"A wise and frugal government which shall restrain men
from injuring one another, which shall leave them otherwise free to regulate their own pursuits of industry and improvement, and shall not take from the mouth of labor the bread it has earned. This is the sum of good government."
(Thomas Jefferson)

Wednesday, September 14, 2011

IBD: Time For Republican Jujitsu On Social Security Status Quo

Obama keeps demanding that the temporary tax cuts on FICA be extended.  We like the idea by Eric Singer to make it permanent:
Republicans are concerned that opposition to this cut will be painted as mean-spirited to poor people. It's time for jujitsu on this issue. Let's use the 3.1% cut to open up private savings accounts (PSAs), and make the payroll tax cut permanent. Let that permanent account accrue capital gains, interest and dividend income in perpetuity without any tax. 
It has made no sense to me why some weak kneed Republicans won't tell it like it is about social security.  Cong Paul Ryan gets it -- some of the rest want to keep their jobs or get new ones the way they run away from social security fixes.  If you are so afraid for your Congressional seat that you cannot make the tough decisions, then you shouldn't be in Congress no matter who you are.  President Bush tried to get a fix for social security but some Republicans were as against him as the Democrats.  What part of social security is going broke do these politicians not understand?

This idea from Eric Singer would solve the problem for younger people who don't believe there will be any social security -- open up private savings accounts with the Obama temporary tax cut for made permanent.  Eventually social security could become solvent over the years as people would be paying a portion of their tax into their own savings account for the future.  That means for anyone under 50 or 55, they would have a chance to save money to supplement social security.  The tables of how much you would get would be offset with your savings, but your savings could end up being more than social security was paying if we ever get interest paid on savings again.

Obama will run away so fast from that it will make your head swivel.  Sounds like a good plan and one that should be considered.  Since it is such a good idea, it will never pass as a lot of members of both parties are afraid to tackle social security as we have seen in the debates from Romney, Huntsman, and Bachmann  who sound like Democrats on social security trying to scare seniors.  Something has to be done and putting your head in the sand is not going to work.   We need to hear more from Paul Ryan on social security and other entitlements like Medicare and Medicaid and less from those out to score political points.  Maybe Cong Ryan and Paul Singer need to get together!
Time For Republican Jujitsu On Social Security Status Quo
By ERIC SINGER Posted 09/13/2011 05:43 PM ET 
Years ago, my young teenage daughter turned to me at the dinner table and said, "My social studies teacher wants me to talk tomorrow to the class about Social Security. Do you have any ideas that I could use?" Remembering her progressive teacher, I replied, "Why, yes I do."
The next day she told the class how Social Security worked and how people paid money in and eventually sometimes got their money back or more. And then she told the teacher in her best Gossip Girl voice she thought it was "mean" that on average people got only 1% back on their money when banks were paying 5% on everyone else's savings. 
"Who took the other 4%?" she asked. "That's enough," he replied, "sit down."
But now we have an entire country where short-term rates have been fixed at zero by the Fed. Not just Social Security beneficiaries, but every saver in the country is now asking, "Who took my interest?" 
'Financial Repression' 
Bill Gross of Pimco calls it "financial repression" when savers are forced to get a below-market rate for their interest. Recently, Texas Gov. Perry called Social Security a "Ponzi scheme." The SEC website says: "With little or no legitimate earnings, the schemes require a consistent flow of money from new investors to continue. Ponzi schemes tend to collapse when it becomes difficult to recruit new investors or when a large number of investors ask to cash out." 
With 78 million baby boomers starting to cash out, each entitled to benefits at age 62 continuing for over 22 more years on average, Social Security fits within the definition of a Ponzi scheme. Just because the government can currently coerce new participants doesn't mean today's young workers want to pay in or that boomers won't want their cash. It's not self-sustaining as originally presented. 
President Obama has included in his major jobs initiative a proposal to deepen the existing cut in the payroll tax from 2% to 3.1% — for one year only. In his Keynesian vision, the average household with $50,000 income will immediately spend most of the $1,500 saved in taxes. 
However, an honest economist will tell you that when tax cuts are temporary, people tend to hoard the savings and not "jump-start" the economy by spending the proceeds. And with the S&P downgrade of the U.S. debt, many Social Security participants are starting to discount their ability to get all, or even any, of their promised benefits. This is the opposite of a wealth effect: it's a loss effect. 
Excerpt:  Read More at IBD

No comments: