July 05, 2006
Cantwell's Social Security Stance Hurts My Head

David Postman had an interesting review of Mike McGavick's position on Social Security just before the long holiday weekend. McGavick's overall position looks sound, though I could quibble with a few points (my thoughts on reform published here). On the other hand, Postman's brief note on Cantwell's position shows how utterly unserious she is. Ever think it's differences like that which explain why this race keeps closing?

McGavick's key points are supporting personal accounts, some form of benefit reduction for the affluent, benefit protection for current and near retirees, and the need for truly bipartisan solutions (perhaps like the military base closing process where the plan is independently prepared, and Congress can only vote up or down with no amendments).

You can argue about the details, even disagree violently about them. But at least McGavick is willing to talk seriously about the issue. In contrast, Cantwell's solution is disturbingly simple: no structural changes, but let's spend even more money.

Cantwell supports a change to the COLA structure for Social Security that would make benefits rise more per year than they already do. That's ironic given that the debate in 2005 included a prominent idea to slow the projected growth of benefits for more affluent future retirees.

All of this underscores how unserious most Democrats are about Social Security reform. They continue to claim the so-called Social Security Trust Fund means everything will be fine for decades. Wrong. The special T-Bonds in the Trust Fund are simply an IOU from one government account to another. They're an IOU that will no doubt be honored, but they're not an asset you can cash at the bank or sell on the bond market like a regular-issue US Treasury Bond. Redeeming the special bonds means raising taxes or cutting spending to pay for them. Even the MSM is starting to understand that.

We have a system that is going to start paying out more in benefits than it collects in taxes by 2017, and whose unfunded obligations total $4.6 trillion based on the current structure (see page 2 in the main text of this report). So, in response Senator Cantwell wants to INCREASE the system's obligations?

That would be irresponsible even if Social Security were the only such government program in financial trouble. But it's not; see Chart D at this report showing the increasing obligation being put on the regular federal budget to pay for Medicare.

I obviously support Social Security reform, and I'd prefer personal accounts to make up part of a reformed system. But even if they don't, at the least I want a Senator for the next 6 years who is willing to be serious about the issue, especially since there's a good chance we'll see a substantive national debate on Social Security reform in that time.

Posted by Eric Earling at July 05, 2006 07:26 PM | Email This
1. S.S. is BIG, FAT PONZI SCHEME. We know it; the Dems know it---yet they want it that way. Reform NOW!

Posted by: Misty on July 5, 2006 07:42 PM
2. I went to an open Mike! today. He definitely knows what he is talking about. I am truly looking forward to seeing him in DC after November!

Posted by: peter on July 5, 2006 08:00 PM
3. All the Democrats subjective schemes are always based on the immediate. Why plan for the future when we can pander to seniors and get those votes now? That's the basic Democrat strategy. Nevermind that when the boomer generation collapses into retirement en masse and the Social Security ponzi scheme comes crashing down, the Gen Xers and Gen Yers will remember who wanted to maintain the current crash course in 2006. The Dems will have even less chance at power then than they do today with their defeatist war policy.

The Dems just don't think ahead because the soft Marxism of class warfare that they hold up as their ideal only sells in the present.

As I always say, just give the Dems more rope, they will hang themselves.

Posted by: Jeff B. on July 5, 2006 08:29 PM
4. From the linked Cantwell position statement:

"Maria opposes Social Security privatization because she believes this critical program must serve its original purpose as a safety net for seniors." And how is privatization incompatible with the safety net function? People need to be saved from themselves. Condescending and patronizing pablum.

It's the money shot for the Dems - "Here's a category of people that is persecuted by "the system," so we'll throw money at it!"

Cantwell's a spendthrift mushhead.

Posted by: riprap on July 5, 2006 08:31 PM
5. Any serious social security reform should first start with separating out the SSI payments from the retirees' payments. People don't realize how much is going to the drunk on the corner or the person with the "back injury". I have a relative that sponged off the system for years because of a "bad back". At the very least it should be two distinct budgets so people can see where the money is going. Then it would be up to Congress to convince the worker bees to shell out big bucks for the nonretirement portion. This would be the perfect opportunity for the moonbats to practice what they preach. Since they are so keen on helping the chronic alcoholics and drug addicts in tent city, they can volunteer to have more taken out of their checks to support these worthy causes.

Posted by: Burdabee on July 5, 2006 09:27 PM
6. Eric,

Thanks for delving into this issue. I know 15-year olds who have a better understanding of this issue than Cantwell!

