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McCain's Social Security Plan Would Cut Benefits To People Who Already Paid For Them
Franklin Delano Roosevelt, signing statement, The Social Security Act. August 14,1935.
"We can never insure one hundred percent of the population against one hundred percent of the hazards and vicissitudes of life, but we have tried to frame a law which will give some measure of protection to the average citizen and to his family against the loss of a job and against poverty-ridden old age."
At the time it was considered social engineering. Concerns over global and even national trends in population were as much a part of the decision as was the simple humanity of it. Income security, the reasoning goes, would alleviate the need for large families, the parochial solution for retirement income. That part of it has worked spectacularly, perhaps so well that its success even threatens the program. Fewer children equals fewer contributors.
It has been in place for 73 years and for many is the sole source of income in old age. It is immensely popular with people in all strata of society because it is an extraordinary good deal, if you live long enough. To break even on it only takes about 12 years of retirement, attainable by fully half of the population.
Social Security has been troubled of late. I am part of the problem, born 1951, I am of the generation that will stress the system, some say even break it. At a time when retirement savings are at an all time low and private companies have been curtailing pension plans, Social Security becomes all that much more important to the public.
What's wrong? A little deeper history.
When it was instituted, Social Security operated by collecting about what it needed to meet current benefit payments. What came in was paid out. In 1982, that all changed. During the Reagan Administration, Alan Greenspan proposed that SSA taxes be increased to save up for the pending retirement of the baby boomers.
The Greenspan plan sunk increases in collections of SSA tax into government bonds in the Social Security Trust Fund. The, perhaps unintended, consequence was essentially force feeding of the government coffers. In effect, the government got a loan that it did not need from every American worker. The income tax was cut, eliminating most of the upper brackets and the SSA collections were essentially passed on to those in higher income brackets.
Under Clinton, the force feeding of SSA collections into government began to be referred to as the Social Security Surplus. Clinton used it to pay down other national debt, rightly assessing that in order for the debt to the Trust Fund to be repaid, we would need a solvent government. Paying down the extra-Social Security debt and balancing the budget seemed to assure that the government's indebtedness to the Greenspan plan could be serviced.
Bush 43 came along and reversed what Clinton had accomplished by lowering taxes even further and making the repayment of the SSA Trust account virtually impossible without raising taxes.
So there you have it. The Greenspan plan could not have worked unless the SSA Trust were somehow held in cash or private securities and not government bonds. What has been referred to as "raiding" the SSA trust fund ensued. But that is a misnomer. Government was force fed from the SSA Trust fund and instead of using that force feed to retire the national debt, Republicans used it to cut taxes for the wealthy. In as plain an English as it can be put, your Baby Boomer SSA premium you paid ended up in the hands of the wealthy. The solution is for them to pay it back.
Now having laid out the problem, lets examine the solutions for this problem that are proposed by the two Presidential candidates.
Obama vs. McCain
First of all, Obama has a detailed plan for retirement security, over and above Social Security, enunciated on his website. McCain does not even mention Social Security on his website.
Obama proposes this to "fix" Social Security, paraphrasing from his website:
"Ask those making over $250,000 to contribute a bit more to Social Security. Those making over $250,000 to pay in the range of 2 to 4 percent more in total (combined employer and employee). "
Although not mentioned specifically, the roll back of the Bush tax cuts would also help. And again, the main beneficiaries of the Social Security Surplus were those making more than $250, 000 per year.
Obama's plan appears to be consistent with the facts of what happened to the Social Security Surplus, recognizing that there were elements of society that have enjoyed a benefit from that surplus and asking them to give some back.
John McCain consistently proposes, as the AFLCIO website reports, diverting some percentage of the SSA income stream to private accounts, or "privatization" of Social Security. This does nothing whatsoever to solve the projected shortfalls in funding that will begin in about fifteen years. And the debate over the wisdom of placing tax collections in private investment is as old as the program itself. But that is a subject for another setting.
So essentially McCain's plan must be characterized as simply doing nothing, effectively cutting benefits to the people who paid for them already. And that characterization, that they have paid for them, may elicit some criticism from people who do not understand that the Greenspan plan was an exception to the formula of Social Security. Before Greenspan, it was current workers supporting retired workers. Greenspan made it, by collecting more money than current obligations, a loan to the government by the Baby Boomers.
Raising Taxes, oh my!
Finally, on taxes and the economy, the Republicans and some Democrats even, have it wrong. The conventional wisdom is that higher taxes hurt the economy. There is no actual evidence of that. In fact if you plot tax rates against GDP, there is no observable correlation. As this is one of the key arguments against raising taxes, it is an important concept to understand.
