I applied for Medicare on Friday. I'm going to be 65 in roughly three months. When I called the Social Security Agency (welcome to socialist America), I had an hour-and-fifteen-minute wait before I could get through, and they told me that I had to apply online. Mark Zuckerberg needs to know, and make no mistake, Facebook can know if it wants to. The Social Security website froze me out because I had typed in the wrong password when I had checked it several months before, so I called the helpline, which involved an additional 50-minute wait. The young government worker was helpful, and I eventually applied after a four-hour battle.
As I was waiting on voicemail, the SSA proudly announced that 50 million Americans are currently on Social Security. The number of Americans on means-tested welfare is roughly the same, about 52 million. If you add the number of government employees, about 22 million, that's 124 million. In July 2017 there were 252 million Americans over age 18, the voting age. That means that 124/252 = 49.2% of Americans are dependent on the state. If you add to that the people who work in zombie industries that would not exist without state support-- including Wall Street, the auto industry, and public partnership real estate--the percentage of voters who depend on government is well above 50%.
In other words, the productive sector in America is well below 50% of the economy. So much for land of the free, home of the brave--or liberty and justice for all. America is a socialist welfare state with a dependent population.
I recently finished Garrett C. Fagan's audio Roman history series from the Great Courses, which was a wonderful experience. The Great Courses lectures are all wonderful, and Rome was one of my favorites, along with Vejas G. Liulevicius's World War I. Fagan teaches at Penn State and Liulevicius teaches at the University of Tennessee. My next one will be William R. Cook's history of the Catholic Church.
In between, though, I am listening to Tucker Carlson's audio book Ship of Fools. Carlson makes a number of excellent points, and I am finding the book to be educational. Also, his writing is sharp. I'm only up to Chapter Three. (I listen to all this in my car, so it is slow going.)
Carlson blames much of the recent decline in the American economy on elite selfishness and immigration. Some of his arguments parallel Christopher Lasch's in his books The Revolt of the Elites and The Culture of Narcissism. Like Lasch, Carlson notes that the segregation of elites in all-white, upper-income neighborhoods makes them insensitive to the effects of the policies they advocate.
Carlson's pillorying of Democratic Party looters is awesome. His discussion of dumbed-down, overprivileged millennial Chelsea Clinton is hilarious, and his discussion of Mark Zuckerberg and the ugly effects of Facebook are eye opening. He accurately depicts the Southern Poverty Law Center as a one-time opponent of racism that has become a fraudulent partisan advocate for Democratic Party elitists.
As well, Carlson accurately depicts the current economy as one of decline for the average American and one of subsidization and privilege for financial, political, and technology elites. However, a point of disagreement is that Carlson places the blame on immigration.
Real wages have stagnated for the past 50 years, since the early 1970s, when immigrants were less than five percent of the population. Immigration is not the reason for stagnant real wages. It is at most a contributory factor, but in the absence of regulation and subsidization, immigration flows would adjust to the market- clearing level. Native Americans ought to enjoy an economic advantage over immigrants, who do not know the language and culture. Increasing the minimum wage is likely harming immigrants, whose labor is less valuable than native speakers. I'm not convinced that immigration is the real problem, and Carlson does not offer much fact for his claim. The real hourly wage began to stagnate in the 1970s, right after the abolition of the gold standard and less than 10 years after the establishment of Medicare and Medicaid. By 1980 immigrants were still only six percent of the population, but real wages hadn't grown in seven or eight years.
At the same time, it may be time to put a moratorium on immigration because of the anger it has caused. I have heretofore been in favor of open immigration, but about ten years ago I remember thinking that perhaps a moratorium on immigration might be helpful to American workers, who have suffered grievously at the hands of the Fed, the Democratic Party, and big government. In general, a free economy based on limited government will result in optimal economic outcomes, including rising real wages, modest income inequality, and a stock market, with six percent returns. In the 19th century most of the returns from the stock market were in the form of dividends.
Besides immigration, my chief point of disagreement with Carlson is that he seems to believe that old-fashioned state activist liberalism--New Deal liberalism,--ought to be the new conservatism. The old-fashioned state activist liberalism of the 1930-1970s may still capture President Trump's supporters' imaginations, but it will not restore the economy; it will not restore real wage growth; it will not return the country to the rapid economic growth of the laissez faire, Progressive, and New Deal eras (which ended in the 1960s).
It is true that much of America's elite--the Clintons, Buffetts, Goldman Sachses, Zuckerbergs, Soroses--are a cancer on the average wage. It is also true that New Deal policies led directly to their ascendancy, and the group that was in power before them was already taking the country down a primrose path. Replacing today's rapacious, politically correct, finance-and-technology elites with the military-industrial complex about which Eisenhower and C Wright Mills warned and included George HW Bush's dad, Prescott Bush, will not change the underlying problem, which is the result of monetary and regulatory systems controlled by a centralized, special-interest dominated state. The federal government has squashed real wages and allocated credit to crappy technology like Facebook, crooked Wall Streeters like George Soros, and crooked hacks like the Clintons and Bushes.
Franklin Roosevelt, copying the innovations of Gustav von Schmoller and Bismarck in Germany, implemented a system that has similarities to what brothers Tiberius and Gaius Gracchus imagined for Republican Rome in the early phases of the Roman Revolution, which led to its becoming a dictatorship, then an empire, and ultimately a monarchy: Their plan was to give the plebeians cheap grain. (Later in the empire Emperor Septimius Severus made grain free.) The dislocations of World War I and Progressive eras paralleled the processes in the Roman Revolution, which lasted about 150 years. Although the Progressive era was short, its system may last for as long as the early empire and the Pax Romana, which lasted 150-200 years. It may be that in 2,000 years historians will view our era as an extension of the Progressive and World War I eras. This is already occurring as historians are beginning to view the two world wars as one war.
