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For them, when the rich make investments in companies, it's worker exploitation and an insidious plot to make rich people richer. When the poor have a chance to make investments in companies, it's an insidious plot to transfer money from the investors to investment bankers.
Maybe there's something to that argument regarding volume of investment or something that I'm not getting, but as it's been formulated to me, it seems unpersuasive in the extreme.
Private retirement accounts have been tried in other countries like Britain, Chile, etc. The fees to administer these plans average about 20% of the assets.
Assuming the workers half of Social Security taxes is about $300 billion a year now (it will get much bigger), that's $60 billion a year that will flow into the invetment bankers pockets under the current SS 'reform' plans.
You call that "unpersuasive in the extreme?" You must be Bill Gates!
Just sounds dated after a while.
Reminds me of a corny joke I heard back in the early 80's: "If New Wave doesn't last, it'll be called Shortwave; if it does, it'll be called Permanent Wave."
Guess some folks wanna make the New Deal the Permanent Deal.
Kinda creepy when you put it that way, innit?
Stop using phrases like "worker's half". That is just some social democrat lingo to pretend that somehow only half of your social security comes out of the paycheck and that we are socking your employer for the other half. Come on.
Why force people to create accounts for the republicans to loot? Why not just eliminate the tax and let people decide what to do with the extra money?
Isn't that the libertarian way?
"Why not just eliminate the tax and let people decide what to do with the extra money?"
Precisely. Also means-test the benefits. That way Social Security becomes just a safety net for those who actually need it, not a fraudulent retirement plan.
Micha, if libertarians think that allowing the republicans to loot hundreds of billions of dollars is just a necessary evil on the way to eliminating SS entirely, they are fools.
Bankrupting the US government will lead to anarchy here and in the rest of the world, not a libertarian paradise. The desire of libertarians to become fiscal martyrs who don't care who they take down with them makes them no better than Muslin fundementalists.
"Why force people to create accounts for the republicans to loot? Why not just eliminate the tax and let people decide what to do with the extra money?"
You're right, and that's the only right answer.
Do you actually favor it, or is this merely a cynical political tactic?
Between 2001 and 2004:
Corporate income taxes have fallen from 26.6% to 22.6%
Personal income taxes(excluding Social Security) have fallen from 14.2% to 10.8%
At the same time, the federal budget has increased 34%
Private Social Security accounts will actually increase the size of the federal budget. What is needed is cuts in the federal budget and increase in taxes to bring the system back into balance.
Anyone who proposes anything else is just selling something.
False Dilemma. What if anarchy is a libertarian paradise? Then we should want to bankrupt the government as quickly as possible.
The desire of libertarians to become fiscal martyrs who don't care who they take down with them makes them no better than Muslin fundementalists.
Awesome. Agree with me or the terrorists win. I love that argument.
I'm an old school libertarian who believes in a balanced federal budget.
I've never met a libertarian who thinks that debt born by a thief is a more heinous crime than the act of theft itself. (With the moral implication that a person should steal from innocent third parties to pay his debts.) Can you name any prominent (or even not-so-prominent) libertarian thinker who shares your belief that taxes should be raised to balance the budget?
Hehe Micha, let me take a few guesses about you:
You are young. Early 20s?
You go to a college supported by the government.
When you go anywhere, you travel on roads built by the government.
When you flip a switch, power is delivered to you from a government built power plant.
When you use the bathroom, your shit is carried away by a government built sewer system.
And when you post in support of anarchy, you do so on the government developed and built internet.
But...you think all taxes are theft!
Hehe, live a little, gain some experience in the real world, and then talk about morals.
Libertarian 'thinkers' support cutting government spending before cutting taxes. Otherewise, libertarianism just becomes generational rape...
Septic tanks: Making the world more libertarian, one toilet flush at a time.
Hehe, anon. I laughed so hard when I read this I almost filled my pants, striking yet another "blow" for libertarianism!
Roderick Long nicely debunks your nonsense:
Libertarian 'thinkers' support cutting government spending before cutting taxes.
Who are these "libertarian" thinkers? Can you name one self-described libertarian who opposes cutting taxes because balancing the budget is more important? (Julian Sanchez is the only self-described libertarian I know of who has made a similar argument, and he made it with various caveats attached.)
Take a seat, I've got some bad news for ya, WE LOST! Hehe, libertarianism is a failed ideology.
Come on, look around. People are being thrown in jail for 30 years because they sold a bag of pot, our troops are slaughtering innocent Iraqis in the name of 'freedom', and the federal budget grew 34% in the last 4 years. Jesus, it's over, pal.
Might as well sell out to the Rebublicans and write stories about how private Social Security accounts are going to 'shrink' the government if you are going to live in fantasy land. At least you'll make a few bucks doing it.
Isn't that the libertarian way?
Yes! Shrink Social Security, don't "privatise" it.
- Josh
Hehe, libertarianism is a failed ideology.
If you believe this, why do you continue to call yourself a libertarian?
Will,
My mistake. Well-reasoned article, though I still side with Friedman.
