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January 21, 2005


dave munger

Most investers are not particularly savvy with regards to expense ratios. I know that I can get a Vanguard fund with a .3% expense and comparable returns to a "premium" fund with a 1.5% expense ratio. I know that will save me perhaps 20 to 30% of my investment in the long run. But most investers don't, which is why we still have mutual funds with not just 1.5%, but even up to 5% expense ratios.

The problem with privatization is not that it's impossible for *anyone* to make enough money to retire on; the problem is that it's impossible for *everyone* to make enough money to retire on. This is going to come back to haunt us down the line: we'll either have to let the "losers" starve, or we'll have to spend even more money to make sure they don't.


The arguments against private accounts amount to "people are too stupid to have their money" lets us democrats keep it. Social(ist) security has out lived any semblance of usefulness and will not, cannot and has not worked to help the younger people in this country for a long time. The democrats do not care who gets hurt and enslaved by their corrupt and ill conceived policies of vote buying and will NEVER fix this program. Only G W Bush has the courage to do what is right and Necessary to save social security NOW and for the coming generations. This program is NOT to create dependency and an UNDER class of voting SLAVES but rather to allow us to live in economic freedom with dignity beholding to no political party for our daily bread. This is what the democrats fear and reject so vehemently- that George Bush will do as Lincoln did. Only this time the masters are democratic politicians and the slaves are on welfare and other Government programs.



Why not have people run their own numbers from their statements? I did. The results are different for everybody, but very interesting indeed: http://state29.blogspot.com/2005/01/social-security-privitization-my.html

john mcginnis

dave m.,

I would agree with your comment that not everyone is a savvy investor. I catch myself sometimes about ready to do a boner. That's why I sleep on it before I make a move.

But there are safeguards that could be developed. Capitalization ratios, preferred position equity classification, preference for low risk positions. A trading house wants to offer these type of instruments then they would have to meet the guidelines. Point is, the private portion should be a low to mid risk position. Folks want to go with a flyer, use their 401k account or individual account.

Which brings me to my last point. I work for a Telco and we have a Cafe 401k program. The funny thing is only 34% of the employees actually sign up.


the basics of partial privatization are simple and sound:

1 - don't touch accounts for those over 50.
2 - offer people under 30 the opportunity to steer 20% of their payroll tax into stock funds geared to their own account IN RETURN THAT PERSON MUST AGREE TO REDUCE THEIR EVENTUAL SOC SEC PAYMENT BY 40%. This reduces th current funds payout by more than it reduces the inoput; hence the partial privatization makes the old/existing fund MORE solvent while increasing the potential individual wealth of those who voluntarily opt to put some of their payroll tax into stocks.

3 - graduall increase the % amount of which those under age 30 may steer into stocks/private fund.

4 - again FOR ONLY THOSE UNDER 30: gradually (every six-12 months or so) RAISE the age at which time recipients may begin to receive 100% of their traditional soc sec payment (for example: at age 65 you can get 50% and at age 66 you can get 60%, and at 67/70%, and so on) Thgis will reduce the burden of the old system BUT ONLY FOR THOSE WHO HAVE 356 YEARS to prepare.

This is general/thumbnail; actuarily speaking - this will have to be worked out in greater detail, BUT this volunatry and gradual and partial privatization would work.

And: it would most benefit poorer people - they'd get something they could pass along to their kids, and most working poor cannot save enough for IRA's now; this would be their IRA and their families ticket out of propertylessness.

As such, partial privatization is one of the most pro-working class proposals EVER to come out of Washington.

ONLY REACTIONARIES oppose partial; privatization. And, sadly, they are all on the Left.

Partial privatization would be a GREAT THING EVEN IF THERE WERE NO LOOMING CRISIS;

the debate over whether there's a crisis in 2018-2040 is IMMATERIAL.

BOTTOM-LINE: do we think that a program designed in 1935 is the best possible program for us now - 60 years later!?!?!?!

