AARP Opposes Private Social Security Accounts

December 30, 2004 11:04 AM

AARP Says No To Bush ...The AARP is coming out strong against private Social security investment accounts, saying they "will actually make the problem worse, not better." In January they plan to spend $50 million on an ad campaign opposing privatization. Kevin Drum of The Washington Monthly has also been awesome in pointing out that the common wisdom that Social Security is in trouble is just not true.
posted by nathanrudy (116 comments total)

Gee... and just yesterday we read about colin powell defending allegations that the US was being stingy in its aid efforts to the asian/indian quake survivors.

50 MILLION on an ADVERTISING campaign, protesting against something that is ultimately a decision the Congress will make is ridiculous. If Bush wants to privatize it, it will happen whether they spend 50 Million or not.

This money could be used soooo much better.

http://news.yahoo.com/news?tmpl=story&u=/afp/20041229/ts_alt_afp/asiaquakeusaid_041229001519
posted by skrike at 11:19 AM on December 30, 2004

Bradford DeLong, an Econ prof at Berkeley, also does a great job with this topic, albeit from a more academic economist's perspective (so, if you have a bit more time and/or expertise).

He discusses lots of other stuff on that blog; at the moment, the top article is something about the American Infantry divisions during WWII. Here's one about Social Security and the broader economic dilemma he sees surrounding it.
posted by rkent at 11:22 AM on December 30, 2004

Greatest Generation, my eye. Chile privitized their pension plan, as described here.
posted by Frank Grimes at 11:23 AM on December 30, 2004

Kevin Drum of The Washington Monthly has also been awesome in pointing out that the common wisdom that Social Security is in trouble is just not true.

Erm, if you read his little table carefully, he shows nothing of the kind. What he shows is that Social Security is in less trouble than Medicare. Which is true. He does not show that Social Security isn't in trouble. Furthermore, you might take note of the fact that most Democrats and opponents of privatization agree that the system is in trouble. The debate isn't, and shouldn't, be about whether Social Security is broken. It's about how to fix it. The best way to derail privatization isn't to say that there isn't a problem. It's to argue that there are better ways of dealing with the situation.

I'm against privatization, but I suspect it's going to win, due to the fact that no one else has really proposed any competing reform plans. The AARP is on the right track when they suggest adjustments. But pretending that minor fixes are enough gives ammunition to Bush supporters that insist that it's Bush's way or no way. The debate should be about how to reform, not whether to reform.
posted by unreason at 11:26 AM on December 30, 2004

Gee... and just yesterday we read about colin powell defending allegations that the US was being stingy in its aid efforts to the asian/indian quake survivors

yes, let me explain some fundamental concepts to you: the symbol "US" refers to the united states government. the symbol "AARP" refers to a private special interest lobbying organization. the money of one has nothing to do with the money of the other.
posted by quonsar at 11:27 AM on December 30, 2004

skrike: don't you mean "that money could have been used soooo much better"? past-tense.

i mean, if they had really wanted to stop bush's plan from coming through. y'know.
posted by caution live frogs at 11:27 AM on December 30, 2004

This money could be used soooo much better.

Did you just fall of the turnip truck?

This is money damn well spent. SS is a cornerstone of the American democracy, Randian wet-dreams aside. The plans floating around kill SS. Making the issue so hot that congress critters are afraid to vote in favor of it is good politics. If they run their adds right, they can do that.

And they would also happen to be right -- the bits and pieces of a "plan" to fix the (non) "crisis" in SS are a really, really bad idea. Not only will the plan do nothing to improve any problems in SS, it will blow a giant hole in the budget.
posted by teece at 11:27 AM on December 30, 2004

The post from Kevin Drum is not his only post, merely one of the best. There are at least a dozen high quality posts on that site you should check out.
posted by nathanrudy at 11:31 AM on December 30, 2004

Furthermore, you might take note of the fact that most Democrats and opponents of privatization agree that the system is in trouble.

Well, those people are foolish then. The current situation is not even remotely dire. We may need an adjustment at some point in a decade or two. We may not, if the economy did really well.

The system is most certainly not in trouble, at least not in the sense that you mean, unreason.

The only trouble SS is in is this: it risks being destroyed because people have been falsely convinced that it is teetering on the brink of collapse.
posted by teece at 11:31 AM on December 30, 2004

Kevin Drum, like most others, seems to ignore the fact that there is no trust fund.
posted by bh at 11:32 AM on December 30, 2004

i was wondering when the aarp would get around to that.. too bad it wasn't before the election.
posted by blendor at 11:33 AM on December 30, 2004

unreason:
The debate isn't, and shouldn't, be about whether Social Security is broken.

So did you just skip that part that said "if the economy performs decently, SS might be solvent forever"? Granted, this assumes a gradual ascent in the population and GDP, but lots of things depend on those assumptions and we'll be F'd in lots of ways if they fall through, not just social security-wise.

But pretending that minor fixes are enough...

How about these?

• Raise the retirement age by 3 years, gradually, over the course of a decade
  • Or alternately, peg it to some percentage of the current life expectancy


• Reduce payouts by introducing means-checking for people making claims


• Raise or eliminate the cap (currently around $80,000) over which income is not taxed for the SS fund.
  

Those sound pretty minor to me, and they would go very very far towards making the program solvent even further into the future. The problem is that one or more constituency has a huge problem with each one of them, and would scream bloody murder if they were attempted.

On preview: I'm with teece.
posted by rkent at 11:34 AM on December 30, 2004

Shocking America's elders would be such conservatives with money that's about to come their way.
posted by yerfatma at 11:41 AM on December 30, 2004

Those sound pretty minor to me, and they would go very very far towards making the program solvent even further into the future.

What the projections don't often talk about is that Congress (both parties, but mainly the Republicans) steals money from the Social Security funds on a regular basis. Between that, the demographics disparities, and the increasing costs of living, it's a pretty big problem. Your ideas are pretty good, rkent, and might help. However, they are not as simple as you suppose. Means-checking, for example, would require a new federal bureaucracy for claims checking. Not as major as privatization, but no walk in the park. I agree with you, though, that it's common sense ideas like these that we should be thinking about, rather than wild ideas like privatization.
posted by unreason at 11:42 AM on December 30, 2004

bh -- I read the Cato article, and this was the point I took out of it most: "In financing terms, the Social Security trust fund is an irrelevancy. Come 2014, when Social Security's payroll tax income falls below its benefit obligations, the program will need large infusions of tax dollars. The existence of the Trust Fund means only that until 2034 those dollars will come through increased income taxes rather than increased payroll taxes."

What Cato misses is that the Trust Fund has been used for the past 25 years to lower income taxes. Had the payroll taxes not been collected in surplus then the money that the bonds generated would have come out of income taxes. That means that the payroll taxes have been loaning money to the federal government that should have come from income taxes -- and the loan will come due.

Since payroll taxes are only collected on the first $83 thousand dollars of income, that means that we have been doing a reverse Robin Hood by collecting money from the poor and middle class to help keep income taxes down for the upper middle class and rich.

What would be fair at this point would be to raise taxes on the rich to pay back the poor and middle class who have been supporting low income taxes for decades by paying high payroll taxes. But that would be fair.

To do otherwise would essentially be to let the upper middle class and rich default on the loan the rest of us gave them for 25 years, and will be giving them for at least another 25 years.

[Just so you know, my proposal is just to raise the income maximum by $40 or $50 thousand so there is more income and surplus generated. That would solve the whole problem and make Social Security solvent AS IS for at least a couple hundred years.]
posted by nathanrudy at 11:46 AM on December 30, 2004

nathanrudy: there is no trust fund, and neither is there a spoon. So what?

The surplus SS money has not been going into savings account, gathering interest, waiting for the day SS needs it, true (although it should have been, and if it had been, there would be absolutely zero problem, and it was something along those lines that was sold to the people it the 80s when this idea was implemented).

But what SS does have is government bonds. SS taxes were collected. The government spent that money, but it was a form of debt. When the bonds come up, the government pays its debt.

If you are trying to suggest otherwise, you are saying that the US government is no longer an entity that can be trusted. You are saying that the American government has collapsed.

That's nonsense. The government will pay back those bonds, period. The only question is will it pay them back fairly, for the use to which they should be put: SS. Or will the American people be hoodwinked in to letting their payroll taxes have been spent for something else.
posted by teece at 11:48 AM on December 30, 2004

oops, that last comment is addressed to bh.
posted by teece at 11:49 AM on December 30, 2004

In the private sector, the switch has been on for decades, from "defined benefit" plans (i.e. traditional pensions with a set pay-out) to "defined contribution" plans (i.e. IRA/401K with a set pay-in, with or without employer contribution).
posted by twsf at 11:49 AM on December 30, 2004

Teece -- Phew! I was afraid that my post was totally incomprehensible if that was the response. :-)
posted by nathanrudy at 11:50 AM on December 30, 2004

that's a very good idea nathan--just raising the income cap to 150,000 or 200k would bring billions into the program, i believe.

the AARP has some making up to do anyway, after supporting the Medicare card thing--they lost members over it.
posted by amberglow at 11:52 AM on December 30, 2004

I think what strike meant was: Bush is going to do as he pleases, so why fight it.

This is going to be interesting. I think privatization can and should be stopped by effective opposition. Clearly this is a race to see who can be more effectively bipartisan: Democrats and intelligent Republicans, or Republicans and weak-willed Democrats.

I think Bush might have met his match here. His proposal is risky, and worse yet, very expensive. SS surpluses, if I am not mistaken, are not sacrosanct. Hasn't the congress dipped into them in the recent past?
posted by gesamtkunstwerk at 11:55 AM on December 30, 2004

What the projections don't often talk about is that Congress (both parties, but mainly the Republicans) steals money from the Social Security funds on a regular basis.

unreason, I'm with you in spirit, but you are missing something very crucial. What you describe here, and what bh links to, is most certainly not a problem in SS. Not at all.

That is a problem in government spending. The real problem is very simple, and has nothing to do with SS: the government is spend 25% GDP, and collecting 18% GDP in taxes. That's why Bush's tax cuts have been so monumentally stupid.

The idea that SS needs "reform" is a fiction, and it leads to one place, and one place only, in the current American political system: the elimination of SS, in whole or in part, as a way to plug the hole that tax cuts have blown in the budget. That's the plan: it should be sold for what it is. Reform of SS really doesn't have a damn thing to do with it: SS needs no reform.
posted by teece at 11:55 AM on December 30, 2004

Thank you nathanrudy! All this discussion on Social Security and I hear and read so very little on the inequities of the income taxes that pay for it. Its almost like if you even mention it you are an outdated mid-century liberal or a communist. The concept of fairly and conservatively raising taxes seems to have disapeared from American policy discussion completely. It seems like the "problem" of Social Security is more easily (and fairly) solved than a lot of people want us to believe.
posted by Boydrop at 11:56 AM on December 30, 2004

teece: I do not think that the US government is an entity that can be trusted. However, I do expect them to pay back the bonds.

Of course, someone has to pay for the bonds. The money has to come from somewhere, and it isn't from some giant pool of money just waiting to be tapped. The money will come in the form of more taxes.

People seem to think that the 'trust fund' is some giant account that you pay into, and withdraw from later in life after it has gained interest. It is a misleading term, propagated by articles such as the one cited anove.
posted by bh at 11:57 AM on December 30, 2004

Its almost like if you even mention it you are an outdated mid-century liberal or a communist. The concept of fairly and conservatively raising taxes seems to have disapeared from American policy discussion completely.

Well, if you roll back the Bush tax cuts and lift the cap from Social Security, a top earner's marginal dollar will be taxed at 52%, excluding medicare, state, local, excise, and other taxes. I know that we can define "fair" in plenty of different ways, but "communist" isn't an unapt description for a government that claims over half the income of its most successful subjects.
posted by Kwantsar at 12:09 PM on December 30, 2004

Is this the same AARP that was at first against Bush's prescription drug plan and then for it?
posted by AstroGuy at 12:10 PM on December 30, 2004

Kwantsar, source?
posted by Floydd at 12:13 PM on December 30, 2004

[on preview: sorry this is so long. It fascinates me.]

(1) Social security, at the heart of it, is a Ponzi Scheme. The government isn't paying seniors their own investment with interest; they are paying seniors with current pay ins. Eventually (especially because of the slowdown in population growth and longer life expectancies), the people collecting will dwarf the people paying, and there will be trouble. Of couse, the AARP's current membership will be gone by then.

(2) Raising or eliminating the cap (or "income maximum" as nathanrudy refers to it) would be fundamentally unfair, unless you correspondingly raised the benefits for the people that paid above the old cap. I realize that it's an attractive option to just say "tax rich people more," but it's not all rich people. I make over $100,000, but with a mortgage and giant grad school student loans and a baby, I'm not burning $20 bills to light my cigars. A married couple that makes $50K each isn't rich, particularly if they want someday to start a family and mom (or dad, as the case may be) wants to stay at home for awhile.

(3) One thing to consider is that the AARP is just another giganto lobbying group. They are doing what's in the interest of their members: old people. Old people stand to lose the most from social security privatization, as even proponents recognize that there will be transition costs and likely lower benefits than some seniors and older baby boomers would otherwise see under the old system. The AARP, by railing against privatization, is acting at the expense of younger workers, who face a real prospect of paying in for their whole careers and getting no payout when they retire. Here's some more good stuff from Cato. (Then again, here's a site with all sorts of contrary research).
posted by AgentRocket at 12:16 PM on December 30, 2004

know that we can define "fair" in plenty of different ways, but "communist" isn't an unapt description for a government that claims over half the income of its most successful subjects.

So how do you define a government that largely rejects a progressive tax system in favor of the wealthy? Oh yeah, a source would be nice too. (OP - thanks floydd).
posted by Boydrop at 12:19 PM on December 30, 2004

I know that we can define "fair" in plenty of different ways, but "communist" isn't an unapt description for a government that claims over half the income of its most successful subjects.

Kwanstar, Only if you have absolutely no idea what communist means. So this 50% tax is accompanied by a near complete revocation of property rights, as well? No -- you just like the term communist because it is a quasi-intellectual way to say "eeeevil."

Wealth concentration is a very serious problem in a capitalistic society, and it is the natural enemy of a peaceful, prosperous democracy. See if you would like to live in the average country with a hight GINI index.

High upper tax brackets can help to ameliorate this effect, which is good for our democracy (and ultimately good for those poor rich souls that have to give so much to the government, God bless them in their mansions. Because their taxes help make sure the society which has so enriched them continues.)

Not even remotely communist.
posted by teece at 12:22 PM on December 30, 2004

I know that we can define "fair" in plenty of different ways, but "communist" isn't an unapt description for a government that claims over half the income of its most successful subjects.

I always wonder why nobody looks at the societies where the wealthy pay less? Your figure of 52% + state and local seems high. But compare countries where people are taxed more and less than the U.S. Pretty much all of the countries I'd like to live in pay higher taxes. But Kwanster, if your quality of life is dependant on lower taxes, perhaps you should consider moving to a land of those luck bastards are going to have flat tax!
posted by gesamtkunstwerk at 12:23 PM on December 30, 2004

BH,

You're very wrong on this point.

Saying that the trust fund *doesn't exist* is analogous to saying the US Treasury Bonds *don't exist*. The same way that the government has an obligation to repay Treasury Bonds they have an obligation to make good on the promises to the Trust Fund. Whether the government will need to raise taxes is debatable but those IOUs are US government obligations.

If your beef is semantics, fine. You don't like the term *Trust Fund*? Personally, I don't see the problem with the name. It's just a wording everyone agreed upon (and my educated guess is that it was Greenspan and the Reagan administration that came up with fix ... so it may be bipartisan name). But if you want to argue the narrow point, that's okay.

But please don't say there is no trust fund. Unless you're also saying there are no US Treasury Bonds ... which might suprise and upset a great many people
posted by Mike McD at 12:24 PM on December 30, 2004

Social security, at the heart of it, is a Ponzi Scheme.

AgentRocket: you don't understand Social Security, at all. SS is an insurance program, not a Ponzi scheme. Educate thyself.
posted by teece at 12:24 PM on December 30, 2004

Opps, I meant to include: perhaps you should consider moving to a land of opportunity, like Mexico, Turkey or Japan. Those lucky bastards in Iraq are going to have a flat tax, and dirt cheap realestate.
posted by gesamtkunstwerk at 12:25 PM on December 30, 2004

that's a very good idea nathan--just raising the income cap to 150,000 or 200k would bring billions into the program, i believe.

Oh, well, let's fill that 26 trillion dollar hole with a few billions! Of course, Larry Kotlikoff says that the total hole is about $50 trillion, but what's a trillion or two between friends?

On preview, do I really need to source tax rates? Okay. Here.

39.6 + 12.4 = 52.
posted by Kwantsar at 12:26 PM on December 30, 2004

Who will fight for the rights of the rich people dammit?!
posted by eatitlive at 12:34 PM on December 30, 2004

Okay, Mike McD, the trust fund exists, but consists only of IOUs written by the government to itself. Of course, even Tom Daschle admitted that "there is no such fund per se."

you don't understand Social Security, at all. SS is an insurance program, not a Ponzi scheme. Educate thyself.

That's rich. Please explain how Social Security differs from a Ponzi Scheme.
posted by Kwantsar at 12:34 PM on December 30, 2004

teece: my "Ponzi Scheme" analogy wasn't an original thought (not many of mine are). Writings for the Graduate School of Business at the University of Chicago, CCH, Slate (in an article against privatization), and "about 16,900" others have described it that way.

This is a fun discussion.
posted by AgentRocket at 12:36 PM on December 30, 2004

A long time ago, I was asked by someone what my plans for retirement were, and I answered, "Fighting with the other old people for scraps of rotting potato."

Social insurance plans and Ponzi schemes are, indeed, structured similarly. The only difference is that no sane person expects to get rich out of a social insurance plan.
posted by Sidhedevil at 12:41 PM on December 30, 2004

Only if you have absolutely no idea what communist means. So this 50% tax is accompanied by a near complete revocation of property rights, as well? No -- you just like the term communist because it is a quasi-intellectual way to say "eeeevil."

