Re: OT: Social Security

John Black wrote:
In article <3u3i8uFv7gdtU1@xxxxxxxxxxxxxx>, Dally@xxxxxxxxxx says...

How lovely for you that you live in a world where people will save the spare $200K they've accumulated through their years. Not only save it, but save it wiser than the guaranteed SS annuity.

I don't live in that world.


I don't agree entirely because I think money taken for SS and other high taxes which fund the safety net are a big part of the reason why people are not able to save what they should save, creating a bigger need for the safety net than there would otherwise be.

I think there is an element of that. One study I saw showed that savings rates went down after social security was implemented. I don't think this is necessarily proof positive that it's a bad thing: possibly savings rates went down less than the future value of the social security benefits, for example. But I think you've got a point in that the existence of social security acts as a dicincentive in some respects towards savings. After all, they know there's a safety net to catch them if they fall.

Further, the existence of the safety net permits (even encourages) people to "not do what they ought to do". But let me concede the point and say that SS is there to force people to do what they otherwise would not do which is save for their retirement. That is not how the program works. I probably would be in favor of it if it were as you described withholding tax above. If $8000 is taken from your paycheck for withholding tax throughout the year, then when it comes time to pay your taxes, there is a real account which has $8000 in it (the amount taken from you) to use. That is not how SS operates at all. The money taken from you does not go into any account for you. I.e. its not "forced savings". The money that is taken from you gets spent right away. There is not even a social security trust fund for the surplus -- that is spent as well. I would (reluctantly) be in favor of a forced savings plan like that where money was taken from people's paychecks (like today) but instead of being spent, it would be put into a private account for them where they could invest it in low risk investments, watch it grow, and pass it on to their heirs if they have a balance when they die. Would you be in favor of a program like that instead?

As innocuous as this sounds, there are three vast problems with this. The first is that people will piss it away on foolish investments and be back squalling that they need saving from their bad decisions. I believe that YOU won't be scammed, that YOU will beat the U.S. Treasury rate of return, but you vastly overestimate the intelligence of the American public if you think that's the norm. A fool and his money are soon parted. It's human nature. They'd invest badly... on the base money that was supposed to be the safety net guaranteed minimum.

The next problem is the opportunity to forget to fund it. The Bush proposal I saw was geared towards self-employed people in such a way as to let them off the hook for part of the 15.3% self-employment tax payable on their tax returns by April 15th. The idea was that they'd put the money, instead, into some self-directed fund instead of paying it to the Feds. All very lovely until you attempt to apply it to a human being who needs a new car 'cuz his transmission died, etc etc etc. The fact is, people won't do it. They'll mean to, they'll plan to, but if they don't have the money on hand to send to the Feds under threat of prison, do you really think they'll make good on THIS debt, too? After all, it's just themselves they're harming and they REALLY need to get their car fixed. No, I'm serious, I can't throw a stone without hitting someone who's screwing up their retirement with bad budgeting. Counting on people to do it for themselves is why social security was neeeded in the first place.

Closely related to this problem is the idea that people might have ACCESS to these privately-invested funds. That's the IRA model: they can take the money out anytime they want. In fact, you can take your 401(k) money out anytime you want. You'll lose 45% to taxes and penalties, but you can do it.

Want to know how often I've seen people pillage their IRA or 401(k) money? Every day. Seriously, I see this 100 times a year. And they've always got a reason. Sometimes stupid, sometimes pitiful. Once it was smart: someone took their 401(k) money out and bought a house with it just before the 401(k) tanked and the house started rising in value. THAT one worked out well, not that she knew the stock was going to tank. But that was ONCE. And I've seen this hundreds of times. It makes no economic sense, but people do it over and over again.

The third problem with taking social security private is that it leaves us with a whopping huge immediate crisis in paying for the current system. It doesn't do ANYTHING to cure the impending implosion except bring it closer in time.

Social Security only covers a bare minimum base allowance. You may feel free to save over and above that - in fact, you were always supposed to. It's a three-legged stool: private savings, company pension and the subsistance-level social security. There is absolutely NOTHING preventing you from doing your own saving over and above the base. In fact, you're really encouraged to do it. There's a Retirement Saver's Credit on the 1040 that gives you cash back if you're wise enough to put some of your money in a retirement plan. Cash back because you gave yourself cash. It's money for nothing. Did you bother to stoop down and pick it up?


Is that new? Does money deposited in a 401k account count for this?

It's two years old. There's a catch, of course. You have to be so poor that you couldn't possibly afford to save. And it's a tax credit so if you're poor enough to be able to get this credit you're probably so poor that you don't owe taxes. The people who actually get this are rare as hens teeth. But for the ones who get it, it's great.

It works like this: if you are single and making less than 25K or married filing jointly and making less than 50K you can get a credit of between 10 and 50% of the first $2000 you (each) put into a qualified retirement plan: 401(k), 403(b), IRA, Roth IRA, even some 457 plans. You can't be a full-time student. There's also a limitation based on what distributions you've taken from retirement plans in the past three years.

