December 10, 2004
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Topic: economics and social security question
OK…this is a 2-part question. 1) is the question itself, and 2) is if anyone has advice on how to learn more about this topic, links, books, etc.
Bush wants to change the way our social security system works. Problem is, i don’t know much about the system now, or the one he wants to change it to. Here’s my very basic understanding of it, with certain parts still needing clarity:
(Note…i’ve updated this post during the day as i’ve found more info)
Social Security Scenario 1
Person makes $100
Pays Taxes $20, which pays for gov’t bonds
$20 of tax money held and invested in social security trust, trust used to fund retirees social security money
Person left w/ $80
Gov’t gains $20 of cash flow, to be used for current gov’t programs. The $20 of bonds issued by the gov’t is allocated specifically to the Social Security trust fund, therefore, if the budget goes up or down, all we need to worry about for the sake of social security, is how is the Social Security trust fund doing. Apparently, there’s a decent surplus now that won’t dry up till maybe 2050 (different economists cite different dates). Apparently, Bush is telling people that the trust is drying up, although, it would only dry up by his own doing through cutting individuals’ payroll taxes that have contributed to the Social Security trust surplus (actually, it could dry up through an increase in retirees, the baby boomers). So it seems, Bush wants to squander, or at least create fear of a squandering, of the social security trust surplus, instead of protecting the surplus (the alternative is to further raise payroll taxes, or to cut back on paying social security, and there is some justification to Bush’s claims beyond simply making this a sinister partisan issue.) And, why would Bush want to do this??? Because, this re-framing of the issue would allow Bush to push forth his vision of “privatizing” Social Security. (actually…What is his vision?
And, the $20 of cash flow is invested by the government in ???
Social Security Scenario 2
Same person makes the same $100
Instead of paying taxes, they purchase $20 of stock
Still left w/ $80
Gov’t still gets $20 of cash flow, to be used for paying for gov’t policies
$20 invested in stock market, instead of purchasing gov’t bonds.
And…there appears to be this idea that we must destroy the current social security system, by which people pay taxes to support the elderly (the way the current system works, taxes pay for today’s elderly, instead of people paying for their own aging). We must destroy this system, in favor of the privatization system (again, this is a partisan way of addressing the issue, saying we are destroying something benevolent in favor of something evil…that’s how partisan issues get framed today) The goals should be the same, to ensure people receive some form of financial befnefits when they’re older and not working. So, the question is, if the current system works, why change it? (the current system does not pay very well…in addition, many would say the current system doesn’t work at all. If you’re poor, high payroll taxes means you don’t have money to invest privately like the rich do, therefor, you rely solely on social security when you’re retired, and, since social security pays out 1-2%, odds are you’re going to live in poverty when you’re older) And second, since it’s the Republicans that want to change the system, and the dems. who want to keep it (that’s my understanding) what are the overt underlying politics behind Social Security? (the republicans believe you should own your wealth, not the gov’t…i guess the dems. are more about having the gov’t protect the people. I think both parties simply have different approaches to social security, but both would like to see people having wealth when they’re retired) Is there any evidence, so we’re not just speculating, that would lead one to conclude that the Republicans want to change the system to benefit the rich, and benefit the Wall Street traders, and to not really worry about the elderly? While a 3rd party is in no position it appears to challenge policy, would most side w/ the current system, or do they find fault in it also?
Perhaps, this statement by Paul Krugman in the Times makes me wonder the most about social security, economoics, and politics:
“There’s no honest way anyone can hold both these positions (the position that there is no social security surplus, because social security is part of the federal budget, as well as that we need to change social security because as something individual from the federal budget, it’s running out of money), but very little about the privatizers’ position is honest. They come to bury Social Security, not to save it. They aren’t sincerely concerned about the possibility that the system will someday fail; they’re disturbed by the system’s historic success.
