Lars Larson on Social Security Reform

Be prepared for the Democrat’s plan to reform Social Security. It’s a doozy.

The Wall Street Journal has done some great reporting on an idea from Barack Obama and”¦here’s the question. Would you like to see social security change this way?

As reported by the Journal, workers earning up to $8,000 per year would get back almost everything they put into social security. Just get it back! They get a refund.

Workers earning over $8,000 would receive $500 each but that would phase out. Upper income earners would pay even more, and they say under the current law a low wage earner only gets an inflation adjusted return of about 4%.

The reform suggested by Obama is to boost that to as much as 6% above inflation and at the same time taxing some Americans more.

That’s not a social security reform. That’s more of the Nanny State the Democrats have been pushing all along.

“For more Lars click here”

  • Jerry

    But the majority voted for B. Hussein Obama, so whatever he does is the will of the people and must be good.

  • Bono

    Social Security should be able to handle itself with the SS-tax we all pay. This does not make sense.

  • Rupert in Springfield

    Ok – this is the first program of Obama’s I can support. Essentially this transforms SS into the holy grail Republicans have been searching for for years. Namely moving it from a fairly progressive program to a really progressive one. Republicans have wanted SS to be means tested for years. Obama appears to want it to be extremely progressive. That’s basically different terms for the same thing. Either way it adds up to transforming SS from the quasi welfare program it is today to a full on welfare program.

    I would think Republicans would be cheering this. The more rapidly SS gets transformed into a straight up welfare program, the less support there will be for it. Right now people are convinced it is a retirement program. The number of people who are aware that it is pay as you go, current payments go to those currently on the dole, is about one in ten. The vast majority believe the annual letter sent to them that tells them how much is in their “account”. Few notice that the benefits shown are projections and not guarantees.

    As structured now, social security has far more risk than the stock market and way less on the benefit side to recommend it. If one considers a 40 year working life, it would be impossible to find a period in the stock market where steady investment yielded a negative return. With SS it is just the opposite, and your benefits are subject to the whim of congress. That’s a lot of risk and those currently not retired should be well aware of how the retirement age has been raised on them by fiat. They just had years of retirement stolen from them, all to pay out enhanced benefits to early retirees of their parents generation. A retirement fund with terms subject to the whim of congress with a guaranteed negative return? It doesn’t get any higher risk than that.

    This system cant die soon enough and converting it to a welfare plan would seem to be just as good a solution as the Republicans means testing approach. Either way would grow resentment towards the program and hopefully kill it off. That day cant come soon enough for me. For my children, I cant think of a greater gift than life without an SS number and the freedom to plan for their own retirement.

    This definitely is change I can believe in.

    I’m beginning to like Obama more and more.

  • dean

    Gee….$8000 a year! What’s the matter with these lazy bums? Can’t they just put some of that in an uninsured IRA? What leeches!

    And charging upper income earners even more! Heartless. Cruel. Theivery! The next thing you know they won’t have bums to step over as they get out of their limos! The nanny state! Horror of horrors.

    Of course…8 years of the pappy state left a bit of a mess and a few thousand millionaire investors to rescue…but hey! That was just temporary conservative insanity. It will all be much better next time. Trust us. Trickle down works.

  • John in Oregon

    Social Security is one of four initiatives I expect President elect Obama and Democrats to move forward quickly. Card Check, CTO, and UVPS are the other three. With these proposals Obama is tinkering with Social Security progressivity.

    I chose the word “tinkering” quite intentionally. For the last dozen years the left and others with agendas have scapegoated any change to Social Security as an attack on retired seniors. Language twisted to nonsense and nearly any change is said to be throwing grandma in the snow bank. By now even liberals can’t do much beyond tinkering round the edges.

    Yet today we are at a tiping point where Social Security must change. Why? First and foremost Social Security pays past obligations from current income. That’s a Ponzi scheme. If you or I did that we would be in jail. The Government reassumes us that SSI is safe until at least 2050. The surplus is in T bills in a lock box. From an accounting prospective that’s true. A lot of T bills in the lock box.

    Congress was happy with all those T bills. All that surplus Social Security money going into the treasury and Congress spent it. Now political reality comes home to roost. Currently the social security tax brings in enough money to pay current benefits. But like all Ponzi schemes soon the social security tax revenue won’t cover benefits. Then those T bills start to come due. Congress will have to take tax money to repay the T bills. That’s when Social Security becomes politically bankrupt.

