Re: Obama's Remarks on Retirement Security

allan.sanger@xxxxxxxxx wrote:
On Jun 17, 9:45 pm, Islander <nos...@xxxxxxxxxxx> wrote:
allan.san...@xxxxxxxxx wrote:
On Jun 17, 7:42 pm, Islander <nos...@xxxxxxxxxxx> wrote:
allan.san...@xxxxxxxxx wrote:
On Jun 17, 8:29 am, Islander <nos...@xxxxxxxxxxx> wrote:
allan.san...@xxxxxxxxx wrote:
On Jun 14, 9:10 am, Gary <n...@xxxxxxxx> wrote:
I'm not a fan of Obama's. But on this issue -- he is a far greater
friend of retirees than any Republican. The Old McCain use to
advocate raising the SS cap. Why has he changed ? -- gj
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Well let me be clear: privatizing Social Security was a bad idea when
George W. Bush proposed it. It's a bad idea today. It would eventually
cut guaranteed benefits by up to 50%. It would cost a trillion dollars
that we don't have to implement on the front end, permanently
elevating our debt. And most of all, it would gamble the retirement
plans of millions of Americans on the stock market. That's why I stood
up against this plan in the Senate, and that's why I won't stand for
it as President.
and then....
Finally, we're not going to help folks reach a secure retirement
unless we encourage savings. But today, personal savings is at an
all-time low as Americans are dealing with higher costs and a credit
crunch. Meanwhile, 75 million working Americans don't have
employer-based retirement plans.
That's why I've proposed automatic workplace pensions. There will be
no red tape or complicated forms - employers will provide a direct
deposit of a small percentage of each paycheck into your account. You
can add to it, or you can opt out at any time. And employers will have
an easy opportunity to match employee savings. If you switch jobs,
your savings will roll over into your new employer's system. If you
become self-employed, you will control your account. Studies show that
about 80 percent of Americans will enroll if given the option to
pursue our type of plan. And we will also help middle-class families
start their own nest egg by matching 50% of the first $1,000 saved - a
match that will be directly deposited into your savings account; a tax
cut that will truly encouraging savings, investment and wealth
creation. These steps will put a secure retirement within reach for
millions of working families.
I thought this was an interesting "balance". No private retirement
but a tax matched "savings" account? Islander or Rita or anyone else
want to explain to me how the two are different?
al
It is an interesting balance and quite different from what the Bush
administration proposed.
I wouldn't be so fast to make that assertion.
Bush's proposal would have moved money out of
the traditional social security system and into private investment
accounts.
Yes - that was the plan if I remember correctly.
Obama's plan augments the traditional social security system
by both removing the cap to make social security solvent and encouraging
savings above the social security safety net
The math really doesn't work out that way.
Removing the cap the way it is explained in the post that started this
will generate somewhere in the 30 billion in new taxes, half from the
"wealthy" and half from business.
The encouragement of savings will cost $500 per person (household) or
70 billion (35 billion). Pretty much a wash, at least in government
terms.
So, where does the solvency come in?
al
They are two separate things. Removing the cap is projected to produce
solvency in the Social Security program.
The way that it is described it can generate somewhere in the 7
trillion dollar range at the end of 40 years assuming a 7% real rate
of return.
Even if it falls short,
increasing the retirement age gradually over time will make up whatever
else is needed. This is the safety net.
This is akin to reducing the benefit.
The encouragement of savings is a separate topic. A good idea, IMV, to
encourage savings, but I want to see the details. Is the $500 a
one-time thing? I hope so.
It appears to be an annual thing - otherwise what good would it do?
What penalty is there for cashing out the
savings? Severe, I hope.
I would imagine since it has the touch and feel of a 401K the same or
similar rules might be applied.
How long does the individual have to continue
putting money away? A long time, I hope.
It appears to be totally voluntary.
Properly structured, it could
be a very good thing. Otherwise, it is not much of an improvement over
tax deferred savings plans.
That is what it is apparently - a voluntary 401K-like account that has
a government match as opposed to the same deals many current workers
get in the private sector.
I don't see any difference between it and what has been proposed as
"privatization" in the past. If we were to take 35 billion out of SS
contributions and build individual nest eggs and then replace that 35
billion with a new payroll tax on the wealthy we'd basically get the
same result.
Regardless of where you get the money, you need to get the money from
somewhere. I'm assuming its new taxes - can't be spending cuts? Both
plans create a huge hole in funding which Obama intends to fill with a
wealth tax and Bush intended to fill with a benefit cut.
If I got it wrong, feel free to explain it to me.
al
I'm not very optimistic about the "voluntary" part, but as long as there
is a safety net that remains solvent, I'd be pleased to be proved wrong.

It's all about the math again. Seems you believe that if you have an
offsetting expense and benefit somehow new wealth is created.

Obama wants to increase taxes by 35 billion and then spend 35 billion
on a privatized 401K program.

There isn't any new wealth.

al

A couple of points:

1. For all practical purposes, Social Security is a tax, not a retirement savings account. As presently structured, it is worse than the typical regressive tax since those having income over the threshold pay a rapidly decreasing percentage of their income. This is rationalized by the argument that those over the threshold would not receive a "fair" return on their investment if they were forced to pay more. I think that it is time to call a spade a spade. It is a tax and the practical purpose of the tax is to provide a safety net so that we don't have our senior citizens begging in the streets. Extending the threshold upward results in a flat tax, still regressive, but a better solution than we have now.

2. A government program that encourages saving above and beyond Social Security is a good thing. We can argue about the details including the $500 incentive, but any good conservative would point out that it is not a zero sum game. Properly structured (and I don't know that Obama's plan is properly structured) the spending stimulates the economy in a way that is considerably better IMV than the current so-called stimulus program. The money is going into the investment side of the financial community where it can multiply (and produce new wealth).

Bush's proposal, by contrast, places the safety net at risk. That, IMV, is unacceptable. I have no problem with providing an incentive for a private citizen to invest and be personally responsible for assuming the associated risk. After all, tax deferred retirement accounts result in an "incentive" by the government in lost current year tax revenue.
.

Relevant Pages

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