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The problem with the Social Security Debate
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It's amazing to me that the whole SS debate has focused on private accounts, when it seems that they are a very minor part of the real solution, if they are part of the solution at all.

Making SS solvent long term will require one, or a combination, of the following -- raising SS taxes, extending the retirement age, re-pegging benefits to prices instead of wages, or something along these lines. Private accounts will not automatically do anything to boost the solvency of the system. We have no real idea whether stock market returns in this century will be as robust as they were in the last. They may or may not be. But there are no guarantees.

At bottom, private accounts are more a gimmick than a real solution. The administration seemed to think that these accounts would help them sell a larger reform plan, one that would bring social security to solvency through other means, through means that the public would never accept. We'll tell you that you get private accounts, and we'll conveniently skip over the fact that we'll really fix the problem by cutting your benefits.

It's amazing that private accounts have received as much attention as they have, and that nobody has focused on what's really going on here. But you can bank on this. Americans might be fine with letting the administration blow smoke up their asses when it comes to sending poor folks to war on false pretenses. But when it comes to their money, forget it. Bush has no chance.
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Re: The problem with the Social Security Debate [rundhc] [ In reply to ]
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I guess I don't understand your point. All of the items you list here have been discussed in the public debate. I will wager you got the list from that public debate.

I would make a different point that the debate has not been joined. It would be really nice if the Democratic Party would join the debate, offer ideas, and try to thrash out a solution.

When the Democrats announce they will not come to the table until the president takes personal accounts off the table, it is no surprise that they receive too much attention.

Probably the main benefit of the personal accounts is that they will really create what good old Al Gore said over and over that he wanted in the 2000 election. He wanted a lockbox. Private accounts make for a real lockbox, since real assets get put away where politicans can't spend the money.
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Re: The problem with the Social Security Debate [rundhc] [ In reply to ]
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"Making SS solvent long term will require one"

Although I'd agree in the short term some of your point may be true but in the long term private accounts offer something that SS currently does not, compounding interest. Just like your personally IRA, it's not the investment that matters as much as the time invested. A fairly low interest rate over a long time offers muh more wealth building potential than the pay in pay out that the current system offers.

~Matt
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Re: The problem with the Social Security Debate [ajfranke] [ In reply to ]
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"Private accounts make for a real lockbox"

This, IMO, is one of the strong points of the PA. If people are recieveing a statement every quarter saying. "You have "X" dollars in your PA", what politician in there right or left mind would try and take that money?

~Matt
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Re: The problem with the Social Security Debate [MJuric] [ In reply to ]
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I get a real laugh out of the "solutions" that say we can fix SS if we just raise the tax rate to 14.5%.

Now, if the Washington politicians get more money, what do you think they will do with it? If you wager they will just spend it like they have the rest of the SS tax revenue, go to the head of the class.
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Re: The problem with the Social Security Debate [MJuric] [ In reply to ]
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I would agree that private accounts offer a way to assure that the money is there, and I have no problem with that. But it seems strange to position these as a lockbox when the politicians plan at the same time to cut benefits. The logic is, we're assuring you money as we take it away. Paradoxical, no?

The other troublesome assumption is that private accounts will grow over time, and that compounding interest will make up for a shortfall in funds. America held a pretty privileged place in the world economy in the last century which yielded great gains in the market. Can we say that this will last? It may, but it may not. And it bothers me that that we're banking on these gains to make up for shortfalls in the SS system. That seems like irresponsible accounting -- the type that you get with this administration time and again.
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Re: The problem with the Social Security Debate [ajfranke] [ In reply to ]
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I doubt that taxes will be raised. More likely benefits cut. That's how England solved the same basic problem under Thatcher.

Once we lose 25%-50% of the benefits (depending on one's age), we'll get the privilege of trying to invest it and making up for the money the govt decided to skim off the top. What fun.

The short lesson here is don't bank on SS getting you through your retirement -- not that I ever was...
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Re: The problem with the Social Security Debate [rundhc] [ In reply to ]
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"The other troublesome assumption is that private accounts will grow over time"

I'm not much of an economist, but I suspect that if the economy fails to grow for a great period of time, say 100yrs or so, we'll be worrying about things far more severe than SS.

Compounding interest doesn't necessarily mean stock market only. People pay for money in alot of ways. The historical average for the DOW over it's history is something like 8-10%, I believe. The return on SS is something closer to 2% or less, again coming from memory. 2% is pretty terrible even under bad circumstances.

"But it seems strange to position these as a lockbox when the politicians plan at the same time to cut benefits."

I'm not up on all of the "current offerings", on the table in Washington, but seems to me that cutting benefits are not necessary unless the politicians plan on funding SS the same way they always have...which is pretty dumb...IMHO.

Personal accounts would allow individuals to fund their own account. What you put in, plus interest, you get back. No funding shortfall at all, no benefit cuts at all.

~Matt
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Re: The problem with the Social Security Debate [MJuric] [ In reply to ]
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If everyone is so hung up on private accounts, couldn't they simply increase the amount that you can contribute to your IRA, 401k, etc? If the goal is to let people save their own private money, why not just expand the existing programs that are already in place? I would be all for that, believe me.
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Re: The problem with the Social Security Debate [rundhc] [ In reply to ]
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"I would be all for that, believe me."

As would I, believe me. Simply getting back 12% of my pay check would be a nice bonus.

Two problems with it right off hand.

A) what we are paying in now is not going to us but right out again to pay for those currently collecting. So if we quit paying and start putting it into our IRA's then everyone currently collecting ges nada, unless of course we fund it from somewhere else...which winds up right back in our lap.

B) a good prtion of the population, I'd venture to say most, simply would up there "quality of life" by spending the additional 12%. This would end up with the majority of individuals without anything in 30,40,50 years upon retirement. This is of course fine, if society doesn't turn around and say "Awww poor babies didn't save for retirement and need us to help them"...which ends up in our lap again.

So with "forced" personal accounts you take some of the control away from the individual by "forcing" them to save, but at least they get back what they put in and people are more "educated" on where their money is going.

In the perfect society everyone would have their money and everyone would save appropriately, but our country is far from perfect.

~Matt
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Re: The problem with the Social Security Debate [rundhc] [ In reply to ]
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That approach may be a good idea, but it has nothing to do with social security. It doesn't address any of the problems with the solvency of the system.

One might argue that personal accounts don't do that either unless you assume some increased return on investment. It is likely there will be some payback in that regard, but I figure it would just get lost in the noise.

The reality is that the projected benefits the system "promises" are simply not going to be paid. They are politically impossible and they would wreck our economy even if they did happen. So how do you create a real savings plan that people will accept?

Personal accounts are a lockbox vehicle that should persuade many to accept lower benefits (different indexing formula, later retirement age) or higher taxes (higher rate or higher cap).

Simply raising taxes or raising the cap or even raising the retirement age now will do zero good since our crack politicians will simply spend the money. If instead this money winds up in personal accounts, politicians dare not touch it.

If the public debate will just pull the parties to the table, this stuff can get sorted out and fixed.
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