Bush's Social Security Talking Points

No wonder the networks cut away.

Tunes, I'm surprised at your reaction to all of this, since what Bush talked about was pretty close to what I envisioned in a too-long e-mail to you about 45 days ago.

I said I had 3 conditions for being behind SocSec privatization:

First, a benefit floor has to stay in place up to a certain income level.

Of course he wasn't specific as to what that level is, but it's obvious he's there on this point.

Second, I would strictly limit the investment options to a list of about 8 (at most) index mutual funds.

I'm assuming he didn't contradict this. A pre-set menu is why Chile's plan has worked for those who are in it, and the lack of one is why Britain's hasn't worked (people have in too many cases been vicitimized by rapacious "financial advisors").

A third thing, which I'm still not totally clear on, is whether you really own the money--can you pass it on when you die, regardless of age (I think yes), and can you keep it in the system until you die, even in retirement, and then pass it on, so the rollover vultures in the planning industry don't go after it (or will you be forced to annuitize it, which would stink).

A fourth point, which we covered in other missives was this whole indexing thing. I'm puzzled as to why people think they're getting screwed if we go to a CPI inflator instead of a wage inflator, primarily because the unions who have inflation-indexed benefits (primarily state government workers and teachers) ALL use CPI inflators, and I've never heard of one complaint about it. I think a sound argument could be made that benefits have gone up way faster than they should have for 30 years because of using wages instead of CPI. President Ford picked wages as the indexing base at the time for no apparent documented reason.

Now I think what is proposed is that upper-middle income benefits are inflated by CPI, lower-middle benefits are inflated by wages, and midpoint benefits are a blend (maybe the blends happen gradually). This seems more than fair to those who need it most, and is a form of backdoor means-testing (if you consider a CPI raise a "cut," which is sort of bizarre) for upper-middle folks.

I don't disagree with your second bullet that the stealing of the surplus is a regressive tax, as I've noted at my blog, and which maybe I should have given you credit for (sorry-I can't remember if you or I mentioned it first). I wish the bleep we'd stop it, but we haven't for 40 years.

But overall, I don't understand the negativity. I'm open to enlightenment.

My objections are mainly that I have no reason to take Bush's proposals at face value. He's never been honest with the country - NCLB, Iraq, Medicare, Energy bill, tax cuts, budget projections... and on a day that Bush expresses concern about a program that will generate a fraction of a percent of GDP drain more than ten years from now, the GOP house passes a budget that is a 4% GDP drain this year. Bush's interests are obviously not in strengthening SocSec. It's a swindle.

OK, so you're going to take the "he's always lied" track on budget stuff and use it as a reason to DQ SocSec privatization, I would not disagree that Bush and the GOP have squandered more than a little credibility there (it would be nice to see Democrats run to the right of the GOP on balancing the budget, but all I ever see are more ideas for spending big amounts).

I think Bush's numbers will probably work on SocSec (don't know, because nobody's rolling out a plan), but I can't fault people who refuse to tune in because of past and continuing follies on the budget.

As a conservative, I'd like to see one freaking veto of something wasteful--there are plenty of choices.

Honestly, part if it is because I think the level of benefit cut is unnecessary.

I used to be against removing the 90k tax cap. The thought was that there's a balance to socsec right now. You remove the salary cap but keep the benefit cap, then you basically have just another means testing. I think means testing is problematic because it removes the "same rules for everyone" thing. (I'm ok with keeping income taxes on socsec benefit checks for higher earners though.)

But, you can remove the 90k tax cap and also remove the benefit cap. It turns out that gets us solvent through 2079.

As far as plans that have some sort of benefit cut, it sounds like the diamon orszag plan is superior.

But really, if we're leaving Bush's lies out of it, then for me it comes down to the fact that I think the solvency projections are bull.

You'll see the solvency date improve when we start our next recession. (If you didn't know that and it sounds ridiculous, I don't blame you for having that reaction... ask me what I mean if so.)

You'll see the solvency date improve when we start our next recession. (If you didn't know that and it sounds ridiculous, I don't blame you for having that reaction... ask me what I mean if so.)

I can theorize why that's true (if wage increases trail actually inflation in a recession that can push the solvency date(s) out), but tell me what it is for sure, the suspense is killing me.

Oh, good. I'm glad you hadn't heard about this yet, because you are going to love this. I learned this from Brad DeLong and Matt Yglesias.

In the most recent trustee report, they changed how they did their projections. The projection formulas are more conservative now. (It's part of why the dates are slightly worse than the 2004 trustee report.)

It's about the productivity numbers. They used to use some sort of rolling average of our productivity. I don't know the details, except that they would usually use recent productivity numbers.

But they switched to using peak-to-peak averages. What that means is that will look at the productivity numbers from the most recent business cycles, not including the current business cycle. And then they combine them together somehow (some sort of complicated average I guess).

But peak-to-peak business cycles are also the definition of recessions. In other words, we will not be completing this particular business cycle until we reach our next recession, because we will have fallen from the peak. As soon as that happens, the previous business cycle is defined, and the productivity numbers from that business cycle are incorporated into the Trustee Report.

Our productivity numbers have definitely improved from the last few business cycles. But those productivity numbers are not being figured into the social security projection.

So basically what that means is that when the next recession starts, you'll see the projective solvency date (and deficit date) improve. In the meantime, we'll be beating the near-term projected numbers.

I'm about to blog a new post that will show some other more sane proposals to improve its solvency date. Stay tuned.

I'm going to be hanging by a thread for the next couple of days, but I'll check back.

Is that 90% threshold for the earnings limit based on trying to get to 90% of the bodies or the income? (I think it's bodies, in fact I'm sure it is) What's the dollar amount that gets to 90%? My guess is about $105K.