Of course, it cannot be. It isn't. It is time to innovate.

Charlie (Colorado)

Isn't the underlying point that it turns an unfunded government obligation in the "trust fund" into a funded 401(k) paying a few percent and not on the government's books?

Don't Kinsley's and Krugman's arguments depend on the sleight of hand of treating the FICA tax as income, but not recognizing the "trust fund" as a debt?


We've already done the experiment, and the data area available. My ex-employer has had a company savings plan that was sheltered from taxes since 1969. The maximum plan contributions from employees and the employer were a little more than the total bite social security took, but not terribly different. However, most of us didn't stay at the maximum contribution all the time. Most of us backed off during peak demand years, when we had kids in college, for example. Therefore, the company savings plan and social security took about the same contribution, and both are now ready to pay out for many people. In my case, the contributions were pretty close to the same.

Comparing the reults for a large number of people would provide a decent predictor for how well the privitized social security accounts would act. In my case, the company plan, now rolled into an IRA since I got cut in 2003, is about 4 times as valuable as the net present value of my projected social security income. And, if I die, my widow would get the entire thing, not a small slice that social security would provide. Also, when we both die, any remaining funds will go to our children.

Yes, I did screw up a few times with the account. For example, I withdrew too much when we bought a house in 1987. Yes, the stock market has been going sideways for several years. But even with those adverse effects of stupidity and the market, my private account is MUCH more valuable than my likely social security payments.

It would be interesting to do a statistically valid study to see if my experience was typical. I suspect it was, and that the private accounts returned much better value than social security.

Jim Glass


"...if we take into account realistic estimates of the fees that mutual funds will charge - remember, in Britain those fees reduce workers' nest eggs by 20 to 30 percent - privatization turns into a lose-lose proposition."

But this puzzling, careless writing. When he wrote "fees reduce workers nest eggs" he accidently forgot to say "compared to..."

I mean, a reduction has to be measured compared to something, right?

Let's provide the possibilities for him. Since he quotes Jeremy Siegel as an authority on stock returns, let's accept Siegel's position that from now on stocks will return 4% over the federal bond rate, (rather than 5% as in the past). And since the SS Actuaries are the authority on returns on SS contributions, let us accept their word that SS from now on will pay an average of 1% less than the federal bond rate.

Now, following the practice of the actuaries by gauging returns relative to those from the federal bond rate, we compute the value of $1 invested per year for 40 years in federal bonds; stocks; stocks minus the 0.1 fee of the Federal Thrift Savings Plan that Krugman has never heard of, stocks minus a British-type 1.5% annual fee and ... Social Security -- with its remarkable low-cost efficiency.

The result of $40 invested over 40 years in...

Federal bonds: $40
Stocks (no fee): $104
Stocks (-FTSP fee): $101
Stocks (- British fee): $81
Social Security: $32

So, does Krugman mean that paying expensive fees to invest in stocks "reduce workers' nest eggs" compared to magically investing in stocks with no fee expense ... or to investing in Social Security?

He should tell us, no?


Two things: You're assuming that there will be 'average' returns on stocks. Isn't social security partly about helping stabilize society for those who, to some degree or another, fall below the 'average' part of the curve? And if those people are having problems with their money as-is, wouldn't their shifting it to private accounts make them even more prone to mistakes? And are't these people primarily the ones who have little time to learn about the financial options available to them?

Second thing: Why are we assuming that this influx into the market of capital will have no effect on the market prices?


I'd like to take a stab at the approach both 29 and Dave (Davenjo) mentioned above. I just posted a comparison calculator for Social Security vs. PRA's yesterday, taking into account the average return one might expect from Social Security versus best and worst case stock market performance for a given investment period.

Also, I don't think Krugman's argument holds water - when you look at the fees attached to the typical index fund, which I believe will represent the kind of stock market investment vehicle that will be available, they're minimal - sure they cost money over time, but it's a miniscule fraction compared to what even low inflation can do to one's investment return. Makes you wonder who's handling his retirement accounts....