Okay, only a 52% revocation of property rights. Lets take an additional 8% for state and local taxes, and 3% for medicare taxes. 63% communist, then. And I hope this guy doesn't have a nice home.

Please forgive my quasi-intellectual use of the term "communist" to describe a regime which takes only 2/3 of the property of its subjects. I'll wait for the other 1/3 to disappear before I use such sloppy characterizations.
posted by Kwantsar at 12:51 PM on December 30, 2004

For the love of god, why, even, do cold-hearted capitalists want to "privatize" social security. After umpteen years of grad school I'm finally making some cash and I have started putting money into investments. From a completely selfish perspective I'd prefer to just get this hypothetical private investment account SS money back, where it would go with the rest of my savings. I'm already spending an increasing amount of time educating myself about and planning for my financial security.

The idea of doing any "investment" through some undoubtedly nauseatingly craptactular government-run (or contracted) web site is horrifying.
posted by Wood at 1:01 PM on December 30, 2004

the trust fund exists, but consists only of IOUs written by the government to itself

Kwantsar,

You say that if there's something wrong with IOU's written by the government itself.

If you had a securities account that holds $100 million dollars of US Treasury Bonds would you say "I've got a a securities account but it consists only of IOU's written by the government"
posted by Mike McD at 1:01 PM on December 30, 2004

...a government that claims over half the income....

Kwanstar: I'm sure you're aware that your 52% is a marginal tax rate (and that it applies only to taxable income). It's more than a little disingenuous of you to describe it as claiming "over half the income" of those subject to it.

While effective tax rates are difficult to figure out, I wouldn't be surprised to find that wealthy Americans wind up paying on the order of 10%. (I don't have time to look this up right now, unfortunately; I'd be interested in seeing the actual numbers, though.) If you're making enough money to be in the top bracket, and you're paying an effective tax rate of 66%, you sure as hell should be looking for a better accountant.
posted by mr_roboto at 1:02 PM on December 30, 2004

OK; here are two quick data points. Apparently, last year the Bushes paid an effective rate of around 30%, while the Kerrys paid an effective rate of around 13%. Two wealthy families, both paying well under 66%. And apparently, the considerable additional wealth of the Kerrys helped to lower their effective tax burden substantially. That's just anecdotal, though, I'd still be really curious about the actual statistics. Particularly if they include local taxes.
posted by mr_roboto at 1:11 PM on December 30, 2004

Oh yeah, partisan income tax stats from the nonpartisan Club for Growth, via a nonpartisan WSJ op-ed. Truly sources without a dog in this fight.
posted by metaldark at 1:16 PM on December 30, 2004

Please forgive my quasi-intellectual use of the term "communist" to describe a regime which takes only 2/3 of the property of its subjects. I'll wait for the other 1/3 to disappear before I use such sloppy characterizations.

Please stop trumpeting your ignorance. Taxes do not take *any* property -- only income. If the government nationalized your bullshit factory, *then* it would be taking your property.
posted by Slothrup at 1:17 PM on December 30, 2004

Actually, here in New Hampshire, USA, we have a property tax and it is super high (we have no other state taxes, in theory). Our local property tax rate went up by 50% this year. Thank GOD we got our national income tax relief (which indirectly caused this increase in our local taxes).
posted by crazy finger at 1:21 PM on December 30, 2004

Furthermore, you might take note of the fact that most Democrats and opponents of privatization agree that the system is in trouble. The debate isn't, and shouldn't, be about whether Social Security is broken. It's about how to fix it. The best way to derail privatization isn't to say that there isn't a problem. It's to argue that there are better ways of dealing with the situation.

Like others have pointed out, no, you're wrong. There is no problem with Social Security that slight changes won't fix. Privatization is just a way to guarantee that SS will be killed.
posted by bshort at 1:25 PM on December 30, 2004

Oh yeah, partisan income tax stats from the nonpartisan Club for Growth, via a nonpartisan WSJ op-ed.

I was thinking that this made for an even better argument, as the bias would be expect to support lower taxes. In fact, these partisan sources support (however anecdotally) my argument that the effective tax on weathly Americans is already quite low. Certainly lower than the 66% that Kwanstar is claiming.
posted by mr_roboto at 1:25 PM on December 30, 2004

From the Congressional Budget Office: Effective Federal Tax Rates and Shares Under Current Tax Law, Based on 2001 Incomes, by Income Category, 2001 to 2014. Summary: highest quintile pays 26.8% in all federal taxes (not just income tax), while the top 1% pays 33.0%. Not quite your 66% figure.
posted by jnthnjng at 1:28 PM on December 30, 2004

Wait, I just realized that I must have missed something? Has Bush announced his plan for privatization? What will happen to those who invest in crap stocks -- do they just drop through the safety net? Social Security doesn't just cover retirees, it also pays benefits for disability and minors whose parents die. How will privatized funds become available for those groups? Is investing compulsory? What will happen to those who retire in a down economy? Will I be able to opt out of investing at any time and put my money back in the trust fund for a better rate or just to make things easier? What are the stocks or funds that I'll be able to invest in and who picks them -- the actuaries at the SSA? How will the money remaining in the trust fund be affected by funds lost to privatization? Will capital gains earned on retirement investments be subject to taxes? Will I be able to withdraw funds before the age of 62 to buy a house?

What are the details of the Bush plan? Anyone have a link?
posted by eatitlive at 1:33 PM on December 30, 2004

a regime which takes only 2/3 of the property of its subjects.

2/3 of the INCOME (not property) of the 1% of it's richest subjects. asshole.
posted by quonsar at 1:38 PM on December 30, 2004

read it and weep
posted by amberglow at 1:41 PM on December 30, 2004

Please stop trumpeting your ignorance. Taxes do not take *any* property -- only income.

You can't be serious. Income isn't property? So If I came up to you on the street, and stole (and later cashed) your paycheck, I would not have violated your property? Toot-toot goes the trumpet, I guess...

Apparently, last year the Bushes paid an effective rate of around 30%,

Did that include state, local, and payroll taxes? Hard to comment if I cannot see the the editorial. Furthermore, remember that:
1. My original remark was based upon a rollback of the Bush tax cuts and a removal of the payroll cap.
2. Bushes and Kerrys are poor examples because they have great wealth, but not great income. Because of how capital gains and dividend taxes work, the idle wealthy pay far less than the 80-hour a week physician or investment banker.
3. I understand the marginal rate concept, but the 288K (or whatever the number is) that is taxed at a lesser rate fades in significance very fast as we start to discuss people with millions of dollars in income. The 52% example isn't far-fetched. People who are self-employed can defer income, open defined contribution plans, et cetera-- but people who work for others and earn W-2 wages have little they can do to avoid taxes. Sure, they can shelter their accumulated wealth, but wages are wages.

And, jnthnjng, for fuck's sake, read what I wrote:
Well, if you roll back the Bush tax cuts and lift the cap from Social Security...

If you had a securities account that holds $100 million dollars of US Treasury Bonds would you say "I've got a a securities account but it consists only of IOU's written by the government"

No. But if I had that account, and I also had a $100mm tax bill, I would realize that 100mm -100mm = 0.
posted by Kwantsar at 1:43 PM on December 30, 2004

If there is any justice in the world there will be a special place in hell for Alan Greenspan at the side of George Bush. In the 50's Greenspan quite literally sat at the foot of Ayn Rand. His first chance to apply her cult philosophy came in 1983, after Reagan's massive tax cut for the rich, when Greenspan helped author the payroll tax increase on working Americans. This tax increase has generated surpluses for the last 20 years in the Social Security trust fund, ostensibly to guarantee the solvency of SS forever.

But in 2001, Greenspan endorsed the Bush tax cut for the rich when he knew better than anyone that it was simply a raid on the trust fund and a transfer of the working American's retirement money to the wealthy. Remember that nice $600 check you got from the government back in 2001? It was the thirty pieces of silver you were given in exchange for handing a trillion dollars of tax breaks to the rich.

And now three years later they have the unmitigated gall to come back and say we must cut the benefits of the elderly because their hard earned money has somehow vanished.
posted by JackFlash at 1:52 PM on December 30, 2004

The issue is simple.

For the elderly, Social Security is not broken, they can keep withdrawing funds for the rest of their lives.

For the young, Social Security is terribly broken. We can't expect to draw much out of SS unless the system is radically changed.

Considering that SS was a program designed to protect against Great Depression type events and that our economy has managed to weather countless wars, accounting fraud scandals and market crashes since, it is time to scrap the program.

Do you want to support a government backed Ponzi Scheme?
posted by b1tr0t at 1:52 PM on December 30, 2004

AgentRocket: you don't understand Social Security, at all. SS is an insurance program, not a Ponzi scheme. Educate thyself.

The invasion of Iraq is not an oil grab, it is a mission to spread freedom to the Iraqi people.
posted by b1tr0t at 1:56 PM on December 30, 2004

Income isn't property? So If I came up to you on the street, and stole (and later cashed) your paycheck, I would not have violated your property?

