Respectfully submitted by Lawrence E. Rafferty (rafflaw)- Guest Blogger
We have all heard the cries that so-called entitlement programs like Social Security need to be cut in order to “save” them from extinction. Now that I am 62 years of age, I have become more interested in the issue of Social Security’s solvency.
CEO’s have gotten involved in the process through the now infamous Fix the Debt campaign initiated and funded by Billionaire Pete Peterson and the parallel campaign started by the Business Roundtable. Both of these campaigns are supported by big business and CEO’s of large corporations with no concern where their retirement funds are going to come from.
“In the current budget debate, the loudest calls for Social Security cuts are coming from two lobby groups led by CEOs who will never have to worry about their own retirement security.
The report, titled Platinum-Plated Pensions: The Retirement Fortunes of CEOs Who Want to Cut Your Social Security,
points out that two organizations, Fix the Debt, a PR and lobby machine launched in 2012 and led by more than 135 CEOs of major corporations, and the Business Roundtable, a 40-year-old association made up of about 200 CEOs of Americas largest corporations, are involved in a protracted campaign aimed at cutting, and ultimately, gutting Social Security.
Platinum-Plated Pensions, written by Sarah Anderson, the Director of the Global Economy Project at the Institute for Policy Studies, and Scott Klinger, Director of Revenue and Spending Policies at the Center for Effective Government, found that the CEOs belonging to Fix the Debt and Business Roundtable are sitting on massive nest eggs of their own.” Bill Berkowitz
Maybe I am an exception, but I was amazed to read the report linked above to see just who is claiming that the only way that Social Security can be saved for us mere peons is by raising the retirement age and reducing benefits. Many of the CEO’s making this claim have millions in their own pension or retirement accounts.
“According to Platinum-Plated Pensions, The average Business Roundtable CEO has $14.5 million in his gilded nest egg, more than 1,200 times as much as the $12,000 median retirement savings of U.S. workers who are within 10 years of retirement.
Ten CEO members of the Business Roundtable (four of whom are also members of Fix the Debt) have corporate retirement plans valued at more than $50 million. Of these, three have retirement assets of more than $100 million.” Bill Berkowitz
Now, in all fairness, just because someone has no need for their Social Security benefits, it doesn’t automatically disqualify their opinions on the subject of improving Social Security for all of us. However, these CEO’s do not have a real stake in what happens to Social Security because if it exploded tomorrow, they still have millions in their own accounts.
The ideas that Fix the Debt and the Business Roundtable have offered do nothing to make it more equitable or make Social Security work better for all retirees. Their idea of a “fix” is to delay benefits and force poor and middle class workers to stay in the work force even longer.
They even claim that raising the minimum retirement age to 67 is necessary because we are all living longer. Even that claim is suspect. One economic expert has brought some sunlight to the living longer claim.
“Before I get there, however, let me briefly take on two bad arguments for cutting Social Security that you still hear a lot.
One is that we should raise the retirement age — currently 66, and scheduled to rise to 67 — because people are living longer. This sounds plausible until you look at exactly who is living longer. The rise in life expectancy, it turns out, is overwhelmingly a story about affluent, well-educated Americans. Those with lower incomes and less education have, at best, seen hardly any rise in life expectancy at age 65; in fact, those with less education have seen their life expectancy decline.
So this common argument amounts, in effect, to the notion that we can’t let janitors retire because lawyers are living longer. And lower-income Americans, in case you haven’t noticed, are the people who need Social Security most.” Paul Krugman
While I am hoping Mr. Krugman is correct that lawyers are living longer, his evidence seems to suggest that the Fix the Debt and Business Roundtable people are all wet. Could those millionaire and Billionaire CEO’s have some ulterior motive? Could the CEO’s efforts and money spent pushing their Fix actually be an attempt to prevent the country from taxing the wealthy on all of their income or reducing or eliminating many of their tax benefits that harm the economy and fatten their wallets?
I have often wondered why millionaires don’t have to pay Social Security taxes on all of their income like the rest of us who make less than the $113,700 maximum for 2013. When a CEO makes $20 million a year, that CEO pays Social Security taxes on the first $113,700. When someone makes $60,000 a year, they pay Social Security taxes on their entire income. Why shouldn’t Social Security taxes be paid on all income, no matter what the sources? Wouldn’t that be more equitable?
Mr. Krugman also suggests that part of the problem seniors are facing is that the 401k accounts that many of their employers intitiated have not earned what was necessary to retire on due to the market crash and employer greed and employees making poor financial decisions.
