The War on Social Security

Here we go again.

2008-07-10T12:49:00.004-04:00

Just when you thought that Social Security might be safe from a president determined to to change it, a would-be president joins in. John McCain told a gathering in Denver last Monday:

Americans have got to understand that we are paying present-day retirees with the taxes paid by young workers in America today. And that's a disgrace. It's an absolute disgrace and it's got to be fixed.

In other words, the way Social Security has worked for more than 70 years is a disgrace.

Maybe I'm taking this out of context? Nope, see for yourself.

Maybe he just misspoke? Maybe he meant to complain about how current workers may not be able to collect 100% of their benefits? Then why did he say the same thing the next day to John Roberts on CNN (emphasis added):

On the privatization of accounts, which you just mentioned, I would like to respond to that. I want young workers to be able to, if they choose, to take part of their own money which is their taxes and put it in an account which has their name on it. Now, that's a voluntary thing, it's for younger people, it would not affect any present-day retirees or the system as necessary. So let's describe it for what it is. They pay their taxes and right now their taxes are going to pay the retirement of present-day retirees. That's why it's broken, that's why we can fix it. We can do it together, republicans and democrats alike.

"John McSame" indeed.

Why we pay taxes on Social Security benefits.

2007-11-04T11:09:00.000-05:00

Today's Washington Post includes a column by Martha Hamiliton that explains why we pay taxes on Social Security benefits:

The policy argument was that, while workers paid taxes on the amounts they contributed to Social Security, nobody paid taxes on the amounts their employers put in. The employer received a benefit, however -- a reduction in taxable income equal to the amount contributed. Advocates of the change argued that taxes on that money should be paid when it was received, just as taxes are paid on traditional pension checks.

What became law wasn't pristine policy, however. Instead it was a political compromise designed to exempt lower-income recipients of Social Security from taxes. The rule was written to cover combined income of at least $25,000 or more for an individual and $32,000 for a married couple filing jointly. The figure for combined income was a total of adjusted gross income, interest on tax-exempt bonds and 50 percent of Social Security benefits.

But that figure was never adjusted for inflation, so now many more beneficiaries pay taxes than did originally. In today's dollars, far more people than before exceed the lower income limits. While only 9 percent of Social Security recipients were covered in 1984, 31 percent of beneficiaries will pay taxes on a portion of their benefits in 2007, according to the Social Security Administration. Essentially it's a stealth tax increase. If the floor for taxing benefits had kept up with inflation, only those who make more than $52,331.83 today would be paying taxes.

The Alternative Minimum Tax (AMT) wasn't indexed for inflation, either, and that's why it's hitting so many more people than originally intended. Why did Congress ever pass such significant financial legislation without indexing for inflation?

The article touches on some other aspects of Social Security, as well. Recommended reading.

Social Security Lessons

2005-08-16T22:23:00.000-04:00

Things have been quiet on the Social Security front lately -- too quiet, to invoke the movie cliche -- but the program's 70th anniversary last weekend stirred things up a bit. Paul Krugman provides a useful recap of what the Bush Administration has been doing.

Wanted: A Way Out

2005-06-16T13:38:00.000-04:00

Today's Washington Post says that Republican Congressional leaders are looking for a way out on Social Security, because the way things stand, nothing will happen:

Democrats are united in their opposition, and the Finance Committee does not have the Republican votes to approve a Social Security plan that would divert some payroll taxes to private investment accounts. But the committee, which has jurisdiction over the issue, also does not have the votes to pass a plan that would preserve Social Security's solvency without the personal accounts because too many GOP conservatives want them.

President Bush has responded by dispensing his cautious calls for bipartisanship in favor of far tougher rhetoric that blames the Democrats for the stalemate. "On issue after issue, they stand for nothing except obstruction," Bush said at a GOP fundraiser Tuesday night. "And this is not leadership. It is the philosophy of the stop sign, the agenda of the roadblock."

It takes two to make this roadblock, Mr. President, and your side is one.

