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November 18, 2002

SS Privatization: GOP Deceptions

Go GOP social security privatizers!

Read this commentary today by former GOP Congressman Vin Weber from the Wall Street Journal. He's trying to argue that because some GOPers ran on private accounts in Social Security and won, that shows how much popular support there is for SS privatization. But the key phrase in his article is this one:

"They promised to preserve the benefits of all current retirees and those nearing retirement."

Which is a nice promise and when you bullshit the public, you often can get shortterm political gain. But read the sentence again. What is says first is that there is no promise that most working people paying into the social security system will get full benefits.

Second, if you take a big chunk of social security taxes and put them into private accounts, that means you have to use a chunk of income taxes or other general revenue to pay for current retirees.

So here is what social security privatization means for young workers:
(1) Your guaranteed benefits will be slashed and if your personal account goes south in an Enron-style mess, you will be eating cat food in retirement.
(2) While it sounds like free money, you will actually be paying for those private accounts through increased income or other taxes.
(3) Therefore, the scam is that young workers get to pay double taxation, for present retirees and again to cover the costs of their own accounts.

Cute bait and switch, huh? The GOP gets to sound all progressive and pro-young worker, when they really are screwing them as thoroughly as possible. Paul Krugman has long been skewering Bush over the deceptive math involved in these proposals.

The standard political story of social security privatization is that seniors will hate it politically, but that young people will be won over to the GOP on the issue. The actual politics is really the reverse. Most present retirees won't feel a thing, but younger workers are the ones who should be up in arms at the GOP playing these deceptive games with their future.

If you want the real story on Social Security privatization, you should look at the only real bill ever developed on the issue, the 1999 Archer-Shaw bill, one so embarassing in its results that the GOP has refused to actually present a bill in Congress since.

One gimmick of the Archer-Shaw bill was to officially keep standard benefits for retirees constant, while slashing them dollar for dollar for any stock market gains in the private accounts. As the Center on Budget and Policy Priorities (CBPP) notes:

[such an approach] is not likely to survive politically over time. This aspect of the plan effectively imposes a 100 percent tax rate on most accounts. After being told the individual accounts are their property, American workers would see their accounts entirely taxed away when they retired.
Seems kind of a strange game, to take money out of social security, put it into private accounts, then tax it away at retirement. Oh, but there's a point to the game, as CBPP argues:
The only group of retirees who could receive an increase in government-funded retirement benefits under the plan would be upper-income workers. Yet a broad array of Americans, including many of average or modest means, might have to absorb cuts in other benefits or services or tax increases to help finance the individual accounts after 2012.
Yep, that's the kicker. The deficit explodes paying for the private accounts and the only benefits get diverted to upper-income retirees who save so much that their stock market gains are larger than their lost benefits.

And the economic analysis by the non-partisan Employment Benefit Research Institute says it all about the likely budgetary results:

[I]f the equity market does not fair as well, and the costs of administering the accounts turn out to be larger than the proposal predicts, the chance that the proposal will achieve a positive actuarial balance is minimal.
That's a nice way of saying that the numbers don't even add up with the proposal.

There are other variations on social security privatization, but they are all based on lies and financial manipulations-- the end result being the same. The deficit increases, average folks lose out, and rich retirees are the only ones who benefit.

And let me repeat, the Dems have to get the politics of the issue straight. It's not old people who should be scared of the GOP plan. It's the young workers who will be double taxed directly and indirectly to pay for the damn thing, while risking having no retirement money.

The key here for progressives is to force the GOP to put up or shut up. Don't let them just talk about the wonders of "private accounts"-- make them present a real bill. These folks are getting cocky. We need to give them enough rope to go hang themselves. And when the average American voter sees who will foot the bill and who will benefit, folks like Vin Weber will be running for the hills from the backlash.

Posted by Nathan at November 18, 2002 09:26 AM

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Tracked on March 13, 2005 09:04 PM

Comments

Nice summary, Nathan. I hadn't thought about it that way, but it makes a lot of sense. Don't whack those currently receiving benefits - they'll know it immediately, and vote based on it.

Don't whack those who are about to receive benefits, and are paying more attention to them
(especially after their 401(k)'s turned into 201(k)'s), for the same reason.

