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Bush's Social Security plan is based on deception

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Posted by: barry2952

Thursday, February 17, 2005

Bush's Social Security plan is based on deception

Borrowing scheme to support creation of personal Social Security accounts is an attempt to hide the true cost of the proposal

By Robert Samuelson

You've probably never heard of Flemming v. Nestor, but it's a 1960 Supreme Court decision that demolishes the Bush administration's case for borrowing vast amounts to pay for its proposed "personal" Social Security accounts. The White House has crafted a clever bit of intellectual camouflage to do what's politically convenient: create a new government benefit at no obvious cost. True, borrowing is a cost, but it's largely hidden from the public. It's not as conspicuous as a tax. What we have here is an exercise in mass deception that, in a weird way, is encouraged by a public that prefers to be deceived rather than face the difficult choices posed by Social Security or the government's budget.
If personal accounts are worth having (my view ... they're not), then they're worth paying for through taxes or cuts in other government spending. Perish the thought. The administration created a massive Medicare drug benefit (estimated 2006-2015 cost by the Congressional Budget Office: $795 billion) without new taxes, and why shouldn't it do the same for personal accounts? The White House estimates the needed borrowing at $754 billion in the next decade. Democrats on the House budget committee put the first full decade of borrowing (which would start in 2009) at $1.4 trillion. Regardless of amount, the administration's justification is the same: The borrowing simply replaces one debt (future Social Security payments) with another (borrowing now for personal accounts). As Joshua Bolten, head of the Office of Management and Budget, testified last week: "The transition financing (of personal accounts) does not represent new debt. These are obligations that the government already owes in the form of future (Social Security) benefits." Sounds reasonable. It isn't.
A bond is a legal debt; Social Security is not. When the government sells a bond -- that is, borrows -- it assumes a legal obligation to pay the lender interest and to repay the principal. If the government defaulted, creditors would go to court to demand repayment. Social Security does not involve this kind of debt; Congress can raise or lower benefits at any time. This is both common sense and the law ... Flemming v. Nestor.
Ephram Nestor came to the United States from Bulgaria in 1913. In 1956 he was deported because he'd been a Communist Party member for six years (1933-1939) and was also stripped of his Social Security benefits. Both acts followed congressional law passed in the prevailing anti-communist climate. Nestor had paid payroll taxes for 19 years; he sued to get his Social Security. The court rejected his claim. The court said that, generally, Congress could alter Social Security as it pleased. It needed to have "flexibility" to adjust Social Security to "ever-changing conditions."
It may shock most Americans to know that Congress could legally cut or eliminate their Social Security benefits tomorrow. But that's also the White House position. Dig deep into its budget documents, and here's what you find: "Future Social Security ... benefits may be considered as promises or responsibilities of the Federal Government, but these benefits are not a liability (debt) in a legal or accounting sense. ... There is no bright line dividing Social Security ... from other programs that promise benefits to people." Well, this flatly contradicts the administration's logic that Social Security is a future debt that must be paid. If it can borrow tons of money for personal accounts, it can borrow tons for future food stamps or Medicaid.
In a sense, this has been happening, because the federal budget has run deficits in all but five years since 1960. The new Bush budget envisions deficits seemingly forever. Yet there is little public appetite for anything else. Bush's budget proposes cutting or eliminating 150 programs with savings of $20 billion in 2006. The response: the sky is falling. "President Offers Budget Proposal With Broad Cuts," headlined The New York Times. Not really. The proposed cuts amount to eight-tenths of 1 percent of proposed spending of $2.57 trillion. In an expanding economy, Bush should have proposed a balanced budget, and his projected deficits are understated because they exclude some Iraq War costs and borrowing for Social Security. Still, closing even the unrealistic deficits would require unpopular measures. The projected deficit for 2009 is $233 billion. In that year a 10 percent income-tax surcharge, raising about $125 billion, and repeal of the Medicare drug benefit, saving $66 billion, would cover most of the deficit.
Americans dislike deficits but dislike them less than the alternatives, higher taxes or lower spending. There's a quiet clamor for hypocrisy and deception; and pragmatic politicians respond with massive borrowing schemes that seem to promise something for nothing. Please, spare us the truth.
Robert Samuelson writes for Newsweek. His column is distributed by the Washington Post Writers Group, 1150 15th NW, Washington, DC 20071.