“Today, however, workers who have any retirement plan at all generally have defined-contribution plans — basically, 401(k)’s — in which employers put money into a tax-sheltered account that’s supposed to end up big enough to retire on. The trouble is that at this point it’s clear that the shift to 401(k)’s was a gigantic failure. Employers took advantage of the switch to surreptitiously cut benefits; investment returns have been far lower than workers were told to expect; and, to be fair, many people haven’t managed their money wisely.” New York Times
What do you think is needed to strengthen Social Security for all workers? Paul Krugman and many Senators like Sen. Elizabeth Warren agree that we should be talking about strengthening Social Security and not cutting it. Some of the CEO’s mentioned above who have millions in their own retirement accounts have actually run up deficits in their own employees retirement accounts, but yet they still claim cutting benefits and extending the minimum retirement age are the way to go.
“While gilding their personal pensions, many Roundtable CEOs have allowed massive deficits to grow in their employee retirement funds:
- Of the Business Roundtable CEOs whose firms provide pension funds for their workers, 10 have deficits in these funds of between $4.9 billion and $22.6 billion.
- The Roundtable CEO with the largest deficit in his companys worker pension fund is Jeffrey Immelt of General Electric, with $22.6 billion. Immelts personal retirement fund is worth more than $59 million, the sixth-largest among Roundtable CEOs.” Bill Berkowitz
Are these CEO’s merely doing an end run in an attempt to steer Social Security funds into the private sector? Are they trying to steer the discussion away from taxing more income to strengthen Social Security? What do you think and who do you believe?
Fly-by-Night vs. Social Institution
By Teresa Ghilarducci, the Bernard L. and Irene Schwartz Chair of Economic Policy Analysis at the New School for Social Research, is the author of “When I’m Sixty-Four: The Plot Against Pensions and the Plan to Save Them.”
7/11/13
http://www.nytimes.com/roomfordebate/2011/09/09/is-social-security-a-ponzi-scheme/social-security-is-not-a-fly-by-night-ponzi-scheme
A Ponzi scheme is a short-term criminal enterprise. Social Security is a rock-solid social insurance program that protects millions of Americans. Charles Ponzi was a Roaring ’20s Bernie Madoff, a schemer who, until he served prison time in the 1930s, did not pay returns based on commercial ventures, but paid early investors with money from new investors — creating the appearance of astonishing returns. This rascal’s promises were worthless i.o.u.’s. Thus a Ponzi pyramid can usually last only a few months or years, at most.
In contrast, Social Security is insurance. Contributors don’t want to get rich quick; they want coverage when they retire and die, and in case they become disabled. Like other insurance, benefits are paid from premiums and returns on trust funds. By law, Social Security inflows and outflows are always balanced with adjustments to benefits and contributions. Social Security has never missed paying a monthly benefit in 71 years.
A young worker with a spouse and children has over $200,000 in life insurance from Social Security. Social security pays benefits when people need them the most. It is timely to recall that the terrorist attacks on 9/11 led to $360 million in payments to victims’ survivors. Without Social Security, the 8 percent elderly poverty rate would be nearly 50 percent.
Gov. Rick Perry’s comparison of Social Security to a Ponzi scheme is a shop-worn and distorted metaphor. The economist Hyman Minsky first compared the financial practices of banks to Charles Ponzi when, in good times, they make extremely risky loans based on overly optimistic expectations, whether it’s a real estate loan or a bond deal in a merger or acquisition. Minsky called it Ponzi financing when falsely confident lenders didn’t even demand full interest or minimum payments on principle. In short, a financial system is a “Ponzi” if entities that agree to pay turn out to be weak and default.
The only thing that could transform Social Security into a Ponzi scheme would be a scoundrel president and Congress ending the system. Otherwise, Social Security is a pay-as-you-go intergenerational and social insurance program based on a sound public finance model that meets its promises. Current American workers pay premiums for insurance they’ll get when they need it, just as the generations before them received old-age, disability and survivor benefits.
I would like to amend my remarks so the record reflects that I consider SS a quasi Ponzi scheme.
Elaine, this new Pope is amazing. I do however predict that he will be a target for the religious right and no, I don’t mean physical assassination.
Nice equivocating there, Dave, and by nice I mean weak and sad.
Nowhere in this thread have you used the term “Quasi-Ponzi” except in your above post which is simply back peddling rationalization attempting to cover the fact that you were called out for being ignorant about what constitutes a Ponzi scheme and what constitutes social insurance programs.
Gene H wrote: “Nowhere in this thread have you used the term “Quasi-Ponzi…”
Excuse me. I called it a quasi-pyramid scheme (25 Nov. 2013 8:50 EST), which is a closely related term. I don’t think I ever called it a Ponzi Scheme at all. No backpedaling on my part. I just offered further detailed analysis in contrast to your argument from authority.
