social security
Return
to Common Sense
May
9, 2009
Section: Domestic
– Social Security
“The
longer the federal government delays a transition to a personal account system
the more likely the Social Security “Ponzi scheme” will drag the
economy into bankruptcy.”
Philosophy (Background, Issues, Objectives):
Social
Security Administration (SSA) has a staff of over 65,000 employees and
headquartered in Baltimore.
·
Retirement and Survivors Insurance (RSI)
·
Disability Insurance (DI)
·
Supplemental Security Income (SSI)
·
International SSA programs.
Original
Social Security (FICA) Program was designed as a temporary targeted program:
·
The participation in the program would be
completely voluntary.
·
The participants would only have to pay 1% of
the first $1,400 of their annual income.
·
The money the participants elected to put
into the program would be deductible from taxable income.
o
Democrats eliminated the income tax deduction
for Social Security (FICA) deduction.
·
All monies would be put into the independent
“Trust Fund” rather than the General Operating Fund, and can only
be used to fund the Social Security Retirement Program.
o
Democrat Lyndon Johnson put these funds into
the General Fund.
·
The annuity payments to the retirees would
never be taxed as income.
o
Democrats started taxing Social Security
annuities, with VP Al Gore casting tie-breaker.
Social
Security will begin to spend more in benefits than it takes in from payroll
taxes in 2017.
·
In 1935 Social Security was created to pay
retired workers a continuing income after retirement.
·
Social Security is the only retirement plan
that many American now have.
·
Social security is a very poor investment,
delivering negative rates of return on Social Security taxes.
·
The Social Security trust fund does
not contain cash or assets; only special-issue government bonds.
o Ponzi schemes are a type of illegal
pyramid scheme named for Charles Ponzi, who duped thousands into investing in a
postage stamp speculation scheme back in the 1920s.
o The Ponzi scheme continues to work on
the 'rob-Peter-to-pay-Paul' principle, as money from new investors is used to
pay off earlier investors until the whole scheme collapses.
·
The only way to pay full benefits would be to
raise taxes by about 50%.
·
As of 2006, the present value of
liabilities for future Social Security benefits is $6.4 trillion.
Personal
Ownership Accounts have been suggested, but have not gained sufficient traction
for passage.
·
Conservatives proposed personal retirement
accounts.
·
Democrats proposed reforms at Hyde Park
Declaration for reform and personal retirement accounts.
·
Liberal obstructionists are in crisis denial
and insist that “Social Security remains sound for decades.”
Over
half of all Americans face a bleak retirement future because they have not
saved enough.
·
Fewer than one in five are covered by a
traditional defined benefit pension.
·
Many of these pension plans are under-funded.
·
Pension Benefit Guaranty Corporation (PBGC)
insures pension programs and faces huge deficits.
·
Traditional pensions are being replaced by
401(k) type savings plans, but only half participate.
Other
countries are beginning to change their retirement programs to personal
accounts.
·
Chile replaced tax-based,
pay-as-you go government retirement system with an ownership based system of
individually owned retirement accounts in 1981.
o
Workers could choose to stay in existing
system, or could get out and invest in own account.
§
90% of Chilean workforce opted out of
government system into personal retirement accounts.
o
Average real annual return of Chile’s
retirement accounts has been over 10%.
o
Chilean system has provided so much
investment capital that Chile moved from being a poor country to being a solid
middle-income country.
·
Sweden adopted personal pension
accounts in 2000 paid for by tax dollars.
o
Swedish reform introduced a “notional
defined contribution” assigned to each participating worker tracking
“investment earnings” and “account balances” as a
tracking vehicle.
o
At retirement retirees get a pension based on
the balance in their own notional account, converted into a monthly benefit
based on expected remaining life span.
o
Use of “notional account” that
positions for later simpler switch to fully funded accounts.
§
Current retirees and older workers will
continue to receive retirement income based on the old program.
§
Workers born from 1938 to 1953 will receive
benefits from both the old and new systems as the new system is gradually
introduced.