It is sad to see an America with the beautiful ideals of Locke and Jefferson turned into a bread-and-circus, totalitarian state dominated by the nincompoops of today's state, technology, and finance elites and their dumbed-down propagandist-journalists. Carlson's hilarious depiction of psychopath Max Boot is on the money.
Even if President Trump follows the proscriptions of Carlson and slows the looting by state, technology, and Wall Street elites, there is little hope for improvement because Americans have been satisfied with a $16,000 Social Security benefit, a welfare check, and Medicare. The dynamics of public choice and special interest behavior guarantee that a large, centralized government will benefit the most corrupt and opportunistic, and Carlson's debate with the Democrats ignores the underlying dynamic.
Showing posts with label social security. Show all posts
Showing posts with label social security. Show all posts
Sunday, February 10, 2019
Sunday, January 13, 2019
Why You Can't Retire
I recently conversed informally with a financial representative of TIAA-CREF. He is in his thirties, and he expressed concern that the Social Security retirement age would be raised to 80 or greater before he retires. I agreed that the age would be raised, but I suggested it might not be as bad as 80--perhaps the ultimate age would be 69 or 70. Unfortunately, the problem will become worse if it is not addressed currently, and the media and the public have not been overly interested. Hence, the broad explanation as to why you can't retire is inattention at both the personal and public levels. Public policy that has hammered down savings rates and interest rates and has helped wealthy investors with strong risk appetites hasn't helped.
Because of monetary stimulus, low interest rates, inflation, and money illusion, along with escalating health care costs, many Americans have earned low wages. Money illusion and health care cost inflation have caused productivity growth to exceed wage growth. Also because of inflation, many Americans have avoided saving. Lower-income Americans are not used to investing in the stock market and so have not benefited from the Federal Reserve Bank's inflationary reallocation of wealth from wages and savings to capital and stock-and-bond investments.
The Fed's pumping up of the stock market for the past three-and-a-half decades has exacerbated a natural tendency for the market to rise when a disproportionate share of the population (the baby boomers) is young. (In 2017 the Census Bureau found that the average age had increased since 2000 from 35 to 37.) Although the market averages are still high, in 2019 the majority of stocks have moderate price-earnings ratios. That may be consistent with an underlying downtrend in valuations as the average age increases. What's propping up the S&P 500 are a few bubble stocks like Amazon.com. A declining stock market in the boomers' later years might make retirement difficult.
High tax, health cost, and rent burdens haven't helped. The Peter G. Peterson Foundation finds that median taxpayers pay about 14 percent of their income in federal taxes. The Tax Foundation says that median taxpayers pay about 9.9 percent in state and local taxes. Hence, about 25% of income is paid in taxes. That is low in comparison with other OECD countries, but the majority of Americans pay for their own health insurance, and the $18,000 cost for a family is about thirty percent of the $61,000+ median household income as of 2017. Of that, about $6,000 is paid out-of-pocket. The incidence of the $18,000 cost is likely on employees as is the 6.2 percent employer Social Security tax (see the 1971 American Economic Review article by John Brittain). If one adds the 25 percent of income paid in taxes to the 10 percent of income paid for out-of-pocket health insurance costs plus the 6.2 percent employer Social Security tax, the tax burden to employees is above 38%. (The base needs to be grossed up for the imputed employer Social Security tax.) If you include the $18,000 family health insurance cost, the tax-and-insurance burden is close to 48 percent. (Again, the based needs to be grossed up for the imputed non-out-of-pocket health insurance costs and the employer Social Security.) That's a little lower than the highest-tax country, Belgium (54 percent), but about equal to the second-highest-taxed country, Germany (48 percent). Hence, contemplating the incidence of the employer Social Security tax and family health insurance cost places the US in the top three of OECD countries with respect to tax burden.
Given that Federal Reserve Bank policy has been for the Fed to pump up asset values, rents have escalated. According to the Census Bureau, rents in 2000 dollars rose from $284 in 1940 to $602 in 2000. According to Household Income, rents increased by 12 percent from 2000 to 2010, but the median income fell by 7 percent. In other words, the real cost of rents has more than doubled while real wages have remained stagnant.
Federal policy has been to burden US employees with high taxes (when supplemented by health insurance and employer part of Social Security costs) and to subsidize landlords with escalating property values that boost rents by several percent each year. How many wage earners can save given that constellation of policies?
As well, Social Security is insecure. According to Steven C. Goss of the Social Security Administration, taxes will cover only 75 percent of benefits by 2035. (Note that Goss does not use the word contributions, which is appropriate to a pension, or the word premiums, which is appropriate to insurance.) As well, even if the problem in 2035 is solved, there is an additional problem looming in 2080, when infants born in the next few years retire. There is no talk about solving the later problem.
With respect to the 2035 problem, Goss says that if changes are made immediately, there will need to be a benefit reduction of 13 percent or an increase in the FICA tax rate of two percent (from 12.4 percent to 14.4 percent) to cover the shortfall.
The average American retires at 62, the first year of eligibility for Social Security retirement benefits. According to the Social Security life expectancy table, life expectancy at 62 is 20 years; at 66, the current normal retirement age, life expectancy is 17.1 years; at 70, life expectancy is 14.3 years. To reduce benefits by 14.7 percent for those first eligible to retire, the minimum retirement age of 62 would need to be raised to 66. To reduce benefits by 12.3 percent for those who retire at the normal retirement age (currently 66 but scheduled to increase to 67), the normal retirement age would need to be raised to 69 or 70. The precise amounts would be adjusted by actuarial calculations, but a three- or four-year increase in the retirement age would solve the issue.
The Social Security benefit structure favors low-wage workers because the salary bands have higher percentages at lower bands than at higher bands. That is, as of 2019, the benefit based on the highest 35 years of indexed monthly earnings is calculated as 90% of the first $926; 32% from $926 to $5,583; 15% of the monthly earnings greater than $5,583.