Further down in the same article is evidence of what I've argued from the beginning:

Some White House domestic policy officials have suggested that the savings that would flow from reducing future Social Security costs would go a long way toward fixing the government's long-term financial problems.

Translation: They want to rob Social Security to pay for their ill-advised tax cuts.

Another hack argument from pro-privatization forces.

2005-05-20T13:51:00.000-04:00

In his last press conference, George Bush cited Robert Pozen as an inspiration for his Social Security plans. When Pozen expressed disagreement with Bush on some (not all) important issues, conservatives couldn't very well reverse course and say Pozen is dumb. So they resorted to that tired old argument: liberal media deception.

Adviser Splits With Bush on Social Security Accounts

2005-05-20T10:40:00.000-04:00

Robert Pozen still likes private accounts, but he thinks they should be smaller, accompanied by tax increases, and not a deal-breaker if everything else in the package is correct.

From the NYT:

Unlike Democratic lawmakers who oppose on principle including investment accounts as part of Social Security, Mr. Pozen believes some form of private accounts could be useful.

But explaining his position in an interview after the forum at the Treasury, he said the president's plan to let workers divert up to 4 percent of their payroll taxes to private accounts would reduce tax revenues and lower guaranteed retirement benefits too much.

"The accounts are just too large," Mr. Pozen said.

He suggested Mr. Bush consider a surcharge on payroll taxes for people who earn more than $90,000 a year, currently the ceiling on which Social Security taxes are paid, and the possibility of using some of that added revenue for private investment accounts.

"I believe some new revenue in the system is probably necessary for a legislative solution," Mr. Pozen said at the Treasury Department forum, which was called to generate enthusiasm for the Bush administration's approach to Social Security.

The $4.7 Trillion Pyramid.

2005-05-15T17:43:00.000-04:00

Prof. Michael Hudson argues in Harrper's that the Bush Administration's Social Security plan is to create a stock market boom that will provide impressive returns that will -- temporarily -- solve a multitude of problems, such as bailing out the Pension Benefit Guarantee Corporation (PBGC), which unlike Social Security, is in terrible fiscal condition. The problem, of course, that that financial bubbles collapse:

Given the widespread problems confronting pensions outside the embrace of the federal government, now would seem an odd time for the administration to campaign for Social Security privatization. Why would anyone want to invest America’s last line of pension defense in so perilous a market? Are Bush and his advisers unaware of the odds?

Probably not. Therefore, they must have a particular idea in mind. Presumably they believe that some kind of market recovery is needed not only to rescue the PBGC but to rescue the pension funds, to rescue the stock market, and, for that matter, to rescue the political fortunes of the ruling party—that what is needed, in fact, is a Bush boom. After all, such a boom would allow us to “grow our way out of trouble,” as we have done so many times before.

(via Robot Wisdom)

Who is Charlie Munger and why is he saying these things?

2005-05-04T00:19:00.000-04:00

From a Bloomberg story:

"The Republicans are out of their cotton-picking minds on this issue,'' said Munger, a self-described right-wing Republican. Social Security is "one of the most successful things that the government has ever done.''

Charlie Munger is the Vice Chairman of Berkshire Hathaway -- you know, that little company Warren Buffett runs. Not that they could possibly know as much about finance and investing as the geniuses in the Bush Administration. (via Brad DeLong)

How Bush's version of "progressive indexing" would kill Social Security.

2005-05-03T23:59:00.000-04:00

In Slate, Brad DeLong argues that "when you combine Pozen's progressive indexing with Bush's separate proposal for private accounts, it becomes something different: a way of phasing out Social Security altogether."

Surprise, surprise.

He argues, and I agree, that Bush's latest tactic is designed to weaken support for Social Security among middle- and upper-class Americans. Once they get tired of paying for something from which they don't receive much benefit, they'll want to kill it too.

Update: On his blog, DeLong says, "I actually don't think it's a plan to kill Social Security -- it's floundering around in the hope of gaining traction by proposing something progressive." Uh, ok.

