Now that we Amis have a nice tax cut, how to reduce spending to cover it?

[MichaeltheGreat]

Originally posted by Arrian
MtG, as I'm sure you know, just mentioning Social Security is political suicide.

The blue hairs have immense political power. Unlike most other demographic groups, they vote.

-Arrian

Of course, that's why I said it would take balls. The thing is, you have to pay off the old folks - they've put tons of money in, and counted on what they expect to get out.

The thing is to pay them off, and make the case to the younger generations that the system is broken as is, and it's just going to cost them more and more now to get less and less later.

My general framework is anyone with less than five years to go before minimum retirement age just keeps going with the present system. Between five and ten years, you have the option to stick with the present system, or take a partial phase out - any percentage you want, but if you opt out, you (and your employer) now pay that money you would have paid in FICA taxes into a qualified private plan - self directed, or what have you. Those with less than ten years but more than five paid into the system get a one time tax free (if it goes into a qualifying plan) lump of 100% of what they've paid in, but the employer's matching side stays to partly handle the buyout of the old folks. Those with less than five years into the system, too bad, you wouldn't have seen a dime anyway.

Between ten years from first paying into the system (mostly 26-28 years old), and ten years from first being able to get paid out of it, you have the bulk of the taxpayers, and the money going in. Those people would phase out fully or partly according to a sliding scale from what they've paid in and for how long, although you would have some optional incentives to have people opt out entirely.

The goal is to get out of the SS game over the course of a generation (at least wrt new beneficiaries), so that people highly paid in and current beneficiaries don't get touched, but people just into the system have plenty of time to make other plans, and people in the middle can mix and match between SS and taking tax free lump sums to put into private plans.

As far as financing it goes, the privatized pension money should grow a lot faster as privately managed tax deferred investments (and yeah, you can satisfy socialists and the clueless who don't want to learn what to do with their money by creating appropriate regulations for what kinds of plans and investment mixes qualify), and when it comes out of the pension plans over a number of years, that grown money is taxable income. Another way of financing it is with a special series of tax exempt long-term bonds, so that you can handle the current payouts of those who want to opt out of the system, as well as provide funds for current beneficiaries in lieu of the younger generations' Ponzi contributions.

Another totally different type of option is to continue the present pay in system, but privatize the admin side, with customer service incentives and penalties to force efficiencies (screw low-bid privatization, in other words), and have private fund managers handle portions of the trust fund - put it all out to private investment, but subject to qualifying criteria, and limit any fund manager to a maximum percentage of fund to manage, with the winners each year determined on a competitive basis of net returns realized (in current income and asset growth categories) in the current year. The best fund managers would stay in the pool, but the lower performing half would be subject to elimination.

This would keep the system superficially in place (as far as visibility of admininstration, payroll withholding and benefit payment), but privatize the working guts behind it on a competitive basis, while directing the funds into qualified investments in the marketplace.

GePap - SS is going to blow up sooner or later. You may as well adress the flaws in it (which does not mean ever increasing SS taxes, which are even more regressive than VATs) before it blows up, than try to clean it up after.

PLATO - a little inflation is nice. Right now, it's been so low for so long that people completely discount the notion of it in spending decisions.

[Kidlicious]

Privatizing Social Security is a bad idea. The system right now is much more low cost than a private system. We just have to work out this problem with the larger generations.

[Dinner]

I do think we would be better off long term if we had a semi-private system like Singapore has. In Singapore the government mandates a certain percent go into a private account, that the account must be invested according to broad guidelines, but (here's the important part), the government insures the original principle. That's right you will never loss the original amount as long as you follow the government's investement guidelines. All the money on the upside is yours to keep but you can't touch it until retirement.

[MichaeltheGreat]

It's very low cost for present beneficiaries, yeah.

If you look at what I'm going to get out of it, it ain't so attractive (I'm a couple of decades and change older than you)

If you look at what you're going to get out of it, it's damned expensive. Net negative returns after inflation, anyone?

The problem isn't just the generations - it's longevity, earnings curves, asset survivorship - the whole thing is unsound.

SSA's IT systems are a mess, and their service provision isn't that great - luckily, you don't have to deal with them much, unless you get screwed out of your money, in which case it might take you multiple visits, nearly all-day lines, and a long trip to your nearest SSA office.