Someone having 35-year indexed earnings of $2,083 a month will get $1203 a month in Social Security ($14,400 a year) while someone having a 35-year indexed earnings of $8,333 will get $2,569 (30,828 a year). The $1,203 is 58% of the earnings of the person who makes $25,000 per year; the 2,569 is only 31% of the earnings of the person who makes $100,000 per year.
Hence, the benefit structure is subsidized in favor of low earners, but it is meager across all income levels. Moreover, the Brookings Institution argues that the welfare subsidy to lower-income workers should be increased because they suffer from lower life expectancy and decreasing lifetime earnings. Brookings advocates increasing the welfare plan essence of Social Security by reducing the rate for the top band.
The Heritage Foundation also suggests supplementing Social Security's welfare component. The Heritage Foundation suggests reducing benefits and contributions for those whose retirement incomes are above $55,000 and eliminating it for retirees whose earnings are over $110,000. For those born after 1985 Social Security would be turned into a flat payment.
Income during retirement is primarily from six sources: stock dividends, savings accounts, bond interest, 401(k) plan distributions, defined benefit plan distributions, and IRA distributions. However, retirees can reallocate wealth into investments, such as growth stocks, that chiefly pay capital gains and so sidestep the maximums.Thus, rich retirees could still collect Social Security if they prefer.
It might make more sense to simply face its welfare essence and to eliminate Social Security for those who have above a minimal level of income. Perhaps a mandatory public-private target benefit plan approach could be used so that benefits are funded though a combination of sources depending on income level. A certain benefit could be targeted or defined, such as 80 percent of income at age 70, based on long-term assumptions, but the actual benefit would depend on the amount in the fund. For those earning below the average wage each year, a small out-of-pocket contribution, say one percent, could be supplemented with a welfare subsidy.
For instance, for those earning half the average wage, the government might make all of the contribution; for those earning three-quarters of the average wage, the government might make half of the contribution; for those earning the average wage and above, the taxpayer might make the full contribution. An contribution as percentage of pay actuarially expected to achieve 80 pension income replacement could be invested in ways that the taxpayer chooses. Perhaps the investment choices could be vetted to ensure legitimacy, although such a review likely would have passed Enron and Worldcom with flying colors. Perhaps investors might be permitted to change investment direction only once every five years and not be permitted to make interfund transfers. There's a bit of nanny state in this, but eliminating centralized control through privatization will provide better choice.
The usefulness of a Social Security trust fund is doubtful. If you had invested $4,000 at six percent interest from 1979 until today, you would have $619,000. That would buy an annuity of over $40,000 at today's rates. In other words, it's far from clear that Social Security is a good deal. Taking investment policy out of politicians' hands would help the economy and help investors.
Perhaps retirement policy might be downloaded to each state, allowing the states to determine preferences that differ locally. New York or California, for instance, would probably prefer a higher welfare component while Idaho, Utah, or Georgia would probably prefer a lower welfare component. Rather than one region's imposing its preferences on another, a decentralized approach would allow expression of local preferences.
Because of monetary stimulus, low interest rates, inflation, and money illusion, along with escalating health care costs, many Americans have earned low wages. Money illusion and health care cost inflation have caused productivity growth to exceed wage growth. Also because of inflation, many Americans have avoided saving. Lower-income Americans are not used to investing in the stock market and so have not benefited from the Federal Reserve Bank's inflationary reallocation of wealth from wages and savings to capital and stock-and-bond investments.
The Fed's pumping up of the stock market for the past three-and-a-half decades has exacerbated a natural tendency for the market to rise when a disproportionate share of the population (the baby boomers) is young. (In 2017 the Census Bureau found that the average age had increased since 2000 from 35 to 37.) Although the market averages are still high, in 2019 the majority of stocks have moderate price-earnings ratios. That may be consistent with an underlying downtrend in valuations as the average age increases. What's propping up the S&P 500 are a few bubble stocks like Amazon.com. A declining stock market in the boomers' later years might make retirement difficult.
High tax, health cost, and rent burdens haven't helped. The Peter G. Peterson Foundation finds that median taxpayers pay about 14 percent of their income in federal taxes. The Tax Foundation says that median taxpayers pay about 9.9 percent in state and local taxes. Hence, about 25% of income is paid in taxes. That is low in comparison with other OECD countries, but the majority of Americans pay for their own health insurance, and the $18,000 cost for a family is about thirty percent of the $61,000+ median household income as of 2017. Of that, about $6,000 is paid out-of-pocket. The incidence of the $18,000 cost is likely on employees as is the 6.2 percent employer Social Security tax (see the 1971 American Economic Review article by John Brittain). If one adds the 25 percent of income paid in taxes to the 10 percent of income paid for out-of-pocket health insurance costs plus the 6.2 percent employer Social Security tax, the tax burden to employees is above 38%. (The base needs to be grossed up for the imputed employer Social Security tax.) If you include the $18,000 family health insurance cost, the tax-and-insurance burden is close to 48 percent. (Again, the based needs to be grossed up for the imputed non-out-of-pocket health insurance costs and the employer Social Security.) That's a little lower than the highest-tax country, Belgium (54 percent), but about equal to the second-highest-taxed country, Germany (48 percent). Hence, contemplating the incidence of the employer Social Security tax and family health insurance cost places the US in the top three of OECD countries with respect to tax burden.
Given that Federal Reserve Bank policy has been for the Fed to pump up asset values, rents have escalated. According to the Census Bureau, rents in 2000 dollars rose from $284 in 1940 to $602 in 2000. According to Household Income, rents increased by 12 percent from 2000 to 2010, but the median income fell by 7 percent. In other words, the real cost of rents has more than doubled while real wages have remained stagnant.