M. Simon

We tax the people to pay for the government.

How about taxing the government to pay for the people?

The Feds have lots of land.

Why not sell some?


"The CBO, in their July 2004 evaluation, assumed account fees of 0.30% per annum on total assets, which seems plausible for the types of comparable funds run by the Federal Thrift Savings Plan."

Er, no. Actually, the relevant quote in the linked CBO report is:

"The weighted average real return of this portfolio is 5.2 percent; individuals are assumed to rebalance the portfolio annually. Administrative costs are assumed to reduce returns by 0.3 percent, resulting in a net expected real annual return of 4.9 percent."

Note that that's not .3 percent decrease in total assets, that's a decrease of .3 percent on YEARLY RETURNS. Let's also keep in mind that the .3 percent decrease that the CBO suggests is way on the low side: private management fees in Britain, on average, tend to be about 1.1 percent, and there are certainly many US mutual funds with similar overhead.

It's this decrease in yearly returns, compounded over time (which your example doesn't even begin to simulate) that bring about a 20-to-30 percent decrease in total funds when compared to the same investments made in, say, a low overhead index fund.

Let's also keep in mind that the point Krugman's making is hardly some piece of liberal lunacy: any independent guide to investing will begin by pointing out that the fees charged by managed funds almost always kill any slight advantage those funds might have over the market, and that most investors will do far better over time just sticking with an index fund. But, of course, the investment banking world wouldn't exist today if there weren't plenty of people who invest in high-overhead managed funds. This is a point worth keeping in mind when it comes to considering moving tens of millions of workers over to private accounts.


what is seemingly lost in all the discussions of privatization is that private accounts would contain actual money - the soc sec "trust fund" (a most absurd use of the term) contains only US gov't bonds - the trust fund owns hundreds of billions of dollars in gov't bonds that can only be redeemed (turned into cash to pay benefits) if the fed gov't can repay them - given that the fed gov't currently runs deficits of $400 billion annually, it will almost certainly have to borrow to repay the bonds issued to soc sec - that borrowing would be on top of all other borrowing being done to fund the fed government's regular operations - because no real dollars were put away while soc sec ran a surplus, no real dollars exist to pay future benefits - if you don't think that's a significant issue, you haven't been following the plot

Jimmy J

I'm 71 and getting Social Security. I paid into Social Security from 1948 until 1993 when I retired at age 60. I started drawing SS at age 62. At that time I sat down with the figures that I had put in over the years and assumed I could have put the money in an insured savings account earning 3%. I would have been able to buy an annuity that would pay me more than my social securit benefit. Only problem: no inflationary increases. My SS payments have increased by about 15% in 9 years due to inflation raises. That is a benefit that no private employer can afford to give you and only very savvy management of an investment account can provide. I'd be interested in seeing an answer to this problem.
Also, I think that a transition to all private accounts would be a better thing than to have a private/government hybrid. If the private accounts were successful I can see Congress wanting to get their hands on the money.


Where we get the money is not the issue. The idea that the govt is taxing us an extra 12-15% and telling us that this is still our money is the problem. We need to face the fact that the govt needs to reduce spending or that the govt is addicted to this money and we should just add it to the total income tax load. Our gov't should not be in the pension business. If our citizens cannot live on what they save, then call it for what it is: charity. For those older than 65, set up a needs based welfare or charity. If the govt is so worried about the money coming back to us, individual accounts using govt bonds would enable the govt to use the money as needed and give the bond buyers double the return of social "security". And the heirs of the persons that die to early to retire would get the money. Problem with that is our "debt" would go up, and the govt would HAVE to pay us back instead of playing with SS payment s on a whim.

The Kid

With or without private accounts, in the future Social Security can only provide benefits with a growing economy. Is the economy more likely to grow with private accounts or without? Without private accounts tax rates will have to rise as the SS balance of payments surplus first declines then evaporates.