Make BS financial promises to those who won't receive benefits until long after these politicians are retired.

Posted by: Barry at November 18, 2002 05:02 PM

I don't see how people are going to get the word. I dont' know anyone under 40 who thinks SS will exist when they reach retirement age, (which will probably be 80). This despite the fact that the SS site says a one percentage point increase would make it solvent for most of the century.

Everyone born after WWII has already been screwed and probably doesn't know it. By that I mean the raised retirement age for everyone born after 1943.

One other thing occurs to me. No one ever talks about the employer's contribution if SS were to go private. I would think that companies that contribute to a pension fund or a 401K might make the argument that they shouldn't be forced to give a 6.2% bonus on top of that. The Repubs keep saying it't your money, but half of it isn't. It's your employer's money.

Posted by: Hobson at November 19, 2002 06:36 PM

Few realize that it was Ronald Reagan who approved the Social Security rate to go up to 15%. Now it is a flat tax on the working poor with 67% of all workers (who still have a job) paying more in payroll taxes than in income taxes. Many over 65 still have to work and have to still pay the payroll tax while those on pensions or interest income pay none. Also a person who is 62 and is on Social Security has part of it taken away if they earn just over $10,000. Again, those who do not work at this age but live off interest income, get to keep all of their Social Security while someone who has to work, gets part of it taken away while at the same time having to pay into for others just because they have to work.
At the same time, companies move out of the USA to avoid paying for the entitlements and other taxes. Now these companies may be rewarded for running away with the government letting them keep their foreign profits without any taxes. None of this makes sense.
We have corporations in the USA now who have good stock value but virtually have no employees left in the USA. This is a swiss cheese economy in the USA with more holes than cheese. The biggest unions now are Public Workers Unions that do not pay into Social Security. They have their own deal. And they are the only group still making a real living.
These imbalance will soon come home to everyone's front door. It is a House of Cards economy waiting to fall. The Social Security Trust Fund is mythical and does not really exist but it is used in the General Fund just like income tax. Even President Clinton admitted that he paid for the Kosovo War with the Social Security Trust Fund. Let us all start talking the realities of our times and not about something that does not really exist. Globalism and the new world economy has failed. Everything else will follow.

Posted by: Dreamrenew at October 2, 2003 06:03 PM

I have written a critique of the Cato Institute's latest proposal that might be of interest. it can be seen at: http://suitax.blogspot.com/

It is quite long and, I believe, contains ideas that I have not seen elsewhere.

Posted by: Tim DeLaney at April 2, 2004 09:26 PM

I was hired by government contractors who screwed myself and 3 others in this proposed scheme!(2-6-2001 to 12-23-2003). There were mistakes littered throughout the whole ordeal! This particular scheme they act as a small trucking company in the delivery service field for major retailers, and only hire individuals who want to become owner operators/ independent contractors. I still have the actual contract that was presented me by these government contractors. I currently have a judgement against these gov.contractors. So far, over a year has gone by and they haven't taken care of this judgement that is against them. They believe they are anonymous. They're Not!!This scheme is evil! Do not partake in this type of greedy republicanisum! Major crossmarketing happening, Globaly! This is wrong! I could not believe what was actually going on! I was being put out of business while 1500 other business were starting-up, because of my job!! Talk about being mad!! AND NOBODY CARED, AND NOBODY DID ANYTHING TO PREVENT IT OR EVEN AFTER IT OCCURED! I knew I contacted the right people! The very ones who are to protect you and your rights. Nothing was done! They were investors. In the filings of the S.E.C., there are two that stand-out, and even-though they are two contracts, when put together it makes one contract. The very one that was governing my bogus contract! Level 3 communications, llc, form 8-K, dated 2-4-2001, & Fibernet telecom, llc, form 8-K, dated 2-9-2001. The un-registered, bogus company I worked for was called SDX LOGISTICS, INC., U.S.D.O.T.#805997. The major retailer that I actually worked for labeled as an independent contractor, but still had to go threw their three day orientation for new hire employee's,.. THE HOME DEPOT, INC., MEMPHIS, TN., (all local area stores). ALSO was the last day I worked! cell ph. (662 501-3560) anytime!

Posted by: T.M. Davis at February 26, 2005 10:28 PM

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