Thursday, January 26, 2006

Social Security

Post and discuss

56 comments:

Judy B. said...

It is my inderstanding that when Social Security was originated, the money collected was to be put into a trust fund that would be available for people when they retire.

At some point in time that trust fund became so big that the politicians couldn't resist putting it into the general fund to pay for other things. It was a good way to pay for wars and subsidies, and what have you, without raising taxes.. What it really was, was thievery.

Can anyone tell me how to find out how much of the trust fund has been "appropriated" by congress to spend else where??

There should be a year by year accounting of the money put into the fund, the amount returned to retirees, and the amount used for other purposes.

That accounting should also figure in a minimum interest that should have accrued to the trust fund. If we had that information, we could make a case to force Congress to put it back and make SS solvent for years to come.

Our children and grandchildren need to see that SS is viable as one leg of a personal retirement plan.

Anonymous said...

When did congress take this money?
You make very generalized accusations for someone that does not even possess the facts.

Judy B. said...

That is precisely my question.
When did Congress first take this money? how many times did they take it and use it elsewhere? How much has been taken each year? What would be the interest accrued on the money if it had been left to grow as was the intent? If this money were put back into the trust fund, what would be the projected time when SS would really run out of money?
I am simply asked: "Can anyone tell me how to find out how much of the trust fund has been "appropriated" by congress..."
There must be a way that some researcher could come up with the figures. I would certainly be interested in the answer?

Dan/Mich said...

Judy B. Since 1983 the SS has had a surplus. The Trust Fund was set up so the surplus could be deposited and grow. The money from your pay check is intercepted by Congress, spent and a form of T-Bill(IOU)is deposited. At the end of 2004 the fund had grown to $1.7 trillion. I don't know the int. rate. A google search of Social Security will provide a wealth of information.

Dan/Mich said...

This is the idea I submitted to SSB. It addresses some of Judy's concerns.

Money specifically earmarked for the Social Security trust fund never makes it there. Washington spends every penny and deposits IOUs (bonds). The soundness of the bonds is totally dependent on our willingness to dramatically increase the taxes on our children and grandchildren. Young working families and the economy will suffer under the increased burden.
To fix the problem, the public must insist on three new rules. First,all Social Security receits must be deposited into the trust fund. Secondly, all new deposits not being paid to current receipients, must be invested in something other than U.S. bonds. Thirdly, all U.S. government bonds held in the trust fund must be divested systematically over a set number of years (perhaps fifteen to twenty). Currently, taxpayers leave IOUs to themselves and this makes no sense.
By taking the steps I've outlined, the Social Security trust fund will hold real assets that Americans can rely on. Working families have consistently endorsed and funded Social Security and deserve to have total confidence in it's solvency.

Judy B. said...

Thanks dan...useful information

Judy B. said...

Am i right in inferring then that the money borrowed from us by Congress is a part of our National Debt. And where we should have had a huge savings account to offset this debt, we have nothing, except IOU's from Congress that our children must repay??

Dan/Mich said...

Judy B, Your correct. The $1.7 trillion owed to the trust fund is part of the $8.1 trillion national debt. United States is now the no. one debtor nation in the world. At one time T-Bills were considered a very secure investment. With our borrowing frenzy, that may no longer be the case.

I'd like to see our trust fund run exactly like a well run pension fund. The excess SS money withheld from payroles and not used to pay current recipients, would be deposited into the trust fund. Professional managers would invest the money in a conservative securities of all types (the managers would have to be totally independent to avoid political pressure). This process would involve selling the bonds currently held (over time ) to a level the managers felt comfortable with. The trust fund would then contain real assets instead of shakey IOUs.

Every financial adviser recomends not holding too much company stock in your retirement accounts. The same principle applies here.

Marilynn M said...

Dan, Those shakey bonds are backed by the government. They are going to be good as long as the government is. The stock market will fail before the government does. Social Security was created in response to the stock market crash and the resulting depression.

Dan/Mich said...