Principles:
Benefits
of current retirees and those close to retirement must not be reduced.
·
Rate of return on a worker’s Social
Security taxes must be improved.
Personal
retirement accounts must guarantee an adequate minimum income.
Recommendations:
Short Term, Isolate the social security
financing funding and liabilities from the total budget.
·
Protect current surplus from
current spending.
·
Separate OMB forecast income and spending as
a discrete entitlement.
·
Budget long term (30 year) to identify
shortcoming long before they become problems.
·
Require program reauthorization every four
years based on sustainability.
Examine social security
reforms to salvage program such as:
·
Gradually raise the
retirement age.
·
Implement across the board
benefit cuts (all three tiers).
·
Increase taxes by increasing
earnings cap.
Improve the funding of
traditional defined benefit pension plans.
·
Privatize the Pension
Benefit Guaranty Corporation (PBGC).
·
Offer auto-enrollment
in Federal Retirement Thrift Investment Board.
Long Term, Create Social Security Personal
Retirement Accounts that workers would own and save for retirement.
·
Expand private pension coverage by offering
automatic enrollment and payroll deduction.
References:
“Pension Reform in Sweden: Lessons for
American Policymakers” by Goran Norman and Daniel J. Mitchell dated
June 29, 2000 published by The Heritage Foundation at http://www.heritage.org/Research/SocialSecurity/bg1381.cfm
.
“Six Important Rules for Real Social Security
Reform” by David C. John dated June 2, 2003 published by The Heritage
Foundation at http://www.heritage.org/Research/SocialSecurity/EM884.cfm
.
“A Progressive Proposal for Social Security
Personal Accounts” by Peter Ferrara dated June 13, 2003 published by
Institute for Policy Innovation at http://www.ipi.org/
.
“The 6.2 Percent Solution: A Plan for
Reforming Social Security” by Michael Tanner dated February 17, 2004
published by The Cato Institute at http://www.cato.org/pubs/ssps/ssp-32es.html
.
“End Social Security” by Star
Parker dated December 14, 2004 published by World Net Daily at http://www.worldnetdaily.com/news/article.asp?ARTICLE_ID=41917
.
“Social Security reform threatened by
elite liberals” by Star Parker dated March 22, 2005 published by
Town Hall at http://www.townhall.com/columnists/StarParker/2005/03/22/social_security_reform_threatened_by_elitist_liberals
.
“It’s High Time for Lifetime Savings
Accounts” by Terry Mitchell dated March 23, 2005 published by
American Daily at http://www.americandaily.com/article/7208
.
“The 2005 Index of Dependency” by
William W. Beach dated June 13, 2005 published by The Heritage Foundation at http://www.heritage.org/Research/Budget/cda05-05.cfm
.
“Extinct, in Under Five Years” by
Michael G. Franc dated August 2, 2005 published by National Review Online at http://www.nationalreview.com/comment/franc200508020825.asp
.
“Social Security scam keeps on ticking” by
Herman Cain dated May 16, 2005 published by Town Hall at http://www.townhall.com/columnists/HermanCain/2006/05/16/social_security_scam_keeps_on_ticking
.
“Entitlement-Reform Realities” by
Jagadeesh Gokhale dated June 26, 2006 published by National Review Online at http://article.nationalreview.com/?q=NjIxZDM0ZDhlMGRiMGIzNWNkMGI2NWFjNDVkMDU4YmQ=
.
“Can Social Security Reform Be Saved?”
by David Hogberg dated June 26, 2006 published by The American Spectator on http://www.americanprowler.com/dsp_article.asp?art_id=10009
.
“Increasing Retirement Security Through
Automatic IRAs” by David C. John and J. Mark Iwry dated June 29, 2006
published by The Heritage Foundation at http://www.heritage.org/Research/SocialSecurity/tst062906a.cfm
.
“Deficits, Social Security, and Other
Entitlements” by Stephen M. Lilienthal dated July 27, 2006 published
by American Daily at http://americandaily.com/article/14783
.
