Gary Halbert's Weekly E-Letter
Delivered Every Wednesday
5/10/2005
Did President Bush Cave On Social Security?
IN THIS ISSUE:
Posted on 05/11/2005 6:24:32 AM PDT by AgThorn
Gary Halbert's Weekly E-Letter
|
|
|
| Introduction |
| Chalk One Up For The Democrats & The Press |
|
| Bush Caves On The Issue Of "Means Testing" |
Give 'Em What They Want & They Still Object
| Washington Post: No Problem, So Do Nothing |
| Disclaimer |
|
|
|
|
|
||||
| Introduction Last week, President Bush began a political process which gives him the option of abandoning his call for private savings accounts as a central point of his push for Social Security reform. His nationwide push for private accounts has not been met with overwhelming support, and his poll ratings have dropped like a rock recently, thanks to the liberal media. So once again, he has retreated with proposals that seem to be more attuned to the Democrats' liking. The details of Bush's latest cave-in will follow below.
Some might say that the President has not abandoned private savings accounts, since he still maintains that they must be a part of any reform program. However, in Bush's latest news conference, he shifted the emphasis of reform from private accounts to "means testing" (Social Security benefits based on your means -- read: income), and I think it was a calculated move by the Administration to begin the process of abandoning private accounts. The Social Security Reform debate has taken on a life of its own, with everyone from AARP to Alan Greenspan chiming in with their support or opposition. The rhetoric has ranged from the Pollyannaish view that there is no problem, to Mr. Greenspan's continued view that there is a real SS problem on the horizon. Greenspan is correct, of course. A Social Security crisis (among others, Medicare for example) is on the horizon. The only question is when. Most projections show that Social Security will start to pay out more each year than it takes in around 2017-18 (I think it could happen even sooner).
Whenever that happens, the government will have to start dipping into the so-called Social Security Trust Fund. As we all know, the government has been spending the Social Security Trust Fund cash surplus for the last 30 years or longer, and has replaced it with IOUs from the Treasury. No one knows exactly what will happen when the surplus goes negative and the government has to start cashing in those IOUs, but there is a broad consensus that it will not be pretty. In this week's E-Letter, I will revisit the Social Security Reform debate. I'll discuss President Bush's latest version of reform, why he caved on means testing, and the predictable Democratic response -- more obstruction. Lastly, we will look into the upcoming criminal trial of Hillary Clinton's former campaign finance chairman, and the possibility that Mrs. Clinton could be implicated in this case.
When President Bush began his campaign to privatize a portion of Social Security (SS) for younger Americans early this year, the Democrats and the media went ballistic. The Democrats resorted to the old Clinton line that privatization is another "risky scheme," and that Bush really wants to eliminate SS, not fix it. Private accounts would only benefit the rich. The news media, of course, followed in lockstep. AARP launched its attack campaign.
Predictably, it did not take long to build a groundswell of opposition to the president's push to reform SS, even though virtually everyone knows there is a funding crisis on the horizon. Poll after poll showed private accounts to be unpopular with the public, so what little Congressional support Bush had started to wane. After all, doing what is best for the country is one thing, but risking re-election is another. As noted above, Bush's approval ratings took a dive. So, in a recent news conference, President Bush presented a Social Security Reform proposal that, for the first time, included the seeds of "means testing" for SS benefits. By embracing Democrat Robert Pozen's proposal for "progressive indexing" of SS benefits, President Bush has finally opened the door that would allow benefits for upper income individuals to be different than those with lower earnings. This may anger some conservative readers, but I believe that President Bush and his advisors are largely to blame for the lack of success on the SS private accounts concept. His plan was vague and allowed his opponents to freely fill in the blanks with all kinds of horrifying predictions, especially with regard to investing SS private accounts in the stock market. Even though he has now added a provision that would have private account participants invest in guaranteed Treasury bonds, the damage has already been done.
The latest addition to the Bush Social Security Reform proposal is known as "progressive indexing" as proposed by Democrat Robert Pozen. Pozen is chairman of MFS Investment Management of Boston, and served on President Bush?s Commission to Strengthen Social Security in 2001. In a nutshell, Pozen recommends that low-income workers continue to have their benefits indexed to wages, as is the current practice. For those with incomes over $113,000, he proposes that they have their benefit increases indexed to prices, which usually produces a lower figure. Those in between low and high incomes would get a blended approach that would become progressively lower as income rises. Actually, the idea of changing the way SS benefits are increased is not a new idea. Other proposals over the years, including some from Alan Greenspan, have suggested that the Social Security Administration change the index upon which benefit increases are based. These proposals, however, have routinely been denounced for ?cutting benefits,? even though everyone knows we will reach a funding crisis at some point.
