Fake your way through a Social Security conversation

The WaPo's Fri, Feb 4, 05, "Benefit Cuts Would Offset Contributions" was particularly useful to me for the following:

[Under the proposed plan], workers who opt for the accounts would lose a proportionate share of their guaranteed payment from Social Security, plus interest equal to the amount that money would have earned if the government had invested it in Treasury bonds. They would recoup those lost benefits through their accounts if their investments realized a return equal to or greater than the 3 percent earned by Treasury bonds currently held by the Social Security system.

So to make sense of this in plain English: You elect to put $100 in a private account. Whether that money makes the same amount in the private account as it would if it were in Social Security is up to you. There is currently no provision for what might happen if you don't make the dough; one presumes it's a "'Ownership society' means owning your screw-ups. Hope you like Alpo, O Rugged Individualist!"

What's also worth noting is the approach in which the White House is selling its plan:

"Even if I break even, we would argue I'm still better off because I own the money," a White House official said, speaking on the condition of anonymity. "If I die, it belongs to my estate. If I divorce, it's a marital asset. And it's protected from political risk. Government can't take it away."

Note that the possibility of having less money because your investment activities tanked isn't even mentioned. The White House is clearly hoping to sell this as: "You get all your money. You! You! You! You!" and downplaying the risks and responsibilities involved.

Also interesting: the way the White House isn't pointing out how Social Security a) isn't a pension, and b) is actually meant as a way to ensure societal security by providing for the young, the disabled and the elderly working class.

By divorcing Social Security from societal benefits and flogging the "Your money! You! You! You!" angle, the White House is hoping to erode the idea that the money you pay via taxes and Social Security is what underwrites the public benefits we all enjoy by not having to assume all of the costs of living cleanly, safely and healthfully.

No, really. Social Security is a basic economic floor. Read "Questions and Answers" (WaPo, Feb 4, 04) to see how basic.

And if you're still up for learning more about the issue (or asking, like I did, "Who the hell decided the system was broken anway?") here are the links I've found the most helpful:

• "Social Security: A Daring Leap" (Newsweek, Feb 14, 05)
• "Bush to Geezers: Save Yourself" (Slate, Feb 2, 05)
• "He's Still 'That Man'" (Slate, Jan 28, 05)
• "George W. Bush, Philosopher King" (Slate, Jan 17, 05)

Can you tell Slate's had the most reader-friendly coverage of this whole thing thus far?

Comments

[Roger]

Sigh. Oh where do I begin? The fiscal irresponsibility of this administration just astounds me. Especially coming from the party that was, before Reagan, all about fiscal conservativism. Then again, when daddy and friends have stepped in to bail out every business you've ever run, how do you learn to deal with the finances of an entire country?

This proposal is all about taking your Social Security account and making it a personal investment. The problem is, the Social Security plan isn't, and never was, a personal investment system. Once you pay in, that money is not yours any longer. You are not contributing to your own future payout, you are simply being taxed for a system that may help support you in your twilight years. Shifting these funds to personal investments puts the two programs at odds. This plan cuts revenue to the original Social Security plan, which puts the plan at even greater risk, since even at today's revenue rates, we cannot fully fund the future cost of entitlements already assigned. That's the Baby Boom generation we can't pay for folks. This privatization plan seeks to take younger taxpayers out of the system (at least partially), when it's those same younger taxpayers who are needed to fund the Baby Boom retirement.

I fully support providing for yourself. Investing for your own future is a grand idea. But that's not what Social Security is about. It was put in place to guarantee a minimum income level to retirees who had not adequately prepared for their own futures. In that way it purports to help society as a whole. It's a pay-as-you-go system and always has been. There is no "investment" about it.

Another fallacy is what the Democrats are spouting: "The trust fund will save us!" Specifically, they say it will last until 2042. There are two problems here. First, more conservative projections put the Social Security shortfall much sooner than that, even earlier than 2030. Second, and more importantly, there is no trust fund. The second WaPo article and the MSNBC/Newsweek article point this out aptly. There may be book debts, but there is no cash there. Any surplus Social Security has gathered over the years has been used. It's used every year. When the Social Security system starts running a deficit - and it will, guaranteed - it will have to start drawing money from the rest of the government, which means more budget cuts, higher taxes (income and/or FICA), or both.

This is an excellent series of articles. I like the clarity and detail of the MSNBC/Newsweek article especially. This little tidbit from that article really jumps out at me:

The confusion over the nature of the debate is intentional. The Bush administration has linked two reforms—private accounts and benefit cuts—that have nothing to do with each other.

This seems to be a favorite tactic of the Bush administration: the fallacy. You're told two things and led to believe that one is related to another. The other glaring example of this was in Bush's speeches prior to the Iraq invasion. He carefully interposed comments about the 9/11 attacks and the need to invade Iraq. He very carefully never stated that Saddam was responsible for 9/11, yet now many Americans believe that to be true, and believe that's why we're in Iraq.

I like these two pieces from the second WaPo article. When you put them together it's mighty telling.

Can I use the money for any kind of investments?

No. Under the plan, you would choose from a small number of diversified funds, all relatively conservative. They would be administered by the government and modeled after the Thrift Savings Plan now available to federal workers. The standard option would be a "life cycle" fund, which reduces the percentage invested in stocks as someone gets closer to retirement.

And the kicker:

What if the stock market swoons and my total benefit is below the poverty level?

The administration has not addressed that scenario. Under some proposals, there can be a poverty benefit. But at the same time, officials do not want to reward bad investment choices.

So, we're saying that the government picks which investments you can choose from, but then penalizes you if their selected investments don't perform? Sounds like the plan for me!

Again I must recommend Peter G. Peterson, who discusses the Social Security and Medicare crises at length in Running On Empty (also B&N)

[Roger]

Here's an excellent opinion piece on the issue of Social Security from Robert Samuelson: Cut My Benefits (WaPo, Feb 9, 2005). This is probably the most concise description of the real problem that I have yet read: "Younger and poorer taxpayers are supporting older and wealthier retirees."