About the author: This guest post comes to you from Mr. ToughMoneyLove, a baby boomer who dishes the hard truth about money and personal finance at his Tough Money Love blog.
I cannot count the number of times I have seen or heard statements proclaiming with great certainty that Social Security will “disappear” or that “it will not be there for me.” The frequency and intensity of these dogmatic statements seem to be inversely proportional to the ages of the people making them.
Social Security disappearing? It’s a myth.
Social Security may evolve and change but it’s not disappearing.
Believing in the mythical demise of Social Security is bad policy for anyone planning their financial future. Such a belief is also unfair to those generations ahead of you.
Before I explain, let me distinguish rash predictions of the end of Social Security from more level-headed proclamations that “I am not counting on Social Security.” Statements that fall in the latter category are actually beneficial because they create personal incentives to save and invest for retirement.
Why Social Security is not Going Anywhere
Baby Boomers won’t let Social Security fail. There are approximately 77 million baby boomers preparing to retire. A few have just now reached retirement age. According to numerous research studies, millions of middle class baby boomers are woefully unprepared for retirement. These millions will clearly need Social Security to have any chance at a decent standard of living in retirement. Does anyone honestly believe that Congress will stand idly by while Social Security crashes and burns, undermining the financial stability of millions of middle class baby boomers?
Even if Congress was inclined to let Social Security unravel, boomers would vote them out and replace them with AARP-friendly politicians. We boomers vote in big numbers. The AARP is a strong Social Security advocate. It has 35 million members, which is ten times the size of the National Rifle Association. The AARP has an $800 million budget, five times that of the U.S. Chamber of Commerce, the country’s largest business association. The AARP is surpassed in membership only by the Roman Catholic Church. As boomers continue to age, AARP membership and voting clout will only increase. Do you know who killed Bush’s plan to privatize part of Social Security? It wasn’t the whining Democrats. It was the AARP. Can you feel the power?
Simply put, Social Security is going to be rock solid necessary for at least the next 30-40 years, until the last of the boomers moves on to the next life.
Younger generations will need Social Security. The younger readers are still skeptical. I’m not a boomer, you say, so why should I think Social Security will be there for me? The answer is that post-baby boomers – the younger generations – are also going to need Social Security.
Let me explain with some numbers, using my wife and me as an example. If I wait until age 70 to claim Social Security retirement benefits, and when my wife reaches retirement age, we will be entitled to receive a combined monthly retirement benefit (in today’s dollars, using current calculations) of $4600. Now let’s assume that Social Security is not there and I needed to replace that $4600 with income from investments. Using a 4% rule of thumb annual retirement withdrawal rate, I would need a retirement nest egg of $1,380,000 just to replace our Social Security benefits.
How many of you are counting on having well north of $1 million (in today’s dollars) in place, just to replace the Social Security benefit that you think won’t be there? Maybe you had confidence a year ago that you would, but how about after the 40% market drop that we’ve all experienced? There has been a paradigm shift in investment confidence levels at all age groups. We are recognizing that 10%-12% annual market returns are gone indefinitely and perhaps for our collective lifetimes. We actually need to do better than that to recover from the damage of the past four months. With that recognition in place, all but the wealthiest working adults in all age groups must embrace the continued existence of a Social Security retirement system. When it comes to building multimillion dollar retirement portfolios, many are called but few are chosen.
Social Security Fixes are Doable. If I have persuaded some of you that maybe this Social Security thing isn’t so bad after all, you may still doubt whether it can be fiscally sustained even with good intentions. The reality is that although the Social Security system needs work, many experts believe that the funding crisis has been grossly overstated. (Medicare is a separate problem.) The misconceptions about the financial stability of the Social Security Trust Fund are many and are nicely summarized by the Center for Economic and Policy Research as a solution in search of a problem.
I am not going to detail all of the different options that are available to improve the actuarial health of the Social Security system. They include bumping the retirement age by a year or two or slightly increasing the limit on the Social Security wage base. Heck, even immigration reform could solve the problem by adding millions of younger workers paying into the system. The key point is that there are fixes.
What does all of this mean to you? Probably the most important take-away from what I have written is that you should not automatically write-off Social Security when formulating your retirement plan. If you do, you may end up taking excessive investing risks as you attempt to compensate for having no income stream outside of your retirement investments. That could backfire on you in a big way.
And by the way, if you younger folks decide you don’t want Social Security at all, please keep quiet about it. Otherwise, the AARP may use its clout to get some new laws passed that you won’t like one bit.
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Updated February 10, 2011 and originally published November 28, 2008. If you enjoyed this article, subscribe to the RSS feed or receive daily emails. Follow @flexo on Twitter and visit our Facebook page for more updates.
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I sense a lot of intimidation in the original article, which genuinely angered me. Essentially what I’ve gotten out of reading it and skimming through the comments is that the AARP is a powerful and threatening special interests group who can bend congress to their will, and that some people really do think that the government has the right to tax us as much as it wants and redistribute wealth. It’s really not the government’s job to make sure anybody is comfortable. It’s job is to make us safe from harm (starvation, foreign invasion, murder, etc.) I’m ready to have a congress that will stand up and do what’s right regardless of whether it’s popular or not. The flaw of all democracies is that eventually people wake up and realize that they can elect people who promise to give the most handouts. Social Security is a handout.
Ian – It seems that you and others have missed the essential point of the article, which is probably my fault as the author. The point is that Social Security is here and because of forces like the AARP, it is not going away. That is reality. Therefore, you should take it into account in your financial planning. Its existence offers both positives and negatives in that area.
You and others have referred to SS as a “redistribution of wealth” program. I don’t agree with that assessment but even assuming its true, boomers have been redistributing their wealth to the “greatest generation” for many years now. It’s not as if we have been immune to all of the problems you are concerned about.
“boomers have been redistributing their wealth to the “greatest generation” for many years now. It’s not as if we have been immune to all of the problems you are concerned about.”
So because you’ve been wronged we should all be so?
