More DETAILS of *'s Social Security 'reform', from Rick Santorum's

[AirAmFan]

100-page report. Dubya wants to redirect the remaining positive FICA cash flow (until 2018) into privatized accounts, rather than Trust Fund obligations to pay Baby Boomers' retirements. starting now.

Thus the date at which Congress must start paying back the trillions it has borrowed from the Trust Fund would be moved up from the current 2018, and the date at which the Trust Fund no longer is enough to pay full retiree benefits would be moved up from the current 2042.

The fiscal nightmare Bush already has created is like that of an irresponsible couple in their late 30s with several children about to reach college age. Instead of paying off debts to have credit available for borrowing to pay multiple tuitions in a few years, they went on a spending spree and used up most of their borrowing capacity frivolously.

Now comes Phase II of engineered financial disaster. Instead of accelerating payments into their children's college fund, they decide to redirect the money they'd been saving for college tuitions into their retirement fund! Even though their retirement is decades away, and their children's high school graduations are just years away, they decide to worry about the far future first, instead of tomorrow!

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For most of Social Security's history, cash flow from FICA taxes was just enough to pay benefits to current retirees, with very little left over. But the Baby Boom following World War II altered demographic trends, requiring that trillions of dollars needed to be set aside to supplement FICA cash flow to pay benefits after about 2017. Reagan empaneled a Social Security Commission to create the needed prefunding of future Baby Boom retiree benefits. A 22 percent increase in FICA tax rates, plus acceleration of the annual increase in the amount of earnings subject to tax, ensued, orchestrated by Commission Chairman Alan Greenspan (see http://ssa.gov/OACT/HOP/hopi.htm ).

But no mechanism was created to ensure the "Trust Fund" created by the newly positive FICA cash flow actually would be used to fund Baby Boomer retirements. Thus it has been vulnerable to abuse and redirection. Reagan used the positive FICA cash flow on his watch to fund a 60 PERCENT decrease in top income tax rates, from 70 percent to 28 percent. Clinton used the FICA cash flow on his watch to pay off trillions in debt, to create borrowing capacity for use when Boomers retire. Dubya spent those trillions in his first term on tax cuts for the very rich and overseas wars. Now Dubya wants to prevent any future President from using the remaining positive FICA cash flow for its intended purpose.

This positive cash flow would continue for more than a decade without the changes Dubya is about to propose to undermine Social Security:

2005 . . . . . . . +88 billion
2010 . . . . . . . +102
2015 . . . . . . . +46

2020 . . . . . . . -85
2025 . . . . . . . -281
2030 . . . . . . . -512

2035 . . . . . . . -747
2040 . . . . . . . -960
(See http://ssa.gov/OACT/TR/TR04/VI_OASDHI_dollars.html ).

Dubya wants to make sure any Government obligation to make up the negative FICA cash flow after the 'teens will be removed.

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From a suggested speech for over-50 audiences in "Saving Social Security", by the Republican Conference (Rick Santorum), 1/27/05 via http://rawstory.rawprint.com/105/social_security_1.php :

"1/6 of FICA, Redirected Into Personal Account

For every six dollars the government takes from today�s workers for Social Security taxes, five dollars is given to retirees. That remaining dollar goes into the �trust fund� that you�ve heard about, but it�s not being saved there; it is being spent. And what it�s being used for is the day-to-day functioning of the rest of the government, which itself is running giant deficits. I�m all for fiscal discipline. Forcing the government to balance its checkbook, cut its wasteful over-spending, and quit borrowing from the Social Security trust fund surpluses is one of the most important things we could do to strengthen Social Security. In fact, I�d love to see the government pay back to the trust fund the billions and billions of dollars it has already borrowed over the years. But I�m not optimistic this will ever happen. No matter who�s in charge, there�s just no discipline in our nation�s capital.

That�s why I believe that to keep workers� hard-earned Social Security contributions out of the hands of wasteful Washington politicians, we need to let people hold on to that surplus money�that one-sixth I talked about earlier�and sock it away for themselves for the future. Currently�and then for the next 15 years�the Social Security system will be taking in enough money to create these accounts and keep your benefits protected at the same time. No one will take your check away.

After that 15-year period, to keep the personal accounts system working, we may need to cut spending elsewhere in the budget or raise taxes to meet the government�s other obligations. But there�s one thing I haven�t mentioned�the increased growth to the overall economy that will result from having that personal account money invested. This will spur more jobs, more tax revenues, and a healthier economy overall."

[jfern]

1. Historical budget data

http://www.cbo.gov/showdoc.cfm?index=1821&sequence=0

[AirAmFan]

10. Thanks for the URL

[papau]

2. I like the idea that future payroll surplus does not go to gov bonds - but

that can be accomplished via giving the SS Trust permission to invest in equity - there is no need to destroy Soc Sec to accomplish this.

[AirAmFan]

I agree with you, but for Greenspan and the other far-right extremists

in charge of the nation's pursestrings, that would be "SOCIALISM"!

IMO the only thing wrong with Social Security is that it is vulnerable to scams that redirect past and current FICA tax payments away from retirement and disability payments. We need "prefunding" with a Trust Fund that never can be raided to pay the super-rich with money taken from poor people's paychecks.

We don't need millions of privatized accounts from which Wall Street could siphon 20 percent of FICA in "managment fees". For Social Security, we need something more like CALPERS or other well-managed state employee retirement systems, with a few professional fund managers on the public payroll.