An income tax is a transaction tax. It's not your property until after the tax is paid. If sales tax is 10% and you sold something to someone for $10, they would pay $11 -- $10 to you and $1 to the state. Would you say that the state took 9% of your property?

Regardless, your perspective is wrongheaded. All you people who think of the state as taking "your" money are engaged in ridiculous fantasy. You wouldn't be collecting *any* kind of a paycheck if the state weren't there for the common good. You are protected by the state's soldiers and policemen. You drive on the state's roads. Your financial transactions are in the state's coin. And above all, you benefit from the stability created by the state. Look at just about any African country if you want to see what life is like without stability. No investment. No jobs. No safety. No money. Is that really what you'd prefer?
posted by Slothrup at 2:01 PM on December 30, 2004

Kwantsar, I feel for those people who are slaving away for the man for over $339,850 a year. I really do. Especially if they have absolutely no help whatsoever to structure their finances so as to minimize their tax burden. That's silly for them to live like that. There are incentives our government has built into the tax code to encourage high income people to invest. If they don't take advantage of those incentives and deductions, then they don't deserve to keep that money.
posted by Floydd at 2:04 PM on December 30, 2004

Kwantsar,

Are you putting me on or do you really think SS is in a situation where liabilities offset the assets?
posted by Mike McD at 2:06 PM on December 30, 2004

People, the Ponzi scheme stuff is pure, unadulterated crap.

Drop it. It's amazingly disingenuous. First off, a Ponzi scheme is a fraud, an attempt to deceive. SS, even if it was structurally similar (which it isn't), it would be very dishonest to call it a Ponzi scheme, as there is zero intent to defraud.

Second, unless you are willing to call the entire insurance industry a Ponzi scheme, you have no leg to stand on.

SS is insurance. Rather than have some people retire millionaires, some average, some eating cat food and drinking from lakes, SS attempts to make sure that there is a bare minimum that no citizen ends up below in retirement.

The only way it would ever have a structural problem like a Ponzi scheme is if the population of America were to grow without bound. If you really believe that can happen, I have a perpetual motion machine I would like to sell you.

This whole crap about Ponzi is a completely dishonest attempt to capitalize on the very temporary problem of an aging population.
posted by teece at 2:07 PM on December 30, 2004

If the government nationalized your bullshit factory,

I've read that three times now and I'm still laughing.
posted by XQUZYPHYR at 2:11 PM on December 30, 2004

Bushes and Kerrys are poor examples because they have great wealth, but not great income. Because of how capital gains and dividend taxes work, the idle wealthy pay far less than the 80-hour a week physician or investment banker.

So, okay, then let's scrap rasing taxes on workers and focus on the idle wealthy. Let's do what conservatives love to do and eliminate the payroll taxes that pay for SS and instead, just increase (or heck, even collect what's already owed) taxes on unearned wealth.

But, the Republican/conservative mantra of tax elimination only really extends to those taxes that only the very few (super rich) actually pay. The rest of us . . . well, we might get rich one day and join the club too!

For the young, Social Security is terribly broken. We can't expect to draw much out of SS unless the system is radically changed.

Again, how and exactly in what way is SS "terribly broken" that it requires "radical" change? If there are more baby boomers than payees, then we temporarily raise taxes to cover our promise to them. Also, don't forget, baby boomers will die, its not like they are going to be around for centuries. Its a temporary ISSUE, not a forever PROBLEM. On preview, what teece said.
posted by Boydrop at 2:12 PM on December 30, 2004

Kwantsar,

Question for you. You think the trust fund doesn't really exist because Social Security is really just part of the larger overall government, correct?
posted by Mike McD at 2:25 PM on December 30, 2004

That's rich. Please explain how Social Security differs from a Ponzi Scheme.

A Ponzi scheme can only continue by growing. If everyone is in the scheme, it breaks down.

Social Security is a transfer scheme, like any other sort of dole. It can be sustained indefinitely. The only "Ponzi-scheme" like characteristic of it is that people pay for a relatively long time and get paid for a relatively short time, so there are more payers than receivers.

Look, you could give *everyone* in the country Social Security benefits, though obviously not with the current rate. You collect taxes, and you redistribute the funds. Most people would see no net benefit, or a net loss, because they'd have it taxed away again (or taxed away, and then some). You could then sustain this indefinitely (at least economically; whether the population would stand for it is another question).

If it's possible to sustain paying everyone Social Security benefits forever, it's obviously possible to keep it going with only a fraction of the population getting it.

Social Security is not a Ponzi scheme, it's a welfare scheme.
posted by ROU_Xenophobe at 2:28 PM on December 30, 2004

Kwantsar, please look up "marginal tax rate".

Furthermore, I don't understand something. Republicans talk about flat taxes as some sort of magical mystery cure for everything. But when faced with removing a cap (the $80,000 income cap), someone who supports SS privatization over such a change is effectively supporting a graduated, regressive system in which the wealthy are taxed less than the poor.

Kwantsar, for what it's worth, I appreciate your enthusiasm for the topic. But I don't think anyone has made the case for any particular plan for fixing SS. The right come across like raving (and hypocritical) ideologues. The left come across as confused and directionless. And young people don't give enough of a shit to mobilize and lobby for an SS program we can live with.

Anyway, I'm just waiting for the children of the post-war-on-terror baby boom to finance my retirement... Yay us.

On preview: I'm happy with SS being a transfer scheme. Marginalize the aggregate wealth and earning power of the nation to support those who are in their last years? That sounds like a terrific way to honor our parents. People who oppose that are simply selfish. (And, I really don't mean "selfish" in a pejorative sense.)
posted by socratic at 2:38 PM on December 30, 2004

Thanks, amberglow, but I wish that press release answered my questions with more specifics. I know, I know... Bush is an idea man. Still, I haven't heard him entertain the possibility of a down market. Also, so much of his talk is focused on the individual. It's oh, so sly that his proposal is called "Retirement Security" -- removing "Social" takes us that much further away from the notion of a safety net for all Americans.

There's enough suspicion about the future of Social Security that people will be willing overlook the obvious investment risks of this proposal -- and damn those who lose out on the deal. That much is clear, but why is the free market crowd suddenly all kinds of cozy with deepening government's involvement in the stock market? Beyond the individual investment risks, there are also political risks for the economy as a whole. There will be just too much temptation for the government to regain control over these quasi-tax investments when the market isn't convenient for retirement. It's hard to imagine, oh say, a Spitzer White House abiding any seniors eating cat food without fiddling around in there.
posted by eatitlive at 2:52 PM on December 30, 2004

Mike McD-- Of course, the present value of future liabilities of Social Security is offset by nothing other the taxing power of the state. If you say "It has treasury bonds in it," (which, while technically true, is nothing more than a bookeeping artifact), the fact remains that these bonds, again, are secured by the taxing power of the government.

You misunderstand my argument about the trust fund. Or maybe you simply fail to acknowledge it. Let's try it again. At this point, the government collects more in Social Security revenues than it pays out. At the same time, it collects less in other taxes than it has spent. For bookkeeping purposes, the government has chosen to handle this imbalance by putting treasury bonds in the SS account. In other words, it partially offsets a debt in one part of the ledger with a surplus in another.

When the day comes that payroll tax revenues are less than social security benefits, the government will not tap the trust fund's real assets, because they do not exist. What does exist are those same bonds that it earlier placed in the account. These bonds do not provide the government with additional resources. If you wish, I suppose you could say that they provide the Social Security account with the resources of the general fund, which of course come from the same place: the taxpayer. They are IOUs, representing an agreement that general revenues will pay for their part of Social Security until the bonds are exhausted. Whether the trust fund contains quadrillions of dollars or absolutely nothing, its payments will ultimately come from borrowing or taxation.

Whether or not these bonds exist, the outcome is the same. The money comes from the same place.

ROU_Xenophobe: You are clearly more learned than I, and probably one of the most intellectually honest people on Metafilter. But this statement: The only "Ponzi-scheme" like characteristic of it is that people pay for a relatively long time and get paid for a relatively short time, so there are more payers than receivers. seems to be nit-picking. What in the following statement would you disagree with:

"Like Ponzi's scheme, Social Security could be sustained at any level of payout, as long as the number of new entrants is sufficient. Additionally, as Social Security is currently administered, the ratio of new entrants to the system is dropping in proportion to the number receiving payments. Like it does in a Ponzi Scheme, this is when trouble begins to loom (as it does in our current system)."


socratic: I wrote Well, if you roll back the Bush tax cuts and lift the cap from Social Security, a top earner's marginal dollar will be taxed at 52%, and I understand the marginal rate concept, but the 288K (or whatever the number is) that is taxed at a lesser rate fades in significance very fast as we start to discuss people with millions of dollars in income.

Do you honestly think I do not understand what a marginal rate is?

eatitlive: The free-market crowd does not unanimously support the idea.
posted by Kwantsar at 2:58 PM on December 30, 2004

When President Roosevelt signed the Social Security Act in 1935, he did so with the stipulation that it would NEVER be privatized. He saw what is not apparently obvious to the Bush administration. Privatization means that the banks get their hands on the money - and the people see less of it.
posted by friendob1 at 2:59 PM on December 30, 2004

kwantsar: "2. Bushes and Kerrys are poor examples because they have great wealth, but not great income. Because of how capital gains and dividend taxes work, the idle wealthy pay far less than the 80-hour a week physician or investment banker."