Taxes are GDP neutral because the money paid to government in taxes does not leave the economy. Similarly, benefits distributed to retirees through Social Security do not leave the economy. All that is at stake is where and how the money gets spent, on, say, a textbook or a six pack.
The more money there is in circulation and the faster it changes hands, the better the economy, up to the point where it is growing too fast, creating inflation.
Money in the hands of the working class creates economic prosperity from the bottom up by increasing demand. Wealth, capitalism, cannot create prosperity is absence of demand. That is the reason that countries where the population is poorer have lousy economies.
This week OffTheBus is publishing a variety of stories that cover the policy differences between Senators John McCain and Barack Obama. If you have a policy expertise and would like to participate, please see Calling All Policy Gurus.
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From the article:
"Money in the hands of the working class creates economic prosperity from the bottom up by increasing demand. Wealth, capitalism, cannot create prosperity is absence of demand. That is the reason that countries where the population is poorer have lousy economies."
But that, I think, is precisely why those in Washington (of any party affiliation) who work for the interests of the rich are pushing for privatization of Social Security, leading to its eventual demise at the hands of a future corrupt corporation(s). They believe there should BE no middle class. To them, they are of no use. They prefer the poor, who are hungry enough to work for little pay in order to survive. Their ideal society is exactly that of those other countries, where the rich own almost anything that is not controlled by nature itself (they are actively working on that) and the poor who only exist to service them.
The real issue is that the policy of SS lending to the govt for free is not one which enable the money to grow over time until it is needed. The govt is just so greedy that it cant keep its hand off of the money coming in. By right SS, being that it has long term liabilities, should be invested in long term asset, including stock, bond, real estate, etc to help fund future payout, and should be run for interest income to pay for current payouts. Unless asset earn some return how can the system deal with an inversion of the contributing workers/ seniors that has been the case until the baby boom retires. Money will not come from the sky, though it will come from taxes on the young. We neeed to do better rather than wait for a year when the "surplus" goes negative.
Spot on - we should look at the various state employee pension plans (CalPERS, Mass PRIM, PSERS, etc) as a template for how to invest social security assets. By investing with a long-term perspective in a globally diversified mix of assets, we could actually plug this gaping hole. Unfortunately, we only have 8-10 years (probably less now that it looks like GDP growth is going to take a big hit, at least in the short run) to let the time value of money help us before the system becomes cash flow negative.
Fortunately, there is still a way, and the $700 billion bailout provides the template. That is, we need to securitize the long-term Social Security liabilities by issuing what are in effect Pension Obligation Bonds, whereby we issue long-term debt whose proceeds are then invested in long-term assets. So long as the return on the assets, over time, is greater than the cost of the debt, we can go a long way towards preserving what is at the end of the day the most cost-effective means of insuring our senior citizens against old-age poverty.
Contrary to popular belief, this nation was at it's best when taxes were the highest. Take the '50s for example. The highest income tax rate was 91%. Can anyone say that the '50s were a tough time in the USA? It's time to get back to that. Low taxes for those who cannot afford to pay and high taxes for those who can afford to pay.
Wasn't that during the McCarthy era?
If the aging Senator is ready to rip benefits from Veterans why on earth he would spare others?
This is on top of his most annoying claim that he "looks after them." A point I am glad Senator Obama did not challenge, since it might be interpreted the way his statement was: using the veterans for his political purposes.
The truth of the matter is that less than 20% of veterans feel McCain will be the one to give them succor and comfort after they suffered what they did - on the hands of his mentor - the president - and his own hands!
How attractive does privatization look now, Don't hear anyone saying, "give me the money I could make way more interest the fed is making" do you.
My friends NOW who have investments as well as SS incomes, have been seeing a loss for the past decade.............
The laws have been designed to our disadvantage!
For starters......................WHY haven't the funds my husband paid into the account in the 80's, INCREASED over 28 years?
WHy is current 25 year old income paying MY SS, WHO GOT MY MONEY?
WHY does Paris Hilton's trust fund grow, and the SS fund shrink?
THe premise that workers today won't get their SS income when they are 65,may be correct, BUT we need to investigat ewhy that is true,
NOT Privatize their SS, in the unreliable stock market.
I had a $25.00, government bond, given my husband and me as a wedding gift, in 1957.
When I cashed it in 33 years later it was worth $1,700. WHy didn't my SS find grow that well.
Worth 68% more than it had been?