My mother taught me that “two wrongs do not make a right” and it seems to apply heavily to this situation.
castocreacions – Agreed but my last comment was directed at those who seem to suggest that baby boomers have skated through the last 35-40 years without paying into SS to support those ahead of us.
ahhh…gotcha. Thanks for clarifying.
I don’t think the baby boomer generation has “skated through” necessarily but they (politicians) have made things much more difficult for future generations.
Is it generational warfare to ask to that the baby boomers get the same treatment as subsequent generations? And here I thought all men were created equal…
The high marginal tax rates are irrelevant for one very important reason. Just like today, no one really paid them. The top marginal rate today is 35%. Yet Warren Buffett’s OVERALL rate is a mere 17.7%. Obviously very little, if any, of his income, is taxed at the top marginal rate. And even if people DID pay those high marginal rates, it doesn’t matter, because the baby boomers STILL ran huge deficits.
What other flaws would you like me to address?
You’re right that we can’t rewrite history. So here’s plan B:
1) Throw out Social Security, Medicare, Medicaid, and all the other public assistance/welfare programs (unemployment, worker’s compensation, EITC, food stamps, school lunches, housing subsidies, etc.)
2) Increase the poverty threshold to include health care. I estimate this will essentially require doubling the threshold.
3) Establish a new anti-poverty/health care program. If your family’s income is below your family’s poverty threshold, the government gives you the difference – no questions asked. How much would it cost? About $679 billion in 2006. Compare that to $878 billion for Social Security and Medicare alone.
4) Cancel the portion of the national debt that is intragovernmental holdings (roughly 2/5 of it). Start paying back the rest. If we amortized it over, say, 20 years at 4.6%, the annual payment would be $360 billion per year – eminently doable.
4) Replace the tax code with a single, flat income tax on incomes above the poverty threshold. Include ALL income and treat it all the same. Wages, salary, rents, royalties, capital gains, gambling winnings, interest, dividends, inheritances, gifts… all income. I estimate the rate would have to be 32%.
5) End all those tax shelters like 401k, 403b, IRA, etc.. Tax any money that hasn’t been taxed, including Roth earnings. That will generate a $4 trillion windfall.
6) Use that windfall to make lump sum payments to everyone who paid Social Security and Medicare taxes. The lump sum is calculated based on how much you paid in, plus as high an interest rate as possible. The interest rate has to be at least 4% to keep up with inflation.
Bill: You are entering the realm of the irrational. I don’t know and don’t care what marginal rate Buffet pays but I pay the top rate and so do many others. When I entered the workforce in 1973, the 50% marginal rate started at $32k and went up to 70% from there. My marginal rate right out of college was 29%. So, before you start complaining about SS payroll taxes, start paying income taxes at 1973 rates. Reagan and then Clinton lowered them. Last I checked Clinton was a baby boomer and also lowered deficits.
BTW – I’m trying to remember which generation brought us the dotcom bubble. Do you recall?
Start blaming politicians, not generations. There is plenty of blame to go around.
Let’s work through an actual example: Single person making $100K in 2008 vs. 1973. This should be illustrative. For simplicity, we’ll just take the standard deduction.
Today, that person gets a standard deduction of $5,450 and a personal exemption of $3,500. So his taxable income is $91,050. Consult the handy tax tables and we see that his income tax is $19,472.25. His income is under the Social Security limit of $102K, so he pays the full 7.65% payroll tax. That’s another $7,650. The grand total is $21,122.25 or 27.12% of his income.
In 1973, the equivalent salary was $20,501.17. The standard deduction was $2K and the personal exemption was $750. So his taxable income was $17,751.17. Computing the income tax is a little laborious because there were so many brackets, but Excel handled it quite nicely. His income tax is $4,425.40. The Social Security base back then was only $10,800, so he only pays the 5.85% tax on that amount. His payroll taxes come out to be $631.80 for a grand total of $5057.20 or 24.67% of income.
Now, it doesn’t take a PhD in math to see that 24.67% is less than 27.12%. The absolute difference is 2.45% but the relative difference is almost 10%. And that doesn’t even take the employer portion of FICA in to account. If you toss that in, the disparity grows to 5.38% (20% relative difference). So I stand by my complaint of higher taxes, lower benefits and massive debt.
“BTW – I’m trying to remember which generation brought us the dotcom bubble. Do you recall?”
Well, let’s see… the dotcom bubble started in the late 90s – call it 1995. The average baby boomer was born in 1955, making them 40 years old in 1995: perfect age for middle management. Surely you don’t mean to pass the buck to Generation X. Generation X was just out of college in 1995. They weren’t in a position to effect anything in 1995, let alone the dotcom bubble.
“Start blaming politicians, not generations. There is plenty of blame to go around.”
“The government you elect is the government you deserve.” It’s a famous quote from a very smart man. Weren’t you the one who said that if Congress started to muck around with Social Security, you’d just give them the boot and vote in politicians more… amenable to the baby boomers’ demands?
Bill – Thanks for giving us credit for the dotcom era! And you are correct. Baby boomers are going to defend their well established economic turf. We do that by voting.
You are obviously a bright guy with strong opinions. I like that. It doesn’t appear that you are going to move off your position about baby boomers and that’s OK. So I think I will close my part of our dialog by sincerely inviting you to visit my blog now and then to share some more of your views there as well as here. Not only will I benefit but so will my other readers.
Thanks again.
@Bill Woessner,
There is an element of truth that boomers contributed to the problem, but you’re old enough to have voted since 2000. You are part of the problem too, and if you voted against the ‘tax and spend’ liberals, you’re a bigger part of the problem. In 2004, the Congressional Budget Office stated that “On September 30, 2000, the Federal government closed the fiscal year (FY) 2000 with a $236 billion budget surplus.” http://www.senate.michigan.gov/sfa/Publications/Notes/2004Notes/NotesMarApr04gso.PDF
That is a very responsible budget for a ‘tax and spend’ Democrat., and we were a wealthy nation that could take better care of its people. In April 2004, the same document states a deficit of $477 billion under Bush, and that’s with Republicans controlling both the House and Senate. Whatever administration is in power cooks the books to make it seem painless, http://www.usatoday.com/news/washington/2006-08-02-deficit-usat_x.htm, and I’m not really sure if ANYONE knows the true budget figures, but I’m sure we’ll agree that it’s grown much worse over the last 8 years.
