VANITY - Help needed to debunk talking points from Moveon.org re Social Security Reform

A friend forwarded the following, along with a request to tell her why reform would be a good idea....(she admits knowing that there are two sides to every story). I would like to share with her a concise and convincing summary of reasons that reform would be beneficial. I also need to help debunk the scare tactics that are being used.

George Bush and Republican leaders have made phasing out Social Security through privatization and massive benefit cuts their top priority for 2005. Members of Congress are choosing sides over the next couple of weeks.

We need to make sure they choose correctly now—before a massive election-style campaign by George Bush and the Wall Street interests gets to them including what might be a $100 million TV ad campaign.

MoveOn’s trying to gather 200,000 signatures to present to lawmakers when they return after the inauguration. You can sign the petition now at:

Social Security is a complicated issue, but the basics are really pretty simple:

° Social Security provides monthly benefits to some 44 million Americans who are retired, disabled or the survivor of a deceased parent. It provides most of the income for older Americans--some 64 percent of their support. It has lifted generations of seniors out of poverty.

° Social Security is not in crisis. That is an outright lie perpetrated in order to create the urgency for radical changes. Under conservative forecasts, the long-term challenges in Social Security do not manifest themselves until 2042. Even then Social Security has 70 percent of needed funds. That shortfall is smaller than the amount needed in 1983, the last time we overhauled Social Security. George Bush's Social Security crisis-talk is an effort to create a specter of doom -- just like the weapons of mass destruction claim in Iraq.

° Phasing out Social Security and replacing it with privatized accounts means one thing: massive cuts in monthly benefits for everybody. Social Security privatization requires diverting taxes used to pay current benefits into privatized accounts invested in risky stocks. Without that money Social Security benefits will inevitably be cut -- some proposals even cut benefits of current retirees. These benefit cuts are inevitable, since diverting Social Security money into privatized accounts means less money to pay current and future benefits.

° Every serious privatization proposal raises the Social Security retirement age to 70. That might be fine if you're a Washington special interest lobbyist but it is incredibly unfair to blue-collar Americans with tough, physical jobs, or for African Americans and Latinos with lower life expectancies.

° Privatization means gambling with your retirement security. There is probably an appropriate place for a little stock market risk in retirement planning -- but it isn't Social Security. Privatization exposes your entire retirement portfolio to stock market risks -- and the risk that you'll outlive any of your savings at retirement. You can't outlive your Social Security benefit.

° So who does benefit? Wall Street. Giant financial services firms have been salivating for decades over the prospect of taking over Social Security. Wall Street would make billions of dollars in profit by managing the privatized accounts -- money that would come directly from your benefits.

° Action is urgently needed today. President Bush and Republican leaders in Congress are joining forces with the financial services industry for a major campaign to convince the public there is a major crisis and pressure members of Congress to vote for privatization. Action is needed now before it is too late. Please sign MoveOn’s petition to protect Social Security at the link below.

Why do we even NEED it?? If people are responsible for paying their taxes why are they not responsible for managing their retirement accounts? Why must it be a government administered program??? I'm surely not relying on social security for my retirement...

You don't need the government managing your accounts, and I don't need it either, but since the vast majority of Americans have not saved anything like a realistic amount for their retirements our choices are stark. Either we let the government force them to save and manage their accounts for them, or we let them spend the money instead of saving it. If they spend the money there are two options in retirement--they get welfare (which you & I have to pay for), or they starve.

Starving geezers (as much as they might "deserve" it due to their lack of planning) is just not politically acceptable in the US. So, our choices really boil down to: A. we give them welfare, or B. we force them to save in government administered accounts.

Please note: all choices, other than starving geezers, involve the government. To me, forcing people to save for their own retirements is the least of all the evils available. It beats the heck out of payone welfare for them.

Since I am responsible enough to save for my own retirment, the government "forcing" me to do this is not particularly onerous. I would have done it anyway. As far as the investment choices allowed, a certain fraction of savings should be in conservatively managed accounts. All it means is that I can be more aggressive in my other accounts.