As for safe, low-cost investments for private accounts, especially for those who don’t elect to participate, why not play a variation of what’s now a scam: issue Treasuries to those account-holders. The account-holders get ownership, a real return, no management costs, and a safe investment.

BTW, with private accounts there’s also the likelihood of greater competition among account managers, reducing costs as volume increases. Such savings are available today, even on actively managed accounts. Wachovia (the old DWR) in effect lumps like accounts together offering actively managed holdings with lower fees starting at around $50K.


Account fees would be higher than for typical personal mutual fund/brokerate accounts, because these accounts will be very small. The limits proposed so far are $1K per year.

Dave - your experience since 1969 includes roughly a doubling of Price/Earnings ratio, or in effect, roughly a 2.7% tailwind for stocks since the mid-1970s. It's reasonable to assume that, at best, that tailwind won't repeat, and it is quite possible that P/E could revert to historical or worse. If that happens, take out two or three points of return, at least the unlucky generation.

media in trouble

these numbers are just like the bush numbers. a crock of lies.

"In that case, the total fees charged on my first $1,000 deposit are ($3 x 45) = $135. That is 13.5% of my initial deposit."

Your assumption would only be correct if you wouldn't make money. Because the more money you make the more money that percentage grabs and in terms of your initial deposit, it may eventually take all of it.

It is still the wrong way to frame the debate.

Social Security is not an investment program. It is an insurance. That is all. If you want to invest nobody is stopping you and if the government was to put forth legislation that forced people to invest their own money by instantly deducting 2% from their check and putting it in a lock box until they retired.

I think you wouldn't have a hard time pushing that through at all.

But you cannot save a deficit problem by taking more money out of the system.

Jim Glass

"Account fees would be higher than for typical personal mutual fund/brokerate accounts, because these accounts will be very small. "

That's like saying Wal-Mart must charge big mark-ups per item because it specializes in making sales of small cost items to rural folk without a lot of income.

It is the *volume* of similar transactions that drives down cost per transaction. There will be no shortage of volume here.

We have right in front of us the example of the Federal Thrift Savings Plan which charges 0.1% to manage private investment accounts for goverment employees. Let's not try too hard to ignore it.

Also lets not forget that $1 invested in Social Security today will return only 80 cents after 40 years, discounted at the federal bond rate.

Even if you pay some pretty hefty fees on a private investment you can still expect to beat that!

Let's not try too hard to ignore that fact either.


I wonder how much it costs to run the SSA and administer FICA taxes? They deal in even small amounts.

I bet they run at more than 0.3% of the amounts they bring in.


Let's get real. Compare SS to the Govt pension plans enjoyed by congressmen, senators, state and fed employees . Then we have a true picture. SS placates the masses; don't show them what they would have under the fed or state plan, they might understand the unfairness and vote out the jerks who have been lying to them.


Look deeper into the CBO reports and you will see that the relatively low administrative costs of the Federal Thrift program depend on its offering only unmanaged index fund-type accounts and its record-keeping functions being performed by a government agency at cost. The Federal Thrift program is cheap because it gives only a minimal role and profits to the securities industry; what are the odds that the Administration will offer a Social Security privatization plan that does the same?

David Atkins

I use a "follow the money" approach to everything political. I have plugged in a spreadsheet (using my PEBE's statement) and a column for a .30 % management fee and I am still ahead of Socialist Security on monthly benefits. That's even though in my younger years I was a bit lackdaisical. I am 54 years had my contribution and my employers contribution been in a private account I would currently have a monthly benefit of approximately $945.00 per month. I am certain that the private account by age 62.5 would provide me with a greater benefit than Socialist Security would at 62.5 since the PEBE's statement projects only 1062.00.
That is certainly not enough to take care of me but what bothers me is the nature of the Socialist Security System. Not only is it the greatest "Ponzi Scheme" ever invented it's a form of gambling ! If both I and my wife die before age 60 we lose.