“Social Security is a Women’s Issue”
by Carrie Lukas dated November 1, 2006 published by Town Hall at http://www.townhall.com/columnists/CarrieLukas/2006/11/01/social_security_is_a_women%e2%80%99s_issue
.
“A Fix for Social Security?” by
Sebastian Mallaby dated November 27, 2006 published by Washington Post at http://www.washingtonpost.com/wp-dyn/content/article/2006/11/26/AR2006112600929.html
.
“Personal Accounts, Not Tax Increases”
by Peter Ferrara dated March 2007 published by Institute for Policy Innovation
at http://www.ipi.org/ .
“2007 Social Security Trustees Report Shows
the Urgency of Reform” by David C. John dated April 24, 2007
published by The Heritage Foundation at http://www.heritage.org/Research/SocialSecurity/wm1429.cfm
.
“President Roosevelt’s ‘New
Deal” & Social Security” by Gordon Bishop dated August 27,
2007 published by American daily at http://www.realclearpolitics.com/articles/2007/08/declinism.html
.
“Congress Should Add Auto-Enrollment to the
Thrift Savings Plan, But Resist Interfering in Its Investment Choices”
by David C. John dated September 24, 2007 published by The Heritage Foundation
at http://www.heritage.org/Research/SocialSecurity/wm1637.cfm
.
“Social Security, Ponzi Schemes and Moral
Hazards” by Terry Easton dated September 28, 2007 published by Human
Events Online at http://www.humanevents.com/article.php?id=22615
.
“Life is not a Defined Benefit” by
Star Parker dated November 2, 2007 published by Human Events Online at http://www.humanevents.com/article.php?id=23216
.
“Five Myths and a Slur” by Ruth
Marcus, dated November 28, 2007 published by Washington Post at http://www.washingtonpost.com/wp-dyn/content/article/2007/11/27/AR2007112702031_pf.html
.
“Rethinking Social Insurance” by
Stuart M. Butler and Maya MacGuineas dated February 19, 2008 published by The
Heritage Foundation at http://www.heritage.org/Research/Budget/wp021908.cfm
.
“Look to Sweden?” by Henry Olsen
dated February 26, 2008 published by The American at http://www.american.com/archive/2008/february-02-08/look-to-sweden
.
“The Swedish Solution” by James C.
Capretta dated March 17, 2008 published by The Weekly Standard at http://www.weeklystandard.com/Content/Public/Articles/000/000/014/853mjsly.asp
.
“A
working model” by Richard W. Rahn dated May 15, 2008 published by
Washington Times at http://www.washingtontimes.com/article/20080515/COMMENTARY/758878152/1012/COMMENTARY
.
“Social Insecurity?” by Andrew G.
Biggs dated November 21, 2008 published by American Enterprise Institute at http://www.aei.org/publications/pubID.28971,filter.all/pub_detail.asp
.
“Does Social Security Actually Spread Risk Across
Generations?” by Andrew G. Biggs dated December 9, 2008 published by
American Enterprise Institute at http://www.aei.org/publications/filter.all,pubID.29040/pub_detail.asp
.
“How to Reform Entitlement Spending” by Brian M. Riedl and
Alison Acosta Fraser dated January 13, 2009 published by The Heritage
Foundation at http://www.heritage.org/Research/Budget/sr43.cfm
.
“Will Your Social Insurance Pay Off?” by Andrew G. Biggs dated
January 14, 2009 published by American Enterprise Institute at http://www.aei.org/include/pub_print.asp?pubID=29198&url=http://www.aei.org/publications/pubID.29198,filter.all/pub_detail.asp
.
“Social Security: National Ponzi Scheme” by Walter E. Williams
dated February 2, 2009 published by Investor’s Business Daily at http://www.ibdeditorials.com/IBDArticles.aspx?id=318470763456742
.
“Meltdown Was Perfect Stress Test For Market-Based Pension Reform”
by William G. Shipman dated May 8, 2009 published by Investor’s Business
Daily at http://www.ibdeditorials.com/IBDArticles.aspx?id=326678998631300
.
