Saturday, November 19, 2005

Social Security Meta-Archive: 2000

[Part of The Earth-Based Initiative: Social Security Meta-Archive]

Social Insecurity
Economist John Shoven of Stanford says Social Security is doomed, and proposes a two-tiered reform.

A Ponzi Problem: The U.S. Dependency Ratio, Social Security Solvency, and the False Panacea of Immigration

The Federation for American Immigration Reform

Excerpts from Dean Baker and Mark Weisbrot's book appearing in The Washington Spectator.
What Social Security Trust Fund?
Michael Kinsley on the politics of paying for the Trust Fund
Making the Rich Richer
American political philosopher Richard Rorty laments the fact that Social Security is not means-tested.
Re: Richard Rorty and social security
In a discussion list, economist Max Sawicky responds:
a basic feature about Social Security that seems to be under-appreciated is that it is already 'means-tested' to a degree. It's not an either/or proposition. First of all, the benefit formula is redistributive, which is the same thing for practical purposes as 'means-tested.' It just happens that "means" is defined as past earnings, not present earnings or present income. Second, SS benefits are taxed under the progressive personal income tax. Third, although nobody here may believe it, the payroll tax is progressive up to the ninth income decile, according to CBO estimates of past years (when CBO was a more reliable institution than presently). Fourth, we have an Earned Income Tax credit, the base for which is the same as that for the payroll tax, so there is already an offset to the payroll tax for those with incomes below $30K or so. Fifth, Medicare is 'super-progressive' in the sense that the same substantial benefit package goes to all who qualify, irrespective of their past earnings.
Getting rid of the earnings limitations has not been a major part of the debate, it has nothing to do with privatization, and it has been a bi-partisan cause. It is wrong to depict this as some reactionary idea that the Dems are caving on. The late Robert Eisner, our most staunch mainstream liberal in defense of Social Security (author of "Social Security: More, Not Less"), argued strongly the earnings test. Any implication in the Rorty column that Soc Sec should be means-tested is weak at best.

I am glad to see everybody against means-testing. But consistency would dictate that you should then stop criticizing the 'regressive' payroll tax. It's not as if high-income people can't see the commonality between means-testing benefits and taxing salaries over the $76,200 cap.

Another fact is that the SS estimates arise from the economics profession, not from politicians. The Repugs were scarcely aware of these until relatively recently, when they thought they could use the projected shortfalls to attack Medicare. They failed miserably. Clinton used "protecting Medicare" (i.e., paying down unrelated public debt) as a weapon against big tax cuts. Big tax cuts are dead, at least for the time being. The source of these projections is the Brookings/Urban Institute/AEI combine. In other words, mainstream neoclassical macro-economics. It is from these economists -- centrists like Henry Aaron and Charlie Schultze -- that the deficit panic first arose. The only cross-current in this has been the Brookings opposition to privatization (arguably on the grounds that it would reduce net national saving, their be-all and end-all).
What Social Security crisis?
If it ain’t broke, don’t fix it, says Merrill Goozner.
4/17 On key issues, Bush sounds more like a centrist Democrat than Gore
Online NewsHour discussion with Doris Kearns Goodwin and Haynes Johnson.
Newshour with Jim Lehrer transcript.
"Bush and Gore advisers talk about the candidates' Social Security and retirement savings plans."
Securing Social Security
Transcript of a Think Tank broadcast featuring Larry Lindsey, Alan Blinder and Alicia Munnell.
August 2000
How should we insure longevity risk in pensions and social security?[PDF]
Jeffrey R. Brown, writing for the Center for Retirement Research.
Bush's Shaky Retirement Plan
Alan Blinder in the Washington Post.
Fall 2000
A Simple Exposition of the Social Security Trust Fund
William L. Holahan and Mark C. Schug in the JOURNAL OF ECONOMIC EDUCATION.
Letter to Governor George W. Bush
Alicia Munnell, Professor
Henry J. Aaron, Senior Fellow, Economic Studies
Robert Ball, Former Social Security Commissioner
Inequality and Social Security
Richard C. Leone in The American Prospect.
The First Gore-Bush Presidential Debate:
MODERATOR: I thought we cleared this up a while ago. New question on Social Security. Both of you have Social Security reform plans, so we could spend the rest of the evening and two or three other evenings talking about them in detail. We won't do that. But --

GORE: Suits me.