For Social Security is a government program that works, a demonstration that a modest amount of taxing and spending can make people’s lives better and more secure. And that’s why the right wants to destroy it.”
http://www.nytimes.com/2004/12/07/opinion/07krugman.html
So…now I found a site in response to Krugman. I’m not sure if it’s non-partisan, or if such a thing exists, it’s merely different. Krugman leaves you thinking, the right would love to see social security fail, and to see retirees fall into poverty? In affect, Krugman is using the same scare tactics that he criticizes supporters of privatization of using. He says “they come to bury social security, not to save it.” Shit…he made a believer of me, until I started to learn a bit more about social security. And then he writes, “Social Security is a government program that works, a demonstration that a modest amount of taxing and spending can make people’s lives better and more secure.” That’s a highly debateable statement. How many poor people will say that social security works for them? How many believe that they’re being taxed modestly, or believe that raising taxes to save social security as the number of retirees increases, is the solution.
I went from buying Krugman’s argument, to doubting it, not only because there is a counter-argument, but because Krugman’s bias is so overt. And…I’m further concerned by the NYT in general, since I usually glance at the op/eds daily, and am now seeing how overtly partisan they are. I agree, it’s difficult to show both sides of every issue, and I think it’s ok to bash Bush, as long as you’re bashing his policies alone, and not the man (unless you’re arguing against character, which, in fact, may play in to your argument of his policies). That’s why I still support Michael Moore’s film Fahrenheit 9/11. The reason the film is so biased and belittling of Bush as a person, is because who Bush is a person ties directly into his handling of the country and the war on terror.
This is the most troubling line of Krugman’s article: “[supporters of privatizaton] aren’t sincerely concerned about the possibility that the system will someday fail; they’re disturbed by the system’s historic success.” Where’s the evidence of that? Where’s the evidence that we should oppose privatization, not solely on economic principles, but because those who support privatization have sinister motives?
I am aware that there is a good possibility that there are sinister motives behind privatization, and that they are able to mask them by benevolance. This is just like the war in Iraq. The benevolance we are trying to be sold, “the spreading of democracy,” is masking the historic likelihood that this was a war influenced by economics. Like war, social security should be about morals above economics…therefor, the real question about whether or not we should privatize social security, is a) what are the historical motives that can help us understand today’s motives and b) economically, is this a policy that will harm or benefit the poor and middle class?
When I speak of motives, I am interested in whether supporters of privatization are in reality concerned merely with limiting gov’t. programs like social security as an ends to itself, as opposed to concern for the economic well-being of the poor and middle-class? There is a whole other topic to discuss here, but i’ll just say it’s my belief that in some instances, we do need gov’t programs as a means to assist those who slip through the cracks of society in terms of education, health, housing, retirement, etc.
Another site explains the currenty system as pay-as-you go. You’re taxed your whole life, which pays for the retirees of today. Then, when you retire, you live off the taxes of workers, just as your taxes paid for other reitres. If we switch to privatization, we no longer have the tax money to pay today’s retirees, so we may owe several trillion dollars today that we don’t have. So…along w/ arguing the pros and cons of both systems, we must also recognize the additional debt that needs to be undertaken to pay today’s retirees. I’m still looking into how we would pay for that debt.
And…i’ve found the pro-privatization side
http://www.socialsecurity.org/reformandyou/faqs.html
here’s my new thinking…first, privatization means you own your own retirement money. So…if you die before 65, the money you’ve saved your whole life gets passed down to your family. In the current system, the money you’ve been taxed on gets squandered. Second, the Social Security trust fund is made up of gov’t bonds. You pay payroll taxes today (FICA i think it is), the gov’t uses the cash flow to fund today’s gov’t programs, and the gov’t issue bonds into the trust fund. So…the trust fund isn’t real money, but money that the gov’t owes., along with interest payments. This website states, according to the 2003 report of the Social Security system’s Board of Trustees, in 2018, just 14 years from now, the Social Security system will begin to run a deficit. That is, it will begin to spend more on benefits than it brings in through taxes. Krugman, who I’ve assumed to be a trushworthy economist without any evidence, would lable this guy as a far-right-winger because of the data he uses. I don’t know what to believe. Is this guy just trying to push some sinister agenda? From his site, it seems he’s trying to actually help people, by allowing them to invest their money, which in the long term should yield more than the 1-2% that the current social security system pays out.