Josh,
I interpreted McClain's proposal to be his favored end-game, and not a second-best, politically feasible compromise. An end to the drug war with drug taxes is better than the existing regime, but an end to the drug war with no drug taxes is even better. So too, the best solution to the problems with Social Security is to get rid of it completely, but a political compromise may be second-best.
You're numbers are wrong. $60 billion is way too high.
Fees are not going to eat up 20% of the assets being put into the system. Most index funds charge about .5% of assets under management, while the highest fees you'll find in some hedgefunds are 2% of AUM and 20% of the gains (still nowhere near the figures you cite in your example). Fees on the private accounts would most likely be 1% or less so we're looking at $3 billion a year... slightly less than your $60 billion.
Where I think you are getting your 20% number is an study by Austan Goolsbee that Kerry cited on the campaign trail:
http://www.johnkerry.com/pdf/pr_2004_0922.pdf
Notice how the 20% is being calculated... it's not a percentage of the money being put in, but instead how much bigger your account would be if you did not have to pay any fees. Fees do knock down the real return from 4.9% to between 4.6% to 3.8% in Goolsbee's example. Clearly the investor would prefer to get the full 4.9% but do you expect the people investing your money to work for free?!?! There is a reason you would agree to these fees and voluntarily opt into the private accounts: you get a higher real return even with Wall Street taking 110 basis points!
Here are some number from the NCPA: low income workers can expect a 2.6% real return from the current Social Security System, median income workers can expect a 1.8% real return, while high income workers can expect a 0.03% return.
So take your pick, 1) a minimum real return of 3.8% paying fees or 2) a maximum real return of 2.6% without fees. Tough choice.
It also should be mentioned that a 4.9% real return is a conservative estimate. Fees are fixed no matter the real return on your portfolio. So if you were able to get a 7%, 9% or 10%+ return the fees would be much smaller relative to your capital gains.
I assume the money in private accounts will only be invested in American stocks. I can't imagine we will use our money to buy stock in say, Toyota.
Take Rupert Murdoch's company, News Corp. This funder of fair and balanced opinion, by coincidence, folded up shop in Australia after 55 years and reincorporated here in the USA on the 4th of Nov. last year, two days after the latest election. I'm sure he didn't do it to soak up some of that fat SS money :)
Looking at News Corps balance sheet, it turns out this company has lost $5 Billion over the last 3 years.
How is it doing this year? Its biggest division, 20th Century Fox, has put out a series of bombs like Taxi, Fat Albert, Flight of the Phoenix and this weekends bomb, Elektra. Hmmm not a good year so far.
How about its next biggest division, Fox TV? After Bombs like North Shore, The Swan, and Richard Branson's show, Fox TV has fallen way behind the other 3 big networks. Some nights, its ratings are down 57% over last year. Yikes!
And at its core, News Corp owns 175 print newspapers. Does anyone, especially people here in blogworld, want to sink their money into these fading dinosaurs?
And on top of that, News Corps has taken a poison pill to insure Ruperts son takes over, not a CEO picked by its shareholders. It is a Monarchy disguised as a public company.
News Corp is an extremely risky long term investment, but I'm sure that the service it has done for the Republicans will insure it will recieve tens of billions of dollar from the SS 'private' accounts.
And News Corp is considered a 'hot' stock as far as American companies go...
Color me convinced. So long, Will. I'm moving over to Democratic Underground.
My point about Fox is that, like all but one of the original Dow components (GE is the only one still in business), it will likely go under before 2018. Making money in purely US stocks requires many transactions.
I assume only the stocks listed on the Standard & Poors 500 will be eligible. Combined they are worth about 10 trillion dollars.
In a few short years, the combined Social Security private accounts will own enough stock to have a seat on the board of every major US company. With 5% ownership, you have to file with the SEC as a beneficial owner. Who will represent the private funds on these boards?
Assuming the S&P; 500 is fairly valued now,(actually its a little overvalued, returning about 4.5% annually) will the SS private accounts wait to go into the market? Or will they invest in stocks already overvalued?
In 20 years or so, the SS private accounts will own over 50% of the stock in every major US corporation. So now we will have a government agency holding a controling interest in every private company...is this a new form of communism?
Assuming the SS private accounts are tax free, the dividends corporations pay to these accounts will also escape taxation. These dividends are about $500 Billion a year now, how will the government make up this lost revenue?
As I said before, if the government wants to maximize value of the retirement accounts they will have to buy and sell the huge blocks of stocks they hold. Selling a huge block of stock in a company at the wrong time can bankrupt it. Will this become a political issue?
Much of the business US companies do is for the US government. Will the government be as responsive to picking the right company for a contract(haha) if they know that by, say, NOT giving a contract to Lockheed will cost private account holders Billions of dollars when Lockheeds' stock plummets on the news? Will the FDA be as ready to keep a new drug off the market, knowing it could tube a large drug company and cost private accounts billions?