Why you can't fairly compare Social Security returns with those of private accounts.

2005-05-02T17:47:00.000-04:00

Here's another tidbit from the same article in The Hill. It's an important enough point that it deserves its own post: the answer to those who argue the Social Security provides a weak return on what users pay into the system, compared with private investments:

Note 144 also states that making rate-of-return comparisons with private investment plans is inadequate because Social Security offers benefits that most private plans do not, such as guaranteed cost-of-living adjustments based on the consumer price index and benefits for life in the event of disability.

I found this so interesting that I decided to hunt down the original document, Note 144. Here's what that official document says (emphasis added):

Internal rate of return does not reflect the full value of insurance in reducing the risk for extreme outcomes, like death or disability at very young ages or survival to very old ages. In addition, calculations of the internal rate of return from Social Security benefits are not fully adequate for making comparisons with private-sector plans, since many features of Social Security benefits are not typically available in private-sector plans. Examples include guaranteed cost-of-living adjustments based on the Consumer Price Index, and benefits for life in the event of disability.

So the next time a privatization advocate argues that he can do better playing the stock market, ask him if the stock market will provide benefits like COLA and disability insurance.

Treasury experts split on Social Security plan.

2005-05-02T17:41:00.000-04:00

The Hill reports that career economists at the Treasury Department question the assumptions made by political appointees and other supporters of Bush's plans:

The conflict emerged last week when Edward Prescott, a winner of the Nobel Prize in economics, briefed Treasury Department economists to discuss Social Security privatization as part of the department’s effort to build support for its plan in academia and on Capitol Hill.

But sources familiar with Prescott’s presentation said that Treasury’s professional economists sharply questioned Prescott’s findings that private retirement accounts would increase the incentive to work longer, which would lead to higher economic growth.

Research by government economists contradicts some of President Bush’s assertions, especially his claim that African-Americans fare poorly under the New Deal. That research shows that blacks earn similar rates of return as whites under Social Security.

[snip]

A former Social Security official said, “I don’t think there is any question if you look at the estimates that the administration is putting together for long run economic growth and how those tie into the return on private accounts, there is a disconnect there.”

The administration is assuming a 4.6 percent return on private accounts.

“That’s the basic contradiction,” said Shapiro [Robert Shapiro, an economist and former undersecretary of commerce in the Clinton administration]. “In order to get that kind of return, the economy would have to be growing fast enough so that most of Social Security’s financing problem would have gone away.”

We've noted that before. Many times. (via Talking Points Memo)

Bowing to reality? Or just a foot in the door?

2005-04-26T13:29:00.000-04:00

A Senate committee is about to take up the subject of Social Security, and Republicans are signalling that legislation might not have to include private accounts. They're not looking for additional details from Bush, either.

In a briefing arranged by Republican staff on the committee and given to 60 reporters yesterday, a committee official involved in the Social Security discussions also said the legislation will move through the committee in June or July. The briefing was given on the condition that the official, who is an aide to Finance Committee Chairman Charles E. Grassley (R-Iowa), would not be named and that his remarks would not be directly quoted.

The official's account, given in preparation for today's hearing on various Social Security proposals, appeared to soften many of the statements Grassley had previously made. Earlier this month, Grassley said that he would like to see "principles and alternatives" from the White House such as reducing benefits, raising the retirement age or raising the cap on income subject to Social Security payroll taxes.

The problem is that Republicans cannot be trusted on this issue. For example, the Senate could pass a bill that does not include private accounts, while the House version does; they could be included in the conference that resolves conflicts between the two versions, making it arguable harder for Democrats to oppose them.

No, I don't want this Congress touching Social Security. I'll wait and see what the next one looks like, thanks. We have time.

Your tax dollars at work.