MODERATOR: Many experts, including Federal Reserve Chairman Greenspan, Vice President Gore, say that it will be impossible for either of you, essentially, to keep the system viable on its own during the coming baby boomer retirement onslaught without either reducing benefits or increasing taxes. You disagree?

GORE: I do disagree. Because if we can keep our prosperity going, if we can continue balancing the budget and paying down the debt, then the strong economy keeps generating surpluses. Here is my plan. I will keep Social Security in a lockbox and that pays down the national debt. And the interest savings I would put right back into Social Security. That extends the life of Social Security for 55 years. Now, I think that it's very important to understand that cutting benefits under Social Security means that people like Winifred Skinner from Des Moines, Iowa, who is here, would really have a much harder time. Because there are millions of seniors who are living almost hand to mouth. And you talk about cutting benefits. I don't go along with it. I am opposed to it. I'm also opposed to a plan that diverts 1 out of every $6 away from the Social Security Trust Fund. Social Security is a trust fund that pays the checks this year with the money that is paid into Social Security this year. The governor wants to divert 1 out of every $6 off into the stock market, which means that he would drain a trillion dollars out of the Social Security Trust Fund in this generation over the next ten years, and Social Security under that approach would go bankrupt within this generation. His leading advisor on this plan actually said that would be okay, because then the Social Security Trust Fund could start borrowing. It would borrow up to $3 trillion. Now, Social Security has never done that. And I don't think it should do that. I think it should stay in a lockbox, and I'll tell you this. I will veto anything that takes money out of Social Security for privatization or anything else other than Social Security.

BUSH: I thought it was interesting that on the two minutes he spent about a million-and-a-half on my plan, which means he doesn't want you to know what he's doing is loading up IOUs for future generations. He puts no real assets into the Social Security system. The revenues exceed the expenses in Social Security until the year 2015 which means all retirees are going to get the promises made. For those of you who he wants to scare into the voting booth to vote for him, hear me loud and clear. A promise made will be a promise kept. You bet we want to allow younger workers to take some of their own money. That's the difference of opinion. The vice president thinks it's the government's money. The payroll taxes are your money. You ought to put it in prudent, safe investments so that $1 trillion over the next ten years grows to be $3 trillion. The money stays within the Social Security system. It's a part of the Social Security system. He claims it will be out of Social Security. It's your money, it's a part of your retirement benefit. It's a fundamental difference between what we believe. I want you to have your own asset that you can call your own. That you can pass on from one generation to the next. I want to get a better rate of return for your own money than the paltry 2% that the current Social Security Trust gets today. Mr. Greenspan I thought missed an opportunity to say there's a third way, and that is to get a better rate of return on the Social Security monies coming into the trust. There is $2.3 trillion of surplus that we can use to make sure that younger workers have a Social Security plan in the future. If we're smart and if we trust workers and if we understand the power of the compounding rate of interest.

GORE: Here is the difference. I give a new incentive for younger workers to save their own money and invest their own money, but not at the expense of Social Security, on top of Social Security. My plan is Social Security plus. The governor's plan is Social Security minus. Your future benefits would be cut by the amount that's diverted into the stock market. If you make bad investments, that's too bad. But even before then the problem hits because the money contributed to Social Security this year is an entitlement. That's how it works. And the money is used to pay the benefits for seniors this year. If you cut the amount going in 1 out of every $6, then you have to cut the value of each check by 1 out of every $6 unless you come up with the money from somewhere else. I would like to know from the governor -- I know we're not supposed to ask each other questions -- but I'd be interested in knowing, does that trillion dollars come from the trust fund, or does it come from the rest of the budget?

BUSH: No. There's enough money to pay seniors today in the current affairs of Social Security. The trillion comes from the surplus. Surplus is money -- more money than needed. Let me tell you what your plan is. It's not Social Security plus, it's Social Security plus huge debt. That is what it is. You leave future generations with tremendous IOUs. It's time to have a leader that doesn't put off tomorrow what we should do today. It's time to have somebody to step up and say look, let's let younger workers take some of their own money and under certain guidelines invest it in the private markets. The safest of federal investments yields 4%. That's twice the amount of rate of return than the current Social Security Trust. It's a fundamental difference of opinion here, folks. Younger worker after younger worker hears my call that says I trust you. And you know what, the issue is changeing. Seniors now understand that the promise made will be a promise kept, but younger workers now understand we better have a government that trusts them and that's exactly what I'm going to do.