Alan Greenspan has been there with his hand on the tiller for all those years..................................
You might want to read up on how Social Security works.
The simple answer to your question is that the amount of your monthly check from social security is calculated from a somewhat complicated formula (read up on "bend points") and is based on how much you contributed over a 30 year span. It has nothing to do with the interest rate that the social security treasury bills are generating. Like an annuity, you get a fixed amount each month, regardless of what the market is doing. In other words, the market "risk" is shifted from you to the annuity.
Here's some info you can read... Good Luck!
Overview
http://en.wikipedia.org/wiki/Social_Security_(United_States)
History of Social Security
http://www.ssa.gov/history/history.html
Trustees Reports
http://www.ssa.gov/OACT/TR/index.html
Stop believing the MYTH that enriching THE RICH somehow trickles down to the poor and middle class. IT DOESN'T. Republicans proved this for 8 years.
Millionaire McCain refuses to acknowledge the MIDDLE CLASS that's been paying the bills for the misguided IRAQ WAR and WALL ST. CORRUPTION-CRASH created by years of Republican DEREGULATION of profiteering.
I CANNOT AFFORD REPUBLICANS ANY MORE.
They're too damn expensive!
Republicans PROVED that they CAN'T GOVERN. NO MORE YEARS for corrupt Republican liars and crooks.
After too many years of REPUBLICAN HYPOCRITES and nuts,
Obama and Biden are a breath of fresh air.
SOLVE THE PRESENT ECONOMIC CRISIS.
I'm against the $85,000,000, 000.00 bailout of our bankrupt lending industry.
Instead, I'm in favor of giving $85,000,000, 000 to America in a "We Deserve It Dividend."
To make the math simple, let's assume there are 200,000,000 bonafide U.S. Citizens 18+.
Our population is about 301,000,000 +/- counting every man, woman and child. So 200,000,000 might be a fair stab at adults 18 and up..
So divide 200 million adults 18+ into $85 billon that equals $425,000.00.
My plan is to give $425,000 to every person 18+ as a "We Deserve It Dividend".
Of course, it would NOT be tax-free.
So let's assume a tax rate of 30%.
Every individual 18+ has to pay $127,500.00 in taxes.
That sends $25,500,000, 000 right back to Uncle Sam.
But it means that every adult 18+ has $297,500.00 in their pocket.
A husband and wife has $595,000 .00.
What would you do with $297,500.00 to $595,000.00 in your family?
Pay off your mortgage - housing crisis solved.
Repay college loans - what a great boost to new grads.
Put away money for college - it'll be there.
Save in a bank - create money to loan to entrepreneurs.
Buy a new car - create jobs.
Invest in the market - capital drives growth
Pay for your parent's medical insurance - health care improves.
If we're going to re-distribute wealth let's really do it...instead of trickling down which has never worked.
ECONOMIC PROBLEM SOLVED!!!!
I don't think you can claim credit for this -- I got the email today also.
The point is well received here though.
I like this! How can we get the ball rolling? This IS the "out of the box" solution that we need. If only 5% were to buy automobiles at a conservative $15,000 per vehicle it would generate $150,000,000,000.00 in revenues to Detroit. Let's do it! Good luck, Mel Goetia
Sorry to break it to you but 85,000,000,000 divided by 200,000,000 equals $425... not $425,000. Even if your 85 billion figure was off and it was 850 billion, that would only be $4,250 for each adult. Now I do agree that giving $4250 to each adult would still have a huge impact on the economy since many middle class lower class Americans will spend it immediately. Personally, I would donate it to my state government so it can put the money into infrastructure and schools.... Okay, I'd buy 4250 lottery tickets, but same diff.
Sorry Jingo, I meant to exclude you in my post. Thanks for also pointing out to all the factcheckers that they did not check their facts and it was abundantly clar they did not.
This is a terrible idea. All the handouts would do is cause massive inflation and devalue the dollar even further than its sorry present state. I am nearing old age, and will need every penny of my social security should I ever retire.
None of you posters can do the math-so let this former math teacher do it for you. The actual per sperson total is not 425,000 dollars nor 4250 dollars. It is a mere 425 dollars. Now we saw hust how little our 600 dollars rebates did for the economy, so giving it back to each individual in aneffort to solve the problesm really is rather stupid. Where most people made their mathematical calculation error is that they did not notice the decimal point just before the final two zeros. in the dollr amount but even with those counted as whole numbers for the life of me I cannot fiugure out how one poster got 4250.00 dollars. Folks, always beware when you get emails like this one was lifted from to do the math and do it by hand and not with a computer unless it has exponential markings for numbers too long for the window bar (and you understand that concept which used to be taught when I went to college and when I taught math)...if any of you still know how to figure out problems by long hand any more. Don't trust anything anyone who presents mathematical figures whether it is the government or your friend sending this email without checking them out. Or at least dont' be offended if you send it to me and I punch the reply to all button and correct a whole bunch of people I don't know.