Federal policy has been to burden US employees with high taxes (when supplemented by health insurance and employer part of Social Security costs) and to subsidize landlords with escalating property values that boost rents by several percent each year. How many wage earners can save given that constellation of policies?
As well, Social Security is insecure. According to Steven C. Goss of the Social Security Administration, taxes will cover only 75 percent of benefits by 2035. (Note that Goss does not use the word contributions, which is appropriate to a pension, or the word premiums, which is appropriate to insurance.) As well, even if the problem in 2035 is solved, there is an additional problem looming in 2080, when infants born in the next few years retire. There is no talk about solving the later problem.
With respect to the 2035 problem, Goss says that if changes are made immediately, there will need to be a benefit reduction of 13 percent or an increase in the FICA tax rate of two percent (from 12.4 percent to 14.4 percent) to cover the shortfall.
The average American retires at 62, the first year of eligibility for Social Security retirement benefits. According to the Social Security life expectancy table, life expectancy at 62 is 20 years; at 66, the current normal retirement age, life expectancy is 17.1 years; at 70, life expectancy is 14.3 years. To reduce benefits by 14.7 percent for those first eligible to retire, the minimum retirement age of 62 would need to be raised to 66. To reduce benefits by 12.3 percent for those who retire at the normal retirement age (currently 66 but scheduled to increase to 67), the normal retirement age would need to be raised to 69 or 70. The precise amounts would be adjusted by actuarial calculations, but a three- or four-year increase in the retirement age would solve the issue.
The Social Security benefit structure favors low-wage workers because the salary bands have higher percentages at lower bands than at higher bands. That is, as of 2019, the benefit based on the highest 35 years of indexed monthly earnings is calculated as 90% of the first $926; 32% from $926 to $5,583; 15% of the monthly earnings greater than $5,583.
Someone having 35-year indexed earnings of $2,083 a month will get $1203 a month in Social Security ($14,400 a year) while someone having a 35-year indexed earnings of $8,333 will get $2,569 (30,828 a year). The $1,203 is 58% of the earnings of the person who makes $25,000 per year; the 2,569 is only 31% of the earnings of the person who makes $100,000 per year.
Hence, the benefit structure is subsidized in favor of low earners, but it is meager across all income levels. Moreover, the Brookings Institution argues that the welfare subsidy to lower-income workers should be increased because they suffer from lower life expectancy and decreasing lifetime earnings. Brookings advocates increasing the welfare plan essence of Social Security by reducing the rate for the top band.
The Heritage Foundation also suggests supplementing Social Security's welfare component. The Heritage Foundation suggests reducing benefits and contributions for those whose retirement incomes are above $55,000 and eliminating it for retirees whose earnings are over $110,000. For those born after 1985 Social Security would be turned into a flat payment.
Income during retirement is primarily from six sources: stock dividends, savings accounts, bond interest, 401(k) plan distributions, defined benefit plan distributions, and IRA distributions. However, retirees can reallocate wealth into investments, such as growth stocks, that chiefly pay capital gains and so sidestep the maximums.Thus, rich retirees could still collect Social Security if they prefer.
It might make more sense to simply face its welfare essence and to eliminate Social Security for those who have above a minimal level of income. Perhaps a mandatory public-private target benefit plan approach could be used so that benefits are funded though a combination of sources depending on income level. A certain benefit could be targeted or defined, such as 80 percent of income at age 70, based on long-term assumptions, but the actual benefit would depend on the amount in the fund. For those earning below the average wage each year, a small out-of-pocket contribution, say one percent, could be supplemented with a welfare subsidy.
For instance, for those earning half the average wage, the government might make all of the contribution; for those earning three-quarters of the average wage, the government might make half of the contribution; for those earning the average wage and above, the taxpayer might make the full contribution. An contribution as percentage of pay actuarially expected to achieve 80 pension income replacement could be invested in ways that the taxpayer chooses. Perhaps the investment choices could be vetted to ensure legitimacy, although such a review likely would have passed Enron and Worldcom with flying colors. Perhaps investors might be permitted to change investment direction only once every five years and not be permitted to make interfund transfers. There's a bit of nanny state in this, but eliminating centralized control through privatization will provide better choice.
The usefulness of a Social Security trust fund is doubtful. If you had invested $4,000 at six percent interest from 1979 until today, you would have $619,000. That would buy an annuity of over $40,000 at today's rates. In other words, it's far from clear that Social Security is a good deal. Taking investment policy out of politicians' hands would help the economy and help investors.
Perhaps retirement policy might be downloaded to each state, allowing the states to determine preferences that differ locally. New York or California, for instance, would probably prefer a higher welfare component while Idaho, Utah, or Georgia would probably prefer a lower welfare component. Rather than one region's imposing its preferences on another, a decentralized approach would allow expression of local preferences.
Sunday, May 27, 2018
Social Security Is a Welfare, Not a Pension, Plan
I'm going to be 64 this week, so I've been thinking about Social Security, a program I've actively opposed since the 1970s but one in which I have been compelled to participate.
Social Security is a welfare and not an insurance plan. Its advocates claim that it is both, but that is impossible. Insurance is actuarially fair: It spreads the risk of loss fairly across a population. In contrast, welfare plans are redistributive: They compel some to give up wealth to subsidize others.
There are legitimate reasons to support welfare and charity, and there are legitimate reasons to reject political lying. In order to convince Americans to accept Social Security, the Democrats pretended that it is a fair insurance plan. To do so, they created a deception that the taxes into Social Security, FICA, are insurance premiums even though there is no legal connection between FICA and Social Security benefits.
They also created a deception that there is a Social Security fund that is equivalent to a pension fund and that FICA taxes build someone's fund, which is returned in retirement. There is a fund, but it is more in the nature of a cash box than a pension fund. Social Security has always been primarily a pay-as-you-go system. A relatively large excess accumulated because of the temporary Boomer population bubble, but that would have dissipated had the politicians not (legally) looted the fund.