GORE: Could I respond to that, Jim? This is a big issue. Could we do another round on it?

MODERATOR: We're almost out of time.

GORE: Just briefly. When FDR established Social Security, they didn't call them IOUs, they called it the full faith and credit of the United States. If you don't have trust in that, I do. If you take it out of the surplus in the trust fund, that means the trust fund goes bankrupt in this generation within 20 years.

BUSH: This is a government that thinks a 2% rate of return on your money is satisfactory. It's not. This is a government that says younger workers can't possibly have their own assets. We need to think differently about the issue. We need to make sure our seniors get the promise made. If we don't trust younger workers to manage some of their own money with the Social Security surplus, to grow from $1 trillion to $3 trillion, it will be impossible to bridge the gap without it. What Mr. Gore's plan will do causing huge payroll taxes or major benefit reductions.
The Lieberman-Cheney Vice Presidential Debate
MODERATOR: This question is for you, Senator. We all know Social Security is the backbone of the retirement system in our nation. Can either of you pledge tonight categorically that no one will lose benefits under your plans?

LIEBERMAN: Yes, indeed. I can pledge to the American people categorically that no one will lose benefits under our plan for Social Security as far forward as 2054. And let me come back and say, Bernie, that Al Gore and I view Social Security as probably the best thing the government did in the second half -- the last century. It has created a floor under which seniors cannot fall, and so many of them depend on it for their basic living, for their livelihood. It's critically important to protect it. That's why Al and I have committed to putting that Social Security surplus in a lockbox, not touching it. That's what allows us to keep Social Security solvent to 2054. Our opponents have an idea for privatizing Social Security that will jeopardize Social Security payments to recipients. And I looked at this idea. If I may use an oil industry analogy, which is to say that sometimes as you know, Dick, better than I, you have to dig deep whether there's oil in a well. For a while I was drilling into this idea of privatization of Social Security. It requires taking as much as a trillion dollars out of the Social Security fund. The independent analysts have said that would put the fund out of money in 2023, or if it's not out of money, benefits will have to be cut by over 50%. That's just not worth doing. Al Gore and I are going to guarantee Social Security and add to it the retirement savings plan that I mentioned earlier which will help middle-class families looking forward. They will have not only Social Security, but a superb extra retirement account as well. Social Security plus with us. With all due respect, Social Security minus from the Bush-Cheney ticket.

CHENEY: You won't be surprised if I disagree. The Social Security system is in trouble. It's been a fantastic program and been there for 65 years that has provided benefits for senior citizens over that period of time. For my parents. It means a great deal to millions of Americans. And Governor Bush and I want to make absolutely certain that the first thing we do is guarantee the continuation of those payments, those benefits and keep those promises that were made. But if you look down the road, you say you're 30 years old today, and I have two daughters about that age. They seriously question whether or not there will be any system left for them. That's because the demographics that work out there, it's almost an iron law. They know how many people there are, we know when the baby boom generation is coming along it will drive the system into bankruptcy unless we reform and deal with it. The reform we would like to offer is to allow our young people to begin to take a portion of the payroll tax, 2% of it, and invest it in a personal retirement account. That does several things. First of all, it gives them a stake in the Social Security system. That becomes their property. They own it. They can pass it on to their kids if they want. They don't have that kind of equity in Social Security today. Secondly, we can generate a higher return off that investment than you get in the existing system. You get about a 2% return of what you pay into Social Security. We can generate at least 6%. At least three times what we're able to get now. And long-term by generating a bigger return, we'll put additional funds into the system that will help to survive that crunch that is otherwise going to hit in the future. Bottom line is there's a choice here. With respect to Al Gore and Joe's plan, they don't reform Social Security. They add another huge obligation on top of it that future generations will have to pay. They don't reform it and don't save it. We have a plan to do that and a plan to give our young people a choice and more control over their own lives.
December 2000
Alicia H. Munnell.
Privatize Social Security - bad idea?
Paul Farrell on John Bogle's critique of mutual-fund operated privatized/private/personal/individual accounts.

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