To sort of join Boydrop in prosecuting this statement, I'd like to ask if anyone really thinks that receiving say, $4 million in capital gains by selling investments that have gained value in the stock market is really much different than being paid $4 million in income for working at a job somewhere.

Yes, the legal definition of capital gains vs. income separates these two sums, but the reality is that $4 million entered both households. In the practical sense, it's income, is it not? If all I make in one year is $4 million in investment income, and I didn't work for pay, I still made $4 million, and I'm paying my bills with it.

The difference is that nowadays, one of those sums is taxed, and the other one is not, IIRC. Didn't the Administration do away with, or at least sharply curtail, the capital gains tax?

So, wealthy people with lots of investment money, who are smart and diversified with their investments, don't have to do a damn thing most years but call their broker to move money around, and they can make more money than I'll likely make in a lifetime in a single year, and not get taxed on it, while I'm losing 40% of my paycheck to all the various taxes that I (and my employer, I might add) pay. (And I don't make anywhere even remotely near $4 million.)

And that's fair, huh? Hmm.

Once you factor in that most really wealthy people aren't actually working for a living - at a certain point of wealth they have bought themselves the ability to sit back and let their money work for them - then taking 50% of their "income" from them seems a bit less harsh, I think.

On preview: it seems like you're getting ganged up on, kwantsar; I don't mean to pile more on top. However I think the distinction between income earned by a working person and that "earned" via capital gains and investment income should be addressed in terms of taxation. The top 1%, IMO, are not paying their fair share, and are working on more and more ways to pay even less.
posted by zoogleplex at 3:07 PM on December 30, 2004

And buying shares in corporate debt is not also a "Ponzi scheme?" I have a framed share of Enron common stock I'll be happy to sell you.

Carlo Ponzi created a scheme to defraud, to intentionally steal money from suckers: that is the difference between a criminal enterprise and an insurance program for widows and orphans funded by taxes. The "Ponzi" meme is another cynical effort to frame the concept of "social security" in pejorative terms. After all, even Kwantsar could not possibly be against "security" for the little olde ladies of our erstwhile "society." Or could he? Whence the madness of those who seem to believe that a successful mass society need not invest in its collective well-being?

Social Security is an investment for a future society in which crippled, lunatic and elderly Americans are not dying on street corners and stinking things up for the likes of AgentRocket and his trophy third wife. It is easier to make provision today rather than haul off the bodies twenty years on. Far less paper work. . .

Shame on all who are unwilling to invest "income" in the society that makes it possible for them to drive an Acura to the country club. Having contracted grad school debts to enable one to earn a six-figure salary does not entitle one to shirk a rightful--that is, not "stingy"--share of the "condo assessment" that accrues to every citizen. My taxes pay for a beshitten war in Mesopotamia as well as for the support of the "Greatest Generation." I am proud to be able to make my contribution--even if I don't always agree with the uses to which it is being put. I do it in the name of civil society, the res publica that most "Respublicans" seem to forget about these days.

Bush and his pals want to destroy Social Security. Period.
Anyone with the dough can already invest in "private accounts" to their heart's content.
posted by rdone at 3:07 PM on December 30, 2004

then let's scrap rasing taxes on workers and focus on the idle wealthy

I'm all for this. Surely you Republicans can't have a problem with taxing people who haven't worked a day in their life, who sit on their wealth to the detriment of those working their butts off for their hard-earned dollar?

Of course, there was another guy who liked this kind of thinking, but he was assassinated in the 30's.
posted by Civil_Disobedient at 3:11 PM on December 30, 2004

ROU_Xenophobe: What in the following statement would you disagree with: "Like Ponzi's scheme, Social Security could be sustained at any level of payout, as long as the number of new entrants is sufficient."

I'm not ROU_Xenophobe, but this statement is intellectually dishonest because, by focusing on the similarities between Social Security and a Ponzi scheme, it creates the impression that there is something shady or unworkable about Social Security. What in the following statement would *you* disagree with:

"Unlike Ponzi's scheme, Social Security could be sustained indefinitely because, on average, the net present value of the payout was roughly on par with the net present value of the monies paid in."
posted by Slothrup at 3:14 PM on December 30, 2004

What in the following statement would you disagree with:

"Like Ponzi's scheme, Social Security could be sustained at any level of payout, as long as the number of new entrants is sufficient. Additionally, as Social Security is currently administered, the ratio of new entrants to the system is dropping in proportion to the number receiving payments. Like it does in a Ponzi Scheme, this is when trouble begins to loom (as it does in our current system)."

I don't know what ROU has to say, but what is wrong with that statement is completely obvious. A Ponzi scheme tells all new members they will get a payback, if they go get new members to pay existing members. This works, for a while. Eventually, there is no longer anybody to recruit, and the last folks to put money in get nothing, while the first folks got rich. A Ponzi scheme is completely, 100% reliant on the impossibility of an ever-expanding pool of people, which is why it is a fraud and a crime to implement one.

SS is absolutely nothing like that, nothing at all, and it is completely obvious that it isn't, which is why I keep harping on this Ponzi talk. Hopefully your just confused, because if you're not you're being dishonest. SS does not require an ever expanding base of workers -- any size base will do, but the ratio of workers to retirees will affect the benefit that can be offered.

SS DOES NOT REQUIRE an ever expanding base of people to pay in. Period. Just because the ratio retirees to workers is increasing is no evidence of a Ponzi scheme, at all. It simply means one thing: benefits must drop, or taxes must go up. Even if you want to make the (incorrect) argument that SS can not deal with that, IT IS STILL NOT a Ponzi scheme.

It's an insurance program. It can go on forever -- and assuming the people want it, it will go on forever. But if young people keep falling for the complete lie that SS is a Ponzi scheme, they will screw themselves out of their own benefit.
posted by teece at 3:16 PM on December 30, 2004

I have similar questions, and found a little more detail in the final report (pdf) from the President's Commission to Strengthen Social Security. I haven't gotten very far through it, but pages 14 through 17 summarize three reform models, and if I understand things correctly, none of the plans promote investing 100% of Social Security taxes into private accounts.

This article suggests that the second model is getting the most attention, where an individual can "voluntarily redirect 4 percent of their payroll taxes up to $1000 annually to a personal account." So it seems part of Social Security would stay the same while part could be redirected to personal accounts.

As for investment vehicles, the final report (pages 44-46) talks about using a combination of the Thrift Savings Plan and private sector funds that have been approved by some governing board.
posted by hoppytoad at 3:41 PM on December 30, 2004

NY Times (registration required?) columnist Paul Krugman sneaked back into work from his sabbatical to write a December 7 column debunking Bush's plan for social security. His December 10 column is a followup.
posted by neuron at 4:01 PM on December 30, 2004

zoogleplex: I'm not sure that you're (entirely) disagreeing with me. My point was that 52% of the income of the top wage earners (again, in Fed taxes and payroll taxes alone) is excessive. Your point seems to be that we need to tax unearned income (or wealth, maybe) to a greater extent. The top 10% of taxpayers pay 41% of the taxes. Whether we should move some workers out of this group and replace them with investors is an issue that I haven't taken a position on. I think 41% is enough for the top 10% to pay. Maybe you'd like a bigger number. But thank you for your courtesy, nonetheless.

rdone: And buying shares in corporate debt is not also a "Ponzi scheme?" I have a framed share of Enron common stock I'll be happy to sell you.

That's ridiculous. First of all, common stock is not corporate debt. Second of all, I am not defending Enron. Third of all, the stock market isn't a ponzi scheme. It arguably functions like one, sometimes, when idiots pay $240/share for Yahoo and the smart money runs away, but when a company issues stock or debt to expand, it uses the proceeds to satisfy consumer demand, not to give it to someone else because they were there first.

Shame on all who are unwilling to invest "income" in the society that makes it possible for them to drive an Acura to the country club.

There is a group of people who believe that people should be responsible for themselves. They believe that collectivism is unjust and has many, many unintended consequences. They believe that just as society makes it possible that they may buy an Acura, so do they make it possible that society benefits from their abilities. Dole out all the shame and class warfare you'd like, I guess, but this is a profound philosophical difference on which consensus is nigh impossible to find.

Bush and his pals want to destroy Social Security. Period.

Nah. They're corporatists. They want to tilt the playing field. The minarchists and libertarians are the ones who want to kill Social Security, the powerful Republicans just want to buy votes and rake in donations.

