Platypus of
RedState has initiated a spirited discussion on Social Security focusing on the dangers of the proposed "reform" to baby boomers. There are now 4 threads going (
here and
here and
here and
here).
In this diary, I want to introduce an argument found in this comment by Platypus regarding privatization as a betrayal of the social contract and an attempt to trick the baby boomers into accepting a regressive tax hike.
Below the fold I have reproduced Platypus' argument. I have made a few modification for clarity and corrected a few typos. There are a number of references to other comments in the threads. I recommend using the links above to read the threads.
For a comprehensive understanding of Social Security, I suggest completely reading all
four current threads and
here and
here and
here) on Social Security. You will find that Social Security was intended as an old age, disability and survivor insurance program in the wake of the 1929 stock market crash. It is still an insurance program. People keep wanting to falsely redefine it as an investment program or welfare program, and then criticize their own definition.
The PRA's [Private Retirement Accounts] may be called "your money," but in many important ways it will not be your money. The entire FICA belongs to the government and is earmarked for Social Security. What portion was not transferred directly to today's retirees was borrowed by the government for other expenses, and replaced with "borrower's bonds," essentially IOU's. By falsely identifying a portion of the FICA as "your money," the government forgives itself of that part of the debt.
Although in the debates Bush said he trusted the American people to invest their own money wisely, the reality is that statistics show that they will be unable to do so. Therefore, there will be regulations regarding how you will be allowed to invest "your money," When that money is lost anyway, it will be your loss, not the government's.
The IOU's are treasury bonds. Essentially this means the government is borrowing your money as FICA, returning a portion of it to your for investment, which the average "you" will lose, thus absolving itself of that portion of the debt. To cover the cost of transferring the debt and the risk to you, the gov't will borrow 2 trillion dollars.
The portion of FICA that was used for government expenses effectively converted FICA into a regressive income tax. So instead of tax cuts, people with incomes below $87,000 experienced a huge tax increase.
In any case, the Social Security Trustees report said that, without any action, Social Security will be able to pay the full promised benefits until 2042, and 80% thereafter. The youngest baby boomer will be 77 then. If the country wants to dismantle Social Security then, at least there is time to figure out how best to grandfather the baby-boomers who have trusted their social contract with the government.
Again the choice is not whether to borrow our way to prosperity or tax our way to prosperity. There are other alternatives. Framing the debate as either-or shuts down creativity
Will they [soon-to-be retirees] be willing to accept less so PRA's can be established and maintained.
To ask them to do so, is to ask them to accept that they have paid a steep regressive income tax hike over most of their working life. It is regressive because those who made more than $87,000 paid it at a smaller and smaller rate.
To illustrate a person who made $87,000 last year paid FICA of 12.4% or $10788. A person who made $100,000 also paid $10788 in FICA because it is charged only on the FIRST $87,000, but they paid 10.788%. A person who made $200,000 paid 5.394%. This sort of income tax is patently unfair.
By replacing FICA cash with treasury IOU's, the government borrowed on its promise of benefits to the baby boomers. By asking them to take less is the same as asking them to forgive a debt they never authorized in the first place. It would be as if a bank trustee had borrowed from my trust fund without asking, and then tricked me into forgiving the debt. This is called stealing
One participant in these SS threads has said he can live without 20% of the benefit. The chance at the possibility to exceed that 20% is worth it to him. He is following the first rule of investment, Do not risk money you cannot afford to lose, The government is asking millions of soon-to-retiree baby boomers to break [that] rule and gamble on the stock market just when the market is poised to fail them
In a couple of comments I have mentioned that my retirement plan is not dependent on Social Security or stocks. When I was twenty, people were already debating Social Security. IRA's, KEOGH's, 401(k)'s did not exist. Playing the stock market casino seemed imprudent. So I went shopping and found whole life insurance plans that pay double indemnity if I live. At the time, it cost me 25% of my salary. But since the premiums are level over life, it costs just a pittance now, I just let it ride as it earned 6.5% over most of its history. It will eventually pay me a monthly stipend, and whatever I do not use will go to my beneficiaries
Now whatever people say, just look at their actions. In the 1980's, the insurance companies realized that the stock market casino would fail my age group, the baby boomers. How do I know this? They stopped offering this type of policy. But they are stuck with their contract to me. Social Security is a similar insurance contract, but now the government wants to renege before the stock market fails, the very situation Social Security was created to protect people from.