[North-NV-Greens] Fwd: Devil in Details of Bush Social Security Scheme

Sat Dec 25 23:05:24 PST 2004

>
>
>Submitted to Portside
>
>The Devil is in the details of the Bush Social Security
>Privatization
>
>By John Case
>
>The Goldman-Sachs "US Economics Analyst" Global
>Economic Research Bulletin for December 17, 20904 has
>published a detailed analysis of the most likely Bush
>Social Security proposals. It shows the Bush program
>to be fraud -- but a clever fraud.
>
>Before summarizing the Goldman-Sachs analysis, it is
>worth reviewing some basics about Social Security:
>
>1. Social Security is basically a pay-as-you-go
>program, enacted as part of the New Deal under Franklin
>Roosevelt in 1935-1936. Payments workers make into the
>fund through the Social Security payroll tax are paid
>directly to current retirees. It is NOT a savings or
>investment account. Payments to workers are indexed on
>their WAGES, not inflation--as we shall see, a very
>important point. The amount of benefits you receive is
>roughly based on your last 5 years of EARNINGS.
>
>2. Based on payroll tax increases drafted by Alan
>Greenspan and others in the 1980's (the last time there
>was a "Social Security Crisis") there is currently a
>surplus of payments over receipts. This surplus is put
>into the Social Security Trust Fund, and invested by
>the government. Federal spending has also been
>borrowing from this trust fund.
>
>3. The current "Social Security Crisis" is based on
>projections that the Trust Fund will go from surplus to
>deficit at some point 20-40 years from now depending on
>which economic model is employed. The fundamental
>underlying reason for the change is that workers are
>living longer and the ratio of working to retired
>persons is decreasing in favor of the latter. HOW much
>longer they are living strongly reflects the sharp
>racial and class divisions in US society. Nevertheless,
>this deficit, when and if it occurs, will have to be
>paid by: a) increasing the social security payroll tax;
>b) increasing general revenues; c) reducing benefits;
>or d) extending the retirement age.
>
>    The retirement age has already been extended once.
>As Paul Krugman has noted the entire issue could be
>disposed of by a modest increase in the social security
>payroll tax -- merely a fraction of what Bush already
>spent in his massive tax cut for the rich in 2001. So
>in a sense the entire "crisis" is of Bush's making.
>
>However that is not the Bush plan. The Goldman, Sachs
>analysis reveals the following:
>
>    The leading reform proposal of the Bush team --
>"Reform Model 2" proposed by the Presidential
>Commission on Social Security in 2001--would establish
>personal savings accounts by diverting a portion of the
>social security payroll taxes that fund the current
>system. --Benefits would be cut sharply relative to
>current law; --The budget deficit would climb during a
>long transitional phase as payroll tax receipts fell
>sharply; --The new system would make Social Security
>retirement benefits partially dependent upon the
>performance of stock and bond markets.
>
>A. Workers less than 55 could voluntarily redirect 4
>percentage points of their payroll taxes up to $1000
>annually (indexed for INFLATION) into a personal
>savings account (PSA). Upon retirement the funds in
>these accounts would generally be converted into an
>INFLATION-indexed monthly annuity payment.
>
>B. Traditional Social Security benefits would be cut at
>a rate equivalent to the worker's PSA contributions
>PLUS a 2% compound interest rate -- referred to as the
>"clawback".
>
>***C. Benefits under the traditional Social Security
>system would be INDEXED TO PRICES BEGINNING SEVEN YEARS
>AFTER THE REFORM PLAN IS IMPLEMENTED!! Even if not a
>single person opted to establish a PSA in the next 75
>years, the 48% cut in benefits from the switch to price
>from wage indexing ALONE would "restore the Social
>Security Trust Fund to solvency". Even if EVERY single
>person chose to divert monies into PSAs -- and NEVER
>TOUCHED THE ACCOUNTS -- there would still be an average
>27% cut in benefits at the end of the same 75 year
>window. Of course a big portion of PSA funds would be
>absorbed as investment firm profits and administrative
>fees. Goldman, Sachs estimates these fees at 10%.
>However experience in some Latin America countries
>(e.g. Chile) where privatization of social security has
>been showcased suggest it will be much higher.
>
>D. A new welfare-style change in Social Security would
>be added establishing a minimum benefit for long-term
>low wage workers at 120% of the poverty line. Benefits
>for widows would be similarly "protected".
>
>E. Proponents of the Bush plan assert that the PSA's
>would earn on average about 4.6% per year after
>deducting "administrative" fees--BROKER PROFITS. This
>they claim is 1.5% higher than current long-term
>Treasuries, and thus there might be a net national
>savings gain. However Goldman, Sachs disputes this
>guess, estimating the gain at around .5%. Both
>estimates are probably wrong, and high. Any worker
>making less than 50K per year, and many making more
>than that, will be under tremendous pressure to cash
>out their PSA's every time there is a layoff,
>especially in the absence of universal health care. In
>addition financial asset returns are volatile. For
>example a 50% decline in stock prices -- what occurred
>in 2000--would cut benefits payments for PSAs by
>15%-25%.
>
>Why does Bush want to cure the "crisis" -- which does
>not really exist -- by privatizing?
>
>    1. Since the entire so-called "crisis" is averted
>by the slashing of benefits from the change in indexing
>alone, the PSAs will generate a windfall for Wall
>Street brokers and investment firms.
>
>    2. Eliminate or weaken a key economic base of the
>    Democratic Party.
>
>    3. Bankrupt the federal government through huge
>deficits as the principle means of eliminating
>entitlements. The latter being the key impediment to a
>more perfect market-dominated allocation of resources.
>The Republicans seem ideologically committed to this
>position, despite the huge risks it poses for the US
>global economic position. Look for the first round of
>this whip-sawing to begin in Bush's 2005 budget
>proposals coming up soon.
>
>    4. Get ready to hear the Bush propagandists jump
>through hoops to HIDE and DISGUISE the indexing change.
>Expect much hoopla over the welfare-izing of the low-
>wage worker benefits which will be heralded as an
>INCREASE when it is really a CUT.
>
>In other words, get ready for the fight of your lives!
>
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-- 
Paul Etxeberri

"Forests precede civilizations and deserts follow"   ---Chateaubriand