    The most recent numbers were that the Social Security tax would no longer cover payments some time around 2010 – 2012. With falling employment that’s more likely now coming down toward 2009.

    Thus the urgency and the Democrats are already moving. As usual the liberals have solved that road block to Social Security change by using the back door end run.

    *House Democrats Contemplate Abolishing 401(k)*
    October 16, 2008

    “The House Labor Committee and the House Ways and Means Committee are currently preparing a new system of Government guaranteed retirement accounts to which all workers would be obliged to contribute.”

    These new Government Retirement Accounts (GRA) would be part of the social security administration. Under this program all workers would be required to invest 5 percent of their pay into a guaranteed retirement account administered by the Social Security Administration.

    This effectively solves the problem. The retirement tax is now 15.3% (SSI and Medicare) plus 5% Government Retirement Accounts which brings the tax to 20.3%. With the funds commingled paying benefits from existing revenue is no longer a problem. Remember all that money is _not_ _your_ _money._ It’s also raising taxes into a recession, just as Hoover did, but pay no attention to the man behind the curtain.

    But what about the existing 401(k), IRA money? That is _your_ _money._ $5 Trillion of _your_ _money_ so long as you don’t sell in a down market. What happens to that $5 Trillion of _your_ _money?_

    Well Congress could let you keep it. But its 5 Trillion Dollars. Wall Street is a failure, don’t you know. The director of the Congressional Budget Office, Peter Orszag, testified that some $2 trillion in retirement savings [your money] has been lost over the past 15 months. (It’s only lost until the markets recover but that should be ignored.) After 200 years, building the greatest nation on earth, capitalism is a failure don’t you know. So why not convert the private savings accounts to a Government Retirement Account where it’s guaranteed and its _not_ _your_ _money?_ It’s a 100 % death tax, but its _not_ _your_ _money._ Remember its 5 Trillion Dollars can Congress possibly resist?

    EXTRA CREDIT, how good is Social Security?

    Lets ask Bill Smith the average guy earning around $40,000. Over 49 years Bill is taxed $294,000 for SSI / Medicare and retires with $1,094 per month. With an average 15 years of retired life Bill will withdrew $196,920 leaving $97,080. What happens to that $97,080? Its _not_ _his_ _money_, the courts have said so. It’s subjected to a 100% death tax.

    Now if Bill put that same money in IRA CDs at only 6%. Over 49 years that money would produce $1,736,015 in an account that _Bill_ _owns,_ it is _Bills_ _money._ If Bill withdraws only the interest that gives him $5,900 a month retirement and $1,736,015 at death. This is _Bills_ _money_ but the Government takes 50% death tax [Obama 08] leaving Bills estate $868,007 to be used as Bill wished.

    • dean

      John…2 points. First, it simply is not true that “the left,” if by that you mean Democrats, are against “tinkering” with social security. Raising the cap at the upper income, as Obama has proposed, is tinkering, and has long been supported by Democrats.

      Second, you say paying past obligations from current income is a Ponzii scheme, and if we did this we would be in jail. Not so. Do you have a home mortgage? Isn’t that essentially a past obligation paid from current income? Same for your credit cards or any other loan you took for a past purchase you are presently paying for.

      As long as we have a productive economy paying into SSI, and as long as this is backed by the US Government, SSI cannot “run out of money.” It can require the taking on of debt to make payments if the amount coming in is insufficient to pay for the money going out…which is also what we are doing with the Iraq war and most other government programs by the way.

    • Rupert in Springfield

      True – There is some talk by the Democrats of essentially confiscating 401k’s. This attitude is nothing new, individual rights have always tended to be low on the liberal radar screen. The only thing that will be interesting is if we hear further yammering from them bemoaning the low rate of savings of Americans. As lovers of social architecture, you would think that the thought that our tax system penalizes savings more than any other country might occur to them. It might, but the lust for power over others has a far greater draw for our more liberally minded citizenry.

      The very idea that at this point in our economic history anyone would suggest the government move further into the realm of financial management, especially of peoples retirement, is staggering. People should be outraged at SS, an evil program that robs people of a luxurious retirement to pay them paupers wages as you so aptly demonstrate. Ludicrous government policies, especially in the housing market, over the last thirty years have gotten us into this mess. The last thing we need is to hand these idiots more shovels.