[Sinistrous]

3. I have a big problem with some faceless bureaucrat playing

political games in the stock markets with the billions generated by the FICA deduction. I always heard that was the original rationale for the prohibition against SSA investing in the markets.

[papau]

4. true - but index fund investing is a no brainer - so no political games

it is not hard to set up rules that allow equity investment, with no real favorite company picking going on.

[AirAmFan]

5. This is an empirical issue, but extreme right IDEOLOGY has created

an impasse over management of pre-funded Social Security. For rightwingers such as Greenspan and Daniel J.B. Mitchell, the ONLY permissible pre-funding of Social Security would be under a defined contribution plan, not the defined benefit plan Baby Boomers are counting on. Since no rational Baby Boomers ever would consent to conversion of their Social Security benefits to feasible defined contribution plans, right-wingers are forced into the VERY strange position of trying to solve problems forty or fifty years away while ignoring problems only a decade or so away.

The ideological codeword right-wingers use to express their fears of market-pre-funded defined-benefit plans is not the loaded but accurate keyword "SOCIALISM", but rather the more soporific "ETIs" ("Economically Targeted Investments"). Just google "ETIs" and the most comprehensive allegedly research-based policy arguments you'll find favoring Republican dogma are like a Mitchell Heritage Foundation report, at http://www.heritage.org/Research/SocialSecurity/BG1248.cfm .

The empirical issue is comparing returns of soul-less-ly managed corporate pension funds with those of state pension funds that occasionally invest in ETIs. Greenspan alleges without any proof whatsoever that ETIs would destroy Social Security. But even Mitchell is forced to admit when pressed that ETIs make absolutely no difference economically. Just a HUGE difference ideologically for a few powerful people on the far, far right.

[papau]

6. thanks - I had not heard the buzz word ETI - excellent points

again thanks

:-)

[AirAmFan]

7. The "clearest" Greenspan speech on ETIs I've found was

delivered in 2001 (and it's still not very clear). In it Greenspan EXAGGERATES available empirical estimates of allegedly reduced returns on funds that occasionally make ETIs. He also expresses ideological ambivalence about paying off the National Debt because surpluses might enable investment of FICA cash flow in ETIs!

I think it is this ideological ambivalence that explains why he has not tried to stop Dubya from spending the Clinton-era surplus and from borrowing trillions more. I find it astounding that the extreme right-wing ideology and dishonest use of statistics at the heart of Social Security privatization schemes remains so obscure:

From http://www.federalreserve.gov/boarddocs/speeches/2001/20010427/default.htm :

"it is the market-driven allocation of capital and labor to their most productive uses that has fostered our recent impressive gains in productivity and encouraged inflows of capital that have enabled us to build an extraordinarily efficient capital stock despite quite modest levels of domestic savings. The effectiveness of our markets in allocating capital is one of our nation's most valuable assets. We need to be careful not to impair their functioning. It is, regrettably, too easy to envision political pressure being exerted to use government financing of investments to offset perceived capital market imperfections. Experience suggests that in such cases the resulting returns earned on the investments are likely to fall short of market standards. ...It is difficult, for example, to envision effective constraints being placed on politically attractive investments by defined-benefit trust funds, such as the social security trust fund. Benefits are guaranteed by government, irrespective of any losses to the fund. Thus, one must presume that even if our social security trust funds were to be so seriously impaired by mismanaged government investment that they dried up, full benefits would be highly likely to be forthcoming ... As a result, prospective beneficiaries would have no incentive to police the investment policies of the trust fund.

To be sure, we do have about $3 trillion of assets administered in the defined-benefit plans of state and local governments. While research in this area has been limited, it does indicate that state and local pension funds have tended to underperform private pension funds if required to direct a portion of their investment within the state or to make 'economically targeted investments.' Some recent work has SUGGESTED that the NEGATIVE EFFECTS OF SUCH REQUIREMENTS MAY HAVE BEEN LESS IMPORTANT IN RECENT YEARS THAN THEY WERE IN THE PAST, BUT THAT CONCLUSION REMAINS SPECULATIVE. Along the same lines, there is some evidence suggesting that returns on state pension funds have been lower where the proportion of trustees who are political appointees is higher.

Some have argued that methods could be devised to insulate government investment decisions from the political process even in defined-benefit funds, perhaps by limiting such investments to index funds. Even if such methods were successful, the government would be investing only in publicly traded securities, and so its investment might have an adverse effect on the relative financing costs of smaller, often quite productive, non-publicly-traded firms. ....

Arguably, defined-contribution funds, even if administered by a federal agency, could insulate investment policy from political interference, as well as potentially freeing investment from the straightjacket of holding only index funds. It is highly unlikely that the beneficiaries of such funds would countenance politically convenient investments in their retirement funds. Indeed, the $100 billion federally managed Thrift Savings Fund has been operated without such interference. I should note, however, that conversion of social security from a defined benefit plan to a defined contribution plan would fundamentally alter its nature. One way to employ unified budget surpluses to finance increased investment would be to convert such funds into individual retirement accounts owned and administered by beneficiaries, with the presumption that the funds would be fully dedicated to retirement.... By addressing this issue now, we can avoid an abrupt and potentially disruptive change in fiscal policy as the level of Treasury debt reaches its irreducible minimum."

[papau]

8. Excellent - "potentially disruptive change in fiscal policy" as debt goes

to zero - LOL - ah, the good old days!

[AirAmFan]

9. *'s jingoism and largesse for the super-rich sure took care of

that Greenspan quandary!