Thursday, February 03, 2005

Social Security Crisis

I want to come back to the comments I made regarding last night's SOTU address. I had a good night’s sleep so I’m clearer in my thinking now.

All I can say about president Bush and his political skills as a 30 year veteran of politics myself is Bush is good. Very good. As I said yesterday, the Democratic party stands no chance in preventing the partial privatization of Social Security.

Why? As I said before, I want to use this diary as a communication tool to educate the new cadre of the Democratic party. With my 30 years of experience in politics, I feel that is my obligation. I believe in educating young, dedicated people, who will one day become the new leaders of the Democratic party. If you are one of these committed active Democrats make notes. As I walk you through the SS issue, you will see politics at work. You need to understand the machine behind Bush’s victory in this SS debate.

Let's say there is a Social Security crisis. Let’s say Social Security has a funding problem. More money comes out than goes in. A normal person would say either increase the flow going in, or make a cut in the flow coming out.

President Bush’s solution is taking tax money funding SS and putting that into private accounts. Just think about it. How is partially cutting the flow of money going into SS a solution to the problem?

The problem and the solution don’t match. The reason for this is simple. President Bush isn’t really trying to save SS as his prime objective. What he wants to do is take money going to the government to fund SS and put it in people’s pockets in the form of private retirement funds. In other words, the president is actively pursuing his vision of an ownership society.

President Bush knows one thing. Americans, at least the baby boom generation and generation X don’t save money out of their own free will. That’s why he wants to force them to save and invest by making it a legal requirement.

Using the solvency or insolvency of SS is just a tool to force-create his ownership society. Not just that, it’s also the only large scale government program he could use to divert money from.

The partial privatization of Social Security doesn’t solve the funding question as I said before. Actually as it limits the tax money going in it worsens the funding problem of the program. How will he solve this funding issue?

Although I’m not in Washington, my ears are attuned to the political grapevine like radars. I know exactly what’s going on behind closed doors.

As I said, partial privatization has nothing to do with solving the funding question of SS.

Again as I said: Let’s say SS has a funding problem. More money comes out than goes in. A normal person would say either increase the flow going in, or make a cut in the flow coming out.

Bush has made it clear he does not want to increase taxes to fund the long term solvency of SS. In other words the only solution he allows is reducing the flow of money coming out of the SS fund, in other words Bush wants to cut the benefits people will get.

He proposes several ways to cut benefits, but what I hear is the most talked about compromise is increasing the retirement age by one or two years at which SS pays out the benefits. Americans, who still want to retire at age 65 can use their private retirement funds.

Is Bush’s proposal a bad idea only benefiting Wall Street brokers, who will receive big fees investing this retirement money?

It’s not a bad idea in itself. A steady flow of money will go into the stock market, big trustworthy companies will get funded by a steady stream of cheap investments, which they can use to expand their business. This will grow the economy and create jobs for Americans. This steady flow of money will also free up money tied up in big corporations and could be invested in small innovative new companies.

The risk I see is people putting their retirement money in Enron/ Worldcom like companies and losing their money. At least their private retirement fund money. The other problem I see is people unable to work, because of a handicap for instance? What about their private retirement fund? What will happen to stay at home moms, who get divorced?

The biggest problem might be what to do with the shortfall in money going in and coming out of the SS fund until the new program balances this. The government has to borrow billions of dollars to fill the gab between the current system and the new system. Can our economy take that? Who will pay for the borrowing is simple, the tax payer. But is a tax hike to pay for this possible?

Just to illustrate the amount of money we are talking about, look at these figures.

Workers pay 6.2 percent of their taxable wages to finance SS right now. Their employers also pay 6.2 percent per employee. In president Bush’s plan people under 55 could place as much as 4 percentage points of the 6.2 percent they themselves pay into personal accounts.

In other words SS in the future will only receive 2.2 percent of the taxable wages workers pay plus the 6.2 percent the employers pay.

We are talking about a lot of money that needs to be borrowed by the government.

As I said yesterday just after the State of the Union address, I now believe the president will get his way when it comes to reforming SS. The reason why I believe this is simple. Politics is about trust. After the successful elections in Iraq and yesterday's dramatic scenes in the Senate, when the Iraqi lady hugged the mother of a fallen soldier, I'm sure Americans trust the president not just with their safety, but also with their retirement money.

I'm disappointed in my party. They didn't even put up a fight. The president just rolled over their objections like the Democratic party didn't exist. I hope in Howard Dean's capable hands as chairman, the party will come back to life again. A democracy with no opposition is no democracy. And it is Bush, who succeeded in relegating our party to irrelevance. Never again doubt his capabilities. He is good. Very good.