How Social Security could narrow rich-poor gap

When Congress created the Social Security system in 1935, 8 of 11 people reaching retirement age were not just poor - they were indigent. They had almost no income. Some lived on the street, many with their children. They relied heavily on charity to survive.

Those drafting the Social Security bill wanted to redistribute income to these destitute retirees. They succeeded. Today's seniors are relatively flush.

Now, the income gap between the rich and poor in the United States has gotten wider again. A reformed Social Security could help readjust that balance.

It's unclear whether President Bush's plan will do that. But Social Security could be altered to accomplish that goal, says Robert Shiller, an economist at Yale University. He frets that the growing rich-poor gap "is going to fester eventually. It will be a source of resentment."

I "Get It"

A local MN citizen has written these profound words on Social Security reform which I have the honor of posting here tonight.

I "get it" -- unlike Senator Dayton and the others in the Democratic party crying fowl. The private accounts being proposed are no different than what most people have access to with respect to deferred comp and the various accounts they can put their defferred comp monies toward. People won't actually have the money in their hands to with as they want -- they will simply defer it through payroll deduction like is currently done -- only to a different account that will invest it as you choose. The options will be limited like they are through deferred comp. You have low risk options to more high risk options. It's that simple. I think our deferred comp plan has 5 options of varying risk levels. How complicated is that? What could possibly be wrong with workers actually owning their retirement accounts? It's our money -- let us have it!

But consider this. Welfare reform was a huge struggle too -- why? As you probably know, the federal government first authorized the Aid to Dependent Children (ADC) program under Title IV-A of the Social Security Act back in the '30s -- about the time Social Security was enacted. Times were tough back then -- ya, tougher than they are right now, Nancy Pelosi!! People had survived WWI, the depression, etc. The ADC program was started to aid widows and orphans -- widows whose husbands had been killed in WWI, leaving them to raise orphaned children with no income, resources and no ability to make a living. Back then, women didn't traditionally work out of the home, they didn't traditionally have ready access to educational opportunities, they didn't have access to reliable birth control (did reliable birth control even exist?), or abortion on-demand. Obviously times have changed because everything women didn't have back then, we have now. But our welfare programs essentially treat women like we are still back in the '30s -- poor, helpless, uneducated women with no opportunities available to them.

The same is true with Social Security. When that was enacted, the average worker didn't have access to saving for retirement, investing in their future, IRAs, deferred comp, 401Ks, etc. etc. But the average worker can or should have access to these investment opportunites now so why do we -- or our government -- feel compelled to continue to treat workers like workers of the '30s?

And another thing. Before the invention of government programs such as Social Security and welfare, people had to rely on their families in their old age -- elderly parents lived with their children until they died. The elderly weren't shuffled off to a nursing home because no one could afford such care. And if a women was widowed, or God forbid, she turned up pregnant and not married, she would have to turn to her family for help. Both the Social Security system and the welfare system essentially replaced the roll of the family. Once these goverment programs were in place, families gradually began to relinquish their traditional rolls of caring for one generation to the next, and for taking care of each other in financially difficult times, because they learned that the government would do it if the family didn't. From my perspective, this is, probably the saddest and most destructive aspect of these programs.

Again, times have changed. Opportunities have changed. But neither our welfare system, and especially the Social Security system, has kept up with the changing times. Reforming Social Security is overdue and I support the President's proposal wholeheartedly!!

Paige Turner

Alternative to Social Security?

WASHINGTON — For 5 million American workers, including Kansas City's police officers and firefighters, the debate over Social Security overhaul has little meaning: They're already exempt from the system.

So are most of Missouri's teachers.

That class of public sector workers — who don't pay taxes into Social Security during their working years and don't receive Social Security benefits when they retire — accounts for about 6 percent of the U.S. work force.

Instead of Social Security, they pay into pension funds that invest in stocks, bonds and other investment instruments, much as President Bush wants individual Americans to be allowed to do with a portion of their Social Security payroll taxes.

But as the fight in Washington heats up over how to reform the massive safety net, opinions vary as to whether such pension systems — many of them quite successful — could be copied on a larger scale.

What Made America Great?

Mr. Hasson believes he knows what made America great. It wasn't that Americans believed in personal freedoms, or personal sacrifice, or any other noble attribute.

Democratic moderates (sometimes maligned as "tax and spend liberals") need to make their voices heard in Congress to the effect that raising taxes in order to stabilize Social Security is not such a bad thing. Taxes made this country great. Paying taxes assures our society that everyone has a stake in the common good and brings us that much closer to dealing with deficits, rather than borrowing money from foreign sources.

Our regressive system of taxation ensures that small subsets have the greatest stake in the common good, and a large subset has a greater stake in reaping the benefits. Is this something that makes Americans proud?

Cash me out now

I linked to Tim Penny's editorial on the Social Security crisis earlier. Now someone comments in a letter to the editor:

Tim Penny argues that the Social Security trust fund is simply an IOU from one part of government to another.

If Republicans truly believe this, then I want a refund of all the money I've been paying into the trust fund for the past 22 years, and I want to stop paying into it right now.

