — is the danger date. I find the Baker-Harrop balance of risk and lead time, well, convenient. Rather than address a structural problem thirty-plus years in advance — establishing a new strategy with plenty of time to assimilate and a large retiring generation to maximize the benefits of any reform — the guardians of Social Security would have us sit back and watch the Boomers inch their way to octogenarianism in the hopes that something will just come up. (Sounds like the General Assembly method of budget planning, no?)

Now it becomes conspicuous that Harrop glides right through the assertions that really require further explanation, such as the suggestion that "productivity gains have helped fewer workers pay for more retirees in the past and could in the future." What past? When? If she means a time when advances in farming enabled a family to feed more of its elders, I'm not sure the observation applies. At best, the economic mechanism seems likely to have something to do with workers' earning more (because more productive) and therefore being able to pay more in taxes for retirees' benefit.

Or consider this: "How long into their lives should someone born in 2020 work?" That looks like an admission that the age of retirement will have to be pushed back, but for future generations — TBA. My fellow young(ish) adults might join me in wondering why there's no calculation of balance. If Baby Boomers were to wait five years for Social Security benefits, maybe we'd only have to wait ten, instead of twenty-five, or whatever it will prove to be when we reassess things mid-century.

Hands off Social Security, Harrop insists, at least until the Boomers have gotten their share. It's their last chance to stick it to those who've followed them, after all.

The Privileging of Elderly Unemployment

The very first time I lost a critical portion of my income, I did look into the possibility of catching the edge of Rhode Island's safety net to keep my family from sinking further into the debt that continues to prevent our eyes from turning to the financial future. Now, I haven't even bothered to consider it, because I learned that having even the supplemental income of a part-time job reduces one's unemployment "benefits" to zilch. In his apparent drive to become infamous, Rep. Thomas Slater (Providence; guess the party) has successfully maneuvered through the House a privileging of one form of supplemental income:

Under current state law, Social Security benefits are considered "disqualifying income" for those filing for unemployment. In one instance, a woman recently told the House Committee on Finance, an unemployment benefit of $130 per week for which she was eligible was slashed to $6 because her Social Security benefits were counted against her.

Legislation was approved today by the House of Representatives to strike the "disqualifying income" provision of state law that is currently financially penalizing this particular category of the state's unemployed.

Sponsored by Rep. Thomas C. Slater (D-Dist. 10, Providence), the bill (2007 - H5296) will bar Social Security benefits from being considered "disqualifying income" when applying for unemployment. Rhode Island, one of only seven states that still counts Social Security benefits against unemployment, deducts half of the individual's Social Security benefit from the total of unemployment compensation.

"The current provision of state law is just flat-out wrong and unfair," said Representative Slater. "People work for years to become eligible for Social Security benefits. Receiving those benefits should not be a penalty when these individuals find themselves unemployed. This section of law can be financially disastrous to those people who are collecting Social Security but who also need to work and who lose their jobs."

To be honest, I was ultimately relieved back when I was denied the crutch of public handouts, and further consideration since then has led me to admit that a system would be ridiculous that strove to guarantee a level of income, rather than just a last-minute buffer from rock bottom. But even moderating this view, why is it that those receiving Social Security — most of whom aren't any longer supporting child-inclusive households, and who are more likely than the average not even to have mortgage payments — require enhanced protection from "financial disaster"? It would seem that, if anything, a handout of one kind is more properly counted against a handout of another kind than is income from productive labor.

How to Host a Social Security Bake Sale

By the way, while we’re on the subject of the URI College Republicans, I’d like to propose a new format for the Social Security Bake Sale that they hold as part of “Coming Out Conservative” week. Social Security Bake Sales are supposed to point out the unfairness of exsting social security system by requiring underclassmen (representing young people) more for the same goods than upperclassmen (representing old people).

Let me suggest this slightly more complex, but more accurate, Social Security simulation…

• Seniors will be charged $1.00 for a baked good. They get to pick up their purchase immediately.
• Juniors will be charged $1.50 a baked good that is the same size as a senior baked good, but have to wait until one hour after paying before picking it up.
• Sophmores will be charged $2.00 for a baked good that is half the size of a Senior/Junior baked good, and be required to wait two hours before picking it up.
• Freshmen will pay $3.00 for their baked good. They have to wait three hours after paying before picking up their purchase. Except that if the Seniors/Juniors/Sophmores have already bought out the entire supply by the time the waiting period has ended, a freshman gets nothing. And of course, there are no refunds.