I would sacrifice a lot for my country, and the House Oversight Committee was kind enough to compile a list for me at http://oversight.house.gov/documents/20081003181709.pdf
I won’t repeat the whole list, but these are some of the things I would sacrifice: Waste Identified in Contracting Database, $1.1 trillion; Unaccountable U.S. Spending In Iraq, $15 billion, Waste from Medicare Part D Switch to Private Insurers, $75 billion; Drug Expenses for Dual Eligible Beneficiaries, $3.7 billion; Waste and Mismanagement of Katrina Contracts, $8.75 billion; Wasteful Homeland Security Contracts, $81 billion; Excessive Crop Insurance Subsidies, $11 billion; and just imagine how much waste, fraud, and abuse will be added with the bailout.
If you want to talk about a ‘redistribution of wealth’, let’s start with that list above. Some of the waste above can be attributed to stupidity, as we have seen time and again since Jan 20, 2001, but personally I’d bet that most of this list is a redistribution of Taxpayer wealth into the pockets of crooks. Programs to allow Americans to lead a healthy life are quite affordable if we stop this redistribution of wealth.
And Bill, this is a disaster, just like Katrina. People have lost their homes. In New York, homeless shelters were overcrowded with 2,800 people last month, while the previous record in 2003 was 9,200.
We’re averaging over 500,000 INITIAL jobless claims per week. These INITIAL claims do not include people who are already collecting, or whose benefits have already run out. These are Americans who WANT to work, but can’t find a job. These are taxpayers who are not any problem to society.
30 Million Americans are on food stamps last month, the largest number since Katrina, and local food pantries have been experiencing a 20%-100% increase in visits over the last 6 months. Are you really telling me that you want these people to starve so you can have a few more bucks in your pocket?
@Ian,
You’re half right in stating “people wake up and realize that they can elect people who promise to give the most handouts.” That was true in the past, but I don’t think citizens have much representation any more. Lobbyists, with their ‘campaign contributions’, are writing the legislation. For example, Medicare Part D prohibits the government from negotiating lower prices for Drugs. This clearly benefits the drug companies at the expense of the taxpayer. Here is the bill that attempted to restore bargaining power for lower costs: http://thomas.loc.gov/cgi-bin/query/z?c110:H.R.4:
“On September 30, 2000, the Federal government closed the fiscal year (FY) 2000 with a $236 billion budget surplus.”
Yes, there was a surplus in FY 2000 (as well as 1998, 1999 and 2001). But don’t write the Vatican to nominate Clinton for sainthood quite yet. Recall there was a Republican Congress at the time. And the national debt still increased by $1.5 trillion (37%) under the Clinton administration. I’ll grant you that’s a lot better than the Bush administration has done. Speaking of President Bush, isn’t he a baby boomer?
“I would sacrifice a lot for my country, and the House Oversight Committee was kind enough to compile a list for me”
This is an excellent start. Assuming 100% of those dollar amounts are waste, fraud and abuse, the total is $1.7 trillion. Now if you could only come up with another $97.5 trillion to cover the unfunded liabilities of Social Security and Medicare. Also, I asked what YOU would sacrifice, not what you would tell others to sacrifice. Would you be willing to take upon yourself the sacrifices that you have forced upon future generations or not?
“Programs to allow Americans to lead a healthy life are quite affordable if we stop this redistribution of wealth.
…
Are you really telling me that you want these people to starve so you can have a few more bucks in your pocket?”
No. And if you go back and read comment #56, you’ll see that’s not my stance at all. I have absolutely no problem with taking from the rich to help the poor. I think it’s great. My problem is with taking from WORKERS (no matter how poor) to give to the SENIORS (no matter how rich). And that’s what Social Security and Medicare are all about.
“3) Establish a new anti-poverty/health care program. If your family’s income is below your family’s poverty threshold, the government gives you the difference – no questions asked.”
I like the thought behind this whole comment, except this part just won’t work.
Where is the incentive to work? If the government is just going to give me the money, no questions asked…why would the millions of people in this category even get a job?
Granted, this conundrum faces all welfare programs, but this sort of program makes the decision to not work at all, or to work less to keep below the poverty threshold, a simple and obvious decision.
“Where is the incentive to work? If the government is just going to give me the money, no questions asked…why would the millions of people in this category even get a job?”
I agree, it is a pretty serious moral hazard. But, as you pointed out, any kind of welfare program induces a moral hazard. In effect, such a program would create a 100% marginal tax rate on income below the poverty line. However, I disagree that there’s absolutely no incentive to work. The incentive is to work hard enough to get above the poverty threshold. Some may believe that’s impossible (and, indeed, they might be right) and so the incentive is eliminated. But that doesn’t mean it’s not there.
That said, I prefer this approach to the status quo for a number of reasons:
1) It’s not subjective. There’s no “you should work harder” or “you’ve been on welfare too long” or “you’re just a bum” or “are you really disabled?” or “well, how disabled are you?” It’s completely objective – no questions asked.
2) It’s cheap. OK, saying that $679 billion is cheap might be a little crass. But it’s cheaper than what we’re currently doing. The United States spent $1.1 trillion on social programs in 2006. Of course, $337 billion of that was recaptured in taxes, so the net amount was only $775 billion.
3) It’s 100% effective. Despite the impressive dollar amount currently spent on social programs, 32 million Americans still live in poverty and 70 million Americans can’t afford health care. Our current anti-poverty programs are only 39% effective and health care programs are only 25% effective.
4) It doesn’t tax people in to poverty. In 2006, social programs helped 34 million people out of poverty and get health care. Unfortunately, we taxed about 11 million people in to poverty. This is not a case of “you win some, you lose some”. That is simply unacceptable.
I’m not saying my proposal is the best possible. But I will argue that it’s a whole lot better than what we’ve got going on right now. And I’m always open to suggestion.