Joy Jacques, Cannon Falls, Minn.

I want a refund of my money too, and start putting it in a private account where I won't have to pay for it again later.

For extra credit, read the other letter to the editor on the page with the analogy to the trust fund being like a bank. It's true. But the difference between a bank and a Treasury bond that the Social Security surplus is banked into is where the money comes from when I make a withdrawal. The bank invests my savings in private sectors and it gains a return and the bank gives me my money and interest back. The government, when it needs to pay back bonds, it just taxes Americans workers, and then uses that to pay it's bonds.

I'm sure you can see the difference. It's time to invest the Social Security into the private sector where it will increase value, rather then have the government put it in trust funds so that we will have to be taxed again on it when the surplus needs to be used.

Remember, the government never defaults on loans. They repay them through increased taxes on us, working Americans.

Retirement Plan A Success

By JAMES (PETE) CONROY, Mason City

The other evening, I had my dinner disturbed by one of those unsolicited phone calls. This one was a recorded message from AFSCEM (Association of Federal State and County Employees). It explained to me the horrors of the (personal savings account) legislation that is being considered in the modernization of the existing Social Security program.

I listened to the whole pitch and when it was finished, I went back to my dinner. While I was finishing up the no- longer-warm cheese ravioli, I pondered with amusement the thought of the AFSCEM pitch being made to the municipal employees of Galveston County, Texas.

In 1980, 72 percent of the employees opted out of Social Security and approved creation of a privately funded retirement plan that also included life insurance and disability components similar to Social Security. Brazoria and Matagorda counties joined the Galveston Plan over the next two years. (Congress closed this option in 1983.)

The Galveston plan has been a success. Since 1981, more than 5,000 retirees in the three counties have enjoyed market retirement yields averaging 7.5 percent compared to less than 2 percent under Social Security.

A worker under this plan will receive 90 percent of his pre-retirement income as opposed to 35 percent of pre-retirement income under Social Security.

These retirement accounts (personal) are used to purchase commercial banking and life insurance products such as certificates of deposit and annuities as well as conservative government and commercial bonds. With this 25-year-old example for the public to compare with the AFSCEM horror story I listened to, I had to laugh, even though my raviolis were cold.

Just another letter to the editor from someone who gets it...

Timothy J. Penny: Social Security trust fund is no more than an IOU

Tim Penny wrote in a Star Tribune article that the Social Security Trust fund does not consist of "real" money. He's right, it's put in Treasury Bonds, which means that when it is needed, the government has to get the money from somewhere else to pay the bonds back.

That's why it does no good to generate a surplus now, unless it is invested in an annuity type account. We can raise the payroll cap now, but the extra surplus we generate is just more taxes we need to raise through the general fund later to get the surplus back. What we need is not a surplus, but a invest plan that will return the guarenteed benefits when they are needed.

Raising the interest rate on bonds issued to the trust fund simply raises the amount of general fund revenue that the government will eventually be required to transfer back to Social Security.

These transfers to the trust fund are not free: They must come from raising income taxes, reducing other government programs or increasing the national debt.

Even at the current rate of interest, repaying these trust fund dollars would within 20 years require cuts in the general fund totaling about $120 billion annually.

We don't need to turn a Social Security problem into a general fund problem later. We have the answers and time to prepare for a secure Social Security now. We should take advantage of this opportunity.

Sen Dayton to MN: Social Security Needs Change

It's a surprising turn, but after reacting extremely, a lot of Democrats are coming back to agree with President Bush that Social Security needs changes. This article which talks about Dayton's views on changing Social Security has some great points.

While Dayton agrees with President Bush that the program needs to be fixed, and he is pleased that the president wants to do something to save it, Dayton believes that the president's proposal for privatizing part of Social Security is not the answer, Gelbman said. "There is a problem with Social Security, but it's not a crisis," he said.

There is a problem with Social Security, that's something we all can agree on. There's no need to quibble over labels, if you want to call it a crisis or not, that's your choice. But let's agree that Social Security needs changes.

Dayton has proposed removing the income cap on Social Security taxes as the answer, according to Gelbman. Currently, U.S. workers are only taxed on the first $90,000 of their income for Social Security.

If the cap, which was established in 1984, was removed, said Gelbman, income for Social Security would increase, and this would reduce any funding problems for Social Security. Raising the cap has been examined by Democrats and Republicans alike and has received support from both sides, added Gelbman.

Raising the cap now would not help. We don't need more money put into Social Security now. We are running a surplus for at least 12 years. If we generate a larger surplus now, that would just be that much more we need to tax from the general fund later when we need the surplus. That's the problem we have now, in 2018 we'll need to generate taxes to pay the surplus we've been generating for the last 20 years. We don't need to make that situation worse.

"If you're a senior now, your benefit will not be affected," Gelbman told the audience. "But it could hurt your children and your grandchildren."

The changes we make now aren't for noe, they are for later. We have 2 choices: We can save with a private annuity type program so that our children and grandchildren will have a guarenteed retirement fund when they need it, or we'll have to raise taxes on those who have jobs to pay for the retirement we didn't prepare for now.