Regarding the opening "follow the money" statement, when the Union of the SSA workers opposes this it tells me it should not be supported.

Our grandparents and parents bought into the "Father of American Socialism's" (FDR) rhetoric and I do not want to see my children and my grandchildren have to participate any further in this scam.

I think the CATO Institution Michael Tanner's 6.2 Solution should be looked at closely.


Krugman has opened my eyes! Here I've been saving money and investing it in those awful mutual funds, where it will be eaten up by management fees. Little did I know that I could do much better by just sending that money in to the federal government, which will spend it. In exchange I get their promise that they will take care of me someday. Why didn't my financial advisor TELL me about this outstanding retirement program???

Bart Hall

What seems to get overlooked in these discussions is that a worker's rate of return on social security taxes is entirely dependent on how long (s)he lives after retirement. The return for a worker who retires at age 67, collects for six months, and then dies--as many men do, soon after retirement--is deeply negative.

With private accounts he's still dead, but the money is there to inherit, educate the grandchildren, or whatever. As a result of their lower life expectancy, blacks' return on social security is in the range of about -1 to -2%. For whites it's typically +1 to +2%, again, depending on how long they live.

Even if private investment accounts were limited to medium-duration inflation-indexed US Treasuries their return would be in the range of +3 to +5%, which beats the snot out of 1%. You won't get rich on it, but it's major step forward from the existing system.


A few of the arguments that people are making here against private accounts are based on fallacies.

1) The "Investing is a zero-sum game" argument.

This is untrue. Investing isn't a zero-sum game. If one's goal is average returns, he can invest in diversified, low-cost, low-turnover, (often index) mutual funds and be virtually assured of achieving average returns. If private accounts are required to take that form, then there won't be big-time winners and losers.

2) The "stock market could do poorly" argument.

This argument is true. However, it ignores the fact that any properly diversified portfolio would have other investments (e.g., bonds or foreign stocks) that would likely be performing well. (Furthermore, since the performance of the stock market and the economy are linked, what does a poor stock market say for our ability to meet SS obligations?)

3) The "last twenty years of the stock market were exceptional" argument.

Sure...but even if you take out the last 20 years, stock market returns very good over time.


The Federal Thrift plan charges low fees because there are zero sales and marketing fees (no competition), because the account management is done by the government at cost, and because assets are limited to five funds choices, with the management of the aggregate assets for each fund contracted out at low cost.

It is a reasonable model for a universal small savers IRA, because it does control cost, and to some degree it limits risk.

It's hard to imagine a plan like this, whether as a voluntary savings plan, an addon plan, or a carve-out plan, surviving more than a few years before lobbiests get congress to "privatize" the plan and give people "more choice" and "more control" over their investments.


The biggest threat Krugman et al find is in the fact that what you propose will lead to an ownership society.

The Kid

In his column today, Thomas Sowell asks:

Is it better to invest for the future or to keep spending the Social Security taxes now and leave it to someone in the future to figure out what to do when today's young workers retire and there is not enough money to pay them what was promised?
He points out that with private accounts, money is invested in the economy, creating additional wealth, from which pensions can be paid. With Social Security, the money is spent as soon as it gets to Washington.
No matter what the law says or promises when you pay your Social Security taxes, Congress can pass a new law changing all that any time it wants to. Congress already has done so, and those who say there is no problem with Social Security also say, as BusinessWeek does, that "tax hikes" and a "reduction of the benefit" can fix the Social Security problem.
Of course it can. If you owe a million dollars, that is no problem if you can pay it off for whatever you can comfortably afford. But most creditors take a much narrower view.
If I tell the bank I can't afford to make the mortgage payment because my income is not as high as I expected, they will throw me out in the street and take the house.
But no matter how much money you have paid into Social Security over the years, and no matter what you were promised when you paid it, the government always has the option to pay you only what future politicians decide they can afford, given all the other things they might prefer to spend the money on.
Owning your own private pension plan means those who owe you must pay you what they promised. It also means that if you die without ever using it, you can leave it to your family, instead of the government keeping the money.
Liberals are desperate to keep Social Security as it is, because that would mean they can continue spending your money as they see fit and keep you dependent on them. That's what the welfare state is all about.