2005-04-07T13:17:00.000-04:00

How many taxpayer dollars is the government spending to push Bush's agenda on Social Security? That's what some members of Congress want to know:

The Bush administration's ongoing Social Security blitz is unusual in scale in the selling of a domestic policy, mobilizing the president and vice president, four Cabinet secretaries and 17 lesser officials, down to an associate director of strategic planning for the White House budget office.

It also may be one of the most costly in memory, well into the millions of dollars, according to some rough, unofficial calculations.

House Appropriations Committee Republicans have quietly asked the administration for an accounting of its "60 Stops in 60 Days" blitz. And yesterday, Rep. Henry A. Waxman (Calif.), the ranking Democrat on the Government Reform Committee, formally asked the Government Accountability Office not only for the cost but also "whether the Bush Administration has crossed the line from education to propaganda."

"No one disputes the right of the President to make his policy recommendations known to Congress and the public," Waxman wrote in a letter to U.S. Comptroller General David M. Walker. "Yet there is a vital line between legitimately informing the public, as the President did in his State of the Union address, and commandeering the vast resources of the federal government to fund a political campaign for Social Security privatization." ...

"Currently, no one in Congress or the public knows the full extent and cost of the federal resources being devoted to promoting the President's Social Security agenda," Waxman wrote.

Even Republicans raised their eyebrows when they heard new employees were brought on for the campaign, said a House Republican staff member, who spoke on the condition of anonymity to avoid embarrassing the president.

Stepford Town Meetings.

2005-04-03T13:48:00.000-04:00

The Washington Post's E.J. Dionne poses a very logical question:

If President Bush is so insistent on the need for his political adversaries to talk to him about fixing Social Security, then why does he keep throwing them out of his campaign rallies -- excuse me, "town meetings" -- on the subject?

Lately the president has been chastising Democrats for not sitting down with him to fashion a solution. "I think there is a political price for not getting involved in the process," Bush said in Cedar Rapids, Iowa, on Wednesday. "I think there is a political price for saying, 'It's not a problem, I'm going to stay away from the table.' " But when Bush's critics show up at the president's taxpayer-financed events, they are often told there is no place at the table for dissenters.

Bush's tactics.

2005-03-31T00:36:00.000-05:00

I think Kevin Drum has it right:

There are only two ways to significantly improve Social Security's finances: benefit cuts and tax increases. Bush is too gutless to propose either one, so he's desperately trying to sucker someone — anyone — into proposing them first. Nobody with half a brain should oblige him.

Until Bush has the political courage to step up to the plate and send a serious proposal of his own to Congress, he shouldn't expect anyone else to do it either. In the meantime, he deserves nothing but scorn. His sustained display of political cowardice is setting a standard for generations to come.

(via Talking Points Memo)

Economists: Bush's unrealistic expectations.

2005-03-29T08:35:00.000-05:00

I've noted before that Bush's arguments seem to rely and on two different economic forecasts: a very pessimistic one when it comes to predicting the health of Social Security, and an optimistic one when it comes to projecting what individual could earn with private accounts.

They can't both be true.

If the economy does as poorly as Social Security projects, there's no way stocks can return as much as Bush expects. But if stocks do provide the return he brags about, it's because the economy will be doing so well that Social Security will not have a problem!

But don't take my word for it:

President George W. Bush, promoting his plan to set up private Social Security accounts, is betting that stock returns will remain strong even as economic growth slows. Economists and equity strategists aren't so sure.

Bush is using forecasts from the Social Security Administration that say the economy will expand less than 2 percent a year -- the slowest sustained rate since the 1930s -- after 2020 as population growth eases. At the same time, the agency projects that stocks will return an annual average of 6.5 percent after inflation.

Thirty-nine of 58 economists and strategists surveyed by Bloomberg News say that if the economy slows that much, Bush's stock outlook is too optimistic. Over the last 50 years, as the U.S. economy grew 3.4 percent a year on average, almost twice as much as the agency is forecasting, the Standard & Poor's 500 Stock Index returned only 6.8 percent after dividends were reinvested.

