Tuesday, December 21, 2004

Social Security "privatization"

Debi White has been blogging about the Administration's plan to change the way that Social Security works. I have been thinking about the idea myself.

The word being used is "privatization" which is a way of saying that somebody needs to start making a profit from all that money, and it ain't going to go to any social security beneficiaries present or future. It is going to accountants, fund managers and others whose new job descriptions will be to steward the millions of little accounts that will be chipped out of the big rock that we now call Social Security.

Just as the private sector has figured out that employee-paid retirement plans (read "401-K") are cheaper than the old fashioned employer-paid plans (read "defined benefits plans"), the government is figuring out that by shifting some of the burden to individuals for their own retirement, it can save government expenses in the long run, even though the net yield to the beneficiaries will have been shaved, slimmed and trimmed by various administrative layers (read "service charges of one kind or another") to less than it might otherwise have been.

No one wants to face the fact that as the result of many companies divesting themselves of their defined benefits plans the Pension Benefits Guaranty Corp could be facing insolvency unless the trend is slowed. This is something I keep up with because I am one of those recipients. Mine was one of many companies for which Chapter Eleven protection enabled a "reorganization", with one of the liabilities of the old company conveniently shifted to PBGC. I think United Air Lines would like to do the same thing (to remain competetive, don't you know) except that it might signal the pension world equivalent of a run on the bank. (If they can do it, then so can we!)

But I digress.
The subject was Social Security, a federal plan.
But it might be helpful to take a look at how the private sector behaves if we are contemplating "privatization".

Before we go hugging the idea, take a look at this reality: Social Security is supported by TAX MONEY. When it comes out of your check and doesn't come back, it is a tax. But unlike income tax, it has to be matched, dollar for dollar, by one's employer, which doubles the value to the system.

This means that any so-called "reform" of the system will have to have features that appeal,not only to the employee (read "voter") but the employer (read "lobbyists") as well. I am not clever enough to guess what kind of smoke and mirrors the administration has in mind. It frightenes me to imagine. And even when the bandwagon starts to roll, we still won't know what is at stake until sleuths start combing through the details. The stuff that won't be popular will certainly not be advertised. It will as hard to find as nits in long hair.

Now here is the sentence in Debi's post that keeps playing in my head:

But Bush refuses to support the obvious remedies available if the program really were in danger, such as raising the cap of $87,900 on the amount of a person's income subject to payroll taxes.

"Raising the cap...to a person's income subject to payroll taxes."

Now that is an idea whose time has come.
And that is an idea which will be killed like an unwanted fetus, before it has a chance to inhale it's first breath, simply because it is too simple, too easy to grasp and too obvious a remedy to allow it to live. That idea would spoil everything.

It is one of the best-kept secrets in America. Those who are in the best financial position to contribute more to Social Security are not expected to do so after they have contributed up to a certain amount each year. The amount goes up every year. This year it is nearly $90,000, but whatever it is, once one's taxable earned income hits that point, no more deductions are made for Social Security until the following January, when the obligatory 3.14% (or whatever it is) starts all over for the next calendar year.

I know about this simply because I was fortunate enough to pay the max into Social Security for over twenty years. I considered it to be a great blessing to be earning that kind of money. And when the deductions stopped toward the end of the year, just in time for holiday shopping, it was like getting a Christmas bonus. Because I was in the food business, one of those wonderful places that we euphemistically refer to as the "service economy", I was working with subordinates whose incomes were so small that most could not afford even to be enrolled in the company's group medical insurance. But that was all part of the deal. They got to work for a well-paid boss whose mission in life was to figure out pursuasive non-monitary benefits to keep them loyal and motivated, and I, in turn, got paid about three or four times their average income.

The great unwashed must never find out about the maximum contribution to social security. First of all, they probably wouldn't understand, and if they did, the potential for demagoguery would be enormous. All that keeps the system in check is the simple fact that whenever people get to earning at that level, they forget that they were once part of a great grey mass, they imagine that they deserve all they earn, and aim to keep every penny they can. If that means that the rich get richer and the poor get children, so be it.

I am reminded of Doolittle in My Fair Lady (or Pygmalian, if you prefer)

It's making a gentleman of me that I object to. Who asked him to make a gentleman of me? I was happy. I was free. I touched pretty nigh everybody for money when I wanted it, same as I touched you, Enry Iggins.
Now I am worrited; tied neck and heels; and everybody touches me for money. "It's a fine thing for you," says my solicitor.
"Is it?" says I. "You mean it's a good thing for you," I says.
When I was a poor man and had a solicitor once when they found a pram in the dust cart, he got me off, and got shut of me and got me shut of him as quick as he could.
Same with the doctors: used to shove me out of the hospital before I could hardly stand on my legs, and nothing to pay. Now they finds out that I'm not a healthy man and cant live unless they looks after me twice a day.
In the house I'm not let do a hand's turn for myself: somebody else must do it and touch me for it.
A year ago I hadnt a relative in the world except two or three that wouldnt speak to me. Now Ive fifty, and not a decent week's wages among the lot of them.
I have to live for others and not for myself: thats middle class morality.

Later on he admits to doing things he would never have assented to when he was a poor man...

"...Intimidated, Governor. Intimidated. Middle class morality claims its victim."

Sleep well, America.
Middle class morality will keep us strong, along with the banking and accounting industries, and a continuind cap on the earnings of wealthy citizens.

[All this is a farce, of course. The principal barrier to increases in the cap will not come from individuals (read "voters"), but from their employers (read "lobbies"), whose corresponding matching amounts would go up along with theirs.]

1 comment:

Deborah said...

John...If the cap was raised to $150,000, no social security "problem" exists! If the cap is removed altogether, benefits might even be raised.

It gets back to the same old thing. The wealthy make out like bandits under Bush. Someone earning $500,000 annually pays the same FICA tax as some earning $87,500. That is unfair taxation on the lower wage earner.

The answer is so simple. Raise or abolish the cap.