For fiscal conservatives, McGavick's plan will at least seem like a dose of common sense. But it's no surprise that a former insurance company CEO has a better understanding of programs like Social Security, and how to reform them...than a tax and spend liberal like Maria Cantwell.

As for the failed reform program proposed by Bush, many conservatives have been willing to write it off as a difficult loss. In fact, the plan didn't face "grassroots" opposition from pensioners -- the President and those who supported it were swiftboated by groups like MoveOn and their PR firms.

Like many issues, the seeming groundswell of opposition was actually astro-turfed -- and scare tactics, including several nasty TV attack ads, were implemented to defeat the reforms.

Posted by: Patrick on July 5, 2006 09:49 PM
7. What is privatization besides a bureaucratic boondoggle? If you are serious about lowering the cost of SS to taxpayers, let them keep their IRA's, 401k's etc. Using government funds to create "private" accounts and the necessary oversight seems pretty inconsistent. What is the value of private accaounts over existing individual retirement options?

Posted by: Ben Diamond on July 5, 2006 10:45 PM
8. If Cantwell wants SS to be a safety net for seniors, why does she want a ponzi scheme system instead of one where your money goes into an actual account with your name on it that YOU control, instead of letting the pols spend it all on other junky government programs????? What's up with THAT????

Posted by: Misty on July 5, 2006 10:57 PM
9. You're right, Eric. Her position on Social Security is a lot of nothing. Just the usual pandering. All it would accomplish is to make the program more expensive and the problem worse. It sounds like it was written by some mid-level staffer. "Unserious" describes it precisely.

Posted by: stu on July 5, 2006 11:20 PM
10. Thank you Burdabee! There are lines in the sand. Not crossing them means not serious.

Posted by: Gregg on July 5, 2006 11:56 PM
11. Cantwell's "answer" sounds a lot like the signs I see outside a local union's headquarters, which say something like "Don't Mess With Social Security". I asked one of those guys once what they meant by that, and the response was something like, "We hate Bush. He wants to change social security and we don't want any changes. We want it left the way it is and we hate Bush, and you should, too." So I said, well, then, you want the system to go broke, because almost everyone agrees that it will unless changes are made. He said, "No, we don't want it to go broke, but we don't want to make any changes, and, by the way, we hate Bush." I pointed out that you couldn't have it both ways, either you make changes or it collapses. He still insisted that we don't want any changes, but that we don't want it to go broke, either.

IOW, it was like talking to a wooden dummy, a blank wall (who, by the way, hated Bush).

Posted by: Interested Observer on July 6, 2006 06:04 AM
12. The Ds got the upper hand on Bush's last try on reform. They were able to convince people that privatization of accounts meant 100% of the total rather than the measly 2% Bush was promoting.

My mom has always swallowed the Democratic mantra. She, now in her retirement years, doesn't think it right that people mess with her dollars. Republicans were going to mess with her benefits and she was against Republicans and reform because of it. I tried to explain that the retirees and soon to be retired won't get their benefits cut.

Nice to know that McGavick is fluent enough to get these two messages out there.

Posted by: swatter on July 6, 2006 07:30 AM
13. The funny thing is that a lot of my friends who like me are quite, nay very, liberal, have no problem with private accounts along the lines of Bush's plan. The idea of controlling the money, picking an investment strategy, and being able to pass it on is a good one. It will help build wealth in individuals of lower economic class.

However I have one really big hang up, it needs to be paid for. Yes in the long run private accounts should generate more returns, and will prevent the gov. from spending the money. Both will result in LONG-term solvency. However in the short term it will divert up to a third of the money currently going into the system into private accounts. This will make the system almost instantly insolvent and the problem will magnify for many years until it reverse at some point. However we are taking about a decade or two of massive shortfalls.

It seems to me we can do three things. 1)means test for benefits. I do not like this one as it seems unfair to those that have paid into the system with the expectation of getting benefits. 2)We can raise the retirement age. Again I think this is unfair to the people who have been contributing for years. With either of these if you do any sort of grandfathering in, then they do nothing for the short term shortfalls. 3)Raise the ceiling for taxes. This seems to be the best option. Raise or eliminate the current cap and viola, no more insolvency. You couple this with private accounts for all the money not used for current benefits. So lets say 75% of the money coming in is for current beneficiaries, then 25% of everyone's taxes go in to private accounts. This would change as time went on, until, at some point, there were only private accounts, my guess around 60 or so years. As time went on you could adjust the either the tax rate or the tax ceiling.

