blackpundit.com

Here is a great article that explains the current social security in details.

Greenspan on Social Security:

Washington, D.C. - In spite of clear evidence that Social Security will begin to run permanent huge deficits in just 13 years, some on Capitol Hill refuse to acknowledge that there is even a crisis. They need to listen to Federal Reserve Chairman Alan Greenspan, who testified before the Senate Banking yesterday.

Chairman Greenspan noted that American demographics will change severely as the baby boom generation retires, creating “a very major problem for (the) pay-as-you-go system.” Indeed, these changes will cause benefits to exceed contributions by 2018. And if nothing is done, Americans are sure to face tax hikes and benefit cuts.

Really busy with school and work so I have been posting SS comics.

If you need to:

• Raise taxes
• Cut promised benefits
• Raise the retirement age
• Lower COLAs (Cost of Living Adjustments)
• Raise the annual wage cap
• Tax social security benefits

just to keep social security in tact, then there is a problem. Social security should be self-sustained. Meaning, we should not have to do all this just to keep it alive. By privatizing social security, for the long term, it will be self-sustained. Yes I agree, there will be a penalty for privatizing social security (at least how I see it today), but it is worth it. And if congress had invested the trust funds instead of spending it, there would not be a problem. They could have liquidated the trust funds and payout the money to the beneficiaries instead of raising taxes, cutting benefits, ect…. This makes a very good point on why privatizing social security is so good. Now, congress can stay out of our pockets and not spend our retirement money.

GW Bush, sign me up!!!

Dr Eamonn Butler has a good post on why bush is right to privatize social security and how British pension privatization was not a failure.

Senate Democrats lashed out Friday against President Bush’s plan to add personal accounts to Social Security and accused his administration of improperly using the Social Security Administration to promote the plan.

Since the democrats are always bashing privatizing social security, why don’t they come up with a solution? I have not yet once heard a solution from democrats to fix the social security crisis.

Senate Republicans are putting social security as their top legislative goal for 2005.

Senate Majority Leader Bill Frist of Tennessee said at a news conference that S.1, the designation of the first Senate bill to be introduced in the new session, “has been reserved for what is probably the most important domestic legislation we will address in this Congress, and that is modernizing and strengthening the Social Security program.”

The bill, which the president has yet to send to Congress, is expected to include provisions for individuals to divert part of their payroll taxes that now go to Social Security into personal investment accounts.

Democrats said they would look at what Republicans have to offer but disputed the need for urgency to change a system that will be financially solvent for decades to come.

“This is no crisis, so why should we be lurching forward?” asked Senate Democratic leader Harry Reid of Nevada.

Amen to this bill. Sign me up ASAP. I am happy to hear that this issue is being addressed in full force for 2005. I still don’t understand how democrats think that social security is not in a crisis. I am absolutely positive that democrats wants social security to stay the way it is because they want to keep their hands in our pockets. Privatizing social security would cut their funds and keep their hands out of taxpayers’ pockets.

I came across an article on the benefits of the Social Security reform for blacks.

As the system currently is structured, he notes, many blacks suffer a negative rate of return on their payroll taxes.

More generally, the working poor get a bad deal from Social Security: as longevity is correlated with economic status, many don’t like long enough to recoup their payments. And because Social Security today is a promise, not an asset, there is no balance to bequest beyond survivor benefits. As Lowry explains, “In the current system, if someone dies and has no wife or children, the money he has paid in simply disappears.”

So why don’t progressives support reform? Lowry argues that “the wages of low-income minorities” are necessary part of a system that now primarily serves to “subsidize the retirement of wealthy, healthy, long-lived baby boomers”–a middle-class entitlement.

There is some logic to that, but let us offer an additional explanation: dependency. It’s a very different thing when a retiree draws on his own savings than when he gets a check from the government. If Americans had more control over their retirement savings, they would be less dependent on government and those representatives to government who purport to look out for their interests and keep the checks coming.

I came across a really good article from the heritage foundation that shows the top 10 myths about the social security reform. This article goes to show that many of these myths look logically correct, but the myths are technically wrong.

Myth #1: We cannot afford to reform Social Security. Establishing a PRA system would cost between $1 trillion and $2 trillion—far more than just continuing the current system.

Fact: In the long run, establishing PRAs would cost about $20 trillion less than funding the current Social Security system.

Myth #2: The Social Security trust fund contains assets that make Social Security secure for the next 40 years.

Fact: The Social Security “trust fund” is essentially a bookkeeping system through which the government lends money to itself.

Myth #3: The Social Security system can be fixed by implementing modest changes, including raising the retirement age, making the wealthy pay Social Security taxes on all of their income, or creating faster economic growth.

Fact: According to the Social Security Administration, the current system will require a total of $27 trillion (in constant 2004 dollars) more revenue than it will receive in taxes over the next 75 years.

Myth #3a: If Congress would stop spending the Social Security surplus and repay the money that it has already spent, Social Security would not need to be fixed.