But the truth is that most of the indexing proposals that have been suggested would NOT have cut SS benefits. They would have merely slowed the rate of increase in benefits. Let's see, if you are still increasing a benefit, albeit by a lower percentage, isn?t it still an increase? Not in Washington where what is right is measured by the latest public opinion polls, not by common sense or financial acumen! Actually, the Pozen proposal includes a provision that would allow for private accounts, but only about half of what President Bush originally proposed. Pozen would allow only up to 2% of workers' SS contributions to be directed into private accounts that could invest in stocks and bonds. Interestingly, Pozen argues for such accounts only because they would be a ?sweetener? for the high-income individuals whose guaranteed benefits will be lower.
You would think the Democrats would be celebrating the fact that President Bush has bowed to political pressures and has finally included means testing as the pivotal point of his Social Security Reform plan. But they continue to oppose Bush's latest plan. It is surprising that a proposal from a well-known Democrat, which includes means testing, is still opposed by most Congressional Democrats. Perhaps it's because Bush's latest plan includes a reduction in the increase in benefits for some middle-income workers. Many Democrats won't be happy until all middle and lower income workers get a generous annual increase in benefits, and wealthy individuals get nothing, but that's a topic for another E-Letter.
But the real reason the Democrats still oppose the plan, in my opinion, is because Bush's latest proposal still contains limited private accounts that are so offensive to the liberals. The Dems realize they've scored a major victory with Bush's change on means testing, and now they're holding out to see if they can eliminate the private accounts. Another line of thinking is that the Democrats would not support any plan that Bush might put forward. It was, after all, FDR and the Democrats who created SS, and it darn well has to be the Democrats who fix it. As it should be clear by now, the Democratic Party should be renamed the "Obstructionist Party." From Federal judgeships to Social Security Reform, they simply cannot seem to do anything but throw up obstacles and obstruct. I have yet to see a detailed plan from Democrats for meaningful SS reform, and even when we get a proposal from one of their own ? including means testing- they still can't get behind it.
Washington Post Says No Social Security Problem I think an excellent example of liberal obstructionism was evident in a recent Washington Post article on Social Security Reform. While discussing President Bush's latest reform proposals, the Post makes the following comment: But then they go on to say, and this is the really surprising part:
So, according to the Post, President Bush is misleading the public about a crisis; yes, the SS "trust fund" will be depleted at some point; but when it is empty, workers will still get almost 75% of their projected guaranteed benefits; and they will be at a higher inflation-adjusted level than what retirees actually receive today. Let me make sure you understand this. Let's say a retiree receives $10,000 a year (just to make the math simple) in SS payments today. Let's also say that the benefit in 2041 is projected to rise to $20,000. The Washington Post estimates that even when the SS trust fund runs out of money in 2041 (or sooner), retirees would still receive around 75% of their projected annual benefit - $15,000 in this example -- in a "pay-as-you-go" system.
If you follow this example, the Post is arguing that a benefit of $15,000 in 2041, versus $10,000 today, would be acceptable, and that no SS crisis is ahead. This is ridiculous! The liberals are wrong on both points. Progressive indexing will NOT lead to a cut in actual benefits for most people; benefits will still increase for most people, but not as fast as the liberals want. And one of the most liberal newspapers in the country is trying to make the case that doing nothing would be OK since workers would still get about 75% of their promised benefits when the trust fund is gone. This is just plain obstructionism. It remains to be seen what will happen with Social Security Reform, if anything. We can argue about whether President Bush should have caved on means testing or not. But I do not think he should cave on private accounts, which should be an even larger part of his plan in my opinion. Unfortunately, he can't go back now.