"A 6.5 percent real equity return is not realistic" at the growth rates being projected, says Thomas McManus, chief investment strategist in New York at Banc of America Securities LLC. "If it were, we will not have a Social Security problem in 2050 because shareholders will be so wealthy they could easily fund the shortfall."

(via Washington Monthly)

The people learn, the less they like Bush's plans.

2005-03-25T13:16:00.000-05:00

A new Pew Research poll found that support has dropped among the under-30 set ... the age group that was most in favor of privatization.

Shame on John McCain.

2005-03-25T13:12:00.000-05:00

I was thoroughly disgusted to see John McCain touting Bush's privatization plan the other day. Turns out I'm not the only one:

Shame on McCain for being a part of this effort to divide the generations. Usually noted for candid speech, he even resorted to misinformation when he said in 2042 "we stop paying people Social Security." McCain knows that isn't true.

That is the date (actually it was changed to 2041 the other day) when Social Security reserves are expected to be used up. Even then, with no change in the program, recipients would continue to get about 75 percent of what was promised them.

McCain should be familiar with such tactics. After his surprising showing in the 2000 presidential primary, McCain became the target of a smear campaign in South Carolina. People connected to Bush questioned McCain's patriotism and morality - distorting the facts of his Vietnam War record and his adoption of a Bangladeshi child.

I know someone in a low-level position who is tenuously affiliated with the senator. I'm told secondhand that he defends this kind of thing as what McCain has to do to build power to do good. Sorry, but that argument doesn't hold water. Tell me, what possible good can McCain do that would outweigh jeopardizing the financial well-being of generations of Americans?

Senator, the Straight Talk Express has left without you. (editorial via Talking Points Memo)

Why Bush stacks the deck at his town hall meetings.

2005-03-25T12:56:00.000-05:00

Dick Cheney went to Battle Creek, MI and Pittsburgh, PA to stump for privatization. Usually the transcripts of these events are routinely posted to the White House website, but these were not, and "Holden" decided to investigate why:

So I turned to local press coverage of the two events and soon found out why the White House is holding onto those transcripts. Big Time Dick is getting blasted by both the local press and his hand-picked audiences.

Unlike Dear Leader, when Cheney does a Social Security "town hall" meeting he allows audience members to ask him questions instead of placing "regular folks" on stage with him for well-rehearsed exchanges on the evils of Social Security. Turns out that was a huge mistake on Dick's part.

Go to his post to read the press excerpts. (via Talking Points Memo)

Most Americans no good at investing.

2005-03-23T19:34:00.000-05:00

Part of the supposed appeal of privatization is that individuals can do so much better investing on their own. Yet once again, the facts say otherwise:

when it comes to managing money, studies done by a leading human resources firm to track the financial acumen of the masses show that most Americans don't know what they are doing. That's a big negative for Bush, whose plan is based on his belief that most Americans want to, and are capable of, building a profitable portfolio made up of stocks and bonds.

"I have a Ph.D., have belonged to an investment club for 10 years and have studied the market — and even I have invested badly over the years," says Marjorie Abrams, 67, a retiree from Gainesville, Fla. "What will those who don't understand the market do with their savings? How much time can they be expected to devote to it?"

Certainly not the long hours logged by professional Wall Street analysts, traders and money managers. Research confirms that a huge swath of U.S. workers have little or no interest in serving as their own personal portfolio managers.

Cooking the numbers.

2005-03-23T14:35:00.000-05:00

The new report from the trustees of Social Security is out today, and -- surprise, surprise -- things are even worse than predicted last year. Now they claim that benefits will exceed revenues in 2017 (vs. 2018) and the surplus will be used up in 2041 (vs. 2042).

I say "surprise surprise" because the six trustees consist of four members of the Bush Administration, plus two public trustees -- and one of them has already expressed support for privatization. So this was pretty much a foregone conclusion.

So how did things get worse instead of better? Atrios has found at least four factors so far:

first pass - significantly lowered mortality rates from previous year, lowered the already ridiculously low immigration rates...

