MaxedOutMama

Fantastic Post Mama. Really shows how they are eating their own.

The Mad Tech
 

Republicans AND Democrats don't want to touch this one... its not just the Democrats. Yes, SSI needs something, but Bush's plan is a "sky is falling" lie and he is using the alarmist numbers in misleading ways. First, the economic growth numbers - when he talks about what the privatized funds would be worth to a retiree in 40 years, he "grows" the economy at 3.5% per year. But when he talks about the "great deficit" that will happen if we don't privatize SSI, he only grows the economy at 1.4% per year. He is using two different models for the same problem. It is literally like comparing apple and oranges because we don't have two different economies, only one. The point being, if the economy grows at 3.5% as his first model predicts, SSI will actually do pretty well and there won't be a deficit of any substantial amount. Now, lets say the economy only grows at 1.4%. If we do nothing, SSI is screwed around 2042 when it starts being about to pay only about 75% of current benefits. BUT, if the economy grows at only 1.4%, even if you have private account, you will still only get 75% of the benefits because the market has not grown enough to cover the difference. Basically, you will get the same benefits whether you privatize or not. The only difference is whether you make more money for brokers or not. I live in Manhattan. I have many broker friends. Trust me, they make plenty as it is...
 

Another thing few take into account are other costs that employers must pay. Workmans comp here in CA., in my field, is almost 40% of payroll. So for that 10,765 the employer pay add almost 4000 dollars to that figure, and I am still excluding other misc. charges that must be paid. My wife is in the highest tax bracket on the state and federal levels. Last year her federal taxes alone were two stamps shy of eighty thousand dollars. She pays quite a bit of money to a great financial advisor to try to keep as much as possible in her pocket, and thus in her control. We are in a somewhat rare situation most people would probably think, but that is why I love this country. It is possible to go well beyond your wildest dreams with hard work, intelligence and some luck.

Unfortunately, I think alot of people are missing some of these qualities, and by my observations it is mostly intelligence and luck.

Something does need to be done about SS. What it is I don't know. I understand that Argentina I believe, tried to privatize their system and it failed miserably. I may have the country wrong. You do great research Mama, perhaps you could find out about that and set me straight as to the country. Who knows, if it did fail there, perhaps we could learn some lessons about this plan.
 

Kender -

To be honest I have seen no suggestion that strikes me as being good. We may end up having to pick the best out of a group of bad solutions, and the pain will be considerable. I know Australia, France and a bunch of other countries have started to shift to at least partial pay-as-you-go solutions. They, of course, all have a problem similar to ours.

Brazil did this a while ago, and I've read that it worked - but I don't know how well really. Sometimes you read articles that are really just people trying to make a case for whatever their agenda is, so I'm reluctant to quote something I can't check. I have been trying to find hard figures, and I'll keep trying. I would like to know the details of what other Western countries are doing.

As you point out, Kender, another problem is staying competitive globally. Imposing more payroll costs is likely to shift more jobs overseas, which may end up contributing to the size of the problem instead of alleviating it.


Dingo,

I believe you are completely right about the fact that both parties have contributed to this solution, and I think the American public has to take a share of the blame as well. This is like the Enron/Waste Management/Anderson corporate creative financing scandals, which actually involved all the major banks and a huge number of firms. A few politicians spoke out, but it was to the benefit of a lot of politicians to look on the rosy side of things in that situation and in this one, and many people who should have known better were happy to ride along on the gravy train until it ran off the tracks.

One thing I do believe you are wrong about - the deficit problem will occur, and will not disappear even assuming consistent, real 3% growth. Real wages have been falling even during high-growth periods for a large group of workers, and that affects the situation as well. Certainly high-growth economic strategies will help! In the end we are probably going to have to do something like adopt a high-growth tax strategy (like Ireland, maybe?), plus privatize to some extent, plus cut benefits.

The numbers at the SSA website disregard the problem that all they are holding in the "trust fund" are a bunch of IOU's that the public will have to pay back. That is, the SSA is assuming that the money represented by their Treasury bonds will just magically appear. If I'm remembering this correctly they quote a shortfall of about 3.7 trillion - I have seen a lot of private estimates of over 10 trillion. In any case, the real number is thought to be about 3 times higher than the "book" number. And then there's Medicare, which is worse off by far.

I think when Reagan instituted the 401(k)s and IRA's it was partly to prepare for the fact that a lot of high-income retirees aren't going to be getting much if any social security. The available funds will have to go to Medicare.

I still insist that we must remember the younger workers already in and just entering the system. They are already taxed at very high rates from a historical perspective, and I don't think we can just leave this giant debt balloon inflating over their heads.
 

On the 3% economic growth... it is tough to say whether real wages will grow or shrink, but what is certain is that if the economy only grows at 1.8% (sorry I need to correct the 1.4% from above) as projected by the SS administration (even though the 140 year average has been 3.5-4%) then private accounts do no better than doing nothing for benefits paid. The point is, is that all this hype coming out of the White House is spin based on fuzzy math. You have to run both scenarios at the same growth rate or it is blatantly misleading (sorry if I sound snippy - I am still pissed off about the whole estate tax scam). Yes, something needs to be done, but this whole notion that privatizing is the magic bullet is simply not true. If you run a model for the S & P 500 index for an economy that is only growing at 1.8%, you actually end up losing about 1.0% from your "private fund" (due to fees, drop in dollar, capital going else where, etc). And, even if you run the S & P at traditional 3.5-4% economic growth, it nets about 10% as the historical average shows. But, you do run risks, such as the S & P 5 year average of -1.9%. I like Pete Petersons model of means testing. Is it fair to higher income workers? Not at all, but eating dog food is not fair to people who worked hard their entire life but only made minimum wage. Either way, seniors should expect less to retire on and should should plan accordingly. I still have 35 years to go so I max out my 401k... but, to be honest... as a corporate defense attorney... those Enron scandals are what funds my current contributions to my 401k... please don't hate me :)
 

Hey,
That's my thread. Glad you liked it. I was roundly flamed at the time. But, I stand by my points. Now I know about your site, I'll add it to my links page next time I update (soon). Thanks again for the interest.

Distressed American
http://www.seedsofdoubt.com/distressedamerican/main.htm