Begin by using not only the posts made to this thread, but search through previous threads to scratch out some of the more reasoned assessments concerning Social Security's health, or the lack of it, and then evaluate the suggestions concerning how it should be fixed, left alone, or scrapped. Quite a few, even though I do not support most of them, are quite thoughtful and well-reasoned.

Go to the Congressional Budget Office website, download their June 2004 The Outlook for Social Security, study it. Whether you wish to save the program as it now exists, fix or revise it (as I do), or scrap it, the CBO's 48 page report lays out the scope of the problem and the unpleasant choices which may need to be made.

Keep in mind, all of this, including Moveon.org's gearing up for battle, is in advance of any real proposed remedy. This seems to be skirmishing for position.

The original idea:

In the important field of security for our old people, it seems necessary to adopt three principles—first, noncontributory old-age pensions for those who are now too old to build up their own insurance . . . Second, compulsory contributory annuities, which in time will establish a self-supporting system for those now young and for future generations. Third, voluntary contributory annuities by which by which individual initiative can increase the annual amounts received in old age. It is proposed that the federal government assume one-half of the cost of the old-age pension plan, which ought ultimately to be supplanted by self-supporting annuity plans.
From FDR's January 1935 message to Congress.

From the Congressional Budget Office's June 2004 analysis of Social Security:

. . .annual outlays for Social Security are projected to exceed revenues beginning in 2019. Even if spending ends up being lower than expected and revenues higher than expected, a gap between the two is likely to remain for the indefinite future.
Only four approaches to narrowing that gap exist, and each of those approaches has drawbacks:

The benefits scheduled to be paid under current law could be reduced, lowering Social Security’s contribution to the income of future beneficiaries.
The taxes that fund Social Security could be increased, drawing additional resources from the economy to the program.
The resources consumed by other federal activities could be cut to make up for the shortfall in Social Security. However, the aging of the U.S. population and increases in medical costs will also lead to higher costs for other entitlement programs, most notably Medicare and Medicaid.
Federal borrowing could be increased, which would also draw additional resources from the economy to Social Security. But that borrowing would need to be repaid by future generations, either through higher taxes or lower spending.

Any changes to Social Security will have to be made in the context of the pressures on the total federal budget. CBO projects that spending for government health programs will grow even faster than spending for Social Security because of rising health care costs. In particular, increasing outlays for Medicare and Medicaid are projected to cause long-term shortfalls in the rest of the budget that will be even greater than Social Security’s. Unless taxation reaches levels that are unprecedented in the United States, current spending policies are likely to result in an ever-growing burden of federal debt held by the public, which will have a corrosive and potentially
contractionary effect on the economy.
Ultimately, the nation’s ability to support Social Security beneficiaries will depend on the size of the economy. Different changes to that program will have different economic effects. The taxes paid and benefits received by program participants embody important incentives that will affect their choices about work and saving. Decisions to raise revenues, borrow, or reduce spending will therefore influence economic growth.

The best answer is that millions of Federal Employees have been using basically the plan that GW is offering, and it has worked.

The oped ed below is the perfect answer/rebuttal:

The Lesson of Thrift: Personal accounts already work (which might be why the critics are so scared).

http://www.freerepublic.com/focus/news/1309063/posts

The Lesson of Thrift: Personal accounts already work (which might be why the critics are so scared).
National Review Online ^ | December 27, 2004 | Donald Luskin

Posted on 12/27/2004 10:12:48 AM PST by xsysmgr

Critics of the Bush administration plan to reform Social Security with personal accounts have a seemingly endless supply of reasons why it can’t possibly work. You know the litany: It’s too risky. It’s too expensive. It’s too complicated.

The critics never mention that there’s already a government-administered retirement system that has shown for over 15 years that personal accounts are prudent, inexpensive, and simple. It’s the Thrift Savings Plan of the United States federal government, currently serving 3.3 million government employees.

The years since Thrift was first offered in 1987 couldn’t make for a better laboratory to crash-test a personal-account system. During this period there have been both bull and bear markets that were among the most severe in history. Through year-end 2003, investments in Thrift personal accounts have earned $44.4 billion in profits for system participants — an average of more than $13,000 per participant.