So don't get me wrong I think the current system is as silly as company pensions (why the hell would I trust some company with my retirement money), but I just want it paid for in the short term.

Posted by: Giffy on July 6, 2006 07:33 AM
14. What is the value of private accaounts over existing individual retirement options?

Couldn't agree more. The administrative and transition costs of partial privatization makes the whole plan a non-starter. So instead, let employers divert a piece (2% EE +2% ER) of the existing FICA tax to their own 401k/403B plan. This keeps the government out of the mutual fund business, and it can be done at a fraction of the cost. To compensate for the lost tax revenue, figure out what that money would return in benefits and reduce them accordingly. I would give up those benefits gladly knowing that I can manage the money and get a better return that 1 or 2%.

Posted by: Palouse on July 6, 2006 07:52 AM
15. You make some valid points this time, Mr. Giffy. Good job. While your option 3 may be the best choice, good luck selling that one to your fellow Dems. Any kind of increase in the taxes on retirement income will result in bloody murder being screamed by retirees and their handmaidens (Dems) will kowtow to it. Any bother kind of tax increase will bring the wrath of taxpayers. So you get the kind of situation my union friend presxcribes: do nothing, make no changes. So we sit on the sidelines wiating for the trainwreck, because anyone who proposes any kind of reasonable fix gets crucified.

Posted by: Interested Observer on July 6, 2006 08:23 AM
16. I, too, Giffy, thought your discussion good. My lack of understanding of the SS system raises the question of how using 2% of the money coming in equates to 1/3 of all revenues. In my book, it is a factor of 16 difference.

Remember, I am a reform government before raising taxes type of guy. Are you then saying that that much of the SS funds either gets diverted or is wasted? If so, good point and one I've never heard of. Please explore with me please?

Posted by: swatter on July 6, 2006 09:06 AM
17. Many interesting comments, let me clarify a couple pointss based on some questions in this thread.

1) The Makeup of Personal Accounts

The 2005 debate included much discussion of how personal accounts would likely look much like the 401k plan for federal employees (found here: www.tsp.gov). The advantages to such a system is the investment options are either index funds, or lifecycle funds made up of an age-appropriate mix of those index funds. It's very though to screw up investing through index funds, and almost impossible to screw up using lifecycle funds. Plus, the expenses for the TSP index funds are incredibly low, 0.05% instead of the 0.5% and up seen even with the lowest cost mutual funds in the private market.

2) Transition costs

All the estimates I saw last year of transition costs showed a total well below the $4+ trillion in current unfunded obligations. In addition, economists who discussed this angle said the bond markets would actually be more comfortable with borrowing for the transition costs if it eliminates the unfunded obligations since the short-term borrowing is a known debt, on the books, while the unfunded obligations aren?t listed as a debt anywhere but are a looming cloud over the federal budget.

3) Clarifying Percentages

Debates on personal accounts have generally discussed setting aside up to 2% of the 6.2% of your gross pay that goes to FICA out of your paycheck (while your employer another matches 6.2%). Thus, such changes represent shifting roughly 1/6 of the money going into the Social Security system, or roughly 1/3 of the FICA taken directly out of your paycheck.

4) Raising the FICA tax ceiling

Keep in mind that while there is a ceiling on wages taxed through FICA, Social Security benefits are also capped. Thus, raising the ceiling without raising benefits would be an interesting double whammy on the affluent if the progressive indexing idea ?as noted in the original post ? to slow the growth of benefits for future affluent retirees is enacted.

Posted by: Eric Earling on July 6, 2006 09:52 AM
18. Sen. Cantwell and others are not worried about it, because, according to Al Gore, in ten years the world wont exist because of global warming. So in thier thought process all they have to do is make sure SS is safe for ten years. After that it wont matter.

Posted by: TrueSoldier on July 6, 2006 09:55 AM
19. Swatter - Employees pay 7.65% of their income for FICA; 6.2% of this is Social Security, and 1.45% is Medicare. Employers "match" this amount by paying another 7.65%. Self-employed people pay the entire 15.3%. I believe that what Giffy is referring to is that the reform plan suggested by the Bush administration would have taken approximately 2% of the 6.2% currently paid into SS and deposited it into individual accounts - 2% is ~32% of 6.2.

All that being said, I believe that the remaining 4.2% from employees, plus the employer contributions would be sufficient to continue paying current retirees. There is information about that proposed reform plan on the CATO Institute's website ( I'm sorry I don't have the link).