Slothrup-- There is something shady about Social Security. The earliest recipients got a free ride. The program is de facto racist and sexist. If we continue our current method of benefit calculation, our young people will have to pay a burden far greater than that of their parents or grandparents. Your statement:

"Unlike Ponzi's scheme, Social Security could be sustained indefinitely because, on average, the net present value of the payout was roughly on par with the net present value of the monies paid in."

confuses me. Are you claiming that the present value of the future liabilities is equal to the present value of future contributions? Because with our current tax rates and benefit schedules, that's not the case at all. Are you talking about past liabilities and benefits?

teece-- I'm not sure that I understand what you're talking about. "SS DOES NOT REQUIRE an ever expanding base of people to pay in" is technically correct, but it does require that some base of people continue to pay in. Your argument that a smaller group of people can just pay more is also correct, but as I stated earlier, the people at the front of the line get the benefits, while the people at the end of the line get fucked.

Further, your claim that Eventually, there is no longer anybody to recruit, and the last folks to put money in get nothing, while the first folks got rich. isn't applicable in this sense. Because new people are born, there are new people to recruit in a Ponzi scheme. Because new workers enter the workforce, there are new people to pay Social Security taxes. That parallel is squeaky clean.
posted by Kwantsar at 4:18 PM on December 30, 2004

Do you want to support a government backed Ponzi Scheme?

The more relevant question is why our alternatives are being framed as "Ponzi Scheme!" or "Privatize!"

The debate should be about how to reform, not whether to reform.

Amen. And there needs to be discussion about other alternatives to privatization, which despite blind faith in the god Market, does not necessarily delivery greater efficiency or security.
posted by weston at 4:18 PM on December 30, 2004

Damn. This thread is good.
posted by zpousman at 4:23 PM on December 30, 2004

Are you claiming that the present value of the future liabilities is equal to the present value of future contributions?

No, I'm claiming that for an average participant in the Social Security system, the amount paid out is on par with the amount put in. Ponzi claimed that you would make orders of magnitude more money than your initial contribution -- a claim that's clearly not sustainable in the face of a finite population.

It's true that, in the beginning, some people got disproportionately large payouts. But that was a long time ago.
posted by Slothrup at 4:36 PM on December 30, 2004

teece-- I'm not sure that I understand what you're talking about. "SS DOES NOT REQUIRE an ever expanding base of people to pay in" is technically correct, but it does require that some base of people continue to pay in.

Kwanstar, you explain to yourself why SS is not a Ponzi scheme right here. In a Ponzi scheme, it is an absolute requirement that brand new people be recruited, because there was never any value to begin with. There was just a con artist saying to 50 people, you each go get 10 people to give you a $100, and I'll give you $$.

In SS, there is no such arrangement. The current workers pay an insurance premium every paycheck, to make sure that previous retired workers have a bare minimum standard of living in retirement. There is never a need for an ever expanding base of workers. Therefore, it is not a Ponzi scheme, period, end of discussion. The fact the new workers enter and old workers die is not germane, and is only the barest of superficial of resemblance to Ponzi scheme. The only reason misguided folks and dishonest hucksters can get away with calling it a Ponzi scheme right now is because of a temporary problem: the baby boom.

But that is a temporary problem that is easy to fix, not some systemic flaw. There is no free money in SS -- it is just insurance. Is insurance magic? Is it a Ponzi scheme? No. It is a person, being risk averse, deciding to pay $X to an insurer, guaranteed, every year, rain or shine, rather than face the uncertainty of paying $0 most years, but $50X one year. SS is the exact same thing -- insurers can do it because they collect from a diverse body of people. SS can do it because it collects from the entire body of American workers. If things change so that a group of people's payouts are hard to cover with existing insurance premiums, an insurance company just raises rates. Right now with SS, that is all we have: rates need to go up because of a temporary glut of baby boomers. This is not a crisis. (And in many ways, SS is better than private insurance, as there is no profit being taken from the premium -- with the exception of a couple of percentage points, 95%+ of the money withheld from your check as FICA goes right into the pocket of some retiree).

The only way SS would truly collapse is if America were to end up with some huge ratio of workers to retirees, like 100 retirees of every worker, and that simply is not going to happen. And more to the point, if it did, Social Security would be the worst of our worries.

Some people don't like SS, and want to abolish it. That is fine. What's not fine is a) lying about wanting to abolish it by calling the abolishment "privatization" and b) pretending SS is some giant scam perpetrated on the American worker, or c) trumping up a false sense of crisis to scare voters into doing something they would otherwise not want to do.

Currently, ALL THREE of these things are being done by the folks in Washington.
posted by teece at 4:45 PM on December 30, 2004

Kwantsar, you are a sophist if there ever was one. I marvel at your ability to offer spurious rebuttals. Where is your paradise where everyone takes care of themselves at no cost to the elite? North Korea? El Salvador?

What about the "many, many unintended consequences " of capitalism? What is so "shady" about "free" welfare payments to the elderly, the source of your Objectivist gene pool, and without whom we might all be driving Hondas produced in the Greater East Asia Co-prosperity Sphere?

I see you are gravely concerned that "our young people will have to pay a burden far greater than that of their parents or grandparents." You have thus identified yourself as neither a parent nor a grandparent. Your altruism for "our young" is belied by the flinty selfishness that informs your other pronouncements.
posted by rdone at 5:15 PM on December 30, 2004

the government will not tap the trust fund's real assets, because they do not exist. What does exist are those same bonds that it earlier placed in the account. These bonds do not provide the government with additional resources.

Kwantsar,

Just so I understand you correctly, you are saying that government and SS are one in the same, correct? Because if you had some independent entity that owned Treasury Bonds, you certainly wouldn't say their assets didn't exist, right?
posted by Mike McD at 5:23 PM on December 30, 2004

Well, if you roll back the Bush tax cuts and lift the cap from Social Security, a top earner's marginal dollar will be taxed at 52%, excluding medicare, state, local, excise, and other taxes. I know that we can define "fair" in plenty of different ways, but "communist" isn't an unapt description for a government that claims over half the income of its most successful subjects.

Quick: What was the income tax rate for the top bracket in the US in the 1950s?

I'll give you a hint. It's a much higher number than 52%.
posted by krinklyfig at 5:40 PM on December 30, 2004

Drop it. It's amazingly disingenuous. First off, a Ponzi scheme is a fraud, an attempt to deceive. SS, even if it was structurally similar (which it isn't), it would be very dishonest to call it a Ponzi scheme, as there is zero intent to defraud.
...
The only way it would ever have a structural problem like a Ponzi scheme is if the population of America were to grow without bound. If you really believe that can happen, I have a perpetual motion machine I would like to sell you.


The US population was growing when SS was instituted. To the citizens and politicians around then it did seem like the population of America would grow without bound. Now we see that the US population can be flat or even decline. When the population isn't growing the current SS system does not work.

Mr. Ponzi started his scheme as a legitimate investment. When he discovered that his investment plan didn't work, he continued to take in new money to pay off old investors. This is roughly the same problem Enron had - it paid off current creditors with money borrowed from the future without any legitimate profit-earning business. If you continue to ignore the ponzi-nature of SS, it will eventually blow up. If we face reality, we might be able to fix it.

It doesn't matter if SS was designed to break or if it was just a poor design. Social Security *will* fail and the ignorant will suffer.
posted by b1tr0t at 5:40 PM on December 30, 2004

Little did Eisenhower know he was the leader of a communist country.
posted by krinklyfig at 5:42 PM on December 30, 2004

the US population is not flat or in decline at all--we just hit 297 mil, and will hit 300 within 5 yrs.
posted by amberglow at 5:44 PM on December 30, 2004

oops-293, up from 290 a year ago.
posted by amberglow at 5:45 PM on December 30, 2004

kwantsar: "zoogleplex: I'm not sure that you're (entirely) disagreeing with me... Your point seems to be that we need to tax unearned income (or wealth, maybe) to a greater extent. The top 10% of taxpayers pay 41% of the taxes."

Waaait a minute there, please be sure to clarify that - the top 10% of taxpayers pay in 41% of their income in taxes - that's not the same as saying they pay 41% of the total tax bill. Just want that point put straight.

I'm not entirely disagreeing, you're right. Taking 52% of a wage-earner's income at the Federal level is too much.

But I don't think taking 52% of a wealthy non-worker's capital gains income is too much. I think you'd agree that each American should pay in their share, as fair as possible. I put to you that people like the Bushes and the Kerrys are NOT paying their fair share because the bulk of their income - NOT derived from personal work like most of the bottom 97% of America - is not taxed at all, or if taxed is not at anywhere near the rate of worker's income. And I say workers, I mean everyone who has a job for a living: blue collars, white collars and professionals, doctors and lawyers, even if they are making $500,000 or even millions in a year. Anyone who can't afford to sit around on their asses while their broker sends them checks from their gains.

And that should be addressed.

Don't get me started on corporate tax shelters and offshoring corporate HQs to the Caymans...
posted by zoogleplex at 5:47 PM on December 30, 2004

Mike McD - I would say that US debt is reaching a point where the US is in danger of defaulting. I don't think the US actually will default. I think the US will continue to borrow to finance past borrowing as long as somebody somewhere will loan it to us. Barring that, I think the US will devalue to the dollar to such an extent that people holding US debt currently will find they don't get back anything like the same value that they put in. That means that SS will likely be shortchanged when it comes time to collect.