1) It’s not subjective. There’s no “you should work harder” or “you’ve been on welfare too long” or “you’re just a bum” or “are you really disabled?” or “well, how disabled are you?” It’s completely objective – no questions asked.”
————————————————–
Right, but those are the very things that help keep freeloaders off of the current system. (Help, not prevent)
You’re trading administrating the question-asking for paying for freeloaders. After all, the same incentive (to work hard to get above the poverty threshold) exists under the current system that you propose will keep people from freeloading under your proposed system. The difference is that, under the current system, a certain percentage of the freeloaders are caught by the subjective question-asking.
I’m not convinced that the other benefits you mention outweigh this downside.
@Bill,
Frighteningly enough, those waste, fraud, and abuse figures are accurate, and most of them have been in the news over the past few years. The items in this list are only what there have been hearings on. It is in no way complete. Coming from Wexler’s office, I can understand your suspicion of it being sour grapes over Bush. I hope you show that skepticism towards our entire government, and not Just Democrats. You have a world of information at your fingerprints, and you should check out some of the items in the bibliography at the bottom of the oversight committee list.
The Government Accountability Office (www.gao.gov) is an organisation of non-partisan auditors. They do excellent work, and their figures were always accurate to the best of my ability to verify them when I didn’t believe their reports. This report, titled “The Nation’s Long-Term Fiscal Outlook: September 2008 Update”, makes your earlier forecast of our national debt look optimistic in comparison. I agree with you about the dangers of our national debt, it’s the cause of that debt that I disagree with. http://www.gao.gov/products/GAO-09-94R
Please read that report, which validates your earlier posting, and then read this report, published last month, which validates my assertion of waste and abuse, if not fraud. It is titled, “Department of Homeland Security: Billions Invested in Major Programs Lack Appropriate Oversight”. http://www.gao.gov/products/GAO-09-29
Some of it overlaps the Oversight Committee’s summary, but this report was produced this year, for 2007, both years under Democratic House and Senate. This report indicates no partisan favouritism, and I hope you will find the GAO as credible a source as I do.
The real problem is that our government is horribly mismanaged, and if it was a private company, it would be dead broke…. Wait a minute, the United States IS dead broke.
Medicare Part D, which did make the Oversight Committee’s list, enacted as PUBLIC LAW 108–173—DEC. 8, 2003, was deliberately written to prevent negotiation of prescription drug prices. This hurts the taxpayer, and increases the profit to drug companies. The link I posted above was bad, this one works: http://frwebgate.access.gpo.gov/cgi-bin/getdoc.cgi?dbname=110_cong_bills&docid=f:s3rs.txt.pdf
In privatising Social Security, we enact into Law the same corporate profits for investment companies that Medicare gave to the drug companies. Well over 100 million working customers along with all of their management fees and charges.
Of course, we the taxpayers are better off because historically, the stock market always goes up over time. This works just fine, unless your part of history falls in 1929 or 2008. I have two employees with less than 3 years to go until they are 65, and both of them have lost 50% of the value of their 401k. How are your portfolios doing?
Tough luck! They should have put their money into safe money market accounts if they are close to retirement, just like these investors in the Reserve Primary Fund, who are now wondering how much of their primary investment they might get back and when they might see it.
http://www.nytimes.com/2008/12/04/business/04reserve.html?
The same hold true these 401k investors who are forced to take money out of their accounts before the market can recover, or just have the penalties taken from them. It’s their fault for not putting their money in savings accounts, and just embracing poverty as their spending power shrinks due to cost of living. When the money runs out, they can start shoplifting, like they do in Japan.
http://www.heraldextra.com/content/view/288762/18/
http://www.washingtonpost.com/wp-dyn/content/article/2008/11/29/AR2008112901913_pf.html
I’m not getting a sense of security in this picture, are you?
As far as Medicare goes, it is hideously mismanaged, and the law was WRITTEN to take advantage of taxpayers as I showed above. Yes, changes have to be made. But look at the health care industry in general, where up to 50% of the $2.3 Trillion spent today is waste. http://www.washingtonpost.com/wp-dyn/content/article/2008/11/29/AR2008112902182.html?nav=rss_politics
One of my friends is being garnished for a medical procedure performed on his wife that his health plan doesn’t want to cover. Another friend’s employer was just absorbed in a merger, with a drastic cut in medical benefits. He can’t afford his medicine at all. Face it: The system we have does not work. I favour nationalized health care, that would render obsolete the current Medicare/Medicaid system. If managed with transparency and oversight, which are lacking in today’s system, I believe this would save taxpayers money and improve American’s standard of living. I’m talking about medical care, not cosmetic stuff. I find it odd that the worlds ONLY remaining Superpower lets its citizens die from neglect.
No one has mentioned Social Security’s survivor or disability benefits. Are these OK, or did you just not know about them.
The average monthly payment for retirement benefits in 2009 is $1,153. That doesn’t even make one month’s payment on my apartment, but for my 83 year old mother, who is living on a fixed income and requires a walker to get around, this is a lot of money. And, yes, I do pay part of her expenses. Her Social Security benefit translates directly to my own finances.
The figure above is an AVERAGE. The actual benefit that is paid is calculated on an individual basis based on a lifetimes payment into the system. In other words, the more I work, the more I get. That’s the way it should be. I think the technical phrase is “quid pro quo.” My retirement benefits will be more than the benefits my building’s entire night cleaning staff combined, and I am alright with that because I took risks, I succeeded, and I deserve the reward.
My argument is that it is NOT Social Security that is unaffordable. The financial problems we face are primarily due to government’s terrible mismanagement , and laws, such as the one that is proposed to replace Social Security with private accounts, which are written to benefit whichever lobbyist pays for them and not the taxpayer.
As I stated in my original comment, I’m already over the cap on Social Security contributions, and it is my position that after raising, or eliminating that cap, no further sacrifice is necessary for anyone in a well managed system.
@Sarah: It brought a little smile to my face to see you provide example after example showing how inefficient and wasteful the government is and then go on to champion fixing our inefficient health care system by turning it over to the government. Just because the US is a superpower doesn’t mean that it’s possible to prevent people from dieing from inadequate health coverage.
