Saturday, September 15, 2012

The Retirement Program Called Social Security

You probably remember the push to privatize Social Security a few years back, and how the treasury bonds in the Social security trust fund were just "bookkeeping entries" and "worthless IOUs".

So this article might surprise you. (Some of it surprised me, particularly the details.)

* "The special-issue bonds are nothing more than IOUs from one part of the government (the taxpayers) to another. There is nothing in current law that requires these bonds to ever be redeemed."

... Under federal law, the financial assets held by the retirement and disability trust funds can be used only to meet the obligations of these programs. (See Section 201(d) of the Social Security Act.)

* When the Social Security Act was passed in 1935, the original intent was to invest in all kinds of private-sector assets--an idea that sparked resistance from conservatives, who disliked the socialistic implications of having the government invest directly in the private sector.

Senator Arthur Vandenberg, a Michigan Republican who was a key opponent of most aspects of the New Deal (but did support the creation of Social Security), was concerned that the large trust fund Social Security was expected to build up would result in a kind of socialism. ...

* Social Security historians haven't found any evidence that Roosevelt wanted private accounts. Nancy Altman, author of The Battle for Social Security: From FDR's Vision To Bush's Gamble, notes that FDR did originally propose an annuity as an add-on or supplement to the core program, but the idea was rejected by Congress because opponents feared it would compete unfairly with private insurance. ...

George W. Bush's campaign to turn Social Security into private accounts never got much traction. (Congressional Republicans stayed away from it in droves.) Today, Social Security is again in the cross-hairs, a bargaining chip in the "Grand Bargain" pointy-heads inside the D.C. beltway insist that we need to stem the flood of government red ink.

Though I wish it were otherwise, the odds are good that Social Security could take some kind of hit in future years. (Tying Social Security to the CPI instead of wages is one "solution" that's been bandied about; a higher retirement age is another. But maybe the most obvious solution is to simply lift the amount of income subject to the Social Security tax by several hundred thousand dollars. This would stabilize the trust fund for pretty much ever.)

As the middle class shrinks and private pensions vanish, the need for Social Security is greater than ever. Unfortunately, that doesn't mean the program will survive with sufficient strength to meet all the demands made on it in coming decades.

My opinion? The best strategy to ensure Social Security survives is for people to show up at their neighborhood polling places and vote their economic self interest.

For a change.


Robert said...

The way you excerpt the article makes it appear that the columnist believes "The special-issue bonds are nothing more than IOUs..." blah-blah-blah

No, that's a trivializing assertion by an internet commenter that he sets out to refute.

Steve Hulett said...

Then to clarify:

President Reagan and the U.S. congress hammered out reforms for Social Security in the mid-eighties.

The whole idea was to build up the Social Security trust fund by hiking taxes on employers and employees, also raising the "full retirement" age to 67 over a period of years.

It has worked well. The Social Security Trust Fund now has two trillion dollars in treasury bonds in it, and all current obligations are fully funded through 2047.

Even after that, funding will meet 75% of obligations. (Right now, federal regs require private pension plans to have 80% of pensions funded. (That's the goal, anyway.)

Social Security is in good shape.

(For the malcontents who say: "Well, you can't sell Social Security Treasury bonds on the secondary market, I would answer: You can't sell Savings Bonds in the secondary markets, either. Would anybody argue that those weren't "real" obligations?)

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