Comments (4)
OK, here’s how it works right now:
Person makes $100. They pay $7.54 to Social Security and their employer does the same. It’s a “flat tax” for all wage earners until you make over $91,000, because it is capped there. So, while it’s a 15% tax on minimum wage earners, Michael Eisner pays .0002 of his income for this tax.
Now, understand two things: (1) There is no “Social Security Trust Fund.” That suggests this money is either in federal hands or that it is currently being loaned out into the economy. Neither is true. The US government is wildly in deficit. When Reagan doubled this tax in the 80s he still managed to spend all of it and more. So, the “Trust Fund” is actually simply an expectation that other federal revenues will be used to pay for benefits in the future. (This is referred to as “Obligation Bonds.”). Essentially all of this revenue is simply treated as income by the US.
(2) There have been times when private investments would have done “better” than what Social security can provide, the mid 1960s and the Clinton years, but it’s a rare thing. Overall, for example, a worker who invested his/her money in the stock matket in 1998 would have less money now than when they started.
Also understand why Republicans like this scheme. They want to fuel Wall Street profits, which would increase dramatically in the short-term if billions in cash were suddenly dumped in. That would – in conservative estimates – create a 2 to 3 TRILLION dollar deficit for Social Security. Which would starve all other federal programs and achieve the desired effect of eliminating all programs outside of defense.
Republicans have opposed Social Security since 1933. They want to stop it, while getting richer and destroying all other federal programs. That’s what this proposal is about.
Real Social Security reform would eliminate the tax on a worker’s first $10,000 of income and extend the tax all the way up the income scale. It would also tax investment income over a certain amount so that work was not taxed at a higher rate than sitting on your ass screwing other people (the Republican way of earning a living).
so rich dudes making over $91,000 aren’t paying the same percentage as less rich dudes. i can see that as being a little known fact that should outrage people…and maybe Kerry could have made that clearer. he did talk about raising the taxes on the rich, but he kept saying those making over $200,000, and he didn’t make it clear to your avg. person that a) raising payroll taxes for the rich would be making it fair for you and b) raising payroll taxes for the rich would aid Social Security.
it sounds like Krugman’s argument does make sense in light of what you said. If federal revenues are just considered income, and not specifically income for Social Security, than you cannot also state that Social Security is an independant form of revenue that will be running deficits. Rather, it’s the entire economy that’s running a deficit, and yet despite that deficit, we still find money to fund those programs of our choosing (for example, Bush just put money into abstinance only programs that are full of miniformation)…but, this makes me think, that if Republicans can get rid of Social Security because it’s running a deficit, than they can apply that argument to just about any gov’t program. Bye-bye public schools, medicare, etc. OK…i’m starting to smell what you’re stepping in.
You’ve got to understand where these people are coming from. Until he became Governor of Texas George W. Bush never paid a dime in FICA (Social Security) taxes. His income was all dividend income, which is true for all the inherited wealth boys, and we don’t apply FICA to that, which is why investment income is already taxed at a far lower rate than income received for actual work.
What’s funny about this is how the media and even most national Democrats fall into this trap. There’s this illusion that FICA is somehow not an income tax. And, since 95% of Americans make under $91,000 a year, 95% of Americans have never figured out that rich people are getting away with something.
The Democratic phrases have to be:
FICA under $10,000 is a brutal tax on the poor and on small businesses.
We need to stop taxing work at a higher rates than the Bush family is paying.
Everyone benefits from Social Security, either directly or through money poured into the economy. Everyone should thus pay for it at the same rate.
See my (not recently updated) NextDemocrats xanga for how I think this whole plan should work.
That’s another good thinking point. Not only are the rich being taxed at a lower rate, but, those who get rich through investing, are even further excused. So…by raising more money through shifting the tax burdens, Social Security stands a better chance at survival. Question for ya…why was social security created in the first place? Isn’t it better to allow people to care for their own retirement, than to give part of their money to the gov’t., to hold for them and hopefully repay them later? Since people are only getting a portion of what they put into social security, this doesn’t seem like one of those issues where tax money is providing a public good. Since most wealthy people are living off investments rather than social security, why not switch over to privatization? What sort of social benefit is social security providing?