Posted by: KAB on July 6, 2006 09:56 AM
20. Got the numbers. Thanks. I thought it was 2% of the total you put in.

So, the 33% of the employees 6% is really 16% of the total contribution since the employers contribution into the individual's SocSec is part of the 2%? No?

Posted by: swatter on July 6, 2006 10:26 AM
21. Eric, the transition costs will only add to the existing amount of unfunded obligations, unless the proposed reduction in benefits far exceeds the reduction in revenue (which we both know will never happen politically). You also left out the ongoing administrative costs of the government running a 401k plan as part of SS, which is not included in the transition cost estimates I have seen.

My feeling is that the government should keep out of the 401k business, and let the existing system of employer provided plans provide the private accounts, at a far, far less cost than the government could ever achieve.

Posted by: Palouse on July 6, 2006 10:27 AM
22. About 10 years ago I started getting letters from Social Security detailing the benefits of waiting to collect beyong age 62. (They are false, of course) I've kept them all and when I got the latest one I compared it with the rest. Each year since these letters began my expected "benefit" by way of monthly check has gone down while my income and 'contributions' continue to go up.

Posted by: Baynative on July 6, 2006 10:54 AM
23. Palouse - The federal government is already in the "401k business" in effect, with the Thrift Savings Plan portion of the Federal Employee Retirement System. Since 1 Jan 1984 all Federal Civil Service employees have been paying into SS (prior to that date, federal employees didn't pay into, and weren't eligible to receive, SS), and they've have had the option of contributing to the Thrift Savings Plan. Most have taken advantage of this opportunity, since the return on their investment is much better than they can hope to get from SS.

The SS reform would allow all working people (not just federal employees) to divert 2% (with the other 4.2% still going to FICA) into an account with their money in it.

For more information on SS reform, look here. For info on the Thrift Savings Plan this link may be helpful.

Posted by: KAB on July 6, 2006 10:55 AM
24. KAB, I think your numbers should include the employer portion in your analysis. 16% sounds reasonable; 33% doesn't sound as reasonable.

Administering index funds, etc. can't be too difficult administratively.

Posted by: swatter on July 6, 2006 11:09 AM
25. swatter - I have no quarrel with your numbers. You're right - 2% calculates to ~13% of the total currently paid in (employer & employee share). I was attempting to explain where Giffy came up with the numbers in this post:

"However in the short term it will divert up to a third of the money currently going into the system into private accounts."

...but this "third of the money currently going into the system" is 1/3 of the employee contribution only - it's considerably less than 1/3 of all money going into SS.

Posted by: KAB on July 6, 2006 12:19 PM
26. So you see the perception that 33% of my contribution is going to private accounts would be scary to liberals and Democrats? 16% may not be.

Posted by: swatter on July 6, 2006 01:45 PM
27. Unfortunately, anti-reform D pundits have managed to scare many seniors and uninformed dem voters into believing that this plan is a bad idea. I have tried to convince people that the plan can work, but life-long dems aren't likely to take the chance - especially since it's a Republican plan, therefore it must be bad...

Posted by: KAB on July 6, 2006 02:27 PM
28. dont forget that we will be sending a huge ammount to Mexico as the leaders want to legalise all of the ilegals that have worked in USA including Medicare and SS payments that they haved earned while using forged documents, Viva Goverments.

Posted by: erheault on July 6, 2006 05:56 PM
29. Misty learned a new word today. Can we all say Ponzi?

Posted by: TheEdge on July 7, 2006 11:50 AM
30. I know about the Thrift Savings Plan, but the key questions are:

1) What does it cost to transition the entire country into this plan? Estimates vary, but we are talking billions.

2) What is the incremental cost of having the entire country in this plan versus just government employees?

We can do the same thing, except alot cheaper if we just let employers divert a portion of SS dollars into their own plans for employees.

Posted by: Palouse on July 7, 2006 01:12 PM
31. Eric and Misty, since you seem to know so much about Social Security why haven't you provided your solutions to what fixes could be employed.

I am not sure that privitization is necessarily a bad thing, but the last number of privitization efforts like the Telcom industry have done nothing but harm the consumer. I know one thing is for sure, we cannot sustain the current program if we do not make it solvent, and near as I can tell the Republicans of which Mike is proud to call himself one, have had control of Congress since 1994 (12 full years) and have had control of the Executive Branch, Legislative Branch and argueably the Judicial Branch (remember their 5-4 decision to usurp the Florida Surpreme Ct. in 2000 to provide Bush the White House).