Additionally, if losing money in your retirement saving for 5-10 years (100% of the 10 year periods in the stock market have made money and something along the lines of 80-90% of the 5 year periods) is not acceptable, follow the advice of nearly every financial advisor…don’t leave all your money in the stock market as you near retirement!
I’m also not sure why people think it’s some unalienable right that they have to/get to retire at xx age. If your portfolio has lost more money than you can afford to live off of at your retirement age, then guess what? You’re going to be working a while longer. That’s the way life works. You’ve gambled by leaving your retirement in the stock market, or by waiting too long to start saving, and now you’ve lost the gamble that would allow you to retire at your target age.
The solution to people having grossly mis-managed retirement funds isn’t to turn their management over to the greatest money mismanager in the world. The best way we have to predict the future is to look at history. Well-managed funds with a solid base in the stock market have a 100% success rate at delivering a sufficient retirement nest egg. The US Government has a horrible success rate at managing…anything. Just because many people haven’t managed their retirement well doesn’t mean the solution is to give it over to the government. People seem unable to accept the possibility that the best system will still leave people behind. Unfortunately, there’s nothing that shows us that a system that covers everyone well can exist.
This kind of reminds me of the same thought process that people who used the current financial downturn as “proof” that free markets/capitalism was a bad thing. I wrote a bit about that here:
http://blog.contriving.net/2008/11/08/no-the-economic-downturn-doesnt-prove-you-right/
“I agree with you about the dangers of our national debt, it’s the cause of that debt that I disagree with.”
However, the numbers agree with me. You’re talking about a few billion here and a few billion there, maybe as much as $1 trillion in fraud, waste and abuse. I’m talking about a systemic $100 trillion shortfall due to entitlement spending. My issue is larger than yours by two orders of magnitude.
“Medicare Part D, which did make the Oversight Committee’s list, enacted as PUBLIC LAW 108–173—DEC. 8, 2003, was deliberately written to prevent negotiation of prescription drug prices.”
So it’s not enough that workers be forced to pay for senior’s prescription drugs, but now you want the drug companies to give them a discount? Perhaps Medicare should pay them less than cost, like primary care physicians. In Texas, only 38% of primary care physicians are accepting new Medicare patients because they lose money on every Medicare patient they see. My mother was visiting my sister in Texas over the summer. She spent a week trying to find a doctor that would accept Medicare. She finally ended up going to a cash-only practice. Yay Medicare.
“In privatising Social Security, we enact into Law the same corporate profits for investment companies that Medicare gave to the drug companies.”
What’s wrong with turning a profit? If you have a problem with turning a profit, perhaps you should work for free for a while. See how not turning a profit works for you. Besides which, I have no problem paying Vanguard a 0.18% expense ratio to manage my investments. It’s a small price to pay for a decent return. By the way, Social Security’s overhead expenses are about 1.2% of receipts.
“How are your portfolios doing?”
My portfolio is beaten up, just like everyone else’s. But let’s keep thing in perspective. The fact is that, even including Monday’s 8% drop, the S&P 500 has yielded a 4.54% annualized, real return over the past 40 years. That’s a whole lot more than any retiree can hope to get from Social Security. If I had retired on Monday, I wouldn’t exactly be happy about the plummet. But what I would be upset about is that I wasn’t able to invest my FICA dollars. If I had, I’d be much better off.
“As far as Medicare goes, it is hideously mismanaged, and the law was WRITTEN to take advantage of taxpayers as I showed above.”
If by “take advantage of taxpayers”, you mean take money from workers and give it to seniors, then yes, I agree that the law was written to take advantage of taxpayers. But then, that’s what seniors want.
“I favour nationalized health care, that would render obsolete the current Medicare/Medicaid system.”
From a strictly mathematical standpoint, a single-payer health care system is the way to go. But you have to ask yourself who is going to be running the system. Oh, that’s right, it’s Congress and, by extension, special interest groups. If their (mis-)management of Medicare is any indication, a single-payer health care system would be a disaster. I’ll pass, thank you.
“No one has mentioned Social Security’s survivor or disability benefits. Are these OK, or did you just not know about them.”
No, I’m not OK with them. Everyone with earned income pays Social Security taxes, even those living in poverty. That’s not OK. Furthermore, I don’t think a disabled billionaire or a billionaire’s widow(er) should collect Social Security. But, hey, if you’re on board with that, everyone’s entitled to an opinion.
“My argument is that it is NOT Social Security that is unaffordable. The financial problems we face are primarily due to government’s terrible mismanagement
…
it is my position that after raising, or eliminating that cap, no further sacrifice is necessary for anyone in a well managed system.”
Again, you’re entitled to your opinion. However, the numbers do not support you. Social Security obligations are expected to hit 6.2% of GDP by 2030. Earned income is about 49% of GDP. Even if the Social Security tax were applied to all earned income, the tax rate would have to be increased to 12.67%. No big deal, right? It’s just 12.4%, today. Not so fast.
First of all, if you extend the Social Security tax to all earned income, you’re giving people more incentive to dodge the tax. Just ask John Edwards about that. Also, are you going to pay higher benefits to those now paying higher taxes? That’s what you said before. The more you work, the more you get, right? You took risks, you succeeded and you deserve the reward, right? Well, that’s going to add to Social Security’s obligations. Or did I misinterpret you? (As an aside, I’d like to hear how the risks you took compare to the risks many a cleaning staffer took by leaving their home country and coming to the United States.)
Furthermore, Social Security is less than half of the story. By 2075, Medicare obligations are expected to 9.6% of GDP. Add that to the 6.2% for Social Security and you have 15.8% of GDP going to Social Security and Medicare. So now we’re talking about increasing payroll taxes to 32.29%. That’s more than double what it is today; almost three times what it was in 1973. Obviously, you have no qualms about leaving such a heavy burden to future generations. But personally, I think it’s a crime of Biblical proportions.