    • John in Oregon

      Dean, Libs publicly demonized any SSI change thereby pissing in the well of public discussion. Not even they can un-poison that well now.

      Not all Democrats are Liberals tho they have been forced into the closet within the party.

      I can’t help it if you don’t understand what a Ponzii scheme is. Go look it up.

      As to SSI cannot “run out of money” name one politician that will suspend pet project spending to divert funding to SSI.

      You seem to have some really screwed up concepts of simple basic terms. I would suggest an Accounting 101 and Government 101 class. But I suspect it will take much more for you to break free of the chains of your newspeak thinking.

      Rupert, keep in mind that 5 Trillion Dollars is a huge pile of Gold. We all know what Gold fever does to Politicians.

      • dean

        John…at your suggestion I looked up “Ponzi scheme.” There are several definitions, but all describe it as an “investment” program. Typically they over promise returns based on increasing the flow of capital from new members. Send me a dollar and send this letter to 10 others who will send you a dollar is the classic Ponzi scheme. It doesn’t take long to run out of 10 multipliers.

        SSI is not and never has been an “investment” program, which is why it is not a Ponzi scheme. And anyway, show me a single Ponzi scheme that has lasted for over 70 years and still pays increasing benefits and maybe I would put money into it.

        Democrats worked with Reagan in the 80s to make significant adjustments to SSI that generated major surpluses that Reagan turned around and spent on his military buildup. So don’t tell me Democrats are not willing to “tinker.” They are. But they are not willing to transform SSI into a private investment system, which is what Republicans have long insisted on and what Bush spring on the nation after his re-election in 04.

        I took accounting 101 and government, but along time ago. SSI cannot run out of money because IT IS A PET PROJECT of Congress. Geezers vote…..therefore they are going to get their checks before any other project, including wall street bankers if it comes to that.

        Conservatives and Republicans (is there any difference any more?) who keep trying to “tinker” social security out of existence are the political gift that keeps on giving to the Democrats. Why is it that conservatives only seem to care about government spending when it is to help people out? Medicine…education….food stamps = bad. War…wall street bailouts…..prisons = good. And you wonder why you are sinking.

  • Bob Clark

    Democratic politicians are nothing more than unscrupulous, power hungry shiesters. They sucker people into voting for them by feining allowing things like drilling for more energy supply. Then once in office, they reverse course and deny increased drilling to make their rich cat environmental donors smug and happy. The working stiff will be back to paying over $4 per gallon for gasoline as soon as the economy recovers. Moreover, social security is one of their lame programs they’ve been borrowing against since its creation. Now that its running dry, they want to confisicate the working stiff’s 401k and bleed him some more and make him even more dependent on government handouts.

  • John in Oregon

    A Ponzi scheme is a swindle in which the victim is defrauded after his or her confidence has been won. Such swindles include some hook used by the Con Artist to gain the confidence of the victim.

    In the case of the Chain Letter which you mentioned Dean, the hood is breaking the chain brings bad luck. In other cases the hook can be the false appearance of an investment. An also common hook is the false appearance of compounding of product sales.

    All such swindles appear to function so long as new participants cover the current obligations. They all collapse when new participants fail to cover obligations.

    Dean thank you for confirming that *SSI is not and never has been an “investment” program.* If SSI were in fact a real investment program then that would disqualify SSI as a Ponzi scheme. The fact that you confirm the false appearance of an investment program further confirms that SSI is a Con Game.

    Dean you said *”Do you have a home mortgage?”,* and thereby equate Mortgagees with a Ponzi swindle. Which shows the astonishing extent of your present bondage to Newspeak thinking. Equating mortgagees to a Con Game exists no where in common usage of the English language.

    That is why I said a 101 class was insufficient for you to break free of the chains of your newspeak thinking.

    The more you protest the louder your chains rattle.

    • dean

      John…I don’t think you have the right definition of a Ponzi scheme. Your are conflating it with other swindles. Pnzi is a faux INVESTMENT scandal. SSI is not presented as an investment. It is social insurance.

      Look…if and when current inputs to SSI become lower than the expenditures, there are options available to the government that are not available to a private investment system. Government can increase the amount people pay in, it can decrease the amount going out, it can do a combination of the 2, or it can deficit fund the program for as long as it cares to.