Democratic Party politicians gave voters the impression that FICA is a contribution to an insurance plan and not a regressive income tax. Many voters also believe that their Social Security benefits equate to their contributions.
Social Security benefits do not equate to contributions. The use of wage bands allocates higher benefits per dollar to lower-wage participants. Disability benefits are more heavily distributed to actuarially identifiable groups, but there is no charge to those groups.
Anyone who does not benefit from salary bands or disability benefits is unlikely to participate in Social Security. Hence, the Democrats had to make the plan authoritarian and compulsory. The authoritarianism and compulsion seal Social Security's status as a welfare rather than an insurance plan.
Insurance is an economically fair method of managing risk, and risk-averse consumers need no compulsion to purchase it. Social security is not economically fair; it is equivalent to any other form of welfare. Hence, there is limited economic motivation, save altruism, for net contributors to participate.
Saturday, December 30, 2017
It's a Social Security Scheme
Jim Rickards' s Agora Financial forwarded this Vanity Fair article and video-taped interview with Jeffery Gundlach, a Forbes 400 Wall Streeter. According to Wikipedia Gundlach was the fund manager for the TCW total return bond fund. He was fired; then, he founded Doubleline Capital. Wikipedia suggests that he has sometimes been overly bearish. In 2011 he liquidated 55% of his position in municipal bonds, but municipals did not decline.
It is easier to know what will happen than when. Rickards forwarded the piece because Gundlach is bearish on bonds--six years after his pullout from munis. That is understandable. I too have been bearish, cutting back on my stock holdings in 2016 and hence getting a smaller benefit from the 2017 rally than I might have. (As well, I am a tech skeptic, which also has been a costly mistake. C'est la vie.)
The current rally will snap, either in '18 or later, and there will be a correction. There will then be monetary expansion on top of the already immense monetary expansion since 2008, and Americans will continue to suffer declines in their real wages and real household income as Wall Streeters like Gundlach benefit handsomely and those with at least some assets in the market continue to gain.
What I found most interesting about Gundlach's talk is his cavalier attitude toward screwing middle income baby boomers by instituting means testing for Social Security. He does not seem to have thought through the issue carefully, but he seems to suggest that currently benefit-eligible elderly should have their benefits cut in order to make federal government bonds more attractive to him.
Like all Wall Streeters, Gundlach has benefited handsomely from public subsidization. No one knows how wealthy Warren Buffett or Jeff Gundlach would have been without the massive monetary expansion since 1971, but neither would be nearly as wealthy as they are. Feeling comfortable with his own benefits from the public purse, Gundlach sees the need to cure federal indebtedness fast by reducing Social Security benefits. That way bonds will surely rally.
Gundlach is right that benefits need to be reduced. Federal indebtedness is now in excess of 100% of GDP, not including the future unfunded liabilities of the Social Security System. According to CNBC, if actuaries use an unlimited time horizon (beyond 75 years) rather than a 75-year horizon, the future unfunded liabilities of the system are $32 trillion. Current GDP is $19 trillion.
Projections beyond 10 or 20 years have little meaning because the assumptions that actuaries make become increasingly inaccurate. Technological shifts, demographic shifts, wars, diseases, impoverishment of the middle class, inflation, and monetary expansion change life expectancy. CNBC claims that until 2034 Social Security will be able to cover benefits. Thereafter, there will be a 25% deficit until 2090. After that the system will be in extremis.
Gundlach suggests that boomers' benefits be cut by instituting means testing. In other words, the middle income savers whom Gundlach's backers at the Fed have screwed by reducing interest rates should be screwed again by means testing Social Security. Those who made life decisions based on government lies that Social Security is an insurance plan should end their lives in poverty. Gundlach is confident that boomers will not complain. He claims that they are a unique generation, but he does not offer a reason.
Gundlach is right: Through monetary policy Wall Street has screwed boomers who save, and they have been too dumb to complain for 40 years, so Wall Street's lackeys in Congress might as well once again screw them by cutting Social Security in order to gain a few extra years' bond rally. They likely won't complain again. Gundlach will profit. That's what the phrase "a good economy" means in today's English language.
As Gundlach suggests, the retirement age should be raised. An increase of one year beginning with two years from now might be a fair solution. Thus, people born in 1953 wouldn't get full benefits until 2020; people born in 1954 (my birth year) wouldn't get full benefits until 2022, and so on. The full-benefit age might be raised to 72. That would likely solve the short-term problem. Actuaries will need to determine the precise increase in retirement age. Fairer still would be slower increases of say six months or to start the increases five years hence so that those nearing retirement will have time to plan.
In some areas Gundlach is surprisingly uninformed. He suggests, for instance, that air conditioning repair men, competent, technically trained blue collar workers, are now permanently unemployed. That claim reflects economic illiteracy. I have seen this strange claim repeatedly coming from elite America. It reflects the lack of competent economic instruction at elite, left-wing universities.
In any case, the employment rate in America is currently at an all-time high. Many technical jobs remain unfilled. The employment-to-population ratio is slightly lower than in 2008, but that is to be expected given an aging population. The employment-to-population ratio in Nov. 2017 was 60.1; it was 63.3 in January 2007. The number of employed is at an all-time high.
The high employment rate has been achieved by reducing real wages through monetary expansion. More Americans work; they earn lower wages. The wealth is transferred to Wall Street because the low interest rates boost the bond market. Insiders like Gundlach and Buffett benefit most as Americans work harder for suppressed wages.
Social Security was originally sold to Americans as an insurance plan combined with a welfare plan. There is no such thing. Insurance is actuarially fair. If there is no actuarial relationship between contributions and benefits, then the plan is not insurance. Social Security was designed to give higher benefits to lower earners than they have earned and lower benefits to higher earners than they have earned. There was never any connection between the FICA tax and the OASDI Social Security benefit.