@Dustin
Dustin, your theories seem well though out, and consistent, yet they fail the reality test. I’m showing you sample after sample of real problems that I not only acknowledge, I want to fix. I may be delusional in thinking that a government which is bought and sold by lobbyists would ever fix their own ethics, but the problems this causes taxpayers is very real, and they are hurting YOUR standard of living.
“Just because the US is a superpower doesn’t mean that it’s possible to prevent people from dieing from inadequate health coverage.”
First of all, you drank the Koolaid. America is on the brink of true poverty, because Americans are considered some sort of food source for corporations. I was being sarcastic about us being a superpower. We’re leaning over the same cliff that the USSR fell over when it broke apart. In all probability, in 10 years, wealthy countries like Somalia and Yemen will be outsourcing their call centers and manufacturing to us for the cheap labor.
Second of all, superpowers prevent death through education and health care. Abstinence ‘programs’ have lowered abortions, but increased unwanted pregnancies, in people like Sarah Palin’s daughter. Do you really think someone who doesn’t know where babies come from is going keep America’s lead in technology? They’ll be too busy hiding under the bed when God makes thunder and lightening because He’s angry..
Third of all, we keep people from dieing every day. Not enough of them. While Cheney runs around every day to his various undisclosed locations with a team of medics, Americans die from undiagnosed illnesses, diseases that are not treated until they are terminal, and lack of basic medicine every day. Part of that lack of medicine is throwing Capitalism out the window when Americans lost the right to negotiate for medicines in Medicare Part D. This law enriches drug company execs at the cost of American lives, and by the way, in keeping drug prices artificially high, they are stealing YOUR tax money.
On second thought, maybe you’re right… If a baby is stupid enough to be born to a poor family, the chump deserves to die. Here’s a second opinion on this subject. Google the author if you don’t recognize it.
‘Truly I say to you, to the extent that you did it to one of these brothers of Mine, even the least of them, you did it to Me.’
As far as people being at fault for “mismanaging” their funds, I have to disagree. In a Capitalist system, competition in a free marketplace provide an invisible hand that self regulates the Market. This invisible hand was in shackles from corporate abuses. It is this self-regulation that failed, and the market collapsed. It isn’t that the retirees mismanaged their funds, the problem is that the government mismanaged the Market. From the former chairman of the Fed:
“As I wrote last March: those of us who have looked to the self-interest of lending institutions to protect shareholder’s equity (myself especially) are in a state of shocked disbelief. Such counterparty surveillance is a central pillar of our financial markets’ state of balance. If it fails, as occurred this year, market stability is undermined. “
Alan Greenspan, October 23, 2008
I’ll stick with Greenspan. If the Market will not regulate itself, then it needs to be regulated.
@Sarah:
Do you think that we see those problems and DON’T want to fix them? The difference arises when you apply a little rationality to a complex issue.
I’ve had no Koolaid, I didn’t realize you were being facetious in calling the US a superpower but I wasn’t going to address that point at all. The whole idea of a superpower is an ill-defined, stupid meme.
For some reason you seem to think that I’m a fan of the Republican party and social conservatism. I’m not. I think Palin would’ve been a disaster for America. The Republican party has become a joke. You’ll do well to remember that the idea of a left-right spectrum of political viewpoints is a lie propagated by humans’ built-in biases to favor the group they’re a part of.
It seems like to further your agenda you’ve resorted to lumping me in with those you consider the ‘bad guys’. I advise you that this sort of attitude will lead you to a distorted view of reality.
I think the government should do all that is possible to protect babies, provide health care, provide options for retirement. Unlike you, I’m not deluded by the sentiments that “We’ve got to do SOMETHING, think of the children!” All this sort of sentiment will lead to is the same mistakes that you’ve shown the government committing so well in your previous posts. I realize that we’ve got to apply thought and reason to how we regulate our economy. This doesn’t automatically mean handing the reigns over to the government. It also means accepting the possibility that it’s not possible to provide freedom, guaranteed retirement benefits, guaranteed health care, reasonable taxes, and all the other things we’d like to have to everyone. We should strive to do our best, but just because people aren’t getting the things they need doesn’t mean the best isn’t already being done. (I don’t think the best is already being done, but the thought process illustrates the general point.)
I don’t know what course of action should take us forward. I do know that looking at history shows the government failing time after time to effectively administrate any sort of long-term program. This leads me to believe that whatever sort of solution for our problems we come up with probably shouldn’t include massive government administration.
As far as you not believing that people mismanaged their retirement funds: All you said is true, and always has been true. Which is EXACTLY why you don’t keep all your retirement funds in the stock market as you approach retirement age. This is basic financial planning that almost every financial advisor will give you, and which everyone who lost such large chunks of their nest eggs didn’t follow. If there’s a way around the lost savings, and the way around is well known, and you didn’t follow the advice….that is mismanagement, no?
Your whole comment reeks of a strawman. No one here has advocated many of the positions you’re attacking.
@Bill
“However, the numbers agree with me. You’re talking about a few billion here and a few billion there, maybe as much as $1 trillion in fraud, waste and abuse. I’m talking about a systemic $100 trillion shortfall due to entitlement spending. My issue is larger than yours by two orders of magnitude.”
You’re numbers are accurate enough in themselves, but they omit the rest of the federal budget. I’d rather not go there, but I COULD blame the entire deficit on the Iraq war, and then we have a stalemate.
I gave you two documents, not the whole picture. The one from the Oversight committee only covers what they have held hearings on, and frankly, even though their figures are accurate, their selection IS based on sour grapes over Bush. There are lots of others that made the news, like the Littoral Combat Ship, and FBI Virtual Case file. Pay attention to the news, and you’ll see a lot more, and let me give you a hint: A cable news station that has to tell you that it is ‘fair and balanced’ is not.
The GAO report I provided on Homeland Security is only one report. They have a monthly summary email list, and this report as well as the budget forecast were both in the email I received yesterday before replying. why don’t you subscribe and let me know what you think.
I’m curious about your acceptance of government mismanagement. I was a Republican back when that meant small, transparent government. Today, I’m a Democrat, but I’ll be independent for the next election. Both parties stink.
