RE: Don't Blow Away Social Security

[Michael Jones <powderfinger99@yahoo.com>]

<<<
President Clinton and members of Congress say "saving" Social
Security is at the top of their agenda (after impeachment, of
course). Many recipes have been written for rescuing Social Security.
The most extreme plans involve privatization. Some people want the
Social Security payroll withholding to go into our own "personal
security account" that we can invest ourselves. Less radical plans
would allow the Social Security Trust Fund to be invested in the
stock market, where it would supposedly get a higher return than
where it is invested now, in U.S. Treasury bonds.
>>>

Here's where the hypocrisy starts. There is an objection to
investing in the stock market (or bond market, etc.) when it
comes to individuals, but not when it comes to government.
Either you believe that higher returns can be achieved using
private markets or you don't. If you don't think individuals
should invest in the market, why would you let the government?

<<<
1. The stock market is volatile. 

  The stock market goes up and up. And sometimes it goes down and
  down. Even without an economic catastrophe, the stock market's
  volatility would make our retirement income entirely unpredictable.
  Dean Baker has noted that if the economy grows as slowly as the
  Social Security trustees are predicting, then the prognosis for
  the stock market isn't too rosy either. Social Security barely
  covers seniors' expenses as it is now.
>>>

It's a mistake to equate stock volatility with risk because these
are two separate attributes. Stocks that are volitile are not
necessarily risky. The only risk in stock investing is that the
market falls over a long period of time (which has not occurred
over any 15 year time period in this century). It's a mistake to
judge an investment over a day, month, or even a year of a downward
market.

However, the real issue is not whether stocks are risky or not.
It is possible in all private investment plans to invest in bonds
or money market accounts which eliminates this consideration.  The
issue is that your future benefits will not keep pace even with
the most conservative investment (treasury bonds).

It you took all the money you invested in Social Security and
invested it in treasury bonds over your lifetime you will still
come out with a much higher return than what Social Security
provides.  Is this the kind of system you want?

<<<
It may be, says Baker, that some minor adjustments will need to be
made to allow the Social Security system to continue in good health.
>>>

Technically, a whole range of options could be taken to keep
the system solvent. Because the  system is pay-as-you-go, the
government could simply cut benefits drastically, or raise taxes,
or cut other government spending.

The end result will be a system that costs a lot and provides
a poor return for everyone, including the most needy. Ironically,
the system hurts the poor the most and not the wealthy, because
the wealthy already save and invest for their own retirement. 

If you think that you can get the "wealthy" by raising payroll
taxes, guess again. Wealthy people will be smart enough to avoid
paying payroll taxes by simply reducing realized "earned" income.
When you raise the payroll tax it doesn't affect the wealthy.
It affects the middle class.

The people who will pay the most for this system will not be the
wealthy, but the middle class who realize a higher percentage of
their wealth in "earned" income.

<<<
The main reason Social Security administration is so cheap is that
the whole fund is invested in one place, the U.S. Treasury. Imagine
instead the administrative cost of managing millions of separate
accounts invested in a myriad of stocks and bonds. Much of the
money would go to Wall Street investment houses - which is why they
like the privatization idea so much.
>>>

Actually, the government already maintains separate accounts for
everyone! You can request from the SSA by asking for your PEMA.
Your PEMA keeps track of all the money you have paid into the system.
They must do this since the benefit is tied to your lifetime
contributions.

<<<
  In Chile, which privatized its retirement system in 1981, people pay
  between 10 and 20 percent of their annual retirement contribution
  just to maintain their account. The stock market would have to
  perform spectacularly to make up for that kind of expense. 
>>>

This is simply untrue. The cost of adminstration in the Chilean
plan is 1%. Lies and untruths will not progress the discussion on
this issue forward.

It appears that the real issue for Charlie is preserving government
jobs, money and power at all cost, even if the private sector can
do it better.  Should we sacrifice TRILLIONS of dollars just to
keep the SSA alive, so Charlie and his socialist union colleagues
can keep the government in power?

Michael