“A pyramid scheme is an unsustainable business model that involves promising participants payment or services, primarily for enrolling other people into the scheme, rather than supplying any real investment or sale of products or services to the public.”
https://en.wikipedia.org/wiki/Pyramid_scheme
Do you agree that Social Security involves no real investment or sale of products or services to the public?
Do you agree that the benefits are paid from new capital paid from new contributors?
Thanks Elaine. This new pope is walking the walk.
everyone wants someone else’s money.
Rich dont pay on all their income true. But they dont RECEIVE on all their income either. It is based on what you pay in you get out (sometimes). SS already pays proportionally higher to lower incomes. So saying “they arent taxed on everything” is a bit of a misleading claim.
rafflaw,
Off Topic:
Pope Francis ‘Evangelii Gaudium’ Calls For Renewal Of Roman Catholic Church, Attacks ‘Idolatry Of Money’
Reuters | By Naomi O’Leary
Posted: 11/26/2013
http://www.huffingtonpost.com/2013/11/26/pope-francis-evangelii-gaudium_n_4342964.html
Excerpt:
(Reuters) – Pope Francis called for renewal of the Roman Catholic Church and attacked unfettered capitalism as “a new tyranny”, urging global leaders to fight poverty and growing inequality in the first major work he has authored alone as pontiff.
The 84-page document, known as an apostolic exhortation, amounted to an official platform for his papacy, building on views he has aired in sermons and remarks since he became the first non-European pontiff in 1,300 years in March.
In it, Francis went further than previous comments criticizing the global economic system, attacking the “idolatry of money” and beseeching politicians to guarantee all citizens “dignified work, education and healthcare”.
He also called on rich people to share their wealth. “Just as the commandment ‘Thou shalt not kill’ sets a clear limit in order to safeguard the value of human life, today we also have to say ‘thou shalt not’ to an economy of exclusion and inequality. Such an economy kills,” Francis wrote in the document issued on Tuesday.
“How can it be that it is not a news item when an elderly homeless person dies of exposure, but it is news when the stock market loses 2 points?”
Elaine M quoted Pope Francis: “How can it be that it is not a news item when an elderly homeless person dies of exposure, but it is news when the stock market loses 2 points?”
What a great quote! The more this pope talks, the more I like him.
Of course they don’t need it and neither do you…..
ron: You have the right to be angrily ignorant; exercise it all you want. You will still be entitled to your fair share when you need it.
Ponzi backed by a printer and .gov force
Three cheers for the printer and .gov force!
DavidM says: the perpetuation of returns requires an ever-increasing flow of money from new investors to sustain the scheme
Except that is not descriptive of Social Security. The ratio of payers to receivers fluctuates depending on many things; and as a baby boom or baby bust ages that ratio can fluctuate from small (a baby bust funding a baby boom) to large (a baby boom funding a baby bust).
Over the course of a lifetime, the only entity we can rely on to even out such fluctuations (and be certain will not be bankrupted itself by mismanagement or selfish hijack) is the Government. Because the Government can finance the disparity caused by a low ratio (when a bust must fund a boom) by borrowing against a future when the boom has dissipated (due to natural attrition).
As the “baby boom” generation passes away, the ratio of earners to retirees naturally increases, and as the “baby bust” generation enters into retirement, the ratio becomes high again: many earners per retiree, because the “baby bust” generation by definition has very few retirees.
So, taxes can remain the same for awhile to pay down the debt, then decline.
In the long run (over a few lifetimes) the ratio will revert to the equilibrium.
The highest life expectancy (in socialist countries) is about 82; in the USA it is about 79. But if we use 82; and an ideal work age of 22 (after college or trade school), and a retirement age of about 66: We have 16 years of retirement, 44 years of work life, and the ratio of workers to retirees is about 2.75 to one. That would be the long term equilibrium, and the retirement funding scheme should work on that scheme, to be fair, with the Government buffering any fluctuations in the actual ratios, borrowing to cover shortfalls and repaying the borrowed funds when there are windfalls.
Social Security is NOT a Ponzi scheme; the central feature of a Ponzi scheme is a fraud, namely assuring investors their capital is safe and the money they are receiving is profits, when in fact it is capital being expended.
Social Security does not pretend that at all, everybody that cares to know does know that their payments fund current expenses, and their future expenses will also be funded by workers at that time.
A Ponzi scheme is inherently and exponentially unstable, because every investor grows the pretended capital base, and therefore the number of new investors needed. If a 10% annual return is provided, then the pretended capital base must grow at 10% per year indefinitely, compounded, and that is what makes the Ponzi scheme unsustainable.