But think about that Homeland Security report. That’s YOUR tax dollars that were intended to save YOUR life, and whether deliberately through fraud, or unintentionally through ineptitude they have squandered YOUR protection.
I’m not even going to bring up the subject of Pork.
We are facing a Grand Canyon of debt, but I’ll remind you that the entire Grand Canyon was carved out by a single river over time. Your trillion dollar figure would account for a single year, and that would have turned our pre-bailout deficit of $400+ billion into a surplus of roughly the same size.
“What’s wrong with turning a profit? If you have a problem with turning a profit, perhaps you should work for free for a while. See how not turning a profit works for you. Besides which, I have no problem paying Vanguard a 0.18% expense ratio to manage my investments. It’s a small price to pay for a decent return. By the way, Social Security’s overhead expenses are about 1.2% or receipts.”
If you read what I said above about risks, success and rewards, you know I’m for profit. Vanguard’s expense ratio is excellent, however when it is managed through a 401k plan, the manager of that plan gets a piece of the action. In my company’s 401k plan, the manager receives from 0.08% to 0.48% beyond a particular fund’s fee, and THAT is where financial companies gain. I expect that the financial company fees will be rigged by whatever law privatizes Social Security to screw the taxpayer, just as it was done with Medicare Part D. You’ll be lucky if you only lose 1.2% if a law passes.
THAT is where the financial companies win and you lose by privatizing.
@Dustin
Dustin, I’m truly sorry. I get a lot of verbal abuse from knee-jerk Republicans, who don’t even know what the issues are, let alone understand them. Yet, here I lump you with them, and treat you like they treat me. I sincerely apologize.
“I don’t know what course of action should take us forward. I do know that looking at history shows the government failing time after time to effectively administrate any sort of long-term program. This leads me to believe that whatever sort of solution for our problems we come up with probably shouldn’t include massive government administration.”
I don’t know what to do either. I really want to believe Obama will make a difference, but I can’t see an unethical government reforming itself. The fraud, waste, and abuse piss me off, but what really gets to me is our lawmakers singing the praise of free markets, while at the same time denying Americans the benefits of competition as they did with Medicare Part D.
I really believe Social Security is a scapegoat, brought to us by lobbyists of investment companies, to justify handing them fund management fees. To me, Medicare Part D amounts to theft of taxpayer money, and that Bush’s push to privatise is more of the same.
History supports your views of government, but there HAVE been times when Americans came together, like World War II, and we accomplished amazing things.
I must be delusional to think it could happen again.
“You’re numbers are accurate enough in themselves, but they omit the rest of the federal budget.”
Half the federal budget IS Social Security and Medicare. And in the future, Social Security and Medicare will become more like 80% of the federal budget. At least then, you won’t have to worry so much about government waste. There won’t be any money to fund it.
“I’d rather not go there, but I COULD blame the entire deficit on the Iraq war, and then we have a stalemate.”
No, you couldn’t and no, we wouldn’t. To date, the cost of the Iraq war is roughly $577 billion. That’s less than we spend on Social Security IN ONE YEAR. And that’s THREE orders of magnitude smaller than the entitlement shortfall.
“I’m curious about your acceptance of government mismanagement.”
I am NOT accepting of government mismanagement. I have never said anything that indicates I am. That’s you putting words in my mouth. But Social Security and Medicare represent the greatest mismanagement of all. It’s simply a matter of magnitude. I’m worried about a $100 trillion problem and you’re worried about a $1 trillion problem.
“Vanguard’s expense ratio is excellent, however when it is managed through a 401k plan, the manager of that plan gets a piece of the action.”
Then cut out the 401k. Easy. Simple.
“THAT is where the financial companies win and you lose by privatizing.”
How would financial companies win? If Social Security and Medicare were ended tomorrow and I were allowed to keep my FICA dollars, how would financial companies win? I would take my money, send it to Vanguard, and that would be it. Easy. Simple.
It’s clear that you have latched on to this issue of government waste and profiteering. I get that. It’s a problem. But compared to Social Security and Medicare, it’s an insignificant problem. To draw an analogy, you’re worried about a heart attack patient’s genital warts. Yes, they’re ugly, disgusting and embarrassing. But they’re not going to matter if the patient dies, are they?
I encourage you to put things in perspective and take emotion out of the equation. You’re upset about your portfolio dropping 40%. I understand that. But that doesn’t mean that Social Security is superior to investing in equities. As I’ve said many times, even with that 40% drop, the S&P 500 has FAR outperformed Social Security. You’re upset about government waste, fraud and abuse. I understand that, too. But that is a mere drop in the bucket compared to the problem presented by entitlement spending.
The public school system may have all but eliminated illiteracy in this country, but it’s clear that innumeracy is still rife.
@Bill
“No, you couldn’t and no, we wouldn’t. To date, the cost of the Iraq war is roughly $577 billion. ”
Actually, the figure rose to $653 billion while you blinked. But I’ll remind you that this is only the funding with the “Iraq” label on it. Recruitment dropped, worn out equipment needs to be replaced, some veterans are going to need treatment for life, and this, along with State Department funding do not carry the “Iraq” label. Here’s BBC’s breakdown from last May:
http://news.bbc.co.uk/2/hi/business/7304300.stm
Direct costs: $750bn
Future direct costs: c$500bn
Cost of US casualties: $600bn
Losses to economy: $400bn
Added interest: $600bn
Macro-economic impact: $1-$2 trillion
Did you drive in 2003 when we invaded Iraq? If so, then you’ll remember that oil prices started their steep rise at that time, and it took the recession to stop that rise. Gasoline prices rose, heating oil rose, electric utilities raised their prices, and you are ignoring that effect on our economy: Foreclosures, bankruptcies and delinquencies, “stimulus” rebate checks, financial companies collapsing, $700 billion to feed starving hedge-fund managers, accelerated use of unemployment benefits and reduced tax revenue, and who knows what 2009 will bring. Iraq is NOT the SOLE cause of our recession, but the effects on our economy are documented.