The plan was set up to fool people. It was set up to be a fraud. The biggest fraud was the impression given to Americans that there is a fund into which their contributions go to fund their own retirement. That deception was accomplished by pretending that FICA was somehow separate from other federal taxes and somehow linked to OASDI. It has always been just another, albeit regressive, income tax with no connection to the statutory welfare benefit that OASDI provides.
There is no easy way out of the mess that the two parties have caused with respect to Social Security. There are ways to reformulate monetary policy. The two parties will not betray Wall Street, and I'm afraid Americans are unable to think without the say-so of Wall Street-backed media. Perhaps in the future the phrase "Social Security scheme" can replace the phrase "Ponzi scheme."
It is easier to know what will happen than when. Rickards forwarded the piece because Gundlach is bearish on bonds--six years after his pullout from munis. That is understandable. I too have been bearish, cutting back on my stock holdings in 2016 and hence getting a smaller benefit from the 2017 rally than I might have. (As well, I am a tech skeptic, which also has been a costly mistake. C'est la vie.)
The current rally will snap, either in '18 or later, and there will be a correction. There will then be monetary expansion on top of the already immense monetary expansion since 2008, and Americans will continue to suffer declines in their real wages and real household income as Wall Streeters like Gundlach benefit handsomely and those with at least some assets in the market continue to gain.
What I found most interesting about Gundlach's talk is his cavalier attitude toward screwing middle income baby boomers by instituting means testing for Social Security. He does not seem to have thought through the issue carefully, but he seems to suggest that currently benefit-eligible elderly should have their benefits cut in order to make federal government bonds more attractive to him.
Like all Wall Streeters, Gundlach has benefited handsomely from public subsidization. No one knows how wealthy Warren Buffett or Jeff Gundlach would have been without the massive monetary expansion since 1971, but neither would be nearly as wealthy as they are. Feeling comfortable with his own benefits from the public purse, Gundlach sees the need to cure federal indebtedness fast by reducing Social Security benefits. That way bonds will surely rally.
Gundlach is right that benefits need to be reduced. Federal indebtedness is now in excess of 100% of GDP, not including the future unfunded liabilities of the Social Security System. According to CNBC, if actuaries use an unlimited time horizon (beyond 75 years) rather than a 75-year horizon, the future unfunded liabilities of the system are $32 trillion. Current GDP is $19 trillion.
Projections beyond 10 or 20 years have little meaning because the assumptions that actuaries make become increasingly inaccurate. Technological shifts, demographic shifts, wars, diseases, impoverishment of the middle class, inflation, and monetary expansion change life expectancy. CNBC claims that until 2034 Social Security will be able to cover benefits. Thereafter, there will be a 25% deficit until 2090. After that the system will be in extremis.
Gundlach suggests that boomers' benefits be cut by instituting means testing. In other words, the middle income savers whom Gundlach's backers at the Fed have screwed by reducing interest rates should be screwed again by means testing Social Security. Those who made life decisions based on government lies that Social Security is an insurance plan should end their lives in poverty. Gundlach is confident that boomers will not complain. He claims that they are a unique generation, but he does not offer a reason.
Gundlach is right: Through monetary policy Wall Street has screwed boomers who save, and they have been too dumb to complain for 40 years, so Wall Street's lackeys in Congress might as well once again screw them by cutting Social Security in order to gain a few extra years' bond rally. They likely won't complain again. Gundlach will profit. That's what the phrase "a good economy" means in today's English language.
As Gundlach suggests, the retirement age should be raised. An increase of one year beginning with two years from now might be a fair solution. Thus, people born in 1953 wouldn't get full benefits until 2020; people born in 1954 (my birth year) wouldn't get full benefits until 2022, and so on. The full-benefit age might be raised to 72. That would likely solve the short-term problem. Actuaries will need to determine the precise increase in retirement age. Fairer still would be slower increases of say six months or to start the increases five years hence so that those nearing retirement will have time to plan.
In some areas Gundlach is surprisingly uninformed. He suggests, for instance, that air conditioning repair men, competent, technically trained blue collar workers, are now permanently unemployed. That claim reflects economic illiteracy. I have seen this strange claim repeatedly coming from elite America. It reflects the lack of competent economic instruction at elite, left-wing universities.
In any case, the employment rate in America is currently at an all-time high. Many technical jobs remain unfilled. The employment-to-population ratio is slightly lower than in 2008, but that is to be expected given an aging population. The employment-to-population ratio in Nov. 2017 was 60.1; it was 63.3 in January 2007. The number of employed is at an all-time high.
The high employment rate has been achieved by reducing real wages through monetary expansion. More Americans work; they earn lower wages. The wealth is transferred to Wall Street because the low interest rates boost the bond market. Insiders like Gundlach and Buffett benefit most as Americans work harder for suppressed wages.
Social Security was originally sold to Americans as an insurance plan combined with a welfare plan. There is no such thing. Insurance is actuarially fair. If there is no actuarial relationship between contributions and benefits, then the plan is not insurance. Social Security was designed to give higher benefits to lower earners than they have earned and lower benefits to higher earners than they have earned. There was never any connection between the FICA tax and the OASDI Social Security benefit.
The plan was set up to fool people. It was set up to be a fraud. The biggest fraud was the impression given to Americans that there is a fund into which their contributions go to fund their own retirement. That deception was accomplished by pretending that FICA was somehow separate from other federal taxes and somehow linked to OASDI. It has always been just another, albeit regressive, income tax with no connection to the statutory welfare benefit that OASDI provides.
There is no easy way out of the mess that the two parties have caused with respect to Social Security. There are ways to reformulate monetary policy. The two parties will not betray Wall Street, and I'm afraid Americans are unable to think without the say-so of Wall Street-backed media. Perhaps in the future the phrase "Social Security scheme" can replace the phrase "Ponzi scheme."