Gee, and to think I have been led to believe that the previous generation had paid in for me, and that my contributions would be for my offspring. Another myth busted!
nope, doesn't work that way.
Creationwaits give himself away when he finally states that he wants to do away with social security altogether. That suggests that he isn't one of the majority of older Americans who have benefitted from social security and even more, who need it. Social security has been the major reason my parents and almost every other retired person I know have been able to keep their home, afford health care and have a decent life. Most of us need social security, and it's a GOOD program. And it can be made to cover the hiccup that we'll have over the new few years and still cover GenX and the Millennials.
I think they would have done better without it, but I don't want to pull the rug out from underneath them now. They did count on having it, after all. But we should phase it out - I'm 24, I don't want to count on it. I don't want to feed it. And I'm responsible enough to save on my own.
You are so young and you don't know where life will take you. I'm close to retirement age and I never thought my life would take me where I am today. My husband and I had a successful business and we lived well and raised a family. That business failed and I was divorced and left no money and no retirement. I have a masters degree, but had not used my education in over thirty years. I wasn't prepared to go back into the work force in my field. So I've worked hard very underemployed for the last few years, and I have a little nest egg, but without SS I would be on the street when I retire. I've paid in for years and I need that money. At your age I thought I could manage my own retirement, but life doesn't always end up the way you think it will. Plus, there are many people who don't have the knowledge to invest their own money. We need to leave SS alone. This is a promise that one generation makes to another.
You might want to google "poor farm" or "poor house" to see what life was like before social security.
Also a couple of points:
1) Social security, as other have pointed out, also covers Disability Insurance and Survivors Benefits to widows and orphans. (about 15% or so that you pay in goes for this.)
2) Also, when you work the numbers and compare apples to apples, and subtract out 15% off the top, it's not that easy to beat Social Security especially if you live into your 80's where the social security cost of living adjustment (COLA) starts having a larger and larger effect.
3) Social Security was designed to keep people out of poverty and take the gamble out of retirement. Investing in the stock market puts the gamble back in. Sure, some could make a bundle but most will be lucky to break even, and some will lose their shirt.
I suppose I think the biggest problem with your final analysis is the statement that "Taxes are GDP neutral because the money paid to government in taxes does not leave the economy." That is at least not true for corporate taxes, because corporations that are exceedingly taxed can just leave the country in our modern age. You'll still buy their products, so you'll then send money out of the country. So taxes really do cause money to leave our economy, and hurt our economy.
I disagree with your claim that raising taxes doesn't hurt the economy as well. We're seeing the hurt in a big way, I think, as our incredibly high corporate taxes drive smart industries with easily shippable products to China and elsewhere.
You've got to be careful using the GDP as a measure as well, since it includes both goods and services. The former is much more important to our economy, but the government uses taxes to produce the latter. Think about a hypothetical scenario where the government raises taxes, forcing a steel mill to fire a worker and produce less steel. The worker gets a government job that provides some service roughly equal in value to his former job. Our economy is a little worse, but the GDP doesn't change.
Not to question your analysis of the situation, but did you happen to see a report that came out a few weeks ago from the GAO stating that up to 2/3 of corporations in the US had not paid taxes
in the period between 1998 and 2006? Kind of blows the 'high taxes' reason for moving- can we agree to call it pure unchecked greed? Wanting to skirt safety laws ? There now that's a good lil Repub. As for personal savings, well what bank are you going to trust ? I might have lost the value of a 35k 401K plan from the beginning of my career. Trust yet another investor........right..
You're spot on - the actual tax paid by US corporations as a percent of the total economy is one of the lowest in the OECD. It's most unfair to the companies (mainly domestic-only in their focus) that pay the full rate. It's the largest firms, including most of the oil industry, that gets a free ride on everyone else.
The best solution? Halve the tax rate but get 100% compliance - it would be fairer, especially to smaller firms, eliminate much of the incentive to move offshore, and STILL get higher tax revenues since every firm would have to pay, not just those that don't have friends in Washington.
I'd be willing to give up all the benefits I've paid for so far. It's a bad system, and really an insult to you from a government that doesn't trust you to save your own money. I wish we could end it tomorrow, but we do need some sort of gradual phase out.
