First, because of the insane manner in which Social Security is set up, removing even a small percentage of Social Security’s revenue stream will have a profound impact on its already huge long term deficit. As I explained in an earlier article, the system as envisioned by Franklin Roosevelt would have eventually become fully funded forever simply because it was a fund which was untouchable by the idiots in Congress. By degenerating the system into one where the funds are "borrowed" by various federal departments and "repaid" to the system when the funds are needed, a system was created that would always face one financial crisis or the other simply because greedy political reptiles in Congress could abuse that system yearly.
Now, to add to the burden that Social Security must bear from the hoodlums in Congress, Tumbleweed now wants to steal some more of it and hand it over to Wall Street and the stock market, the latter being just a legal form of gambling that is completely rigged in favor of the wealthy and against real human beings.
Okay, now that you’ve suffered through that little screed, let’s get on to the basics of why Tumbleweed’s and all other like-minded programs will fail to provide for your future.
There are only so many ways that the loss of revenue to the Social security system can be compensated for when this "Individual Account" money is taken away. The government and you can hope that the returns from the stock market is high enough (and that you are skilled enough to pick the right stocks at the right time and retire at the wrong time such as when the market tanks). The government can raise the payroll tax to make up the difference, which begs the question as to why you would want the program to change in the first place. The government could simply transfer funds from the general fund into the system but that would then create a situation where either programs are cut or taxes are raised, neither of which are intelligent alternatives. Finally, your benefits could be drastically reduced and the age at which you can retire can be raised even further forcing you to work long past your 60’s and into your 70’s.
Tumbleweed has promised repeatedly not to raise payroll taxes or to invest the fund itself in the stock market so, as he is also proposing to cut taxes dramatically for the wealthy and Corporate America, and to a far lesser extent for the rest of us, that will wipe out any of the projected budget surpluses and negating any possibility of having the funds to transfer without creating a deficit in the non-Social Security budget. Therefore, Tumbleweed’s only option, once the Social Security’s assets are depleted, will be to cut your benefits.
This leaves only the question of exactly how much your benefits will be cut and the question of will your Individual Account cover those loses to your retirement income. Those questions don’t result in answers that you’ll be happy with.
By reducing the payroll tax for Social Security by the two percentage points described in Tumbleweed’s plan, the following figures fall into place:
In order to maintain the solvency of the system over the next seventy-five years, benefits would have to cut 41% for all workers over 55, the group which would also have the least amount of time to build up their Individual Accounts, meaning that these Americans would be forced to retire with little in the way of security.
If these cuts were, instead, phased in equally, those Americans who are 50 in 2002 will still see a 29% cut in their benefits while those thirty or younger in 2002 will see their benefits cut a whopping 54%. If you include the projected income from these Individual Accounts for those thirty or younger, then the average cut in benefits still comes in at 20%. Interestingly, this 20% cut in benefits is exactly the same as the cuts necessary to maintain Social Security’s solvency over the next seventy-five years without the Individual Accounts.
Should transfers from the general fund be allowed, then these cuts in benefits could be reduced but not eliminated.
Nevertheless, Tumbleweed’s plan would not only force a large cut in overall benefits but it would also place the portion relegated to the Individual Accounts at a huge risk. In fact, his plan could result in a cut of 50% in benefits for young workers with the Individual Accounts easing these cuts only slightly.
What will be the costs, under current law, to maintain Social Security’s benefits until 2075 if payroll taxes were not raised but general funds were transferred to maintain solvency? The astronomical figure of $6.3 TRILLION DOLLARS!!!!!!!!
Even Clinton’s plan to transfer $1.4 trillion dollars into the fund will only extend its solvency to 2054 without benefit cuts and Archer-Shaw proposal (Rep. Bill Archer and Clay Shaw) requires a transfer of $3.1 trillion to extend the solvency to 2075 without cuts. Neither of these proposals, however, include any transfer of funds out of Social Security for Individual Accounts, meaning that this massive deficit would then have to be added to these figures.
Also, these descriptions assume that all Social Security programs are cut equally. Benefits for survivors of workers, the disabled, the children of workers and all other programs would see a massive decline in funding at the same time. In most cases, the resulting benefits will not cover even the most basic of needs for these Americans.
