Thursday, March 17, 2005
DR. Paranoia explains the Social Security problem
LOOKING AHEAD by Wally Dobelis
Spring is only days away, and there are new shoots in Gramercy and Stuyvesant Square Parks. The election in Iraq was successful, the new Palestinian government is getting rid of the enemies of peace, Sharon is moving towards an agreement by de-Arabizing Israel, Syria has given up Saddam's terrorists, the Saudis are demanding that Assad withdraw his occupants from Lebanon, and Mubarak in Egypt is advancing a more democratic presidential election policy. Our risk-taking President's stubbornness in foreign affairs seems to have some hopeful paybacks.
Into this pleasant quiescent environment comes a message from Dr Paranoia, "Aren't you worried?"
He is, mostly about the President's re-casting of the Social Security system. To quote him, the risk factors are clear - the Americans' lifespan has risen from 62 years to 79 during 1935-2004 period, the SS recipients number 53M, a 10% growth since 1995, and the US civilian labor force is 140M, after discounting 8M unemployed. It takes 2.8 workers to support a SS recipient, their numbers are growing (baby boomers are coming) and the ratio will get worse. Something has to be done to avoid enslaving future generations into paying for their elders' livelihoods.
A sane solution, already enacted, is to advance the retirement ages of Americans, with the current law already raising it to 67 for those born in 1960 and after. For the desk dwellers that is rational, it provides not only a savings in SS outlay; carryover of core competencies supplied by the elders in the business world is valuable in this environment where employees come and go, terminated as the economic cycle turns, without developing company loyalties and skills. For people in physically demanding jobs this is harder, but society can work out the provisions. Cops and firemen have broken the path.
Now, the President's plan. Our contributions to SS and Medicare, including those of our employers, amount to 15.3% of pay (of which 2.8% for Medicare). Bush wants to enable you to contribute up to 4% of your pay to a private account, which will grow through investments. Of course, that will mean reducing your SS income by a corresponding percentage, say 32%. The present and immediate future recipients are protected - but at which age point will this be plugged in? Will a present 30-year old's accumulations by his retirement age be adequate to replace the amount presently guaranteed? Will the investment withstand the economic cycle? What if he has to withdraw monies for emergencies? To what extent will the citizenry have to contribute, to replace amounts lost due to the business cycle, or emergencies? The risks are substantial insuch a fixed-contribution environment, compared to the fixed -amount SS system.
Is this a Bush-generated plan? Not quite, Barry Goldwater in 1964 wanted to make SS voluntary; Ronald Reagan in 1975 did the same, but once elected, in 1983, under Alan Greenspan's guidance, he bolstered the SS by raising payroll taxes. Bush41, in 1997 advocated privatization, Clinton in 1998 vaguely looked towards " harnessing the returns from private markets to help SS." Greenspan, who in 2001 wanted to cut taxes "to avoid paying off too much federal debt," now worries about an unsustainable rise in federal debt, due to foreseeable huge budget deficits, and wants to cut SS, Medicare and Medicaid.
SS has been there before. Established in 1935, the OAI (Old Age Insurance) did not collect dues until 1937 and did not pay benefits until 1942. Instead, the parallel OAA (Assistance), state-based, took care of the indigent, with expectations that it would disappear with the diminishing of the original group. It did not, SS added Disability and Survivor coverage (OADSI), and, under Nixon, a Family Assistance Program (FAP, partly replacing OAA), which in 1974 turned into SSI (Supplemental Security Income). The SS benefits kept getting adjusted, and indexed for inflation in 1977. Medicare and Medicaid became part of the family in 1965, under LBJ.
Since Greenspan's 1983 SS reform, increasing the payroll tax and imposing taxation of up to ½ of the benefits, the SS surplus funds have grown to $1.7T (that's trillion), invested in US Treasury bonds, held by the SS Trust Fund. That's huge, SS is secured for most of the century. When President Bush says that SS is in financial trouble, he is wrong - it the US government that is in trouble and broke, since they will be squeezed to repay what they owe SS, and cannot afford the interest. And Medicare is in trouble, aided by his profligate prescription drug bill. Someone should tell him.
So, what's the answer? Dr. P. offers a group of measures, starting with raising the retirement age to 70; raising upper limit of SS taxable income above the current $90K; taxing benefits on a sliding income scale; reforming the Medicare drug bill that will cost $600B plus and pays full price to the drug companies. And taking back some of the tax cuts for the wealthy.
In the long run SS will have to rescue this free-trade US government, which cannot stop destroying US industry by letting the Wal-Marts buy Chinese goods on the cuff, and slept at the switch, letting the textile import restrictions die on Jan.1.