      I don’t hear you making any argument that our military expenditures, which are higher than all other nations combined, are not sustainable. Why? Doesn’t it rely on ever increasing inputs from new workers? And where is the payback? Doesn’t exist. Money goes out and none ever comes back.

      I’ll presume you believe having the strongest, best equipped, best trained military in the world is essential to our security and world peace, so damn the cost. Its worth it. OK…the argument for SSI is that keeping geezers out of poverty is essential to our nation, and even if it were not, as I said geezers vote in big numbers. Its essential to them. So the federal government is going to fund SSI one way or another. Therefore…it is not a swindle, a Ponzi scheme or any such thing. New participants, meaning all current workers, will continue to pay in as long as they are required to do so. They can’t just quit, as is the case in a Ponzi scheme. IF our nation does a good job educating people, training people, keeping wages high, and so forth, then there is enough money coming in. Periodic adjustments are needed. A wholesale change of the system to an individual investment structure is not needed and is not politically possible.

      So I’ll return the favor and suggest you retake Poly Sci 101 and pay special attention to the section on how powerful interest groups (i.e. voters over 65) can and do influence policy to their benefit. Case study: SSI, the 3rd Rail of American Politics.

  • John in Oregon

    I am not conflating it. I am stating it explicitly. A Ponzi scheme is a swindle in which the victim is defrauded. It makes no difference if chain letter, false investment, or product sales pyramid, all are illegal.

    Having disposed of your distracter, do you seriously claim being impoverished by SSI is a good deal when the same money in CDs would provide a $2,000 a month health plan, $4,000 a month retirement and a nearly $2 million estate?

    As to what SSI is? What it is not is insurance. A pre-taxed government dole on the backs of current workers might be a better description.

    Then you pull out the military spending distracter, *having the strongest, best equipped, best trained military in the world is essential to our security and world peace.*

    Hint. When employing a distracter to change subjects its best to be accurate with distracter.

    Fact. A close look at China’s real military spending ranges from $88 billion to $120 billion. Taking midrange $100 billion and calculating purchasing power parity (PPP), China’s effective military spending is on parity with US spending. Your distracter that US spending exceeds all others combined is false.

    So you suggest Poly Sci 101 with special attention to powerful interest groups.

    My ohh my I had never thought of that, but then.

    Ohhhhh wait. Haven’t I already mentioned the Lib/Dem poisoning the well of SSI discussion?

    • dean

      John…so if an apple is a fruit, then all fruits are apples?

      I guess I don’t agree with your fundamental premise, which is that we are being “imoverished” by SSI. Quite the opposite. We, or a lot of us at least, are being kept from poverty through SSI. Yes, an individual could “do better” by stashing the same amount taken from one’s check (plus employer contribution) into a conservative invetment account, if one started young and always put in and never withdrew and the investment fund manager did not abscond with the money or do something stupid with it. Maybe SSI should have been designed that way from the beginning. But it wasn’t. And for those who recieve payments at present, or are anywhere near taking out of the system, can’t very well make an adjustment to loss of current income. And those paying in can’t afford the double burden of paying for the present recipients while another 12% is taken out for them later on. It doesn’t add up, and that is why Bush’s plan was DOA.

      But if you want to make that part of the Republican platform now and into the future be my guest. The one age group that voted majority for McCain was over 65. You do the math.

      • Steve Selengut

        Really just a general comment—-

        A Capitalist’s Social Security, 401(k), and Retirement Plan Reform Program

        What if there was an easy way to implement a whole new approach to retirement funding, pension planning, and Social Security? Would the politicians be interested? Let’s find out.

        What if the new plan actually reduced payroll taxes, cut prices, created jobs, increased salaries, raised shareholder dividends, partially funded decreased healthcare costs, and was available to everyone?

        Sound too good to be true, but it’s actually doable. The reasons for the present system’s failure are mostly political; the solutions are clear, practical, and non-partisan. What we want is a less expensive system for assuring that everyone is able to retire with an adequate income, higher than that provided now by Social Security.

        What we need is a simple program, part mandatory and part voluntary, using experienced trustees who operate within the strictures of the prudent-man rule— a risk-minimizing legal doctrine that restricts investments to those that seek reasonable income and preservation of invested capital— SIBORAP Tier One investments.