Posted by: JohnnyBz00LS

Posted on Fri, Feb. 18, 2005

Raising cap could save Social Security

Lawmakers not embracing politically risky Bush idea

By Laura Meckler

Associated Press

WASHINGTON – Increasing Social Security taxes for the wealthiest Americans could raise more than $100 billion a year – enough to shore up the system for 75 years, pay for President Bush’s plan for private accounts, or part of each.

As it is, only the first $90,000 of a workers’ wages are subject to the tax, but Bush says he’s willing to consider changing that.

Raising taxes, even if on the rich, is a risky political proposition.

“I don’t know too many Republicans who are interested in doing that,” said Sen. Rick Santorum, R-Pa. “I personally see this as one of the least attractive options.”

Senate Democratic leader Harry Reid of Nevada said his party would be attacked for advocating tax increases if it embraced the idea.

“We’re not going to fall for that,” he said.

Bush said Thursday that members of Congress should feel free to make any such proposals “without political retribution.”

“It used to be in the past people would step up and say, ‘Well, here’s an interesting idea.’ Then they would take that idea and clobber the person politically,” Bush said.

“What I’m saying to members of Congress is that we have a problem, come together and let’s fix it, and bring your ideas forward.”

On Capitol Hill, Senate Democrats described Bush’s offer as a ploy to get them to put forward unpopular proposals.

They said they remain opposed to his plan, and they unveiled a Web site calculator designed to show workers they would be worse off than under current law.

Although Republicans said the idea of subjecting more wages to Social Security taxes would not be popular, most didn’t rule it out.

“It’s something I would not do myself, but the soup’s not done yet,” House Speaker Dennis Hastert said.

Different people have different ideas about how to use the money such changes would generate.

Some would put the cash into helping eliminate the system’s long-term financial problems.

As is, beginning as early as 2018, the system is set to pay out more in benefits than it collects in taxes. And by 2042, the money stored up from past surpluses will be exhausted and Social Security will only be able to pay 73 percent of promised benefits from the revenues it will be taking in, according to the program’s trustees.

Eliminating the cap on wages subject to taxation would push those dates back. An analysis written last week by Social Security actuaries found that eliminating the cap would mean the system would continue to collect more than it paid out until 2025, and would stay solvent for 75 years, the window traditionally used to evaluate the program’s finances.

The system stays solvent for a bit longer than 75 years if you raise taxes on these high earners but don’t raise their future benefits to match. As is, retirement benefits are tied to the taxes paid during working years.

Either way, beyond about 75 years, the system will face trouble again because people are living longer and collecting benefits for more years, and this trend eventually would overtake the additional revenue.

Bush wants a permanent fix, and he says his plan for private accounts would help achieve it. This would allow younger workers to divert 4 percentage points of their tax into personal accounts that could be invested in stocks and bonds, which have historically earned more than Social Security trust funds do.

But it costs a lot to move to this system – more than $1 trillion in the first 10 years, and more after that. That’s because younger workers will be diverting money to personal accounts that the system needs to pay current benefits.

One way to fill the gap would be to raise the cap on the taxation of wages.

A handful of plans circulating on Capitol Hill suggest raising the limit on wages subject to Social Security taxation.

Under current law, wages up to $90,000 are taxed at 12.4 percent for Social Security, with employers and employees splitting the tax. People who work for themselves pay both shares.

Just 6 percent of American workers earn more than $90,000 a year, and wages over this threshold are not taxed for Social Security.

In all, there is $845 billion in payroll that won’t be taxed by Social Security this year.

Bush has long said he is opposed to raising the 12.4 percent tax rate, but until this week he and his advisers had been vague about whether he would rule out increasing the wages subjected to taxation.

The effect of doing so would be felt on the wealthiest Americans. It could cost a worker earning $120,000 a year $1,860 more, and the employer the same. A worker who earned $150,000 would pay an extra $3,700 in taxes, with the employer paying an equal amount.