How nice to be young!
creationwaits,
Be careful what you ask for.
Clearly you've never suffered any catastrophes. At 46, someone ran a red light and crushed me in the middle of the intersection. Part of my left hip is in my neck, nearby all sorts of nerve damage in my neck and top and back of shoulders.
I was back to work part-time when, two-and-a-half years later, someone rear-ended me while I was stopped at a stoplight. Re-injured all the old injuries all over again, as well as jacked up my right hip.
I've worked hard to recover for 6-1/2 years. Despite being fortunate enough to receive SSDI and Medicare after the second accident, my finances are in ruin. My credit is more than shot, and I've been struggling to hang on to my house.
Litigation to recover large damages is a myth. I've lost hundreds of thousands of dollars.
Blew through my savings years ago ($10,000, $3,000 of which I paid out-of-pocket to go out-of-network for intricate neuro/orthopedic surgery) as well as my IRA. Thank God I receive SSDI and Medicare.
You know those disastrous stories you "hear" and "see" that happen to people other than yourself? They're true, and they're not uncommon.
And, oh yeah, I have $9 until next Wednesday, for groceries; for gas; for home repairs; for everything. How about sending me a few bucks from the money you're so willing to put into the market system?
Americans have a negative savings rate. The govt ought not to trust people to save money
It's not a bad system, it's a badly managed system. There's a big difference there. In fact, it's been horribly mismanaged, because we have kept our head in the sand for the last two decades about this.
Worse, our federal government has effectively looted $2.2 trillion dollars of excess capital paid into Social Security. It's made the federal operating budget seem much smaller than it is, and allowing for income taxes - mainly at the top - to be reduced. In effect, the FICA taxes you've been paying (the most regressive tax we have) has been used to pay for Bush tax policy, which led to the largest transfers of wealth in our nation's history - from the poor to the rich, and (pity for you, you enviably young person) from the young to the old.
It's sad that the US learns so little from other countries. You should look to my kindred Netherlanders to see how pensions are best managed: a three legged stool consisting of a very modest government pension like social security, well funded and extremely well managed industry-wide defined benefit pension plans that cover most workers and tax-advantaged individual savings accounts that encourage individuals to save and further contribute to their retirement assets. None of the legs by themselves can do the job, but the three together have provided the most secure future for present AND future retirees within the OECD.
And not to pile on, but I have to take issue with your quip about the government not trusting you to save your own money - because there's plenty of evidence to suggest that compared to what Social Security provides (survivor and death benefits, as well as colas), most individuals simply cannot save a comparable amount on their own. And so far, they haven't - the US has a negative savings rate.
What's more, if you look at the median performance of a typical 401(k) plan (the template for private accounts), the long-term performance is much less than what publicly managed state employee pension plans (which should be the template for Social Security) have earned.
Why? Because 1) individual accounts are much more expensive - as a percent of assets, defined contribution plans cost more than twice as much as comparably sized defined benefit plans; 2) small individual accounts cannot replicate the economies of scale and long time horizon needed to take advantage of various higher returning strategies, such as private equity, and 3) most people (but I agree not all) simply do not have the training or interest in managing a forward-looking investment portfolio.
In countries like Chile and Sweden that have aggressively adopted the private account model, there are large numbers of elderly workers that have not been able to earn sufficient returns to retire. Before you say "they should have done better", remember that by definition, not everyone can outperform the markets.
I have seen mention here of medicare, but no mention of the role that social security plays in supporting widowed spouses and their children, or the fact that social security also has a permanent disability program. I have a friend down the street who is developmentally disabled and tried to get work, but was always let go after the federal subsidies for the disabled ran out. He receives social security disability also.
I am on permanent disability for the second time in my life, and since I'm 54, I probably will never go off it. When I was working, I did put some money into an IRA--which I no longer have. I have been delaying going to physicians and other health care providers because I am on Medi-Cal--not eligible for Medicare yet, and that will cost nearly $100 a month, not including the supplemental programs. The California legislature has totally scr*wed up the Medi-Cal program, year after year, cutting back on payments to health care providers and holding up their payments for months. Many physicians/surgeons have dropped out of the programs because they were working at a loss. Medicare will soon be in the same boat unless a more comprehensive govt-funded health plan is put into effect. It is very difficult to find providers who will take govt.-provided health insurance.
A great article! Further proof once again that McCain is out of touch with Main Street America and and is clueless when it comes to protecting the needs of average citizens.
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