From Chris, 4:33 PM:

Note that that's not .3 percent decrease in total assets, that's a decrease of .3 percent on YEARLY RETURNS.

Thanks for taking the time to read my piece. You might want to reflect for a moment on whether there is a difference between a decrease in assets, and a return on assets. I suspect you will eventually realize there is no difference.

From Media in Trouble, 5:39 PM

these numbers are just like the bush numbers. a crock of lies.

"In that case, the total fees charged on my first $1,000 deposit are ($3 x 45) = $135. That is 13.5% of my initial deposit."

Your assumption would only be correct if you wouldn't make money. Because the more money you make the more money that percentage grabs and in terms of your initial deposit, it may eventually take all of it.

Correct! Also irrelevant, and misdirected.

First of all, as I stated quite clearly, my simple calculation assumes no earnings on the account, so let's not play "Gotcha!" with that.

Secondly, as I also noted, if you assume positive earnings on the account, the total fees rose. In fact, as I also noted, if the account earns 15% per annum (which would be fabulous), the total fees rise to about 8.5% of the total account value (with rising contributions of 5% annually), which is hardly grabbing all of the account.

Now, your subtle point seems to be that if the account becomes huge because it grows at, e.g., 15% per annum, 8.5% of the full account represents a huge amount relative to the initial $1,0000 contribution. That is surely true, and so what? Krugman referred to the "nest egg", which would commonly be taken as the amount available *after investment growth* to pay for retirement.

Put another way, most people will be thrilled to pay more in fees if it is because their assets are growing. For example, assume two cases -

(a) deposit $1,000 per year for 45 years, pay 0.30% annual fees, have no asset growth (gross return = 0%, net return = -0.30%)

(b) deposit $1,000 per year for 45 years, gross return = 15%, net return = 14.7%. (This is wildly spectacular, but illustrative)

The ending account value in (a) will be $45,000 less accumulated fees, or $42,154. Fees have reduced the account value by $2,846.

In (b), the gross ending account value is $3,585,128. However, cumulative fees reduce this by $333,291, so that our exploited worker has to get by on a mere $3,251,838.

Media in Trouble is absolutely correct! The total fees of $333,291 in (b) dwarf the worker contribution of $45,000. However, unless the fellow in question is an utterly ardent socialist, I suspect he will be OK with that.

Anyway, for folks worried that high investment returns will produce too much fee income for Wall Street, my advice would be to remember that participation is voluntary. The $45,000 option will always be available.


Thanks for taking the time to read my piece. You might want to reflect for a moment on whether there is a difference between a decrease in assets, and a return on assets. I suspect you will eventually realize there is no difference.

Mathematically, there's no difference between the two when used in an accurate simulation of investment (which your initial example was not). Semantically, there's a fairly sizable difference between the two: call overhead "account fees of 0.30% per annum on total assets" and it becomes a negligible bank fee, but call it a decrease in the rate of return, and it becomes a leech on investment. Considering that your initial post bent over backwards to portray the overhead as a nothing little fee, I suspect you're well aware of how disingenuous your argument is.

Likewise, your current example is also misleading in several ways. 15% is, as you note, "wildly spectacular", but it's far from illustrative since, again, as you note, .3% from 15% is fairly negligible. Run the same calculations with the CBO estimate of 5.2%, and that overhead of .3% (or, better yet, the British average of 1.1%) becomes much more substantial.

