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Financial Planning / Social Security Reform
|Subject: Re: Poll: How should Americans view SS?||Date: 10/12/2000 7:52 PM|
|Author: dsarvadi||Number: 1265 of 5269|
Reading TMF Busters comments on the social security debate made me understand how little people understand about the subject. Buster suggests that we should consider the system a paid up insurance program for the diabled and survivors, as well as a retirement program, and he disparages George Bush's proposal to allow us to put aside a small fraction of what we pay in private sector investments. Some, like Buster, apparently consider this to be heresy, "taking" money from social security and putting it in private pockets, thereby "depriving" the government of the ability to give more money to those who the politicians determine are more deserving. Sorry, Buster, that argument never held any water, even when it ws being made in the 1960's.
Let's talk about Busters first lament regarding the disability program. First, the disability program pays a meager payment for an enormous premium. The reason is that the money is not invested in anything; it's simply spent, just like the money that is paid in as part of the retirement system. A private insurance program takes premiums from the insureds, INVESTS IT, and pays out to those who qualify. That's why rates keep going down, while many private disability programs have built in inflation protection. Can't be done on the government's system.
Buster may not be old enough to remember what happened from about 1960-1975, but I am. Basically, the system was running surpluses and the Dems in Congress pushed through increases in benefits that inevitably sowed the seeds of the system's destruction. That's the basic flaw in the system: benefits are determined not by what you out in or what the investment returns, but on who holds the political power and who is in the favroed group at that particular moment.
Second, the disability program is not the problem. I have no doubt that we could buy a far better disability insurance policy for the money that we pay into the system for this part of the program, and the correct solution to the problem is to convert the disability program into a program like the federal government's health insurance program. Make everyone select a disability insurance program from a menu of plans vetted by a government-chartered, private sector organization (preferably three or four, so we don't concentrate economic power too much) similar to Freddie Mac. The premiums could be securitized like mortgages (don't ask me the details, I'm not an expert in that), and pooled in a true insurance system. If this approach works so well for the government employees' health insurance, why can't it be made avbailable to the rest of us? And I am confident that we could create a disability INSURANCE program, instead of what is currently, bascially, a welfare program, by following such a model.
Back to the retirement program. My first year of paying FICA taxes totaled about $70, of which half was deducted visibly from my paycheck, and the remaining half was "paid" by my employer. (For those who have't checked this out, somebody who retires today receives all of what they paid in in less than 4-5 years. So much for a right to the money. They already get all they put in). That particular sleight of hand continues to this day, with the fiction that employers pay half the cost of FICA persisting in the minds of the indisciplined. In not unmasking this charade, Buster and a host of others persist in the myth that somehow the Ponzi scheme called social security can survive the demographics of an aging population that the US is facing.
For one who calls himself FOOLISH, Buster could not be more foolish (or, to put a more accurate label on it, WISE) than the Wall Street experts who try to tout stocks incessantly. What surprises me is that someone who prides themselves on adhering to the FOOL principles would make such poor analysis of this important subject. How can you ignore the fact that the money that is paid into the SSI funds are not put in any kind of trust, but are spent, and IOU's from the US Goverment are put in the place of OUR money? Whether the government will be there to pay them off is irrelevant. What is important is that the money, instead of being put into productive, assest-creating businesses the way the stock market does, is put in the hands of politicians whose ONLY interest is in spending it with NO prospect of a return. So the money is gone, and we have a pay as you go system, that is doomed to fail because eventually there will be too many of us oldsters to be supported by you young folks.
Which brings me to the real tragedy of the sleight of hand that Roosevelt created. By not putting the money in real investments, Roosevelt created a system where the current retired population can demand greater government assets (read citizen taxes) through political action at no cost. The only people there who can make those resources available are those who are not retired. So, we now have a system where the beneficiaries can make demands that they don't have to pay for. A classic economic system designed to create demand that always outstrips supply. Worse, we have now gotten to a point where the tax rate is so high that it effectively prevents people from saving money when they should be doing it the most -- when they are young. Today SSI, FICA, and Medicare cost 15.3% of income up to an annual salary of roughly $80,000. The tax starts at the first dollar of income and runs at a reduced rate until the last dollar of income is taxed (medicare taxes do not stop at $80k, they go on forever). So all the economists' complaints about how terrible our savings rate is so bad sound hollow to me, because, with the first 15% going to the government, it's clear where the 7% that used to be saved in this country is going; it's going to teh government (the government has in effect expropriated the amount that used to go into our savings). Our grandparents thus created a system where they transfer the younger generation's savings to themselves through the political system, and it hits the young the hardest, because they typically haven't reached the income level where SSI taxes abate. This is intergenerational thievery.
That's what makes the current Gore proposal so much worse. He wants to take the money and give it back to the government (remember the IOU's; Gore doesn't say that the money will be invested in interest bearing securities that have a chance of beating inflation, rather it will be spent and more iou's issued). We've been there, done that! That's what got us into this mess to begin with. So Gore's "solution" is not a solution at all, but another sleight of hand, another effort to steal our future.
So what about Bush's proposal? Well, the first ptinciple is that it puts money back to productive use and creates a situation where there is a real chance a significant fraction of the people in our country will have something more than bare subsistence to look forward to in retirement. And we don't have to guess whether it will work. We only have to look to Great Britain -- with a Labor government no less -- and Chile to see what will happen. Both have had semi-private systems in place for a number of years, and none of the Chicken Little scenarios the Gore-phans hyperventilate about have occurred. Moreover, in Chile at least, the savings and investment have fueled 7% -- yes that's right 7% -- growth for a LONG time. I haven't checked the numbers lately, but those are the last figure I remember.
More importantly, the Bush plan puts money into the system in a way that creates a bigger pie, not simply cuts up one that is os stagnant like Gore's. The Bush plan will add to the national wealth by making large sums of money available to the economy for building new businesses, products, and indeed even market segments. It offers the opportunity to make us all richer.
Moreover, we will need one day, perhaps soon, to replace the money that overseas investors have been pouring in for the last ten of fifteen years. By adding to the money supply (not the Money Supply that economists talk about) available for investment,we can make life better for all Americans, not just those favored by the politicians. I think that's a more generous, and more optimistic view of the world and our country than Gore's sourpuss (that's! the phrase to describe him that I have been searching for. He always looks like he just sucked on a lemon) and envy-based plan. It reminds me of how I felt in 1961 when Jack Kennedy was elected, or when the moon landing occurred.
Finally, as a member of the Boomer generation, I think we have one legacy that we should leave to our children. We should create a system for disability and retirement that doesn't put them in the position of having to pay for our retirement and their children's college educations at the same time. It is shameful that so many of our retirees continue to support a system that basically steals their grandchildren's future. It MUST be changed.
Sorry for the polemics. This subject really gets me going because it is so unfair to the younger generation. I am resigned to paying the full rate until I retire in about 20 years, but I am determined to prevent this burden from falling on my grandchildren when I retire. I urge ALL Fools to support a system that creates wealth and doesn't just spread limited resources among an ever larger group of people. Fool On!
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