So yeah, I think the government has spent a great deal of our payroll taxes in order to buy short-term gains that I don't think we'll be able to recover.
posted by willnot at 5:52 PM on December 30, 2004

OK, for historical perspective, the top income tax rate in the 1950s was 91%. Kennedy dropped this rate to 70%, and Reagan dropped even further, and it remained at around 35% until Bush, and now it's 30%. Corporate tax rates have declined similarly thoughout this period. Of course, this doesn't address payroll taxes, which have increased from 3% to over 18% since the '50s.
posted by krinklyfig at 6:00 PM on December 30, 2004

And we still pay much less than other industrialized nations (we get much less too, unfortunately)
posted by amberglow at 6:09 PM on December 30, 2004

zoogleplex: Waaait a minute there, please be sure to clarify that - the top 10% of taxpayers pay in 41% of their income in taxes - that's not the same as saying they pay 41% of the total tax bill. Just want that point put straight.

Look at the table again. I misread it too. The top 10% earns 41% of the income, but pays 65% of total federal income taxes.

I am kicking myself for spending so much time here today. Stick a fork in me.
posted by Kwantsar at 6:32 PM on December 30, 2004

(this thread is good. teece is good.)
posted by eustacescrubb at 6:45 PM on December 30, 2004

The top 10% earns 41% of the income, but pays 65% of total federal income taxes.

You also have to realize that a big part of the reason for that is that the top 10% earns a great deal more than the bottom 90%. This seems obvious, but their contribution is going to be larger simply because a percentage of a large income is greater than the same percentage of a small income. I would guess that even a flat tax won't change this too much.
posted by krinklyfig at 7:04 PM on December 30, 2004

krinklyfig-- Your assertion is counter to the text you snipped. Do I misunderstand you? Or do you mean "income per capita"?
posted by Kwantsar at 7:10 PM on December 30, 2004

The top 10% earns 41% of the income,

I don't think the tax foundation tells the whole story. A few years ago I did an analysis of the 2001 census data that suggested the top 20% of the earners getting 56% of the total income, the bottom 80% of the getting 44%. This is actually somewhat at odds with the tax foundation's data (also mentioned in the same thread), because it suggests a wider income disparity. Of course, my numbers are going to have the problem that a statistical sample is pretty unlikely to capture the rare true *very* high earners that would skew the income disparity higher (an advantage that the tax foundation's numbers have), but conversely, the tax foundation's numbers are going to leave out a large number of earners who don't get on the radar because they don't make enough to have to file.

In some ways, this actually strengthens the case that the bottom earners are carrying less of the tax burden -- but it also highlights why. As I said in the thread, when you're surviving on under a grand per month, every dollar counts, and by the data I pulled from the census, some 20% of men sample are actually surviving on under $10 grand per year.

Also, the tax foundation data doesn't include social security, a tax which is primarily regressive, yet in actuality funds all kinds of things other than what it was intended for.

This last part is, of course, the biggest argument against SS. It is in fact a regressive tax that if left unchanged, will likely provide no benefit for a large set of those currently paying into it who need it most. Reform is therefore key.

Still, I'd rather see total elimination of it than Bush's plan, which seems likely to deliver the worst elements of a government and a private sponsored plan. The man may even have good intentions, but he's never, ever even lived in the world of people who actually need SS, doesn't demonstrate and dazzling grasp of policy, hires people who share his ideologies and who are personally loyal. He's too socially isolated and too stupid to actually create the kind of policy we need.
posted by namespan at 7:15 PM on December 30, 2004

Instead of using deciles, Kwantsar, let's be less deceptive and look at the real culprits: those in the top 1%. They have over 38 percent of the wealth and pay 24.8 percent of federal taxes. These households have an average wealth of $10.2 million and pay only 3.5 percent of their wealth in taxes. The bottom 40% of taxpayers have an average net wealth of $1,100 and pay 163% of their net wealth in taxes. (Source: Congressional Budget Office). This amounts to a consolodation of wealth not seen since the 1920s.
posted by Civil_Disobedient at 7:18 PM on December 30, 2004

Thanks, C_D. That's more like it, I think.
posted by zoogleplex at 7:27 PM on December 30, 2004

krinklyfig-- Your assertion is counter to the text you snipped. Do I misunderstand you? Or do you mean "income per capita"?

What I mean is that, since the top earners have incomes far and above what the lower brackets earn, that their contributions to taxes will be higher. Let's look at an example. Joe Six Pack earns $30,000/year. Let's say he pays 20% income tax. So, Joe's tax bill is $6000. Now, Joe Millionaire makes $3,000,000, and let's say there's a flat tax, so his income tax is also 20%. However, since Joe M. earns so much more, his tax bill is $600,000. Now, when you put those numbers into a budget, you end up with numbers like, the top 10% are paying a large chunk of the taxes. But that in an of itself isn't relevant. What is relevant is the percentage of the wealth the top 10% earn as compared to the bottom 90%; if you're going to compare their aggregate tax contributions, you must compare their aggregate wealth.
posted by krinklyfig at 7:46 PM on December 30, 2004

As linked in many discussions here, the L-Curve is nicely illustrative of all this.
posted by zoogleplex at 7:50 PM on December 30, 2004

There's some huge gap in this country between people who think money matters in its own right and that having more money is in and of itself a good goal, and people who see money as just money. I mean, to an individual there's a zillion things more important than money.

Meanwhile, to fix this country, why not start actually taxing corporations sometimes? Or even better, destroy corporate personhood and limited liability.
posted by TheOnlyCoolTim at 8:09 PM on December 30, 2004

Simply restoring pre-Bush tax rates on the richest one percent of Americans could bring the Social Security system into balance indefinitely, without reducing promised payouts by one penny.
posted by amberglow at 8:30 PM on December 30, 2004

It doesn't matter if SS was designed to break or if it was just a poor design. Social Security *will* fail and the ignorant will suffer.

BitRot: you haven't a clue what you are talking about with respect to SS. I hate to be rude, but this shit is getting tiring: you have either been deceived on the the nature of SS, or you are attempting to deceive.

There are no two ways about it. Look at the numbers. How much we collect in taxes, how much we pay out in SS, how we allocate tax numbers, the population growth trend of the US. There is no universe in which those numbers say SS is certainly going to fail. Unless your a tax-cut zealot, there is no way of looking at them that even says a serious budgeting crisis exists.

So which is it: have you been suckered, or are you attempting to sucker?
posted by teece at 8:48 PM on December 30, 2004

teece:
Right now with SS, that is all we have: rates need to go up because of a temporary glut of baby boomers. This is not a crisis.

Not a crisis? Sounds more like an ipecac loop:

10 IF MONEY=ADEQUATE GOTO 10 ELSE GOTO 20
20: RAISE TAXES; GOTO 10

You think that a tax increase on every American worker to keep the (arguably untenable) social security system from running out of money is good. I would disagree only because it seems like there won't be an opportunity for that tax rate to go down without significant population growth, which (sadly) will result in another "temporary" problem (unless currency hyperinflation saves us all).

rdone:
What is so "shady" about "free" welfare payments to the elderly,

Call me crazy, but Americans are too individualistic when it comes to housing arrangements. Too many people want to live away from parents or siblings. I think that the sensible thing for many elderly people without incomes would be to move in with one of their children, if possible. Why not share the joy of their existence with their children and grandchildren?

Secondly, my ethical problem with any welfare system is that it conditions people to think that generosity should come from the government and not from the people. American people are generous, usually. You've seen people mobilize for canned food drives, Salvation Army red kettle campaigns, and other things. Imagine how much more generous they could be if taxes were decreased even further!

I know I am opening myself to a whole lot of arguments with my post, but what the heck.
posted by bugmuncher at 8:58 PM on December 30, 2004

Your in the tax-cut zealot camp, bugmuncher. There's a caveat in there for folks like you.

But that is not a problem with SS -- that is a problem with you. You are not willing to pay for the program -- hooray for you. If you get your way, the starving seniors in the street will thank you and your oh-so-blithe discussions on the "ethical problems" of welfare (which is a misnomer, any way. It is insurance).

But any way, that's not a crisis with SS, really. It's you thinking the program should not exist, which is a rather different thing, now isn't it?. The American people can sustain the SS program in perpetuity under anything even remotely resembling a prospering America. Period. To believe otherwise is to misunderstand or to intentionally obfuscate in order to support the real agenda: kill SS.
posted by teece at 9:23 PM on December 30, 2004

I think that the sensible thing for many elderly people without incomes would be to move in with one of their children, if possible. Why not share the joy of their existence with their children and grandchildren?

It is sensible, but remember part of the reason we're in this mess is the fact that there's more baby boomers than the rest of us, and birth rates are falling, so it won't work for everyone. Also, care of the elderly can really be expensive....
posted by namespan at 11:47 PM on December 30, 2004

teece - read up thread. We started at 3 percent. We're now at 18 percent. Life expectancy is going up just as the largest population segment in US history is getting ready to start collecting. How high do you expect the tax rate is going to have to go up to fund the program at current benefit rates, and/or what benefits do you intend to cut to keep the thing solvent?