...increased near term inflation estimates...

[snip]

It looks like the biggest jiggering is with the mortality tables. What I'd love is a model ran with last year's assumptions intact, with the 2004 actual data added, but that I'll never see...

...they do discuss how changes affect the long run actuarial balance, but not the solvency year.

Anyway, summing up, from what I can glean:

people live longer
teenagers work less
inflation higher
old people work less

The Bush numbers are too optimistic.

2005-03-20T18:07:00.000-05:00

Yale economist Robert Schiller -- whose book "Irrational Exuberance" warned that we were experiencing a stock market bubble in the late 1990s -- has crunched the numbers on the Bush Administration's proposals and found that most people would do worse, not better:

A new paper by Yale University economist Robert J. Shiller found that under Bush's default "life-cycle accounts," which shift assets from stocks to bonds over a worker's lifetime, nearly a third of workers would bring in less in benefits than if they remained in the traditional system. That analysis is based on historical rates of return in the United States. Using global rates of return, which Shiller says more closely track future conditions, life-cycle portfolios could be expected to fall short of the traditional system's returns 71 percent of the time...

Shiller's paper -- to be posted on his Web site, IrrationalExuberance.com -- is adding to research that suggests the White House has been overly optimistic in its assumptions about personal investment accounts. A recent paper by Goldman Sachs economists said the White House's anticipated 4.6 percent rate of return above inflation could be nearly 2 percentage points too high.

Here's the direct link to Shiller's paper (doc format).

Republican Offers Lessons on Taking the Heat.

2005-03-20T17:44:00.000-05:00

Those town halls intended to drum up support for Bush's plans have gone so well that a Republican is now offering rehearsals to his fellow representatives:

Back in their home districts, House Republicans lately have been getting hammered with hostile questions about President Bush's plans for Social Security. This past week, Rep. Jack Kingston (Ga.) offered a tutorial on how to handle the heat.

"Have you been getting hard questions at town hall meetings?" Kingston's office asked in an invitation to GOP press secretaries and other staff members to a "mock Social Security Town Hall Meeting." Over a pizza lunch, Kingston, the vice chairman of the House Republican Conference, offered to play a beleaguered congressman getting grilled by constituents.

The e-mail invitation was passed on by a Democratic source who professed incredulity that Republicans now need rehearsals for town hall meetings.

Stil exaggerating, still being hypocrites.

2005-03-19T10:47:00.000-05:00

The pro-Bush group Progress for America is at it again, according to the non-partisan Annenberg Political Fact Check:

The pro-Bush group Progress for America released a new TV ad highlighting Social Security’s long-term fiscal deficit by telling voters that the system will go bankrupt “sooner than you think.” But the ad fails to mention that the system isn't projected to go "bankrupt" for another 37 years, when the Trust Fund is exhausted. And even then, neutral experts agree Social Security could still pay between 70 and 80 percent of currently scheduled benefits.

The group also takes aim at “National Democrats” for having no plan to address the system's financial shortfall. It’s quite true that Congressional Democrats have not endorsed a specific plan, but neither has President Bush.

The Soft Bigotry of Life Expectancy.

2005-03-17T22:03:00.000-05:00

Slate's William Saletan explains the different (and sometimes misleading) sales pitches that George Bush is making to different ethnic groups:

So, here's the situation. In an op-ed written in Spanish and not made available in English on any federal Web site, the administration argues that Latinos, who live longer than whites do, should support Bush's reform plan because they're growing rapidly as a share of the working population. Meanwhile, in forums and private meetings aimed at blacks, the administration argues that blacks, whose share of the working population is growing at a slower rate than their share of the population over 65, should support Bush's reform plan because they don't live as long as whites do. Only once has Bush slipped up and alluded to one group in the course of making his pitch to the other. And on that occasion, at best, he seems to have conveyed—and failed to correct after its publication—an impression that helped him politically but was contrary to the truth.