Let’s take just one case and see how the folks in that income bracket will fare, shall we?!?
Assuming that an unmarried worker retires in 2037 after having an income of $14,258 ( all figures are in year 2000 dollars). Under current law, he or she would be eligible for a yearly Social Security income of $9,618. Since, in order to maintain Social Security’s solvency, benefits will be cut 54%, that yearly income drops to $5,157. Calculating the return on an Individual Account containing 60% in stocks and 40% in bonds and accruing gains at a rate of 5.9% (based on the average return on equities from 1946 to 1995), that worker will have an additional yearly income from those accounts of $2385. The total retirement income for this person will, thus, be $6,846 or a loss of 29% over current law.
Now let’s consider the case of an unmarried worker who retires in the same year but with an income of $76,200. Under current law, this worker would receive $25,433 every year from Social Security. Again, assuming the 54% cut in benefits, his or her income will drop to %13,638. Again, using the same assumptions as above, this person’s income from the Individual Account would be $12,908 for a total of $24,703. That, gentle readers, is a loss of only 3% from current law. As usual, the rich stay richer because the poor get poorer.
Even using the case of a married worker earning that $14,258, their combined income from Social Security and the Individual Account would result in a loss of a staggering 38% over current law. For a married worker earning the $76,200, their loss would be far less that the poorer worker but still a respectable 22% decrease.
Factoring in the average returns from the stock market shows just how dangerous this plan can become, as well. If an average wage earner ($31,685 income) invests his or her 2% into the market and receives earnings equal to the worst thirty-five year period (1947-81) and factoring in the 54% reduction in Social Security benefits, that worker will retire with a 38% reduction in income over the current law ($9,859 as opposed to the current $15,877). If those returns averaged the same as the overall 35 year average (1946-95) of the market after 1947, the loss would be 20% ($12,664 as opposed to $15,877). If the worker had the magnificent good fortune to average equal to the best thirty-five year average (1965-99), then he or she will only equal the income under current law ($15,884 as opposed to $15,877). These figures also assume that one will be still be able to transfer the funds from their Individual Accounts into an inflation adjusted annuity that will pay for the remainder of their lives, a possibility that is already slim to none as insurance companies are loathe to sell a policy that comes anywhere near to revenue neutral.
Gentle readers, I’ve attempted to condense 22 pages of facts and graphs and tables into a short lesson on the absurdity of Tumbleweed’s plan for the destruction of your Social Security system. I hope that I’ve made it clear that there is an insignificant to absolutely no possibility that you will gain anything through this scheme of his. It is almost certain that you and your children and their children be forced into a retirement with little hope for a sustainable income let alone an income that will allow you to enjoy even a moment of that much anticipated time of your lives.
The only, and I cannot stress enough, the ONLY people who will win in this contrivance will be the brokers who will be churning the money that every American will be forced to give them and the already filthy rich who will, as now, have the ability to buy when the market is low and sell when the market takes its inevitable plunge and to sell long before you and your can hear about it on your nightly news.
As I have repeatedly warned, this is ONLY a ploy to force more money to be invested into a stagnating market in order to create more money chasing the same number of stocks which, as is the case even today, artificially inflates the worth of those stocks. That unnatural evaluation, once the supply of funds available to chase them diminishes, will only result in the stock market adjusting to a far more realistic appraisal and, quite frankly, the next depression will arrive like a freight train flying through the shattered hopes and dreams that were once the hard earned retirement funds of millions and millions of working Americans.
Will they remember that the entire blame for their losses can only be traced back to Tumbleweed’s door and their own insane decision to waste their vote on him? Or will they blame whoever happens to be in office at the time, since any other choice would show them just how half-witted and absurd they have been in the past?
Finally, is there any difference between the idiocy that Tumbleweed proposes for your retirement funds and the idiocy that Gore and the Democrats want to foist on you? The differences are slight but, quite frankly, unimportant. To say that either party is the lesser of two evils is to ignore the fact that both parties are the evils. I humbly suggest that you visit Ralph Nader’s web site and learn his views on your future before you toss a coin to choose whom you will cast your vote for.
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