Over time and on average, 65 percent of the value of Thrift participant accounts has been invested in a special money-market account operated by the U.S. Treasury. That’s been responsible for about $20.3 billion of the total investment gains. But almost as much — $19.8 billion — came from an S&P 500 Index fund. That’s remarkable because, on average, only 30 percent of the value of participant accounts has been invested in the S&P 500 fund.

This is a textbook lesson in why it makes sense to invest in equities. Even though they are riskier in the short-term, they have a higher expected return in the long-term. That’s why the S&P 500 fund has earned just about as much for Thrift participants as the plan’s money-market account, with only half the money invested.

Yes, after the bubble burst there were three difficult years for stocks — 2000, 2001, and 2002. In those bear-market years, Thrift participants overall lost money in their accounts, with losses in the S&P 500 fund overcoming gains in the money-market account (as well as the third fund tracking the Lehman). But the non-stock funds did well in those years, and 2003 was a great comeback year for stocks. (This year has been okay, too). So the least-lucky participants, those who started right at the top of the market in 2000, have already gotten back to even — on average — and those who started even a little earlier or a little later are solidly ahead.

How did Thrift participants react to the bear market? Not a bit like the scared rabbits that critics pretend the non-professional investors are. They didn’t dump right at the bottom; there were net redemptions from the S&P 500 fund in only 1 year — 2001. And when the market finally hit true bottom in the early spring of 2003, there were the biggest net contributions to the S&P 500 fund in Thrift’s history. Today, 43 percent of participant investments are in the S&P 500 fund (with another 10 percent in the other two stock funds).

And what about Enron? Don’t the critics always carp that gullible investors will lose their retirement fortunes in stocks, like Enron, that suddenly implode? Amazingly enough, any Thrift participant who invested in the S&P 500 Index fund did indeed invest in Enron, because Enron was a member of the S&P 500 Index until it was removed in late November, 2001 (after all the damage had been done). But Enron was only 1 of 500 stocks, so its risk was diversified away, just like the textbooks say.

The use of index funds has other advantages too — advantages that perfectly answer the critics of personal accounts. For one thing, index funds are simple to understand. Thrift started with one for stocks and one for bonds — about as simple as you can get. Two years ago Thrift added two more funds — one for smaller company stocks and another for non-U.S. stocks. Still, it’s so simple that even the most inexperienced investor can get it.

And index funds are cheap to operate. As I discussed in detail in my column last week, investment management fees for index funds are ruinously small for the managers. And speaking of cheap, Thrift is a model of efficiency. Its administrative costs are only about six one-hundredths of 1 percent of invested assets. That compares especially favorably to Social Security, which has administrative costs that are more than five-times greater, even though you’d think its vast scale would lead to significant economies.

Index funds also have the advantage of being very resistant to meddling by government bureaucrats. Critics of personal accounts complain that any government-sponsored retirement system creates an irresistible temptation for politicians to guide participant dollars toward favored investments, or for politicians to grandstand by interfering with corporate governance. Indeed, all those things have happened in large pension plans sponsored by state governments. But there’s never been a whiff of it at Thrift. That’s because investment in simple index funds is clearly mandated in the legislation that created it — it would take an act of congress to permit a bureaucrat to funnel Thrift money into some pet investment.

Ironically, the Thrift Savings Plan — a perfect model of the future of Social Security reform with personal accounts — was created as part of the last round of Social Security reform. Legislation passed in 1983 as part of the reforms recommended by the Greenspan Commission mandated for the first time that federal employees participate in the Social Security system. The idea was to force millions of new young participants to move back the day when the demographic time bomb threatening Social Security will inevitably explode. As you can imagine, federal employees weren’t thrilled, and Thrift was part of a complex package of adjustments designed to make them feel better about it.

The Thrift Savings Plan proves that there’s nothing too risky, too expensive, or too complicated about personal accounts for Social Security. So what are the critics really worried about? I think they’re afraid that personal accounts are too empowering. Once a nation of voters becomes a nation of empowered investors — there’s just no telling what kind of empowerment they’ll want next.

— Donald Luskin is chief investment officer of Trend Macrolytics LLC, an independent economics and investment-research firm. He welcomes your comments at don@trendmacro.com.

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