You would think if the Republicans really wanted change they could have done in in 12 years, perhaps they need 40 years in leadership like the Democrats had to get something useful done.

Better yet, if Bush would use his 'Political Capital' to act like a leader on domestic issues, he could be like FDR who by himself created the Social Security Program.

Good luck with seeing anything but the same ole pandering to privatize from Mike, near as I could tell he worked for a senior Senator from this state in Gorton and they didn't address Socical Security then either- I want to be like Mike!

Posted by: Bob on July 8, 2006 04:13 PM
32. My second point is Maria Cantwell needs to be re-elected to try and push this Republican Do- nothing congress.

She has been in Congress for 5 1/2 years under a Republican Leadership (except for a brief 50-50 tie) where her voice has been largely ignored by a leadership bent on stiffling real debate and lacking any true direction for our country.

We can elect Mike and see if he too wants to spend Billions overseas, without raising the necessary funds to sustain operations thus taking the country greater in dept. Or perhaps he can also support eliminating the estate tax on those estates larger than $2.5M, that is a sure fire way to raise money to run the country. Oh wait, that would actually decease the amount of money to run our country from the richest of Americans who want to give their millions over to their hiers without paying taxes.

I say, put your money in the African Stock Exchange and see how much you retire with if you belive there is no difference in being an American and being able to invest in a safe, secure and profitable economy in order to gain wealth. Good Luck!

Posted by: bob on July 8, 2006 04:22 PM
33. Palouse -

Billions? Yes, it will. But every estimate of the transition costs to a new system that makes Social Security solvent is well under the cost of Social Security's unfunded obligations.

Also, it would be a direct expansion of the TSP. It would simply be modeled after it given the obvious separation between Social Security and federal employees.

Lastly, I understand your point about using the private sector instead, but that sort of dramatic transformation of how the Social Security system operates has even less chance of coming to fruition than personal accounts that would have some sort of government involvement.

Posted by: Eric Earling on July 8, 2006 04:35 PM
34. My biggest reservation about privitization is that it would have to have a component that took care of citizens that TSP-like funds where not totally lost for some unforseen reason. It would have to have little or no risk funds vs. International or more risky funds that TSP currently has- to ensure citizens didn't loose their dollars after years of investing. Why, because I think the US Govt. would inevitably take care of those who lost it all in such a private plan.

Do we think we would let a certain percentage of the American population lose their shirt and then not have a safety net? Its a tough proposition and one that can be solved I am sure, but it would appear 12 years of leadership in DC is not enough for the current cast of characters running the Congress. That was one of the main reasons I supported Maria Cantwell in 2000, having someone in their early 40s who actually worked in the 'New Economy' of technology might actually be able to infuse some new ideas into a stodgy Senate, where the avg. age is over 65 and where more than 50% of the 100 senators doesn't use a computer daily.

I hope our congress resumes a strategy that addresses issues that are important to America, but it hasn't seem to do some in many years I am affraid.

We also don't need solgans and patronizing of citizens- remember the 2000 presidential campaign, Mr. Gore wanted to put the supposed Surplus' in a 'Lock Box' for social security solvency. Mr. Bush wanted to give you your money back, what a joke, we never has a surplus, and both knew it, we had one year where the US Govt took in more than it spent due to fiscal compromises of the Clinton White House and the Republican led congress, which is to be commended, and it was the last and only time in recent history this phenomena happened. However, both Bush and Gore failed to level with the American people and mention the $4 Trillion dollar dept, so in essence we had one year where we had more raised than spend, but we owed our creditors $4 Trillion dollars, and under Mr. Bush we now over well over $7.5 Trillion and his republican congress just asked to increase the national debt ceiling to $9 Trillion. Irresponsible!

Government out of control.

Posted by: Bob on July 10, 2006 10:09 PM
35. Private versus Gov't:
Well, Private sounds great as long as the stock market and real estate market keeps going up. What happens in a "down market" or a God-forbid I use the term, "recession". Then the private accounts actually shrink - like my 401K and IRA did in 1997 and 2000. The "beauty" of the current SS system is that it's conservative, it provides "modest" growth, and it protects the principle and it's "GUARANTEED"!!!! I don't know any "private account strategy" that can offer those two factors. And let's face it, many Americans just ain't smart enough to manage their retirement so you and I will have to support them during retirement either way.

And yes, we baby boomers are going to collapse the system, even though we won't be able to afford to retire until we die. Simply face the facts, but no one wants to deal with "bad news".

Just my two cents.

Posted by: Bill Watson on July 12, 2006 01:32 PM
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