Social Security does not fit that model; it has an inherent equilibrium, about 2.75 workers per retiree, and because we can meet the basic needs of a retiree for much less than a working person needs, the 2.75 workers can manage that expense. When the ratio of workers to retirees drops the Government can buffer the change with borrowing; to be paid back when the ratio of workers to retirees exceeds 2.75.
Social Security is also not a pyramid scheme: A pyramid scheme, like a Ponzi scheme, has no equilibrium point, the only way to really make money is to recruit new members that pay in money (as a membership fee, or minimum buy-in, etc) with the promise that they will earn money. The pyramid collapses when the recruitment profits end, as they inevitably will.
Social Security is not a fraud or a scheme, like insurance, it has a long term equilibrium point. In for-profit insurance, that is the long term average of the event being insured against. Any year may have more or fewer house fires, but premiums can be set to make a profit using that average, and funds borrowed in “hot” years to cover claims and paid back in “cold” years; the for-profit insurance company acts as a buffer.
The private model is always a danger since the insurance company can be incompetent or have bad luck and go bankrupt. It is particularly dangerous when applied to something like retirement; an insurance company (or corporate retirement plan) that goes bankrupt when a worker is 64, or already retired, leaves them destitute without options, they can’t work another career. They end up exploited, ripped off through no fault of their own.
That is one of the kinds of financial exploitation I believe Government exists to alleviate, and only a Government guaranteed to exist (at least to an extent far greater than any individual corporation in a country can be guaranteed to exist) is capable of fully absorbing the risks of uncertainty 80 years in the future.
DavidM says: Direct income tax on the people was not in the Constitution from the start.
Taxation was in the Constitution from the start. The Founders believed in taxation.
DavidM says: That took the 16th Amendment in 1913, only 100 years ago.
Correct. Amendments, like the Bill of Rights, become a part of the Constitution. Is Free Speech illegitimate because it wasn’t in the original Constitution? The Right to Bear Arms? You are making a ridiculous argument.
Taxation was envisioned by the Founders. When the 16th Amendment was passed it was ratified like all Amendments, by a super-majority. No super-majority since has repealed it, no super-majority since has passed an Amendment to limit or reform it, and it therefore remains the will of American society, to the best of our knowledge, as the route to funding the Federal Government to implement the programs we demand.
DavidM says: Look at the oppression that single amendment has caused the people of the US. Look at the destruction of liberty and freedom, all in the name of War and Social Reform.
I can dismiss anything by looking only at the negative consequences, David, and by dismissing everything on the grounds of negative consequences, I am left with nothing, which has far worse negative consequences.
Whatever “oppression” the modern income tax inflicts on citizens by wasting 20% or 30% of the funds on War and waste or fraud is far outweighed by the oppression lifted by Social aid, protection, and regulation of business, which is 70% to 80% of the end-use of the funds.
And the “oppression” (in this country) is primarily a minor reduction in the income of those making far more than they need for survival, which I consider more of an inconvenience and irritation to them than it is an oppression.
Dave: The problem is determining if it is factual. Because we have freedom of speech, all sorts of professionals can get on TV, Radio, and by the millions on the Internet and spout intentional lies as facts and immunize themselves from any official punishment with a few lines of boiler plate. Like, this is my opinion, it is not intended as investment advice, and always consult with your broker before shooting yourself in the foot.
It should be relevant to you who posts, particularly if they have a record of lying and fraud.
http://mediamatters.org/search/index?qstring=zero+hedge&x=0&y=0
As for zero hedge, it’s a great website for financial/libertarian ideas, I don’t agree with every article & it’s irrelevant who posts to me as long as its factual.
I’m not personally for social security I think it’s a bad idea & teaches people to be dependent on Government instead of planning for their own retirement. However, if you’re going to have it, you should only get out what’s been paid in plus interest. Every serious article I’ve read on SS is that it’s already bleeding red ink, because the Govt spent the money on war/other foolishness. So expanding it seems irrational to me, the unfounded liabilities between Medicaid/Care & SS alone are trillions upon trillions. Are we going to turn future generations into indentured serfs to fund today’s gimmie it now generation? I hardly think it’s wise, so all I would say is you get what you paid in plus interest, nothing more, and the Govt shouldn’t be allowed to touch the money.
david,
I guess I did not make it clear enough in the article. Social Security would be financially solid for decades, if not perpetually, by merely making all income earned, eligible to be taxed. I pay Social Security taxes on 100% of my earnings, why should someone who makes over $114,000 not pay taxes for any earnings above that level? It is not equitable. And Bron, the Social Security trust funds are invested in Treasuries. And Gene had it correctly when he stated that Social Security is unrelated to a Ponzi Scheme. Now, if we want to talk about Ponzi schemes, I do know that wall street and their 15% tax rates are experts in that field of endeavor.
rafflaw wrote: “I pay Social Security taxes on 100% of my earnings, why should someone who makes over $114,000 not pay taxes for any earnings above that level? It is not equitable.”