Marilyn,

Most Americans agree with you and I used to. The massive debt that this Administration is racking up is changing everything. It already takes one of every four tax dollars to pay interest on the debt. In three years, the situation will be much worse and the younger generation will be facing huge tax increases.

So baby boomers will be faced with an awful decision. If they insist on collecting their full benefits, the money will come right out of the pay checks of their children and grandchildren.

In a very real sense, social security money is being depleated by funding a war and a tax cut for wealthy Americans.

By insisting that SS receits get deposited in the trust fund and that it's run like a pension fund, real assets will be there to meet future obligations.

Dan/Mi said...

Marilyn,
I want to make it clear that I fully support S.S. in its present form. I'm against the President's sinister plan to end the program through privatization. My concern is the health of the trust fund. Allow me to further explain.

The massive spending of this Administration combined with their tax cuts for wealthy Americans and tax breaks for corporations, has resulted in soaring national debt.
This debt is nothing more than one generation going on a spending binge, and passing the tab (and it's interest costs) to the next generation.

By giving the President a second term, voters in a sense said, "spend as much as you want on anything you want, just don't hand us the bill." The resulting "debt bomb" has brought the soundness of the S.S. Trust Fund's T-bills into into question.

This Administration is a spending junky getting its daily "fix" of cash wearever it can. Voters need to quit allowing the Trust Fund to be used to feed this addiction. It's time for some long over do re-hab.

Marilynn M said...

I know Dan, I've been reading your posts for a couple of months. I think we are on about the same wave. We have to stop them somehow. I pray that people that have a Senator or Congress Person that gets indicted will research them enough to know they are crooks and have a recall. I don't want to wait.

Judy B. said...

Basically what it comes down to is that our pension plan got robbed!!!

The qiestion is: how do we get the money back??

That needs to be the question that every congressional delegation is hammered on.

How can the few of us accomplish that??/

Dan/Mi said...

Judy B.
The public supports Social Security but doesn't understand that the balloning national debt is undermining the program. Politcians are unwilling to address issues that voters seem uninterested in.

A national dialogue is needed and I hope the Democrats will put the spotlight on fiscal responcibility.
The Republicans have forfeited all creditability on that issue.

Since voters support Social Security, once they understand that it's trust fund has been looted, they'll demand and get a solution.

Judy B. said...

I think Ss must be addressed by a coalition of non-political factions... If a solution is proposed by the Dems, the GOP will not support it, and the same is true in the reverse. Maye if SEIU had channeled their time and money into building a coalition to address this, or UHC, they would have really accomplished something.

What is needed is a "good government" funding source to compile the facts, and get it out to the public.

Dan/Mi said...

Judy B,
What is needed is a "good government" funding source to compile the facts, and get it out to the public.

I think your right, that's exactly whats needed.

Dan/Mi said...

Judy B,
You may also be interested in a related discussion on the national debt. It's the one topic not listed in the index, but if you scroll to the bottom of the page you'll find it. Your "good government" report idea is probably needed on that issue also.

Marilynn M said...

Leave Social Security ALONE until the fascist it out of office. Nothing good will come of him having anything to do with it. In Collage he told his professor he wanted rid of it. Lets impeach him instead.

Marilynn M said...

Social Security can be fixed by raising the cap. High income people should pay it on all of their income just like poor people.

Dan/Mi said...

Marilyn,
I totally agree with you that I don't want this Administration "fixing" Social Security. Their cure for a broken arm would be amputation.

Judy B. said...

Agreed!!

Cheryl V said...

They've fixed more than enough already. It may already be beyond repair.

Marilynn M said...

You know maybe this is something that we should really focus on. Research to get all the facts. Then go after making sure they leave it alone. We can write tons of letters, emails and make phone calls. Get the candidates to take up the call to make Bush leave it alone. What do you think?

Dan/Mi said...

Marilynn,
I don't believe G. Bush will attempt any more S.S. "reform". The public outcry has made it a dead issue for this Administration.

I want the Democrates to fix this problem. Your idea of raising the cap would solve the revenue shortfall, but securing the trust fund is more complicated but needs to be addressed.