By the way what do you think the price of losing Afghanistan to the Taliban while we wasted our military in Iraq will be? http://news.bbc.co.uk/2/hi/south_asia/7770463.stm
“I am NOT accepting of government mismanagement. I have never said anything that indicates I am. That’s you putting words in my mouth. But Social Security and Medicare represent the greatest mismanagement of all.”
You said it, alright, and you said it again in that paragraph. The greatest mismanagement of all, “a $100 trillion problem”, that can’t be solved. Legislation that artificially increases the cost to taxpayers, can’t be changed to benefit taxpayers instead of drug companies. There’s not a thing we can do about it. This mismanagement was carved in stone on the third tablet Moses carried down, praise the Lord.
“It’s clear that you have latched on to this issue of government waste and profiteering. I get that. It’s a problem. But compared to Social Security and Medicare, it’s an insignificant problem. To draw an analogy, you’re worried about a heart attack patient’s genital warts.”
A better analogy would be comparing dieing from a heart attack with dieing from an untreated infection, which happens to a significant number of people without health insurance today. I don’t see how you can obsess about a Social Security deficit that BEGINS in 2041, and not consider the national debt TODAY. Every dollar we lose TODAY through fraud, waste, and abuse, adds to our deficit TODAY, and probably won’t even be paid back by 2041. In Social Security spending, we get Social Security benefits, however you feel about them. In abuses by military and homeland security contractors, we get less than nothing: Our deficit skyrockets TODAY, and these abuses will cost Americans their lives.
“Then cut out the 401k. Easy. Simple.”
Do you really think so? Current retirees planned their retirement with Social Security in mind. There is no way legislation will pass to take it away from them before 2041 if ever. Just stopping Social Security and Medicare simply won’t happen, and Bush’s privatisation “plan”, for lack of a better word, acknowledges this and discusses phasing out the current system.
The GOP’s privatisation vision is a real possibility, and that’s what I thought we were debating. There has been no serious discussion in DC about stopping Social Security and Medicare cold turkey.
Here are a few things Bush has said about his plan: It will be based on the Federal Employee’s Thrift Savings Plan (TSP), which is mostly like a 401k. The TSP is administered by the federal government, and employees contribute through pre-tax payroll deductions. It will avoid investment in the stock market, which leaves your Vanguard out in the cold. Read it and weep: http://www.csss.gov/reports/Final_report.pdf
I have never found any real details of the Bush plan, and can’t even guess at its final form, but I expect it to be consistent with the privatisation of Medicare Part d, which is why I keep bringing that up.
I’ll respect your desire to just throw Social Security and Medicare away, but I don’t believe it’s realistic. Phasing out Social Security in favour of privatised Thrift Savings Plans, or something along those lines, is a realistic possibility, but I suspect you’ll be as unhappy with it as I am.
Sarah, I will not debate the Iraq War with you. Unlike the fickle Senate Democrats, who let polls dictate their votes, I NEVER supported the invasion of Iraq. It was stupid and costly. However, in comparison to entitlement spending, the cost is pretty much insignificant.
“You said it, alright, and you said it again in that paragraph.”
You are arrogant and presumptuous to think that you know my political stance better than I do. I am not and never have been accepting of government waste. I don’t know how I can say it any more clearly. If you choose to ignore this unambiguous declaration, there’s nothing I can do about it. That’s simply your problem.
“I don’t see how you can obsess about a Social Security deficit that BEGINS in 2041, and not consider the national debt TODAY.”
The deficit will not begin in 2041, it will begin 2017. At that point, funds will have to be taken from general revenue to prop up Social Security. The sooner we take steps to fix the problem, the easier it will be. And unlike the selfish baby boomer generation, I don’t believe in indulging myself at the expense of future generations.
If an asteroid were going to strike the Earth in 2041, wouldn’t you start worrying about it now? Or would you just pass that problem off to future generations, too? Sorry kids – it’s not my problem.
Furthermore, I AM concerned about the national debt, today. I have never said otherwise. Again, you’re putting words in my mouth. If I had my way, we would not only balance the budget, we would put in a plan to to start paying off the national debt IMMEDIATELY. Did you go back and read comment 56? Or are you just going to continue ignoring what I’ve written and make up stuff?
“Every dollar we lose TODAY through fraud, waste, and abuse, adds to our deficit TODAY”
That’s true, but it’s not just true of wasteful spending. It’s true of ALL spending beyond the government’s receipts.
“In Social Security spending, we get Social Security benefits, however you feel about them. In abuses by military and homeland security contractors, we get less than nothing”
Social Security benefits go to seniors. You know, people who have had their entire lives to accumulate wealth. People like Warren Buffett, John Kerry and John McCain. Military and homeland security spending goes to defense contractors, who, in turn create jobs. That’s not nothing. You may not believe this is the optimal use of these funds – I don’t necessarily disagree. But do you think that giving government money to millionaires and billionaires IS the optimal use of those funds?
Warren Buffett collects roughly $20K in Social Security benefits each year. From my understanding of your position, you’re OK with that. What if, instead of going to Warren Buffett, that money went to Berkshire Hathaway? Would that be better or worse? Personally, I would MUCH prefer if Buffett’s Social Security checks went to Berkshire Hathaway. At least then, as a shareholder, I’d get a piece of it.
“The GOP’s privatisation vision is a real possibility, and that’s what I thought we were debating.”
I disagree that it’s a real possibility. The President’s privatization idea was DOA. Furthermore, I never supported it. I don’t believe substituting one huge government bureaucracy for another is progress. Did I even once mention the President’s proposal or endorse it? With 100% certainty, I can say the answer is no. You are, once again, putting words in my mouth.
“Phasing out Social Security in favour of privatised Thrift Savings Plans, or something along those lines, is a realistic possibility, but I suspect you’ll be as unhappy with it as I am.”
I would certainly prefer it to the current setup. The TSP has an S&P 500 index fund with a 0.015% expense ratio. If I could buy shares of that fund that had my name on them and belonged solely to me, I would be pretty happy with that. But I still think it would be a far better idea to just let people keep their money.
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