Monday, August 27, 2012
How to Unravel Social Security
PO Box 130
West Shokan,
NY 12494
August 27,
2012
Mr. Chris
Gibson, congressman
House of Representatives
502 Cannon
HOB
Washington, DC 20515
Washington, DC 20515
Dear Mr. Gibson:
Here's an idea to help solve the federal government's Social Security conundrum. Why not allow those who have been (and whose employers have been) compelled to contribute to it to request a refund of employee and employer contributions without interest? The result may be a win-win: those who would rather put the money in financial markets than trust the federal government could do so, while the federal government would be off the hook for future liabilities that likely would exceed the lump sum payment because of inflation.
Here's an idea to help solve the federal government's Social Security conundrum. Why not allow those who have been (and whose employers have been) compelled to contribute to it to request a refund of employee and employer contributions without interest? The result may be a win-win: those who would rather put the money in financial markets than trust the federal government could do so, while the federal government would be off the hook for future liabilities that likely would exceed the lump sum payment because of inflation.
Sincerely,
Mitchell Langbert
Cc: Mr. Barack Obama, president of the United States
Thursday, July 28, 2011
Obama's Impeachable Social Security Threat
For the past two weeks President Obama's veiled threat to withhold social security checks on August 3 has influenced the debt ceiling debate. On July 12 CBS quoted the President as saying, "I cannot guarantee that those checks go out on August 3rd if we haven't resolved this issue. Because there may simply not be the money in the coffers to do it." In fact, there are many alternatives to withholding Social Security such as furloughing employees in non-essential bureaucracies, such as the Departments of Labor, Education and Energy. Obama's use of Social Security for partisan purposes is fraudulent.
Social Security involved fraud from day one. In the 1930s, in order to convince Americans to accept it, the Democrats made two mutually contradictory claims, expressed by Professor J. Douglas Brown of Princeton University. The first claim was that Social Security is an insurance plan, secured through a trust fund, that will return a fair benefit to participants. The second claim was that Social Security was a welfare benefit that subsidizes lower-wage Americans. It did this by using a formula that provided proportionately higher benefits to the lowest salary levels. It established pay bands, and the highest percentages were paid to the lowest salary bands. Unless participants took the time to review the benefit structure, they could be easily defrauded into believing that Social Security was not a welfare plan but rather an insurance plan. Fraud was the Democrats' marketing strategy.
The public was told that there is a trust fund. In fact, Social Security was designed as a pay-as-you-go plan, essentially a pyramid scheme that depended on consistent demographic growth. But there was a depression followed by a baby boom that was followed by a baby bust. Rather than hold good on its claim that there was a trust fund, Congress proceeded to steal the funds in the Social Security trust and used them for other purposes, chiefly to win votes. Moreover, despite the lack of actuarial soundness, Congress raised benefits in the 1970s but could not fund the increased benefits. Then, it decreased benefits in 1983 for people in their twenties and younger who were scrambling to make ends meet in a permanently declining and increasingly socialist economy.
In other words, Social Security was a fraud from day one; Congress has acted in ways that would put private sector benefit sponsors into prison; indeed, it has stolen the already insufficient funds about which it has consistently lied to the public.
Now President Obama commits an additional fraud. Having scammed the American public into establishing a fraudulent program, having lied about the program's nature, having promised benefits it could not pay, having stolen the money that was put into the fund, Obama now threatens to openly breach the most elementary standard of fiduciary and moral duty to trust beneficiaries. He aims to use the fund as a partisan football. If Obama were a private pension fund manager even threatening to use pension money for purposes other than designated by the trust would be a breach of fiduciary duty.
Obama's threat to use Social Security as a partisan football is a criminal act and an impeachable one.
Social Security involved fraud from day one. In the 1930s, in order to convince Americans to accept it, the Democrats made two mutually contradictory claims, expressed by Professor J. Douglas Brown of Princeton University. The first claim was that Social Security is an insurance plan, secured through a trust fund, that will return a fair benefit to participants. The second claim was that Social Security was a welfare benefit that subsidizes lower-wage Americans. It did this by using a formula that provided proportionately higher benefits to the lowest salary levels. It established pay bands, and the highest percentages were paid to the lowest salary bands. Unless participants took the time to review the benefit structure, they could be easily defrauded into believing that Social Security was not a welfare plan but rather an insurance plan. Fraud was the Democrats' marketing strategy.
The public was told that there is a trust fund. In fact, Social Security was designed as a pay-as-you-go plan, essentially a pyramid scheme that depended on consistent demographic growth. But there was a depression followed by a baby boom that was followed by a baby bust. Rather than hold good on its claim that there was a trust fund, Congress proceeded to steal the funds in the Social Security trust and used them for other purposes, chiefly to win votes. Moreover, despite the lack of actuarial soundness, Congress raised benefits in the 1970s but could not fund the increased benefits. Then, it decreased benefits in 1983 for people in their twenties and younger who were scrambling to make ends meet in a permanently declining and increasingly socialist economy.
In other words, Social Security was a fraud from day one; Congress has acted in ways that would put private sector benefit sponsors into prison; indeed, it has stolen the already insufficient funds about which it has consistently lied to the public.
Now President Obama commits an additional fraud. Having scammed the American public into establishing a fraudulent program, having lied about the program's nature, having promised benefits it could not pay, having stolen the money that was put into the fund, Obama now threatens to openly breach the most elementary standard of fiduciary and moral duty to trust beneficiaries. He aims to use the fund as a partisan football. If Obama were a private pension fund manager even threatening to use pension money for purposes other than designated by the trust would be a breach of fiduciary duty.
Obama's threat to use Social Security as a partisan football is a criminal act and an impeachable one.
