Wednesday, February 09, 2005


Adam's Thinking on Social Security ... by Laura Thomas

I've been trying to enunciate the words that accurately describe how I'm feeling about the whole idea of Social Security reform. I don't mind the option of "personal" accounts, but I'm also not worried about myself, I'm worried about lower-income food-service workers who might not get a 401(k) through work and who may not be able to put aside money for retirement. If they get personal accounts, and the stock market doesn't perform well, or they choose wrong, then they are screwed. There are no guarantees.

Also, I am completely opposed to borrowing money now to pay for this thing. The responsible thing, in my mind, is to finance government expansion of programs with higher taxes, not borrowing money. If Bush wants to make sure current recipients receive the same benefits, he can raise taxes to pay for it. Don't borrow money that my generation will have to pay off in 20-30 years.

If Bush really cares about my generation, then he won't borrow money. But I don't think he really cares. I think this is an elaborate scam to get a lot of government money into the stock market and to make financiers rich.

But Laura Thomas of the Washington Post also does a good job explaining how my generation thinks about Social Security reform, so read what she has to say.
Who's Counting on Social Security? Not We Twenty-Somethings

By Laura Thomas
Sunday, February 6, 2005; Page B03

People my age are as likely to believe in Social Security as they are in Santa Claus. And, if you ask me, it would be equally naive for a twenty-something to believe in either one.

As I watched bits of President Bush's State of the Union address last Wednesday night, I couldn't help but think back to this past Christmas Eve with my large, loud and lovable Italian family. Somehow I found myself debating Social Security's future with some of my older relatives. It started with them asking me about my job -- my first real job -- but soon veered close to violating the family rule against discussing politics at the dinner table.

It seemed as though my family (a mixture of partisan extremes, from Rush Limbaugh fans to passionate antiwar protesters) saw Social Security's troubles as a small matter -- contrary to the president's description last week. Whether the impending collapse of Social Security is a myth or not, I shouldn't be relying on Social Security to take care of me when I retire anyway, they said. I was taken aback by their mistaken impression that I had a sense of entitlement to Social Security, just as I was amused during the State of the Union speech to hear that Bush thought I was expecting to receive it.

I didn't want to stir up a Christmas Eve brawl, but I nonetheless felt compelled to explain that never in my life had I assumed that Social Security was coming to me. Every time I see that somewhat shocking Social Security dollar figure subtracted on my pay stub, I choose to look at it as giving back to my older family members who've been known to drop random checks in the mail to their poor, desperate niece or granddaughter.

By the time we finished the antipasto, we decided that we were all more or less on the same side: Start saving now, because Social Security, if it still exists when you're older, will only be for people on welfare or those who didn't have the foresight or willpower to save (which will not be you, Laura).

"As we fix Social Security, we also have the responsibility to make the system a better deal for younger workers," said the president. "And the best way to reach that goal is through voluntary personal retirement accounts."

I will be 62 in 2042, the exact year the Social Security Administration forecasts that the system's trust fund will run out of money, and benefits will be cut to match cash flow from tax payments, unless a fix is made earlier. Some say that Social Security is fated to be a distant memory by then, while others say it will be alive and kicking. Either way, I'm looking out for No. 1.

What Bush's "deal" looks like to me is exactly the same "deal" most of my twenty- and thirty-something friends already have. To borrow Bush's language from the State of the Union, I just opened a personal account called a 401(k) that I will pay into every two weeks, building a "nest egg" for my future. My money will grow tax-deferred, it will provide for my retirement and I'll be able to pass it along to my loved ones when I die. Right now, I'm also paying into Social Security every two weeks to help my grandma, not myself.

But these are two separate tabs, as I see it. On one hand, I'm willing to do my part to help people, young and old, have a roof over their heads, food in their tummies and clothes on their backs; so I'm not opposed to paying Social Security. On the other, when it comes to my retirement money, I don't want anyone else touching it, especially the government, which has done such a dandy job of handling retirement funds so far.

I see a pitfall to this so-called privatization. Is it really private if the government's involved? Isn't it possible that kids entering the workforce will think: "Hey, the government is putting money in my retirement fund, I don't need to open up another account until later. Now where is that BMW dealership?" Sure, some money will be taken from our paychecks and put in private accounts courtesy of Uncle Sam, but how much? A percentage? What percentage? Into which stocks and bonds? Who's choosing them? Do I have a say? What if those of us in our mid-twenties live to be 120 years old? Will there be enough money to live that long comfortably? These questions keep this 25-year-old holding onto her retirement fund, one the government can't tamper with. Better be safe than sorry, Mama always said.

The president's "deal" will ensure that everyone , which is supposed to include low-income Americans in his "ownership society," saves for retirement. But why can't low- and high-income Americans do it on their own? If Bush passes his deal into legislation, the money's still coming out of those paychecks, whether any of us like it or not.

My generation and our government need to figure it out: Should we all save together or save separately? I've never been one for labels, but I think the logic goes: Democrats and liberals lean toward saving together in case we all don't or can't save separately, and Republicans and conservatives lean toward saving separately because the only helping hand is the one at the end of your sleeve. Or something like that.

Politics notwithstanding, my logic goes like this: It's time to "prepare and plan" for the future as the president put it Tuesday. That's why last week, as soon as I hit the one-year mark at my job and became eligible for a 401 (k) plan, I signed up -- much to the relief of my family, I'm sure. And I don't think other people my age are just sitting in the dark waiting for a glimpse of Santa Claus, or tossing their money up the chimney while counting on Social Security.

Author's e-mail:

Laura Thomas is a news aide in The Post's Style section, assisting with the "Out & About" column and coordinating classical music reviews.

© 2005 The Washington Post Company

I have two major objections to Thomas’s article. First, complaining that private accounts are not private if they their existence is required by the government makes no sense since, once she retires, it is her own account, not a centrally allocated one, that will pay her. Thomas is establishing a false dichotomy, saying that there’s either a private account that no one says you need to have but you do anyway, or a public account, which pays you as long as you’re alive whether the discounted value of your lifelong contributions has already been exceeded by what you’ve received from Social Security or not.

Secondly, I’m all for some redistribution of wealth, to, as Thomas quaintly puts it, keep a roof over Grandma’s head. I support it to keep people of any age above substandard conditions. I don’t feel, however, that Social Security as it is now efficiently does this. Income tax revenue to support growth-oriented projects like education do much better than emptying out some central coffer on checks to Grandma whether she needs it or not. When my father retires, he’ll be entitled to Social Security as supplemental retirement income. He’ll be entitled to it in the sense that he’s been paying sizable sums of money for it all his life, but not on the sense that it’s going to keep him alive. Had he been able to save and invest the money he was coerced into paying as Social Security tax, he would have more money now, even after capital gains and dividend taxes were taken out to pay a few teacher’s salaries.

To your point, Political Animal, I believe the short run pain of transition to the new system will be mitigated by long run returns. Raising taxes would discourage already shaky consumption and perhaps eventually return real revenues to their original state, a la the Laffer Curve.
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