Marilynn M said...

I think we need to sue to make them leave the money alone. Why couldn't we have made friends with a lawyer?

Richard Yarnell said...

The net surplus is all in T-Bills. Congress hasn't stolen it, they've borrowed it. But they're not very honest about how they do it.

Gore's lock box would have disallowed the practice of putting "surplus"* SS funds into the general fund. As I understand it, he was not proposing that the money be used in a different way but rather that Congress would have to fess up and put the money on the books.

Most economists I'm familiar with maintain that investing $2 Trillion in conventional markets would be disruptive - the sum is a little more than pocket change.

I've discussed having the SSA take the surplus and buy solid Municipal bonds. Congress can print money - the states can't so there would be immediate benefits for the states and municipal governments who rely on bonds mostly for capital projets. If the SSA limited itself to insured bonds, the risk would be no greater, really, than the T-Bills and would help keep Washington honest.

* Surplus is a misnomer. The term refers to the excess of current contributions over current disbursements. The trust fund relies on receiving more now than it spends to build the fund to pay off future beneficiaries. If it were really surplus, the fund would be solvent forever.

Marilynn M said...

That sounds like a good plan. Bonds are secure. I'd like that plan.

deb said...

"take the surplus and buy solid Municipal bonds."

That's awesome! States would have the money for the projects that need done and put people to work at good jobs. This idea *needs* accomplished.

How could we get this plan into the hands of those who make the decisions. Do you know your state Senators?

Judy: What do you think?

I don't think it would stand a chance under the current administration, but if the bill got to the floor a few times at least some dems would start thinking it over, and when dems have power I think it would pass.

deb said...

Ya know what Richard? Even the Republicans would go for it. The job of every member of Congress is to bring money back into their state. This would do it. It would be truly bi-partisan, and even have enough votes to over ride the veto.

This can be done NOW!

Can you write it into a bill?

Richard Yarnell said...

Deb:

No, can't write the bill, but I sure do write a mean letter and welcome all the help I can get from folks willing to do the same thing.

Congress is going to balk at it because it removes some of the cover they rely on come budget time.

And if you consider the GOP, they tend to like employment taxes because they tend to be less progressive that others.

But I agree it's worth a try.

I'll write to Gore, while I'm at it.

ryarnell@iwon.com

Judy B. said...

"take the surplus and buy solid Municipal bonds."

I will respond by being the devil's advocate here...

Municipal bonds are a great investment and as a tool for keeping SS solvent makes a lot of sense.

Municipalities go out to the market to find the best interest rate they can get. SS would have to compete in that market.

Once those bonds are are in the market place you and I have the opportunity to invest in (buy)them. The problem is, usually only a few rich people know when they are issued and they are all bought up before the small investor gets to them. However if you are diversified in your investment portfolio (IRA) you probably hold some of those bonds in a mutual fund.

When interest rates are low and borrowing increases the economy booms. At those points in time the bond capital sometimes dries up. SS investment might be welcome then, but at a very low interest rate... however even 2% beats nothing.

I seriously doubt that Republicans would support the competition of the SS monies in the bond market. I can also see that some Dems would have a problem with it.

On the other hand, isn't it Bush's idea to invest in the stock market??/

Judy B. said...

Earlier this morning (1:15 pst) I tried to play devil's advocate to richards plan...
I didn't do a very good job of it.

My emphasis in this contest has revolved around smaller, doable ideas that could benefit society as a whole and yet be based in the thousands of home toewns across America.

Social Security seemed too big of an idea to tackle...

All night long I have been thinking aboout richards idea, and how that could fund some of the local projects that are in need.

all of a sudden this idea is not to big..., it could escape the political polarization if submitted by a citizenry made up of Dems, GOP, Libertarians, Independents, Greens, etc...

Is anyone willing to collaborate on a white paper on this issue???

And now it is 7:04 pst and I haven't slept at all.. hope this idea gives me energy for the day as I have hired some homeless people to come out and work..

Takl to you all later..

Richard Yarnell said...

