In today's Middletown (OH) Journal, my LTE was upgraded to their My View column, which meant I didn't have the size restrictions of a LTE and, in the paper version, my picture was included (for good or bad). Middletown is in the middle of the reddest part of this red state, so I think it's important to get out whatever information one can to the people of the area.
I have so far received two responses to it, one positive and one refuting it.
In order to respond to the one challenging my opinion, I need to understand, beyond what Paul Krugman says, the concept of clawback.
Here is my original
article (registration required):
Do not fall for all the wailing about the coming crisis in Social Security. Social Security is about the most successful program this country has ever attempted. The program is run for less than 1 percent administrative costs.
Compare this to the privatization attempts by Britain and Chile, where the administrative costs run up to 20 percent. That is over 19 percent of your money you would no longer receive. Both governments are strained due to the shortfall of these private accounts, and are looking to create a program similar to the current one in the United States to keep widespread poverty from hitting its seniors. When Britain privatized in the 1980s, they at least had the money to attempt it. They were not running a huge deficit like the U.S. They also did not have to borrow $2 trillion to be able to start up the program.
This administration has always tried to sell Social Security as an entitlement program. The truth is that most everyone has paid into this system. Since 1983, workers have paid a higher FICA tax for the sole purpose of covering the higher number of retirees in the Baby Boom generation. That money -- the money the working class paid ahead -- has been spent on giving the top 1 percent tax cuts and on a war with a dubious premise.
As it stands now, the most pessimistic estimate by the Social Security Administration shows it as solvent until 2042. At that point, Social Security would still pay out 81 percent of benefits. The Congressional Budget Office is projecting solvency to 2052. And these figures are if absolutely nothing is done in the decades to come.
There are some simple solutions to bolstering Social Security that do not devastate the program, such as rolling back the tax cuts that benefit very few of us or allowing people to put more into their IRAs. Another solution to this decades-in-the-future problem is to lift the cap on the top income taxed. Currently, only the first $90,000 of income earned in a year is taxed. This means that most of us pay that tax on every penny we make. By comparison, Barry Bonds has paid his full tax for the year by the sixth inning of the season's first game.
Those in favor of privatizing SS say that, since the money we have paid in all these years is invested in government bonds, those bonds amount to meaningless IOUs. I somehow doubt that China and Japan, who have invested heavily in U.S. bonds and now own a relatively large chunk of the U.S., will see it that way. We are heavily dependent on the investments, i.e. loans, by these countries, to the tune of billions daily. Will they continue to support us if they learn these are meaningless IOUs?
I hope nothing like Enron or Tyco happens again. Do you feel comfortable in taking that chance? How comfortable would your retirement be if you had depended on monies invested in one of these companies? Ask those many seniors who find themselves unable to retire due to the collapse of these companies.
Remember, this is the same administration that told us Iraq had WMDs, that the war would cost taxpayers -- at the most -- $1.7 billion, and that their Medicare plan would cost $400 billion over 10 years when they knew the cost would be at least $1.2 trillion. They have repeatedly shown us that it is best to look at the facts ourselves rather than take their word for it.
In response, I received this email from a local (I guess) couple:
I would take your article more seriously if it didn't reflect such an obvious democratic left wing bias. Administrative costs are certainly a legitimate concern when discussing private accounts but so is rate of return. The 1%, give or take, rate of return for Social Security is anemic under any circumstances vs. somewhere around 9% in the first decade of Brazil's program. Brazil may be concerned about administrative costs but the Bazillion people won't accept the pathetic rate of return of our so-called successful system.
You mention the current system solvency will be intact until 2042 or maybe even 2052, but you fail to mention that in 2018 some of the Social Security bonds become due. By then, if no meaningful reform has occurred the government will be forced to raise taxes or cut benefits while the system will continue to spiral out of control.
Many young people relish the idea of private accounts because they recognize correctly that conservative investments options set up properly give people intelligent choices on how to invest their money while limiting risk. The current system is doomed to fail anyway so why not give people a choice on where they think the greatest risk truly is. By the way lifting the cap on the top income taxed might an idea worth considering but it would only delay, not fix, the problem with the current system.
I understand you are a political junkie but unfortunately your democratic liberal bias stands out. It's laughable when democratic talking points like "the top 1 % tax cuts" and the worn out homily about "WMD's" make it into your article. Those tax cuts are directly responsible for our economy growing 4% over the several years and while US intelligence is certainly flawed to some extent at any given time, I would suggest the intelligence that the US, the UN, and Western Europe agreed on regarding WMD's prior to the war will turn out to be a lot more accurate in time then anyone currently admits. The absence of proof of something doesn't make it automatically untrue. When you think of WMD's, think Syria.
What I can argue with them is the experience states such as Nebraska have had with private accounts. I can also argue the WMDs issue.
What is a little beyond my scope at the present time is how the 'clawback' mentioned by Paul Krugman works.
I see at the bottom of this article on the unofficial site of P.K's articles where he went on to further explain his claim:
My column this morning wasn't the finest - sometimes the magic works, sometimes it doesn't. Anyway, this may be a better explanation of how the clawback works.
Suppose you invested $1000 a year (constant dollars) in a fund that pays 3 percent real interest. Then after 40 years you would have about $77,000. Suppose that your life expectancy is 20 years at retirement, and that you can buy an annuity with present value equal to that lump sum. Then you would get about $5,000 annually.
The Bush plan, as far as we can tell, is that if you elect to take the private account, your conventional benefits are cut by $5,000 per year. So investing in bonds gets you right back where you started.
If you buy risky assets, and do better than 3 percent, you may end up with, say, $7,000 per year; in that case you have a net gain of $2,000.
But if you do worse, and end up with a lump sum only large enough to buy, say, a $3,000 annuity, your benefits are still cut by $5,000, and you're $2,000 a year worse off.
So what's really happening with the private accounts is that people will be encouraged to take a mortgage on their Social Security benefits, and to speculate in the stock market.
And, of course, all of this has zero bearing, at best, on long-term government finances. In practice, whoever is running America in 2050 will probably end up bailing out the unlucky, so it's a major net negative.
What I get from this is that you are guaranteed a certain benefit from SS, whereas private investments are risky and you don't know what you might get.
Any contributions this community might want to make to help me refute this couple's email would be most appreciated.