Eliminating the cap altogether would generate about $105 billion a year in 2005 dollars, although some of that money would be dedicated to Social Security’s disability program. That’s more than$1 trillion over a decade.

Some lawmakers propose raising the cap but not eliminating it. Raising the limit so that wages up to $160,000 were taxed, for instance, would generate about $525 billion over 10 years.

Sen. Lindsey Graham, R-S.C., suggests lifting the cap to $200,000 a year, which would raise nearly $1 trillion over a decade – nearly enough to pay for the transition.

Derrick Max, who heads a coalition of businesses that want private accounts, said the business community opposes raising taxes but could wind up supporting a lifting of the cap as part of a comprehensive plan.

“That’s a huge hurdle for us to be able to sign off on,” he said. “It’s not an impossible hurdle; it’s a huge hurdle.”

Funny how the proposed removal / raising of this $90K "cap" is being called a "tax increase on the rich", when in reality it is a dis-continuation of the free ride given to that 6% of our population making over $90K.

Posted by: MrWilson

did they release the offical plan yet? or is this speculation?

Posted by: Joeychgo

No shocker here. GW only shows you wnhat he wants you to see, not the real intent

Posted by: mach8

It's congress that writes the laws and picks the pockets of the scocial security system. They've been doing it since the fifties. The president, who ever he (she) may be is just a smoke screen, a fall guy, there for four to eight years then gone. Congress persons can be around for decades (look at Ted Kennedy) pushing their agendas, building little kingdoms, playing smoke and mirrors with the poorly informed citizens.

Push for REAL reporting, campaign reform, term limits, and be just as hard on the congress as the president or they'll take your shorts and send you the bill.

Posted by: barry2952

Quote:

Originally Posted by mach8

Push for REAL reporting, campaign reform, term limits, and be just as hard on the congress as the president or they'll take your shorts and send you the bill.

I would certainly agree with that.

Posted by: MonsterMark

Has there ever been a government estimate of ANYTHING that has ever been accurate? I don't know of one and all the simple fixes I see bandied about are the true smoke and mirrors. There is no gain without pain.

Posted by: Pepsi2185

No one is going to like the social security reform. The Republicans are spending too much already and i dont think they have enough concern for citizens to do it right. They have other fish to fry. MMMM fish . . . . . . . .

Posted by: Styles

Oh quit the Bush bashing, fanatical liberal conspiracy theorist Michel Moore I see black helicopters new world order bs

and worry about the mainstream media and the way they spin biased stories to the people like I described above; well worry about the ones that vote! (I don't care about the ones that don't vote)

and give this a listen

http://www.npr.org/templates/story/s...toryId=4515900

Posted by: Kbob

Quote:

Originally Posted by Styles

and give this a listen

http://www.npr.org/templates/story/s...toryId=4515900

It lasted 9 minutes, but well worth it. Excellent contribution.

Posted by: MonsterMark

Here is an excerpt from Vodkapundit's (Will Collier) blog.

This would have been his response if asked the same question by Tim Russert.
----
Look, Tim, Social Security is never going to be as good of a deal for today's young people as it was for their grandparents, or even their parents. With people living longer, and fewer younger people having been born to pay into the system, the demographics just won't allow it, and we're coming up fast on a time when there simply won't be enough money available to pay out like we've been paying out for the last several decades.
The time is going to come--and we can argue about when this will be, but it is going to happen one day--when we can't keep the old promises any more without either cutting benefits, or having a huge tax increase, or realistically, doing both. That's a pretty rotten thing to do to people who're paying money out of their paychecks every day to support the current system, and reasonably enough think they ought to get a decent return on their money.

What private accounts can do, but the pay-as-you-go system can't, is grow the pot of money available for people to retire on. The government can't grow money, all we can do is tax or borrow, but the market can. With a private account that'll grow for the next 35 years, a 30-year-old will have a cushion against the benefit cuts that will have to happen at some point in their lives--not tomorrow, not next year, but someday--to keep the government from going broke and their taxes from growing to Swedenesque levels.

We can't tax ourselves out of this problem. There aren't going to be enough people to tax. But we can use time and the market to give people a fair shake. We just have to start now, or the situation is only going to get worse.