Judy B:

Sorry if I was responsible for a sleepless night.

I agree that it's likely the interest rate would drop as SS Trust Fund money migrated into it. The rates reflect supply and demand for capital. Tax free bonds also pay lower interest than corporate bonds because their yield is not eroded by income tax and because, generally, their perceived to entail less risk.

I can see a couple of solutions to make the idea more acceptable to the GOP: 1) limit the amount of the fund that could be invested in Muni's; or 2) Set a minimum interest rate payable before the SSTF would consider investing.

I don't like either one, I'm conservative in the sense I believe in the supply and demand auction.

However, I doubt that anywhere near all of the fund could be put into the muni market and it certainly wouldn't happen all at once even without "rules." As regards the interest rates, in the recent past, they have been as low as just under 3% and people were still buying them, probably to trade. Whether an interest rate as low as 3% is enough to sustain the fund should be investigated.

There there's another thought: if the muni market gets too low, let the fund go on the market to buy T-bills!

ryarnell@iwon.com

Richard Yarnell said...

Or, maybe even some high grade foreign bonds?

Dan/Mi said...

Judy,Marilynn,Richard,Deb

I'm glad you're having a good discussion on the trust fund and how to make it more secure and productive. There's a type of municipal bond called a revenue bond that would be suitable for this idea. Municicpalities use revenue bonds to fund infastructure projects and repay the bonds with income generated by those projects. They're considered very secure and I'd be happy to have them in a portion of the trust fund.

Judy B. said...

Can someone tell me what GW proposed concerning the SSTF and investing in the market??

and why there was such an out-cry in opposition...

Marilynn M said...

Judy, he intended to gut Social Security by having private accounts. These accounts would have been managed for a huge fee by brokers. They would be invested inn the stock market.

He would have had to borrow more money to do this. I can't remember all the details. There weren't that many because they didn't know much about it themselves. Except it would enrich the brokers greatly.

They seem to be forgetting that Social Security was enacted in response to the stock market crash and the resulting depression.

In my opinion it was a stupid idea meant to destroy Social Security. Privatize, privatize, privatize. No matter what the risk.

If a person can't afford to take the same amount out of their check as they pay into FICA and invest it now, they can't afford the risk of not having Social Security.

Maybe someone else has a different take on this than I do.

dan said...

G.W's plan was to borrow trillions to bribe younger workers with a little chump change to forget about S.S....they would start their own private account...he failed to tell them they'd have to pay back the trillions in future taxes. His plan was well received on wall street...not so well on main street.
The plan I'd like would keep the current funding (with a little higher cap). The money from your check would go directly to the trust fund and be invested very conservativly. My main change would involve diversifing instead of just counting on T bills.

deb said...

SS must stay collective, individual would only work if you had a good paying job all of your life and nothing bad ever happened to you, and even then you wouldn't end up getting any more than if SS stayed the same.

Medicare for everybody would work also.

dan said...

Deb,
I'm just very confident with some good leadership and more public awareness, both those programs will work just fine.
Thanks for your help on the "links thing". I think I got it now.

Marilynn M said...

Yes, SS must stay the same only protected. We need Medicare for everyone too!

Judy B. said...

Thanks Marilyn and dan for the GW reminder...

UHC and SS (richards plan) are the winning combination for the Dems..
plus some added attention to the national debt...

dan your suggestion about revenue bonds is good...

Now can we come up with other ideas where these bonds might be useful?
How about school bond issues?
Port Authorities? Public Utility Districts? Law and Justice (prisons/jails)? Housing Authorities?

All of these are paid for by tax money. Doesn't it make sense to invest our retirement (SS) in our local communities, bring our local tax load down by providing low interest bonds, keep our SS money safe in long term bonds that Congress can't touch, and make sure that SS survives for our children???

Richard, I think if we had a short explanation of how the plan would work, followed up by arguements that would show how it would grow the economy, by-pass most of the bureaucratic nightmares, decrease our taxes (lower interest), and put our money to work where it was earned, etc...
then we could all take it to our Democratic Central committees, our Congressional delegations, and the city/county leaders..