And, probably more importantly than the specifics of what it will take to keep it going, how are you going to convince the working youth that it's in there best interest to contribute 20, 25, 50 percent of their earnings to a mandated insurance program if they don't want to be a part of it? How are you going to convince the AARP that it's in their best interests to accept reduced benefits on a retirement fund that's been sold to them for as long as I can remember as being their money. They paid into the system, and they deserve to get everything they paid in out by gum. At least, that's how my grandparents, who had no need at all to collect, felt about it when I was having this conversation with them 20 years ago when the writing was already on the freaking wall. I'm sure they aren't the only ones who will vote in their own self-interest if it comes to it.
posted by willnot at 11:55 PM on December 30, 2004

Oh, and you seem to be missing one of the principals of how insurance works. The insurance companies manage risk. I pay a few hundred a year to insure my car with the hopes that I won't ever get into an accident, but the understanding that it will be better for me to be covered if I do. The thing is that a significant number of people will never need to collect what they paid in, so a few large costs are spread across a very large risk pool

With SS the risk is getting older. That's almost a sure thing. Very large costs across a very small risk pool.

Most people are going to be in that position, and it's not a risk of getting older and not having enough to retire because there is no means testing involved. You get to a certain age, and you collect. Period. You can be Bill Gates, and you'll still get a check each month. The only risk your insuring against is the risk that you might not die before you get to be 60 or 70 or whatever life expectancy is. Lots and lots of people are going to collect on that bet, so if it is insurance, it's pretty stupid insurance written by somebody who hasn't looked at actuarial tables in a good long while.
posted by willnot at 12:09 AM on December 31, 2004

Secondly, my ethical problem with any welfare system is that it conditions people to think that generosity should come from the government and not from the people.

This isn't simply a matter of generosity. There is inherit inequality in generating wealth, heavily skewed towards those who already have it. The old maxim, "It takes money to make money," is a simplistic way of putting it. What this inevitably leads to in the long run is the concentration of wealth into the hands of a few, if no order-restoring balance is put into play (inheritance tax, etc.). This is a one-way ticket to plutocracy. If you don't care for the equality argument, here's a Utilitarian one: countries with the most social order are the ones that understand that gross income disparity is a cancer to stable society.

American people are generous, usually. You've seen people mobilize for canned food drives, Salvation Army red kettle campaigns, and other things.

People can be generous, that doesn't mean they will be. All "acts of God" pull on the heartstrings; it's only then that people are confronted with how harsh a bitch fate can be. Of course you're going to see larger numbers of donations for tsunami relief, earthquake relief, famine relief, etc. But a poor person on the side of the street? The stalward Christian soldiers will argue that's not God's fault, that's their own fault. It's their fault the economy sucks. It's their fault that all the unskilled jobs have been shipped overseas. One of the problems of the Puritan work ethic is that it makes Americans more disposed to ignore the slings of fate on a person's life. "Fuck them if they're poor. They always had the choice, and they chose wrong."

Imagine how much more generous they could be if taxes were decreased even further!

I have already seen a nice example of this in action.

Most people hate it when restaurants tack on gratuity for large parties. But large parties in restaurants are a strain on the limited resources of the restaurant, the servers, and the chefs. When a party gets their bill and sees 18% gratuity automatically added, they're not likely to cough up one cent more. But I have seen the alternative--and it's not pretty. Enforced beneficence is the only way to ensure cooperation, but then it's not really generosity at all. Of course, the poor sap on the recieving end doesn't care where the money they get to put a roof over their head comes from.
posted by Civil_Disobedient at 2:58 AM on December 31, 2004 [1 favorite]

how are you going to convince the working youth that it's in there best interest to contribute 20, 25, 50 percent of their earnings to a mandated insurance program if they don't want to be a part of it
Because when they're old, and have no or little other savings to live on (have you seen how terrible we are at saving for old age? and that private pensions are disappearing like the dinosaurs, and can disappear even after retirement?), Social Security will be there to ensure some level of decent life. Just as it is for our grandparents and parents now. We pay in now--we get back later, when we need it. If there are problems with it, making it more like a 401k--which is dependent on the vagaries of the market--is not the best answer. Fixing whatever problems exist or will exist in 40 years does not mean eliminating the whole "Security" part.

You know, Bush is trying to sell us a bill of goods about Soc Sec, and we younger people were already sold a bill of goods about it not being there for us when we retire--i've yet to see proof of either.
posted by amberglow at 6:25 AM on December 31, 2004

What in the following statement would you disagree with:

"Like Ponzi's scheme, Social Security could be sustained at any level of payout, as long as the number of new entrants is sufficient.

That part. It doesn't depend on growth, though growth allows it to be funded with lower tax rates, as does a higher pre-benefits mortality rate.

Like it does in a Ponzi Scheme, this is when trouble begins to loom (as it does in our current system)."

There's no real trouble. You'd have to marginally increase taxes, or borrowing, or something equivalent (like greater taxation of benefits, effectively means-testing benefits, or raising or removing the income cap for taxes).

Not rocket science. About as far from rocket science as you can get.

You've seen people mobilize for canned food drives, Salvation Army red kettle campaigns, and other things. Imagine how much more generous they could be if taxes were decreased even further!

I'd be interested in traveling to your timeline. In mine (Neil Armstrong, July 20 AD 1969, Mare Tranquillitatis), Social Security was a response to the pre-existing lack of ``generosity'' in such matters.
posted by ROU_Xenophobe at 9:04 AM on December 31, 2004

As a result, the study said, Social Security raised out of poverty more than one in every three elderly Americans. The program lifted 11.4 million elderly people above the poverty line.
posted by amberglow at 10:19 AM on December 31, 2004

Having read through this entire thread, I haven't seen one person mention that the stock market is more of a Ponzi scheme than Social Security.

The stock market is voluntary. The way you "take money out" is if other people "put money in".

If there are so many retiring boomers who will supposedly bankrupt the social security system, what will happen to the stock market when these people start to "withdraw" from it?

Who will be there to infuse extra money into the stock market to buy those stocks?

And what happens when people realize that stock prices aren't going to be going up anymore because there are so many people withdrawing from the market? Even fewer will "deposit" into the market, meaning that values will go down even more.

Social Security is far less voluntary, and therefore will provide the best chance of money being available for everyone. Elderly people need to be able to live, eat, and clothe themselves. And if they have extra money and want to gamble, there are plenty of casinos and state lotteries with a better chance of winning.

The only people who will benefit from privitization are the people who currently have money in stocks. If there is a tremendous infuision of money, those people's stock values will rise incredibly. And if they sell before the infusion stops, they will have made more money then ever before possible.

And the people who put their money in will almost surely be losers, because there will never be another mass infusion like the initial transfer of funds to the market.
posted by RalphSlate at 10:57 AM on December 31, 2004

Willnot: seriously, do some goddamn research.

The "aging population" catastrophe requires us to raise taxes by 2% to maintain the current benefit.

So to answer your question, that's how much I expect workers to pay. Further, its a temporary problem -- it is gone in a few decades. You are believing in the quasi-mystical notion that somehow the American population will age and grow without bound. And you are completely ignoring the reports from the government actuaries that predict the future of SS, updated and released regularly (who use things like actual data and evidence).

Again: there is no crisis in SS. Period. If you pretend otherwise you are either uninformed or lying. I'm getting really tired of this shit.
posted by teece at 11:02 AM on December 31, 2004

teece - I'm sure you'd call in to question the reliability of Report of the President's Commision to Strengthen Social Security (PDF), so perhaps you can provide another area of research for me to look at. However, taking what they say at face value:

[B]eginning in 2016, Social Security will collect less in tax revenues than needed to pay full promised benefits. Between 2016 and 2038, Social Security will redeem bonds held in its Trust Fund make up the difference, requiring that the U.S. Treasury find the resources to redeem these bonds. These resources must come from higher taxes, public borrowing, or reductions in other spending programs. Social Security’s deficits start small but grow rapidly, reaching $318 billion in 2035 (in 2001 dollars). The cost of paying benefits will rise from 10.5 percent of taxable earnings today to almost 18 percent in 2035.

Absent Congressional action, the Trust Funds will be exhausted in 2038. At that time, Social Security system’s dedicated revenue will be enough to cover only 74 percent of promised benefits. To pay full promised benefits would require an increase in the total tax rate from payroll and benefit taxation from the current 12.4 percent to 17.8 percent. By 2075, the tax rate necessary to fund full promised benefits would equal 19.4 percent of payroll, a 57 percent increase over today’s payroll tax rate.

So once the trust fund runs out, somebody making $35,000 per year will need to see their already meager take-home pay reduced by close to $2,000/year for 40 years (Do you want to tell them or should I?), and close to $2,500 for some undetermined amount of time past that point. And, that's just the extra amount they have to kick in. That person making $35K/year will actually be contributing $249,200 over the course of 40 years.

That's more than a few decades. That's somebody's entire working life. And, that's somebody that doesn't have a whole lot of discretionary income to begin with.

And, by the way, I personally believe that we're going to see life expectancy increase dramatically over the next several decades. What the last century was to physics, this century will be to medicine. That will add additional strains to the system that I don't even think are factored into these number.
posted by willnot at 12:25 PM on December 31, 2004