If the investment management costs are taken out of return on investment (a la mutual funds), you should still get superior returns to the artificially calculated returns from the SS benefit formulas, with zero net management cost, so the only costs you have to explicitly pay for are the SSA officefront admin and operations costs. Those could be privatized much more efficiently (it's basic retail customer service in a different form). The trick is you make payment to the private service provider contingent on both qualitative customer service as well as quantitative.

[Kidlicious]

Originally posted by MichaeltheGreat
It's very low cost for present beneficiaries, yeah.

If you look at what I'm going to get out of it, it ain't so attractive (I'm a couple of decades and change older than you)

If you look at what you're going to get out of it, it's damned expensive. Net negative returns after inflation, anyone?

What are you worried about? You will get your Social Security. Don't worry about inflation. Banks don't like it, so I wouldn't expect it. If inflation gets out of control the whole system is coming down anyway.

[Odin]

Privatized SS over my dead body! the trick is ti make FICA a progressive tax, it is currently a regressive tax.

If things get too out of hand we can allways resort to revolution!

BTW: I currently get SS assistance.

[JohnT]

Originally posted by Kidicious


What are you worried about? You will get your Social Security. Don't worry about inflation. Banks don't like it, so I wouldn't expect it. If inflation gets out of control the whole system is coming down anyway.

Sorry, but I just found this post to be

If banks don't like inflation, explain the 70s-early 80s?

[Kidlicious]

In 1979 the Fed slammed us into a severe recession to rid us of double digit inflation. Don't worry about inflation. They'll surely do it again if they have to.

[MichaeltheGreat]

Originally posted by Kidicious
What are you worried about? You will get your Social Security. Don't worry about inflation. Banks don't like it, so I wouldn't expect it. If inflation gets out of control the whole system is coming down anyway.

Oh yeah. I'll get some trivial amount in relation to the timing and magnitude of my source contributions, and I won't come out ahead of an investment-type limited private pension plan unless I really stick it to the Feds and live to be 112 and milk medicare for half a dozen open-heart procedures. (Not that they pay **** for those compared with costs).

In terms of time-weighted relative rates of return, I expect my SEP earnings (even without the corporate welfare gig) will outperform my SS benefits by at least five to one.

[MichaeltheGreat]

Originally posted by Odin
Privatized SS over my dead body! the trick is ti make FICA a progressive tax, it is currently a regressive tax.

If things get too out of hand we can allways resort to revolution!

BTW: I currently get SS assistance.

Ah, so take even more money from people to prop up a ponzi scheme that's financially unsound.

That won't work though, because the cap is already so high, that relatively few wage-earners exceed it. Definitely not enough so that raising the cap would bail the system out.

[Kidlicious]

Originally posted by MichaeltheGreat
Oh yeah. I'll get some trivial amount in relation to the timing and magnitude of my source contributions, and I won't come out ahead of an investment-type limited private pension plan unless I really stick it to the Feds and live to be 112 and milk medicare for half a dozen open-heart procedures. (Not that they pay **** for those compared with costs).

In terms of time-weighted relative rates of return, I expect my SEP earnings (even without the corporate welfare gig) will outperform my SS benefits by at least five to one.

The current system is meant to be there for everyone for as long as they live at the lowest cost. You just can't get a comparable system with privitization. Sure you can get a riskier system that is going to let people fall through the cracks and that costs much more, but really people don't want that. Privitization is a gimic and it will only pass if the Republicans can hoodwink everyone and scare them into thinking that the current system is going to fail. It's not going to fail.

[JohnT]

I'm sure that in time you'll be hearing calls for a removal of the cap from people like Odin, Mike. Not just raising it, but a complete removal of it.

[Imran Siddiqui]

It's not going to fail.

If it keeps going like it is, it most definetly will.

[Kidlicious]

Originally posted by Imran Siddiqui

It's not going to fail.

If it keeps going like it is, it most definetly will.

Why?

[Imran Siddiqui]

Because of this thing called the baby boomers. There is no way that a small number of wage earners will be able to support a larger number of baby-boomer retirees. The only way to MAKE it work is to take money from the rest of the budget (and it's not going to be small). SS will be used up in a flash and won't even be close to enough to cover the rest.