Re: Sheldon's Scaring the Seniors

You've gotta love political mathematics. Sheldon Whitehouse, from Marc's post below:

We can protect Social Security too. We just need the courage to tell the voters we�re going to lift the limit on Social Security withholding from $90,000 to $120,000. That makes a lot more sense than cutting benefits and we can keep Social Security solvent for decades to come.

I haven't looked at the specifics in a while, but I don't recall anybody suggesting that the looming Social Security crisis is any nearer than "decades." (The number that pops into my head until problems start to arise is 2027, with the true crisis some time after that, but I don't have the time to research it right now.) In other words, I could declare that all we need to do is nothing to "keep Social Security solvent for decades [plural] to come."

Senator Chafee's PAYGO Proposal & Automatic Tax Increases

Senator Lincoln Chafee is once again trying to pass off his preference for high tax rates as "fiscal responsibility". This is from a recent press release on the Senator's campaign website...

Leading deficit hawk, U.S. Senator Lincoln Chafee today joined with Senator Bill Frist and Senator John McCain to co-sponsor legislation that will help get federal spending under control by establishing a Presidential Line Item Veto. Like Senator Chafee's proposed Pay-As-You-Go approach to the federal budget, this will help return fiscal responsibility to the federal government and ensure that our legacy to our children is not billions and billions of dollars of debt.

We'll take up the line-item veto a little later. For now, let's discuss the "pay-as-you go" proposal, also known as PAYGO.

The problem with Senator Chafee's most recent version of PAYGO was that it placed no limit on the overall increase in Federal spending. It only limited spending on the creation of new programs. PAYGO 2005 didn't apply to already existing entitlements -- or their automatic increases. (According to statistics quoted by Isabel Sawhill of the Brookings Institution, entitlements now account for 53% of the budget, a total that grows each year.)

To meet the requirements of PAYGO, the automatic growth of established entitlements like Medicare and Medicaid (Social Security is defined as "off-budget" and not considered for the purposes of PAYGO) would have to be offset by either yearly tax-increases or yearly cuts in existing programs -- real cuts, not just reductions in the rate of growth or limits on new spending.

Brian Riedl of the Heritage Foundation explains why a PAYGO program that ignores entitlement spending would almost certainly force automatic tax increases...

While PAYGO allows current entitlement programs to grow on autopilot, it would likely lead to the expiration of the current tax cuts. Merely retaining the tax relief that Americans now enjoy would, under PAYGO, require 60 votes in the Senate and a waiver in the House. To avoid this supermajority requirement, lawmakers seeking to prevent tax increases would have to either: A) raise other taxes; or B) reduce mandatory spending by a larger amount than has ever been enacted. Option A is still a net tax increase (raising one tax to avoid raising another), and Option B is probably politically unrealistic.

The NEA: There They Go, Again!

Peter Byrnes of the Liberty Files blogsite notes another clear example of the hypocrisy behind the NEA teachers' union political positions, this time on Social Security reform:

In any case, I heard on Bill Bennett's "Morning in America" today that the NEA has stepped outside education to oppose any privatization of the Social Security system. It would seem that the NEA has no dog in this fight. Not so.

Here are the NEA positions on privatization, among other issues. Follow the links. It's all there. And here is an explanation of the inner workings of the NEA. Read the whole thing. It's easy to follow.

The NEA opposes privatization of accounts, but the funny thing is that they have members in various states who opt-out of social security to enjoy the benefits of private retirement accounts. So, on its face, the NEA wants to deny the rest of us the very same thing that its members are permitted. hypocritical enough to be sure, but the NEA is not just about politics. Like any liberal parochial organization, it is about itself to the exclusion of its members.

The President's plan will most likely involve mandatory participation in the social security system, which means that employers, not the state, will likely be participating in making a defined contribution to their employees' retirement. That means that where the teachers have opted out of Social Security, they are back in, and thus there is less salary from which the NEA can collect member dues. But more to the point, the NEA's ability to bargain for the defined benefit plans for teachers' retirements--a happy source of revenue--would be gone.

The NEA seems to get that. Check this from their site:

Mandatory coverage of public employees would increase the tax burden on public-sector employers. Ultimately, these increased tax obligations would lead to difficult choices, including reducing the number of new hires, limiting employee wage increases, reducing cost-of-living increases for retirees, and reducing other benefits such as health care.

Ignoring the granny-scaring for a moment, the bottom line is that the NEA is concerned that there will be fewer members for them, or in any case, less salary for them to prey upon.

The NEA is in this because member benefits affect their bottom line. Whereas requiring teachers to be more knowledgeable than their students on the matters which they teach them was a problem for the NEA, so too will be reforming a retirement system which currently benefits them. But this union needs to be seen for what it is--an organization that exists for itself, not for the advancement of students, nor even for the future financial security of teachers.

There they go again, focusing once more on their own self-interest which has no connection to delivering excellence in education.

Oh, but it doesn't stop there.

Continue reading "The NEA: There They Go, Again!"

Social Security Reform Debate: Hypocrisy, Misinformation & Why Change is Necessary

As you continue to listen to leading politicians debate the merits of Social Security reform, consider the points raised in this editorial.

The Left strongly opposes Americans controlling their own retirement funds through personal accounts...

Three million federal employees, including members of Congress, invest pre-tax dollars into personal retirement accounts, which they control. Instead of Social Security, federal employees use the [Thrift Savings Plan] TSP, which allows them to allocate their retirement investments among five options, any of which beats Social Security's meager two to three-percent return. TSP 10-year average returns range from 5.45 percent for the international stock index fund to 11.99 percent for the domestic stock-index fund.

Individually owned, privately invested accounts yield greater retirement security: TSP proves it. So why does Senator Kennedy want to deny workers the same ownership rights and higher returns that he enjoys? Because he knows such ownership will change people's policy preferences. If the value of retirement nest eggs were tightly linked to individual earnings and long-term stock-market performance, people would demand a freer economy to pump up economic growth and stock performance. Freer markets deflate Big Government, which threatens the Left � but freer markets pay off handsomely for the individual...

Ownership motivates people to think long term and to maximize the value of their assets. People act differently with borrowed goods than with owned goods; nobody washes a rental car, for instance. But the Left wants to keep working Americans in the Social Security rental car precisely because they know people tolerate more government when ownership rights are restricted. The Left views private retirement accounts as the biggest threat to Big Government since Ronald Reagan. And they are right.

That's the real reason Senator Kennedy is fighting to stop ordinary Americans from having the same ownership rights over retirement funds that he has.

Here are some websites of organizations supporting social security reform:

National Center for Policy Analysis
Cato Institute Project on Social Security Reform
Heritage Foundation
Institute for Policy Innovation
Social Security Choice, a project of The Club for Growth
Freedom Works/Citizens for a Sound Economy

Continue reading "Social Security Reform Debate: Hypocrisy, Misinformation & Why Change is Necessary"

Prez's Press Conference

Watching the President's press conference, I've reached one clear conclusion. Middle-aged reporters making six-figure salaries don't care about the future of social security.

Democratic Social Security Rally

Some high-profile Democrats are coming to Rhode Island this weekend. The occasion: a rally to drum up political support for social security tax increases and/or benefit cuts targeted to impact younger citizens, the only programs the Democrats support. Will anyone at the rally ask what younger voters will be getting in return for being forced to give up more in order to receive less?

UPDATE:

Interestingly, the original post that I linked to announcing the rally has disappeared from the rifuture.org website. Here's a link to the "Ocean State Action" website with an announcement about the rally (at the moment).

Also interesting, here (at the moment) is Ocean State Action's final statement on social security reform.

Congress should keep the promise of Social Security and take the small, common sense measures necessary to keep Social Security healthy without benefit cuts, risky private accounts or borrowing.

(The boldface is in the original). Over the next few months, expect "common sense measures" to become codewords for tax increases and benefit cuts targeted against younger citizens.

Full Benefit Plans are Full of It

Uber-consultant Dick Morris� New York Post column on social security has a problem. The 2nd reform option is misleading.

Option B � No increase in taxes. A later retirement age. The current level of benefits.

A later retirement age is a cut in benefits. If you are forced to wait longer before you can start taking (your) money out of the system, you receive less than you would have if you had started earlier.