        The 2007-2008 stock market correction and credit crisis laid bare the weaknesses of all self-directed retirement accounts. First of all, they are not (and never were) pension plan equivalents. They were cheap-to-provide replacements for fully funded defined benefit pension plans— supplemental programs at best.

        Next, inexperienced investors were provided with an array of far-too-speculative investment options, and little if any training in basic QDI (Quality, Diversification, and Income) investment principles. The mutual fund industry was allowed to monopolize the self-directed plan market place.

        Third, most participants thought of their programs (401(k)s, IRAs, ROTHs, SEPs, SIMPLEs, etc.) in guaranteed pension plan terms. They were encouraged to do so purposely by mutual fund distributors and inadvertently by uninvestment-educated employee benefit representatives.

        If good news ever becomes an actual news story again, people would realize that both defined benefit pension plan and guaranteed fixed annuity contract payments were maintained throughout, and in spite of, this terrible financial environment. Why not deal with Social Security in the same manner?

        A Social Security Retirement Income Annuity, or SSRIA, invested 70% or more in government guaranteed securities, could be phased in quickly as a mandatory replacement for the existing Social Security program. The personally owned SSRIA would also become a voluntary investment option for all self-directed programs and a guaranteed safe savings vehicle for after tax discretionary dollars.

        These are the bare bones parameters of the new program:

        SSRIA contracts will be provided by newly formed subsidiaries of established insurance companies. They are deferred, fixed-income-only annuities with no commissions or fees paid by participants or employers. All companies would provide identical products, insurances, and maturity options. A minimum of 150,000 new jobs could be created.

        The contracts would include $10,000 of term life insurance, provide for retirement at age 60 or above with just two immediate annuity options: life and joint life. No variable account features, or withdrawals, would ever be allowed, and all SSRIA retirement payments would be absolutely income-tax-exempt at every political level.

        SSRIA providors would receive an investment management fee of .85% of the Working Capital under management, emphasizing the importance of both income generation and preservation of capital. Participant account statements would reflect ever-increasing cash balances, growing at annually adjusted, contractually guaranteed rates

        Providor operating profits would be distributed 70% to parent company shareholders and 30% to fund a trust for retiree health care benefits. An associated tort reform bill would cap jury awards and attorney fees for personal injury lawsuits against all health care providors.

        SSRIA mandated contributions would be capped at 3% of pre tax total employment compensation; an additional 2% of pre tax earnings could be contributed voluntarily. Voluntary contributions to an employee’s SSRIA would be a required investment option of all self-directed employee benefit programs.

        There would be no employer contribution to individual SSRIAs. Employers would be required to use their savings in any combination of these options: increase non-executive salaries, hire additional workers, reduce consumer prices, and increase shareholder dividends.

        Employees earning total compensation in excess of $1,000,000 would pay 10% of the excess directly to the retiree health care trust. All special compensation arrangements, including stock option plans would be banned. Bonus payments in excess of 20% of base pay would be pooled, and divided among all employees and shareholders, dollar for dollar.

        Employees would be assigned randomly to qualifying SSRIA providors, one contract per person. Self-employed persons, dependent spouses and children, would be eligible for SSRIAs, and would be assigned to a providor by the Social Security Administration.

        The Social Security Administration would oversee the operations, pricing, and investment practices of SSRIA providors, qualify companies wanting to become providors, and implement the transition from the existing program to the new. The process could take up to five years, unless peace breaks out in the Middle East.

        The transition to the SSRIA program would commence immediately, starting with employees under age thirty. Existing Social Security accounts would be frozen. Balances would be applied 50% in cash as an SSRIA deposit, 20% to the retiree health care fund, and 30% as a Federal Income Tax credit. Older employees would have proportionately larger direct credits to their start up SSRIA accounts.

        One other thought: All active government employees at all levels, elected, appointed, or hired, would be transitioned into the new SSRIA system.

        OK, there it is, a viable first step change plan that most of us would go for. Call your representatives, newspapers, and favorite radio talk shows. Hey, it’s our money; let’s keep it that way.

        Steve Selengut
        Professional Investment Management from 1979
        Author of: “The Brainwashing of the American Investor: The Book that Wall Street Does Not Want YOU to Read”, and “A Millionaire’s Secret Investment Strategy”