Spring is only days away, and there are new shoots in Gramercy and Stuyvesant Square Parks. The election in Iraq was successful, the new Palestinian government is getting rid of the enemies of peace, Sharon is moving towards an agreement by de-Arabizing Israel, Syria has given up Saddam's terrorists, the Saudis are demanding that Assad withdraw his occupants from Lebanon, and Mubarak in Egypt is advancing a more democratic presidential election policy. Our risk-taking President's stubbornness in foreign affairs seems to have some hopeful paybacks.
Into this pleasant quiescent environment comes a message from Dr Paranoia, "Aren't you worried?"
He is, mostly about the President's re-casting of the Social Security system. To quote him, the risk factors are clear - the Americans' lifespan has risen from 62 years to 79 during 1935-2004 period, the SS recipients number 53M, a 10% growth since 1995, and the US civilian labor force is 140M, after discounting 8M unemployed. It takes 2.8 workers to support a SS recipient, their numbers are growing (baby boomers are coming) and the ratio will get worse. Something has to be done to avoid enslaving future generations into paying for their elders' livelihoods.
A sane solution, already enacted, is to advance the retirement ages of Americans, with the current law already raising it to 67 for those born in 1960 and after. For the desk dwellers that is rational, it provides not only a savings in SS outlay; carryover of core competencies supplied by the elders in the business world is valuable in this environment where employees come and go, terminated as the economic cycle turns, without developing company loyalties and skills. For people in physically demanding jobs this is harder, but society can work out the provisions. Cops and firemen have broken the path.
Now, the President's plan. Our contributions to SS and Medicare, including those of our employers, amount to 15.3% of pay (of which 2.8% for Medicare). Bush wants to enable you to contribute up to 4% of your pay to a private account, which will grow through investments. Of course, that will mean reducing your SS income by a corresponding percentage, say 32%. The present and immediate future recipients are protected - but at which age point will this be plugged in? Will a present 30-year old's accumulations by his retirement age be adequate to replace the amount presently guaranteed? Will the investment withstand the economic cycle? What if he has to withdraw monies for emergencies? To what extent will the citizenry have to contribute, to replace amounts lost due to the business cycle, or emergencies? The risks are substantial insuch a fixed-contribution environment, compared to the fixed -amount SS system.
Is this a Bush-generated plan? Not quite, Barry Goldwater in 1964 wanted to make SS voluntary; Ronald Reagan in 1975 did the same, but once elected, in 1983, under Alan Greenspan's guidance, he bolstered the SS by raising payroll taxes. Bush41, in 1997 advocated privatization, Clinton in 1998 vaguely looked towards " harnessing the returns from private markets to help SS." Greenspan, who in 2001 wanted to cut taxes "to avoid paying off too much federal debt," now worries about an unsustainable rise in federal debt, due to foreseeable huge budget deficits, and wants to cut SS, Medicare and Medicaid.
SS has been there before. Established in 1935, the OAI (Old Age Insurance) did not collect dues until 1937 and did not pay benefits until 1942. Instead, the parallel OAA (Assistance), state-based, took care of the indigent, with expectations that it would disappear with the diminishing of the original group. It did not, SS added Disability and Survivor coverage (OADSI), and, under Nixon, a Family Assistance Program (FAP, partly replacing OAA), which in 1974 turned into SSI (Supplemental Security Income). The SS benefits kept getting adjusted, and indexed for inflation in 1977. Medicare and Medicaid became part of the family in 1965, under LBJ.
Since Greenspan's 1983 SS reform, increasing the payroll tax and imposing taxation of up to ½ of the benefits, the SS surplus funds have grown to $1.7T (that's trillion), invested in US Treasury bonds, held by the SS Trust Fund. That's huge, SS is secured for most of the century. When President Bush says that SS is in financial trouble, he is wrong - it the US government that is in trouble and broke, since they will be squeezed to repay what they owe SS, and cannot afford the interest. And Medicare is in trouble, aided by his profligate prescription drug bill. Someone should tell him.
So, what's the answer? Dr. P. offers a group of measures, starting with raising the retirement age to 70; raising upper limit of SS taxable income above the current $90K; taxing benefits on a sliding income scale; reforming the Medicare drug bill that will cost $600B plus and pays full price to the drug companies. And taking back some of the tax cuts for the wealthy.
In the long run SS will have to rescue this free-trade US government, which cannot stop destroying US industry by letting the Wal-Marts buy Chinese goods on the cuff, and slept at the switch, letting the textile import restrictions die on Jan.1.
# posted by Wally Dobelis @ 12:08 PM 