Whatever happens, or doesn't happen, with Social Security Reform, the Medicare crisis is going to descend upon us well before the Social Security crisis hits. As you have probably read, the Medicare crisis is projected to be much larger than Social Security. I will write about this in an upcoming E-Letter. Gary D. Halbert Gary Halbert is the president and CEO of the ProFutures companies, a diversified investment advisory firm located in Austin, Texas. ProFutures offers professional financial planning services to a nationwide base of clients. Mr. Halbert's firm specializes in tactical investing, and its recommended investment programs include mutual funds, managed accounts with professional Investment Advisors and alternative investments. For more information about the programs offered, call 800-348-3601 or visit the website at www.profutures.com. SPECIAL ARTICLES
A Personal Lockbox ? a good idea for Social Security Hillary In 2008? A leading liberal says no.
Bush, Blair, Howard ? An Electoral Trifecta Where The Media End & You Begin (an interesting read) Copyright © 2005 ProFutures Capital Management, Inc. All Rights Reserved. |
Disclaimer
© InvestorsInsight Publishing, Inc. ALL RIGHTS RESERVED
If his own party (the wimp ass Republicans) won't back him, why should the President continue to fight hard? It's like having a football game where the defensive line never protects the quarterback.
I'm getting pretty damn tired of these Republicans! I voted for Bush but I will seriously consider not voting for the Republicans next election unless they get some steel ones and do something about SS and immigration!!! I am fed up with them!
As to SS, you both may have a point, i.e. the Republicans have not been as assisting and supportive as they should have in light of all the negatives from the media and the left.
Immigration? I think Bush is the weak link of the Republicans on THAT topic.
"I'm getting pretty damn tired of these Republicans! I voted for Bush but I will seriously consider not voting for the Republicans next election unless they get some steel ones and do something about SS and immigration!!! I am fed up with them!"
I hear what you mean. Just remember, the Republican party was a 3rd party that over threw the Whigs in the 1800's so maybe...
Then you'll love this. The administration said that they'd (we'd) pay for illegal immigrants services in emergency rooms because they have no insurance. More enticement to come over the border.
Something wrong with that metaphor...
heh..you caught that one too ;-)
Judges and immigration are far more pressing problems than SS reform.
Democrats solution is to raise taxes. Rather than cut benefits they would do what they did in 1993: tax the SS benefits and use that for SS benefits (for the poor who didn't pay taxes) via paying back the trust fund. I am against any tax increases and don't want cuts in benefits until congress cuts federal employees retirement. But, there is a political benefit in convincing the middle class that there is only enough money for : the poor, congress and federal employees, and that we have to increase taxes to make sure they can retire in comfort.
My take is that Bush is incredibly shrewd. He proposes means testing, which causes Dems to fall for the bait and oppose it, revealing their obstructionism and lack of plan. With means testing, the vast majority of taxpayers will be against SS, since people won't stand still for the amount of tax taken out of their checks when they aren't getting much back. There will be a gradual phase out of SS and/or phase over to personal accounts as people reject SS in its new form. Most of us don't expect to get much from SS, anyway, so cutting future benefits for us is much more preferrable to the Dems unstated plan of raising taxes. Bush will never raise SS taxes, because his ultimate goal is to cut benefits, then taxes, making SS smaller and smaller until it eventually goes away.
Maybe he is 'rolling over.' Or maybe he's just trying to get the Congress critters off their lead behinds.
Bush has often said, "If you don't agree, give me options." Instead, they just whine (including some 'Republican' Senators).
E-mail the President rather than rant here.
President George W. Bush:
(e-mail)
Vice President Richard Cheney:
(e-mail)
Compared to securing our borders and enforcing immigration laws, the President has been wasting valuable time and hot air on this issue.
I played defensive end, and I only hoped the other team didn't protect their quaterback because I wanted to pulvarize him, repeatedly!
predicted bush would back down ... it runs in the family.
Sorry to upset anyone ... but it is true.
Bushes cave on the tough political battles
Bush41: Caved on taxes. Goes along with Dem tax increases.
Jeb: Caves on Schiavo
GW: Caving on Social Security Reform (needs to raise age, change formula on payments to slow the growth of money going out, and finally shift us to individually owned accounts). He probably won't do any of the three (and they are the three basic components). The socialist alternatives: more revenue going in/i.e. taxes and making it more welfare like (means testing,etc.)
Disclaimer: Opinions posted on Free Republic are those of the individual posters and do not necessarily represent the opinion of Free Republic or its management. All materials posted herein are protected by copyright law and the exemption for fair use of copyrighted works.