It's also inaccurate to portray Social Security as a zero-return investment: it's not an investment at all, but rather fees for participation in a government insurance program which provides a barely adequate safety net for the majority of recipients. And, as Jimmy J pointed out above, it's an insurance program which takes inflation into account, which is not something that any of the simple investments we've talked about thus far can do.

Finally, let's put the "voluntary participation" thing in context: participation in private accounts is only possible if the federal government borrows about $1.5 trillion to cover the income being diverted into private accounts. That $1.5 trillion will come in the form of bonds, which have to be paid interest. Furthermore, that large an increase in the bond market may well increase interest rates.... which is a problem in and of itself.

Incidentally, I'm more than happy to take the time and read your piece - I feel it's a citizen's duty to participate in public debate and weed out bad, misleading rhetoric. And now I'm curious as to whether you'll take the time to read through this entire reply and make a more complete defense of your arguments, or if you'll just attack any trifling flaws and ignore the majority of my post. Cheers!


Chris, the $1.5 Trillion cost for transition only accounts for the first 10 years.

The second ten years would require an additional $4.5 Trillion, and borrowing would peak about 30 years from now around 23% of GDP, or something like $15 Trillion. That's according to the President's own report to congress last year.

In the long run (say 75 years from now), future benefit cuts and everyone and bigger cuts for those who divert funds to their personal accounts would theoretically pay off that debt.

But a future congress could change that, and probably would when benefits start to fall dramatically. So, the only certainty is that Plan II would significantly increase the federal debt beyond what would occur if we do nothing at all, and that increase in debt would still be around 50 years from now, even if everything goes to plan.

Plan II increases the projected deficit for every year for about 45 years. This, brought to you by the same people who say current benefits cannot be paid starting in 2018 because there won't be any money available to pay the benefits.


Temporarily assuming that the SS crisis will not be allowed to exacerbate the national debt, nor will benefits be lowered (a TERRIBLE assumption, by the way, but just to make a point...), I think it's constructive to pursue the VERY pertinent notion that excess FICA taxes (raised by a regressive tax) have been spent by the general fund, and either FICA taxes or Income taxes will have to be raised to meet the immediate challenge when FICA taxes will no longer cover benefit costs. (OK, for those who think there's actually a trust fund, we say that we'll have to raise income taxes to "pay it back" -- for those who know there isn't a trust fund, we say we'll have to raise income taxes to supplement FICA taxes when they no longer cover benefits if we don’t increase debt or lower benefits).

So. What we have here is that the FICA tax on employees has supported Social Security as well as other government spending. So when we need more taxes just to support SS benefits, we're headed into an argument about which would be fairer -- raise FICA taxes, or raise income taxes. As has been pointed out ad nauseum here, the imagined link between paying SS taxes and later getting benefits is shredded. Actually, it's never been there; let's just say that the CONCEPT is finally shredded -- congress is free to change benefits with absolutely no regard for how much those receiving reduced benefits may have paid in FICA taxes. It has already, and, by GOD, it damned sure WILL in the future as things look now.

If we could just all admit that, then the next baby step in thinking is to merely recognize that the poorest segment of any current generation of workers has ALWAYS paid that current generation of retirees' benefits. Why in the hell isn't that EVERYBODY'S responsibility? Why isn't it Mr. Bush's responsibility just as it is the responsibility of a struggling $2000/month fry cook at Denny's?

If EVERYBODY participated in paying FICA taxes (or, what th' hell, let's just roll them into income taxes), think What A Wonderful World It Would Be!! Expanding Social Security tax support to the entire national workforce, with NO exceptions, would infuse the program with cash enough to support reasonable benefits forever, with likely much less taxation on the poorer ($under $88,000/year) population. This would be especially true if we’d quit cutting 65-year-old millionaires a $2800 “benefit” check every month – in other words, just a tiny, teeny weeny bit of means testing.

God it's just so simple. All it would take is to take a deep breath, bite the bullet, and realize this has never been a retirement plan; as a matter of fact, it's been a ridiculously klutzy imitation of a retirement program.