Be aware of this point. In the coming months, different plans for providing �full benefits� indefinitely into the future will be proposed. Almost all of them will involve benefit cuts hidden by a redefinition of the meaning of �full�.

The RI Legislature and Social Security

Today, the Rhode Island legislature will officially declare (pdf format) that all generations of Rhode Islanders oppose any partial privitization as part of social security reform. The resolution endorses no plan for actually fixing social security, it simply declares no partial private accounts, not now, not ever.

The resolution is very Orwellian in talking about paying �full benefits for all generations of Americans � today and tommorrow�. For future generations, �full benefits� will be a full piece of a shrinking pie. If you oppose all privatization, the only options are to continually raise taxes and cut benefits into the future. All proposals floated so far impose higher tax-burdens and bigger benefit cuts on younger Americans. Since the resolution goes out of its way to say that it is speaking for all generations, it begs the question of upon what basis the government feels justified in placing disproportionate burdens on younger citizens.

Here are a few of the possible rationales�
1. The government owns all income, therefore there is no issue of fairness involved. The government can do with its money what it wants.
2. It is the norm in our society that the younger generation eventually helps care for the older. Higher taxes and reduced benefits for younger people are simply the bureaucratization of an already existing norm.

A final irony: In the RI Senate, this particular piece of legislation comes out of the �Committee on Constitutional and Gaming issues�. Apparently, the RI legislature doesn�t want people betting their future on those risky private accounts, when they could be betting it at a casino instead!

Rhode Island�s Democrats and Social Security

A February 3 Projo article has the essentials of the positions of the Rhode Island Congressional delegation with respect to Social Security reform.

To sum up: James Langevin says that the government needs to take more from people and give them less. Jack Reed says that the government needs to take more from people and give them the same or less. Patrick Kennedy says that the government needs to take more from people and give them the same.

All three want to raise taxes. The euphemism they use is �reductions in permanent tax cuts� (Jack Reed) or �repealing all of the Bush tax cuts� (Patrick Kennedy). The article says Langevin agrees with Kennedy that �Social Security payroll tax increases should be off the table�. Focusing narrowly on the social security payroll tax presumably implies that Langevin would not oppose raising other types of taxes, i.e. repealing other tax cuts.

Kennedy opposes generally slowing the rate of benefit increases (generally slowing benefits is favored by Senator Lincoln Chafee, among others). The article contradicts itself on Reed�s position on benefit cuts. Here�s the direct quote�

I'd like to avoid any cuts," particularly in the form of shifts in how benefits are calculated, Reed said.But he said he would be open to debate on a wide variety of possible cuts and tax hikes

Does Senator Reed want to avoid cuts, or is he open to debate about cuts? Again, Langevin is disappointingly vague here. He says �he would rule out reduced benefits for the wealthy and a higher retirement age.� This does not rule out reduced benefits in the form of slowing cost-of-living benefits, the benefit cut that would have the greatest impact on the youngest taxpayers.

Isn�t there something fundamentally wrong with a system that needs to take more and more from people in order to give them less and less?

Senator Chafee and Social Security

According to Monday's Projo, Senator Lincoln Chafee�s plan for fixing social security, without relying on private accounts, is simple. Raise taxes and reduce benefits.

The tax-increase comes in the form of raising the (admittedly arbitrary) cap on income subject to social security taxes. No social security tax is paid on individual income after $90,000. Chafee wants to raise the cap to as much as $200,000. Were you building a system from scratch, there would be little to complain about here, provided you picked reasonable tax rates.

But we are not building a system from scratch. Older citizens who spent 0 years paying taxes on income above the current cap will be treated exactly the same as younger citizens who might spend 10, 20, or even 30 years paying extra taxes. How will they be compensated for their extra contributions?

And, according to Chafee�s proposals, younger tax-payers will not even be treated the same. They will be treated worse. Chafee wants to slow down the yearly cost-of-living increases in Social Security benefits. So, although young people will be paying more, they will receive fewer benefits over the long run.

Any incremental plans to save social security will be a variation on this same theme: raise taxes and reduce benefits. And like Senator Chafee�s plan, most will try to hide the fact that they will disproportionately impact younger taxpayers. If the government is going to ask young people to pay more and receive less, is it not it reasonable to offer them something like personal accounts to offset their lost income?