Fact: Even if it were possible for the federal government to invest the Social Security trust funds, repaying the borrowed money would only delay—not solve—Social Security’s financial problems.

Myth #4: Introducing Social Security personal retirement accounts would result in reduced benefits for existing retirees and those close to retirement.

Fact: For now, Social Security is collecting more than enough money both to pay full benefits to current retirees and those about to retire and to fund PRAs. When extra money is needed for these accounts, it can be found through the same method that is used today to finance Social Security.

Myth #5: Repealing the Bush tax cuts would save Social Security.

Fact: The Bush tax cuts do not directly affect Social Security’s finances. They did not reduce Social Security’s cash flow, and repealing all or part of the tax cuts will not improve Social Security’s financial outlook.

Myth #6: Personal retirement accounts would incur high administrative costs that would eliminate any potential benefits, and the only people who would gain would be the wealthy and Wall Street.

Fact: Developing a simple personal retirement account system with very low administrative costs would be simple.

Myth #7: Unlike stock market investments, today’s Social Security is guaranteed and risk-free.

Fact: The current Social Security system is not risk-free: Future generations may be unwilling to pay the sharply rising costs of the current Social Security system.

Myth #8: Recent volatility in the stock market proves how dangerous PRAs would be.

Fact: PRAs would be invested in more than just stocks. Furthermore, because retirement investing would take place over decades, not just a few years, longer-term gains will more than make up for periods of stock losses.

Myth #9: Lower-income and minority workers are better off with the current Social Security system. The rate of return is not a primary concern because Social Security is essentially an insurance program.

Fact: Personal retirement accounts would allow lower-income and minority workers to earn more on their Social Security investments and could create assets that could be passed on to their families.

Myth #10: Introducing PRAs would reduce Social Security’s disability benefits.

Fact: PRAs could easily be designed to avoid changing disability benefits.

I would like to also add that the current social security reform promises a 2 percent rate return. Since the money from social security is not invested, this means that even if the current social security reform were up to par, we would still run a deficit on the promised 2 percent rate return.

Starting January of 2005, social security taxes will be increased by 2.7 percent, which will be the largest percentage gain since the 3.5 percent increase in 2001. The increase last January was 2.1 percent.

The Problem:
Currently, social security is essentially “a pay as you go” system. Meaning the workers of today is footing the bill to pay for the elder’s retirement income. This is a problem. Every time the cost of living increases for elders, taxes need to be raised for the current work force to support this cost. If a system requires to raise taxes every time the cost of living increase, than the system needs to be re-evaluated.

Also, if there’s a shortage of birth in a generation or two and since this is a “pay as you go” system, this would affect the total social security income when that generation start paying taxes. A generation is typically about a 20-year span. Therefore, there are about two to more likely three generations working at one time that are paying taxes. If one of those generations were limited in the number of workers because of birth shortages, that would effect 1/3 or 33% of the total income going towards social security for the elders. The only way to make up for this is either raise taxes or cut promised benefits.

The reverse of a birth shortage is also a problem of the social security plan. Due to the very large generation of the baby boomers and the longer life expectancy, there will be fewer workers supporting more retirees when the baby boomers retire. Currently, there are about 3.4 workers per beneficiaries. In about 20 to 25 years from now, there will be about 2.1 workers per beneficiaries.

Social security supposedly offers a 2 percent rate return. If this supposedly 2 percent rate return was true, where is it coming from? The money in social security is not invested. So besides the current work force paying for the retiree’s cost of living, we/they are paying the cost of living plus 2 percent. This is another problem from social security that leads to tax hikes and benefit cuts.

The size of your monthly social security check is somewhat proportional to the earnings you make during your working career. But, complex formulas are arranged to give proportionately more money to lower income workers. This is not fair!

In conclusion, we have to do the following to keep the current social security alive:

• Raise taxes
• Cut promised benefits
• Raise the retirement age
• Lower COLAs (Cost of Living Adjustments)
• Raise the annual wage cap (aka, increase tax)
• Tax social security benefits

Privatizing social security is a no-brainer. It will wipe out most, if not all, of the current social security issues. You do not have to raise taxes every time the cost of living increase. You do not have to cut promise benefits. There will be no cost of living adjustments (COLAs) concepts. And you do not have to raise the annual wage cap. I honestly believe many democrats/liberals do not want to privatize social security because that will leave them with less money to spend.

To be honest, when I first say this article, I thought it was a joke. The New York Times developed a plan to address the Social Security dept. This would be the only plan if the US stay with the current social security program.

• Means-test benefits Change the benefit formula so higher-income workers get lower returns on their earnings. This would be accomplished by reducing benefits per dollar of earnings from 15 cents to 10 cents on the top bracket of earnings over the next 25 years.
• Raise the Payroll Tax Cap Social Security taxes are not collected on earnings above $87,900. This plan would increase the wage base over the next 40 years, so the amount of wages above the cap drops from 15 percent to 10 percent of wages.
• Tax Wages Above the Tax Cap Add an additional tax of 3 to 4 percent on wages above the cap.
• Raise taxes/Reduce Benefits Based on Changes in Life Expectancy Projected costs of increased life expectancy should be updated regularly, and the responsibility for them should be split between retirees and workers through small automatic benefit reductions and tax increases on workers. By 2036, the tax rate would be 12.7, up from 12.4; benefits would be cut by $300 a year.
• Tax Increase on Workers Increase Social Security payroll taxes by an additional 0.2 percent a year.
• Bring in New Taxpayers Include the four million state and local government employees who are currently exempt from Social Security.