It also need to be sold as an idea that enhances, rather than competes, with the private investor sector... By using SSTF money for local government purp[oses, it frees up private money for expanding the economy in other ways...

These are just some of my thoughts I had during my sleepless night...
What say, you all...

Can we fashion something here that is presentable???

Richard Yarnell said...

Judy:

Not sure how soon I can get around to it, I just got the first belt order from Utilikilts and will be immersed deeply in mind numbing repetition.

Starting with the bottom (and off the top of my head).

Any time you put money in the market there is competition. By investing a lot of money in the muni markets, a couple of things are likely to happen:

1) interest rates (return) should go down (a good thing from the bonding authority's point of view because that means the cost of borrowing is much lower - that may actually encourage more of the public infrastructure investment and repair that we sorely need, to say nothing of school investments.) 2) Lower rates of return on muni's may drive investor money toward the commercial bond market. For people in the upper brackets, tax free bonds are useful because of the high marginal rates. The net return on a low interest muni where no tax is paid may be similar to the net return on a higher rate corporate bond after the tax is paid. (I am beneficiary of a small trust on which the effective rate is presently 39%. The net return on a 6% corporate bond is about 4%.)

The way the administration has been doing things has sent many entitlement costs back to the states. This is tough because they have to tax or sell bonds whereas the Feds can borrow and print more money.

Tax effects will show up at the state and local level. It's possible that the Feds will have to raise taxes (which means that they'll have to reinstate some of the cuts that benefit the high income taxpayers).

If we figure out that it costs $X to provide all government services that's how much it's going to cost, no matter how we divide $X among the various taxing authorities. In fact, the first thing the Democrats should do when they get back in office is to budget. Then they should figure out how to raise that money. The GOP ploy of figuring out how much revenue they want to raise (or not raise) is nothing more than leverage to reduce services. They then turn around and say we have to live within our means which is arbitraily less than it was before.

The way we keep our kids out of the poorhouse is to willingly pay our own way, something Bush doesn't understand. That means some of us, and I'm one who will, have to pay more in taxes. Either that or cut expenses which means cutting programs which means treating a lot of people very badly.

Some of you may have seen my proposal for a Universal Transaction Tax. Simply put, a very small fractional rate is applied on every single transaction including savings transactions (buying and selling stocks and bonds, paying interest, etc.) It differs from a sales tax, a value added tax, and eliminates the income tax. With almost everything tracked by computer, it's relatively easy to calculated and collect. It is not regressive since the poor spend their money one time; the wealthy churn it. Ultimately, since it would apply to all the transactions that start with raw materials and end with finished goods, the consumer is going to pay it all - that's no different than it is now: taxes get passed on to the consumer. However, it elimintates high costs of administration of taxes and because of the very low rate (I estimate between .1 and .2% of each transaction, no one is going to be discouraged by taxes to undertake the transaction.

If it were adopted, and if the government figured out first ow much revenue it needs, a single rate adjustment would be all that's required.

If we went all the way and eliminated the separate unemployment tax, social security taxes, and if we include universal health care as a benefit, the rate would rise, but the money has to come from somewhere. I suggest we raise it the cheapest way we can and calculate the tax on all the money that's circulating, not just some of it as we do now.

Judy B. said...

richard... all good points!!

Dan .. hop in here and help..

richard..have you seen GW's plan to tap the NW (Bonneville) ratepayers to pay down the national debt??
See this blog: National Debt...

dan said...

Richard,
Of all the ideas I read on SSB only a few really caught my attention, and your "Universal Transaction Tax" was one of them. It's the most novel tax idea I've ever heard of. It also may be the most difficult plan to predict implementation problems and expected revenue.

Are you aware of anywhere that a tax like this is being used? Has this plan ever been studied? I'll support any tax plan thats simplier and fairer than our current one. Yours might be both, but i just don't have any idea how to evaluate it.