I've had cases where putting money in an IRA allowed someone to increase their EIC and get a tax credit of 50%. Of course, they were "fake poor", people who have assets but no income so they could just move some of their money into an IRA without any skin off their backs. I see a lot of trust-fund-baby-artists like this.

The real poor people can't come up with $2000 to put in an IRA even if it's going to increase their tax refund by $1200 AND they'll have the tax refund in hand before they need to fund the IRA. I know, I've tried. I talk myself silly about what a great deal it is, but they still leave the money sitting on the table.

I wish there were some way to convey to you how incredibly stupid people are with money.

Then social security is by that definition not a safety net because everyone, rich or poor gets it, not just the ones who fall through the system.

I disagree. Rich people can become UNRICH: stock markets fall, expensive nursing home stays impoverish a spouse, you spend your money on your kids. Social security provides an insurance policy for everyone.

Furthermore, it's there for the people who are disabled, and that could happen to any of us at any time. It's also got a survivor's benefit, so if you're hit by a bus your minor children get a check until they turn 18. It covers the "there but for the Grace of God go I" situations. You don't ever want to collect on this, but you want it there if you (or your kids) ever need it.

I'm "ok" with the welfare safety net for those who really need it and I think it could be applied to people who failed to save for their retirements. People think of social security as their retirement plan and its very existence dis-incents them from saving otherwise. If they knew they would be "on welfare" living very poorly, if they failed to save for their retirement, many more would save.

I agree with this. I cringe when I hear people complaining that social security is hard to live on, as if it's something we are supposed to correct. It IS hard to live on. It's designed that way. Why don't more people know this?!?

I personally think Capitalism with Safety Nets is the best thing we've got available to us. Take away the Safety Nets and it fails miserably, though.


But you have to be careful not to go too far with the safety nets as I think we already have by a long shot. Eventually their funding becomes too burdensome to the majority of people and they end up creating the very problems they are there to solve, not to mention creating hugh inefficient bureaucracies, ripe for waste and fraud. The amount of Medicare fraud that occurs on a yearly basis for example is staggering.

I agree with this, too. But I feel quite confident that there's room for me to advocate for compassionate basic care for humans, in that I know that there are a bunch of smug hard-asses telling them all to suck it up and go sleep on an ice floe.

As for fixing social security, there's no doubt that we've got a mathematical problem. I think part of the answer has to do with cutting benefits. Social security ought to be truly subsistance-level: enough for cheap food, cheap apartment, bare utilities. (Not satellite television, I'm talking heating/cooling electric without a hot tub.) Social security was NEVER supposed to allow you to live in the style to which you had become accustomed while working. Never.

I've read many analyses that show that its not really fixable. All kinds of tinkering like reducing benefits, increasing the tax, raising the retirement age etc. just postpones the inevitable. I've seen some decent plans for phasing it out though over time.

I'm interested in what you saw. I think ONE solution isn't enough, but multiple solutions would work. As benefits decrease towards zero and retirement age increases towards infinity, there MUST be a set of solutions.

The hot potato analogy is for politicians who want to pass problems off to the next guy until finally someone gets stuck with a disaster. I thought the same as you -- its in no politician's interest to put the country through a little pain now in order to avoid a big pain later if that big pain is going to come after he or she leaves office. But yet, what we have now is a President that wanted to address the problem. However no one wanted to work with him on it and they pretended that the things he was saying about SS are not well known and hadn't been said a thousand times before by people on both sides of the aisle.

Did you READ his plan? For one thing, it didn't fix the Ponzi scheme thing at all. Not a whit. For another, it seemed mainly about releasing people from paying the onerous self-employment tax, while sweeping under the carpet the part about having to pay in EQUAL amounts of money into a retirement plan they got around to setting up. Then there's the tiny detail about how we use that money currently to fund government operations, and we'd have to go borrow from OTHER markets to make up for what we can't borrow from the SS trust fund. (You see a bunch of people clammoring to buy U.S. bonds?) And then there was the other detail swept under the carpet: the people who did the private investments would have their benefits reduced concordantly. But what happens when their private investments tanked? Would they really lie down and accept their gutted social security check?

I saw a plan with no guarantee, no fix, no budget reality that didn't address any of the issues OTHER than the pansy-ass squeamishness about a lack of an actual trust-fund for the money you pay in. Yes, it's a tax. So what? So's medicare, and you don't see anyone offering to privately save for their medical care, do you?

The longer we wait to address the problem, the more painful it will be to solve. Ideally we want to begin addressing it before its at crisis level.

I think these things work themselves out in time. Someone throws themselves on a sword screaming that it must be dealt with, we all scratch our heads and wonder about their zealotness, and five or six years later a real dialogue starts up from the mainstream.

The same thing happened with Hillary Clinton and health care. Everyone thought she was being some socialist radical monster, but we're gradually getting to a place where Medical Care is a huge mainstream problem that is demanding immediate attention. It affects G.M. retirees: now it'll play in Peoria.

Dally
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