As you can see, the only way to save the current social security program is to either raise taxes and/or cut benefits. If social security can be privatize, all this can be eliminated. No raising taxes, no cutting benefits, and a higher percent rate return on your invested money.

Thomas Sowell have a good article on Privatizing Social Security. He goes to mention on how a person would not sign a contract that enabled the other party to change the contract at will while you cannot even stop them. Also, what ever that was promised to you or the age that you suppose to get social security can be changed by laws, but yet you HAVE to still pay into it. That is completely unfair. But if you put your money into a insurance company, it is the law that they give you what they promised. But yet, presidential candidate John Kerry do not want to privatize social security.

One reason why liberals do not want to privatize social security is because of risk. Well, let me ask the public this: What is more risky from a for sure deficit in 2016 with the current social security plan or putting your money into some privatize organize IRA/401K plan which people have been doing for years and have been successful? This is a no brainier question to me. I honestly believe that liberals use this excuse to keep the money in congress so that they can spend it. Thomas Sowell agrees with my theory as well:

Another reason for liberal opposition to private investment of Social Security payments is that it deprives them of control of billions of dollars that they have been spending from the Social Security trust fund for years. They can buy a lot of votes with all sorts of giveaway programs, financed by money taken from Social Security.

This goes to show how liberals want a bigger government. To me, bigger government is equivalent to communism.

Thomas Sowell then goes to explain how long term stocks are not that risky and that it is hard to find any 40-year period in which the stock market has not paid a higher rate of return than you would get from social security.

Thomas Sowell finalize by saying the following:

Nothing is more risky than depending on politicians.

President Bush is getting the ball rolling on privatizing Social Security. People are arguing that the cost of setting personal retirement accounts is too high, but this will actually save money in the long run.

Kudos to the President for announcing his desire to fix social security by allowing individuals to take ownership of their own retirement benefits through personal accounts. Even before the President announced his vision for an ownership society, debate about the pros and cons of such a system had already heated up. Critics are already saying that it will cost too much to adopt personal retirement accounts. The truth is that a system of personal retirement accounts will involve up-front transition costs, but it will actually save money in the long run. How much depends on the size and structure of the accounts, but across proposed plans, savings average 66 percent of the current system’s future costs.

Studies shows that in order to meet the promised benefits in the near and long term, $27 trillion more needs to be raised.

Looked at another way, Congress would need to collect and invest an additional $5 trillion today in order to pay off this obligation in the future. Yet critics cite transition costs as a reason to dismiss personal accounts without addressing the massive obligation the Social Security program faces today.

I do not understand why critics even exist on this subject. This seems to be a no brainier. Ok true, there might be an upfront cost, but that cost is not going to compare to the cost of $27 trillion if the government continue with the current social security methods.

According to Institute for Policy Innovation (IPI), President Bush new “Ownership Society” for social security reform can prevent social security from bankruptcy. This can be achieved without raising taxes and cutting benefits.

(Washington, DC): President Bush’s new “Ownership Society” calls for Social Security reform and swings the door open for Americans to build a personal, retirement nest egg. According to the Institute for Policy Innovation (IPI), President Bush can achieve this reform without cutting benefits or raising taxes.

“Revolutionary legislation introduced by Representative Paul Ryan (R-Wis) and Senator John Sununu (R-NH) is, hands-down, the best option for the president’s reform goals,” says Peter Ferrara, IPI senior research fellow and author of a Social Security reform plan scored by Social Security’s Chief Actuary and supported by leading conservative organizations.

“The Ryan-Sununu bill saves Social Security from bankruptcy while guaranteeing current promised benefits without any tax increases. It’s a no-brainer for the administration to adopt this bill over other damaging proposals that rely upon tax increases or benefit cuts.”

The Ryan-Sununu bill also provides:
· Large, personal accounts (6.4 percent of the current 12.4 percent contributions)
· Largest reduction in government debt in world history by eliminating Social Security’s $11 trillion unfunded liability
· Permanent surplus for Social Security

“The President’s dedication to reform Social Security is vital to the future prosperity of workers and retirees,” Ferrara added.

Social security is a retirement system where an individual have no control over their benefits and no control over their own money. Some people cannot afford to invest in an extra retirement accounts like an IRA or 401K. Therefore, if the social security program runs a deficit in 2016, these people will be left without money to retire.

Currently, social security is the exchange of money for trust funds. This money is not pre-funded and is used to fund goverment spending. Therefore, the goverment must pay this money back with interest. If the goverment is spending the money instead of investing it, who is paying the interest?