Look at the whole picture. Payouts are based upon what is paid in. If you have millionaires paying into the system millions of dollars, then when they retire, wouldn’t the “equitable” thing be that he is paid millions in retirement? I don’t think we need government programs doing this kind of thing, especially when it is our grandchildren who will be paying him his retirement.
Social Security was designed as a safety net. It was always designed as supplemental. It was not meant to pay full retirement, nor was it meant to give millionaires a cushy retirement. Without the cap, you will create situations that depart from that plan and would not be financially feasible. While it might help in the short term, the Ponzi nature of the Social Security structure would collapse it when those young billionaires like Mark Zuckerberg retire with a huge Social Security payout due to them. Do you really want the young generation to be buying these retiring millionaires and billionaires vacations, yachts, fancy cars and mansions for their retirement? I don’t.
Yeah. A site that hides its contributor’s identity is real journalism. Not. In fact, the only identified contributor at Zero Hedge (who says he’s written under the nom de plume Tyler Durden) is Daniel Ivandjiiski, a former securities trader.
Banned from trading.
For life.
For insider trading.
Yep. That’s the kinda guy I want to take financial advice from.
http://nypost.com/2009/08/21/blogger-may-have-a-past/
But I’m sure they’re just making soap.
Ending the “We paid our Social Security and Medicare taxes; we earned our benefits.” Meme
http://www.zerohedge.com/news/2013-11-23/killing-we-paid-our-taxes-we-earned-our-benefits-social-security-ponzi-meme
Let’s see. They both involve groups of people and money. So at that scale their identical! Other than that, Ponzi schemes and social insurance don’t have anything in common. I’m sorry that reality doesn’t conform to your wishes. Just like I’m sorry when Bron thinks Locke was a Founder and/or a Framer and that Locke’s vision is enshrined in toto in the Constitution.
Oh. Wait. My bad.
The word I was thinking of was “amused”, not “sorry”.
Gene H wrote: “They both involve groups of people and money. So at that scale their identical! Other than that, Ponzi schemes and social insurance don’t have anything in common.”
It is a little bit more than this.
Just a reminder: I have not called Social Security a Ponzi Scheme. I called it a Quasi-Ponzi scheme. The reason is because there are differences from the traditional Ponzi scheme, but there also are similarities.
In a typical investment, money is paid to finance a business that creates a product or service that results in a profit to that business. The business then shares from that profit with the investors. In a Ponzi scheme, there is no real investment. The money paid back to investors is paid from the capital being collected by new investors.
Social Security is like this because the old investors (retirees) are paid from the contributions from new investors (the younger individuals who have not yet invested fully in the program). There are no underlying businesses which because of the investment are adding jobs and producing products and services which grow the economy. There are no investments which pay back the seniors a return on their investment. The money is not put to work anywhere in the economy like a normal investment is. It is overall a drain on the capitalist economy because benefits are paid from new capital, not from investment returns.
The fraud components come from the government mailing out statements that look like we are paying into an investment which owes us financial returns because of our investment. The statements show how much you will be paid based upon how much you paid into the fund in the past. It shows higher payouts to you if you contribute more. It is represented to the people as if it were a personal investment in their own retirement, even though in practice, that is not how returns are paid out. There is no investment. The fraud is furthered by groups like the AARP which put on television ads that represent Social Security as an investment which owes retirees a return on their investment. People on commercials say they earned what they are due, and they urge people to tell Congress not to touch the program because it would be cheating them out of their investment. I canceled my AARP membership sometime ago because I was so upset with seeing their commercials misrepresent the Social Security program. I did not want to be part of that misrepresentation. I consider it outright lying to the people. Ask the average educated person in this country whether or not they earn retirement benefits by paying into Social Security, and they will typically answer that they do. Only the well informed know better. That answer is the result of government and non-government fraud. They didn’t earn anything because there was no investment. Their benefits are paid from new capital being collected from new contributors.
If you can’t see the similarity to a Ponzi or Pyramid scheme, enough similarity to call it a Quasi-Ponzi scheme in order to separate it from the concept of a true investment which grows the economy and allows investors to benefit from that growth, then you are just being stubborn. You are hanging onto your preconceived notions and biases rather than developing an understanding based upon the facts.