I agree with you that the next Administration will have to raise taxes. The neo cons "starve the beast" plan (creating such huge deficits that social programs have to be eliminated)has been so successful that the chopping has already begun. Any hope Democrates have of solving our domestic problems and dealing with the Bush "debt bomb" will require substantial revenue increases. Maybe your tax plan is the answer.

Richard Yarnell said...

Dan,

I am not aware of any similar tax scheme. A friend on my Pomona College class listserv mentioned a similar tax that dated from the 17th century in Spain. We agreed that it did not comprise as useful comparison - lack of computers, application of tax to support the royal family and the military but no social programs, selective application to classes other than the wealthy and the aforesaid royal family, etc.

My Congressman seems to be interested and has apparently asked his staff to find out whether my rate estimate is anywhere close. He's also told me he thinks that entrenched interests would pull out all stops to defeat it no matter whether it proves practical. We agreed that it would be worth a "grassroots" campaign once Democrats retake the Congress.

On of the obstacles to evaluating it is the way we keep track of our economy now. Essentially we deal in the net value or end value of sales. That makes sense since we use sales taxes, net income, etc. We also exclude "savings" transactions from taxation except where we tax net returns of investors or the firms that provide "savings" services. He seems to agree that it will be possible to estimate the data needed if not actually acquire if if OMB or the Congressional Budget Office puts its resources to the task.

Needless to say, I'm pleased to find even his preliminary interest.

ryarnell@iwon.com

Judy B. said...

One part of the tax delima for me is why place a sales/transaction tax only on "goods"? As our economy relies more and more on 'services' why not put a tax on them as well...

If I can afford a $50 massage, I can afford a small tax added on..
The same for lawyers, beauticians, and even doctors...

Why tax one segment and not the other??/

Richard Yarnell said...

Judy B:

Some states do tax services by applying sales tax. Washington does, Oregon doesn't have a statewide sales tax, California used to.

The feds don't use a sales tax, per se.

Under the transaction tax, services would be taxed on a per transaction basis at the same rates as goods.

ryarnell@iwon.com

Anonymous said...

Sales tax isn't applied to services in Washington. Not to food items or RX drugs...

i think in would bring in lots of revenue... and why should services be exempt ftom taxes?? Services are agrowing part of the economy and as such should support the 'state' as much as a clothing store or a furniture store...

Richard Yarnell said...

My error.

Until recently, they didn't have an income tax either. They relied on personal property taxes. Am I correct that they have passed an income tax measure that takes effect in a year or two?

ryarnell@iwon.com

Richard Yarnell said...

Some years ago, I worked with the local chapter of Concord Coalition on Social Security. Locally at least, we concluded that the Trust fund would remain healthy provided:

a) the cap on earnings subject to tax was eliminated entirely;

b) that employment compensation in all forms was made subject to the employment tax;

c) that benefits be means tested and paid to those who needed help;

d) that benefits be adjusted annually on the consumer price index - preferably one that had been re-cast to more closely reflect the purchasing habits of beneficiaries.

This latter change would actually put more pressure on the trust fund since it would have a larger health care component than it does now.

We anticipated objects from:

a) business which would have to pay higher employment taxes;

b) highly compensated executives who hardly contribute at all;

c) potential beneficiaries whose post retirement income is comfortable even without a trust fund distribution.

We did not consider medicare.

ryarnell@iwon.com

Judy B. said...

As far as I know, no state income tax is in the works for Washington State..

Judy B. said...

Richard, go to the G W Bush thread;
Marilyn and Deb have uncovered some SS buget items..

Marilynn M said...

Removing the cap would more than take care of it. That and investing in Municipal bonds would probably pay for medicare for everyone too.

Judy B. said...

Washington Post does it again... Haven't seen this in my paper... and while this is not about SS it is about retirement funds so am posting it here:

"Retirement Fund Tapped to Avoid National Debt Limit"

http://www.washingtonpost.com/wp-dyn/content/article/2006/03/07/AR2006030701736.html?referrer=email&referrer=email

dan said...

Judy,
Thanks for an enlightening and underreported story. Snow's slight of hand caused virtually no outcry.