And my last question(I have hundreds on this topic):
Knowing in advance which companies the government is about to buy or sell stock in could make some people extremely rich. How will a government committee ever keep this kind of insider trading out...especially in an environment like Washington?
Oh...and what about shareholder lawsuits. And suits against companies that harmed people or the environment. Will the government set up a new, indepedent judiciary to avoid the obvious question of conflict of interest when the government is a major shareholder in all major US companies?
I could go on forever:)
Let's make the perfect the enemy of the good!
:-)
Yeah, the difference is our capital markets are even more developed so it should make the process even easier.
That's healthy. Indexes that we will invest in like the Dow Industrials will turnover. Older companies like Goodyear and Sears will get replaced with companies like Intel and Microsoft to keep the index growing. In Cowboy Capitalism one of the points made was how little turnover there is within the German DAX and how it was a sign of economic stagnation.
I'm sure there will be mid-cap and small-cap options as well like the S&P; 400/600 or Russell Indexes.
You are missing the whole point of private accounts. If the Treasury were to invest the surplus in the companies then yes, we would run into problems of John Snow having to vote the proxies and the U.S. government being a major owner of many corporations. But with private accounts, individuals will be taking ownership stakes and voting the proxies. How do you expect an individual account to own over 5% of a company when people are are only going to be able to put in something like $2,000 a year? In short: no worries, not a new form of communism.
Let's ban 401Ks and IRAs while we are at it then think of all the revenue that the government could generate. But it's not a zero sum game here. This will spur new investment that the government is not currently collecting on just like the aforementioned IRAs and 401ks.
Again the government isn't buying anything... they are individual accounts.
Again the government isn't buying anything... they are individual accounts.
Again the government isn't buying anything... they are individual accounts.
Again the government isn't buying anything... they are individual accounts.
I can't and am going to bed. Do some more research on the issue yourself as you're misinformed on a number of specifics.
Your response to many of my question, though, is simply that the money won't be pooled, rather it will be in individual accounts. Perhaps my confusion comes from the Cato Institutes own Social Security reform plan:
Tier II
Workers initially have a choice of three
investment options. As soon as a worker’s con-tributions are reconciled, they are electronical-ly deposited in one of three balanced funds,
each highly diversified and invested in thousands
of securities. The default portfolio, where
one’s money is invested if no choice is made,
has 60 percent stocks and 40 percent bonds.
The two other funds have the same asset classes
but with different weights. For younger
workers one fund with a higher concentration
of stocks is created, and another, more geared
toward less-volatile bonds, is created for those
near retirement. Workers can move their funds
from the default portfolio to either of the other
two options.
This implies to me that there will be three stock picking 'czars' selecting which stocks go into the three funds. If true, in a few years, these three czars will be the most powerful people in the financial world. Goldman Sachs, which I believe is the biggest investment bank, is 'only' worth about $50 billion. In a fairly short time, these funds will contain trillion of dollars, in the long term tens of trillions of dollars.
Just to put some perspective on these numbers, every home in America, residential real estate, has a total value of around ten trillion dollars. And as I stated above, the value of every American stock worth investing in is around ten, maybe twelve trillion dollars.
And on a cynical note, this whole push for private accounts seems to be setting up a massive transfer of wealth from the bottom 80% of American households incomewise, to the top 20%.
Consider:
1. According to a recent fed study, the wealthiest 1% of American households own half of all common stocks in American corporations, the top 5% own 75% and the top 20% own 96%!
2. The 2003 'temporary'(hopefully) tax relief package reduced the capital gains tax rate down to just 15% for the wealthiest American.
So imagine our three stock picking czars on the first day of the new SS plan, armed with, say, $200 billion dollars worth of SS money, ready to secure the 'average' American their slice of future riches.
Why would the wealthy sell their stocks? They know next year another $200 billion dollars will be looking to buy stock. And if they wait another year, etc., etc.
It seems to me, the moment this bill passes, the price of shares is going to skyrocket. It's not like the supply of American companies stable and profitable enough to be safe investments is elastic.
Any stocks sold after the SS bill passes will be sold at a huge markup. And why not? Congress just passed a law that say trillions of dollars in Social Security money will be invested in stocks...
A fair bet would say the wealthiest 20% of Americans stand to make a windfall of about $10 trillion in the coming years...and only pay 15% in taxes on it.
And one final point for tonight, the people who are pushing private accounts paint a rosy picture of stocks rising steadily for the next 40-50 years, making private accounts the obvious way to go to boost SS earnings. Funny thing is though, all the predictions that say SS is in trouble use much more gloomy economic forecasts.
A stock market that rises constantly for 40-50 years at 5-6% annually implies that there truly won't be a SS crisis.
A puzzler :)
(http://www.socialsecurity.org/reformandyou/faqs...)
OMFG!!!
1. Most of the Social Security funds will be transferred to a few wealthy Americans.
2. The government will take over control of U.S. corporations
But this won't happen because:
1. The rich aren't greedy
2. Cato's aware of the problem
Given that libertarians can't get rid of even the most obvious waste and pork in the federal budget, why would Cato propose a plan like this?