It's either go that way, or sit back and say "There's no crisis!! There's no crisis!!", or, as the brighter fools are starting to say "If there's a crisis, it's the General Fund’s fault, NOT Social Security's fault!! If there's a crisis, it's the General Fund’s fault, NOT Social Security's fault!!", and watch privatization sail in and get approved.



Deona, you can look at it that way.

Or you can just consider that the gross debt owed by general government obligations is only the debt that really matters.

If you look at it that way, then our current propensity to borrow and spend is really the only problem that needs to be solved. If we solve that problem, it won't be particularly hard to roll over the SS trust bonds to new buyers.

If we don't solve that problem, it is quite likely that we'll run into trouble long before 2018, because most of our federal debt is still publicly held, and has an average maturity of three years. That means we are quite likely to have to start making much bigger interest payments very soon, long before the SS trust asks to be paid even the first penny of interest.


Buckaroo, I'll accept that.

But I just can't resist saying (one more time) that the innocuous statement "roll over the SS trust fund bonds to new buyers" is a matter of selling treasury bonds to "new buyers" in the private sector (outside the federal government), not just trucking them over to SS and calling them an "asset".

When we raise the federal debt to service SS benefits, the value of selling the bonds we've parked at SS instead of printing snd selling new ones is the freaking printing costs we'd save. And since none of this is done with actual paper anymore, that value is zero.

One of the most unproductive, destructive distractions of this whole discussion is people who consistency try to interject the trust fund myth into the conversation.

If we supplement FICA taxes after 2018, we'll borrow the money from the public sector to cover the difference under IDENTICAL conditions, trust fund or no trust fund. What is so hard about that?

I'm ecstatic that people in this country are FINALLY trying to understand the significant facts about this Social Security crisis. The trust fund is not one of them.

Paul Zrimsek

What under the sun does "roll over the SS trust bonds to new buyers" mean?


More from Chris:

...if you'll just attack any trifling flaws and ignore the majority of my post. Cheers!

I'm going to ignore it. Quibbling about whether I called an annual charge of 0.30% a "fee" or "overhead" is ridiculous, and does not incline me to take the rest of what you say seriously. For example, you say that:

15% is, as you note, "wildly spectacular", but it's far from illustrative since, again, as you note, .3% from 15% is fairly negligible. Run the same calculations with the CBO estimate of 5.2%, and that overhead of .3% (or, better yet, the British average of 1.1%) becomes much more substantial.

On both a percentage and absolute basis, that is false. Lower growth rates lead to a lower total dollar value of fees, and lower fees as a percentage of total ending assets (you may have noticed that fees, measured in both total dollars and percent, *rose* when the return was increased from 0% to 15%. Or, you may not have).


On both a percentage and absolute basis, that is false. Lower growth rates lead to a lower total dollar value of fees, and lower fees as a percentage of total ending assets (you may have noticed that fees, measured in both total dollars and percent, *rose* when the return was increased from 0% to 15%. Or, you may not have).

Actually, on this you are correct: I was wrong on relative overhead. However, the rest of my points stand.

And while we're at it, you may notice the following if you run your 1/24/05 calculations with the British overhead of 1.1%:

A) Annual contribution of $1k for 45 years at 5.2% return, no overhead: ending value = $168,006.

B) Annual contribution of $1k for 45 years at 5.2% return, 1.1% overhead: ending value = $123,374.

Percentage decrease in the ending value due to overhead: 26.6%.

Still wondering where Krugman got that 20 to 30 percent figure?


We were wondering if our government can keep up with all this spending. All these cuts seems like smoke and mirrors compared to the amount going out the front door. My question is, can the mint keep up with printing money? we spend it so fast I don't see how we could. And if that is the case will we wake up a broke nation very soon. This is nothing like the stock market crash, I guess I'm worried about our future

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