Sunday, November 2, 2008
Social Security Should Be Voluntarized
Jim Crum has forwarded a link to a September 22, 2007 ABC News article about Barack Obama's plans at that time for "a major tax hike" with respect to Social Security. Obama had said that he aims to raise the wage base ceiling to include all income. As Jim points out in his e-mail, there is a demographic shortfall due to the baby boom bulge.
No matter how you slice it, unless you are a low wage earner and so a recipient of the higher accrual rates that social security pays to the lower salary bands, Social Security is a terrible deal. The actuarial value of $25,000 payments beginning at age 67 are about $250,000. Someone who earns $50,000 per year and works for 40 years puts in $248,000 over a lifetime, excluding interest. If you include interest the value is more than three times as much. Moreover, the employer contributions are not free to employees because they have the effect of reducing employees' wages. The "incidence" of the employer contribution falls largely on employees, so we are really paying the full 12.4% rather than the 6.2% we see taken out of pocket.
I think a good solution would be for the government to allow employees to receive back their contributions to date, perhaps not including the employer contributions or any interest. They're not paying any interest anyway. If they were, a $50,000 lifetime employee would receive a social security benefit of $75,000 per year at age 67, three times what you get.
I would rather get half my money back (the employee portion) without interest at this point than to continue to participate in Social Security. I feel this way on moral grounds alone, but I believe that since I have 13 years to age 67 (I'm being honest there) it would be better for me to have the $75,000 or so than to wait for the piddling benefit that Social Security pays. Washington isn't competent to run Social Security or any other retirement plan. I find it offensive that I have been forced, essentially at gunpoint, to participate in the Social Security boondoggle.
Of course, Barack Obama would rather raise taxes than allow me to invest for my own retirement. I find the violence of social democratic ideology to be intolerable.
Enough people would likely take half their money in cash rather than participate in Washington's crummy Social Security Plan to make the terribly designed and conceptualized plan work. As a result, despite falling demographics the chumps, beggars and slaves who wish to continue to participate in Social Security would be subsidized by those who love freedom and prefer to think for themselves.
No matter how you slice it, unless you are a low wage earner and so a recipient of the higher accrual rates that social security pays to the lower salary bands, Social Security is a terrible deal. The actuarial value of $25,000 payments beginning at age 67 are about $250,000. Someone who earns $50,000 per year and works for 40 years puts in $248,000 over a lifetime, excluding interest. If you include interest the value is more than three times as much. Moreover, the employer contributions are not free to employees because they have the effect of reducing employees' wages. The "incidence" of the employer contribution falls largely on employees, so we are really paying the full 12.4% rather than the 6.2% we see taken out of pocket.
I think a good solution would be for the government to allow employees to receive back their contributions to date, perhaps not including the employer contributions or any interest. They're not paying any interest anyway. If they were, a $50,000 lifetime employee would receive a social security benefit of $75,000 per year at age 67, three times what you get.
I would rather get half my money back (the employee portion) without interest at this point than to continue to participate in Social Security. I feel this way on moral grounds alone, but I believe that since I have 13 years to age 67 (I'm being honest there) it would be better for me to have the $75,000 or so than to wait for the piddling benefit that Social Security pays. Washington isn't competent to run Social Security or any other retirement plan. I find it offensive that I have been forced, essentially at gunpoint, to participate in the Social Security boondoggle.
Of course, Barack Obama would rather raise taxes than allow me to invest for my own retirement. I find the violence of social democratic ideology to be intolerable.
Enough people would likely take half their money in cash rather than participate in Washington's crummy Social Security Plan to make the terribly designed and conceptualized plan work. As a result, despite falling demographics the chumps, beggars and slaves who wish to continue to participate in Social Security would be subsidized by those who love freedom and prefer to think for themselves.
Friday, October 12, 2007
Hillary Clinton Shines Shoes
In 2005 President Bush proposed the establishment of 401-k type stock investment accounts for Social Security. The idea came under attack from the Democrats and was stopped. At the time, the stock market was coming off its 2002 lows. Now, the stock market is reaching new highs. It is therefore curious that the Democrats, notably Hillary Clinton, would choose to propose the very same idea during this presidential primary season. I wonder if there is some kind of financial manipulation lurking behind Clinton's proposal.
In an October 11 editorial, the New York Sun points out that Hillary Clinton opposed establishing Social Security investment accounts two years ago but now she is proposing "private accounts" (separate from Social Security) for all Americans. The Sun editorializes
"Given, this isn't giving workers back the money the government is taking in Social Security taxes as President Bush (and most of the Republican candidates for president) would do, but the accounts — even as add-ons to Social Security — are a huge victory in principle for the Bush view."
I find the Clinton proposal odd for several reasons. First, since 1982 I have been putting previously $2,000, now $5,000 (I believe $4,500 if you're under 50) into Individual Retirement Accounts. The idea was created in 1974 as part of the Employee Retirement Income Security Act of 1974. Paul J. Yakoboski of the Employee Benefit Research Institute notes that:
"The Economic Recovery Tax Act of 1981 (ERTA) extended the availability of IRAs to all workers, including those with pension coverage. The Tax Reform Act of 1986 (TRA '86) retained tax-deductible IRAs for those who did not participate in an employment-based retirement plan (and if married, whose spouse did not participate in such a plan), but restricted the tax deduction among those with a retirement plan to individuals with incomes below specified levels. In addition, TRA '86 added two new categories of IRA contributions: nondeductible contributions, which accumulate tax free until distributed, and partially deductible contributions, which are deductible up to a maximum amount less than the $2,000 maximum otherwise allowable."
Hence, there is absolutely nothing new about retirement accounts for anyone. They are currently available to anyone and everyone, and if you don't have a 401(k) or pension plan, they are tax deductible. It is true that the $4,500 limit is a low percentage of income for anyone earning over $65,000. But there also is such a thing as a SERP, self-employed retirement plan, which serves high earners. As the financially savvy know, Roth IRAs also are available to those who earn less than $150,000. It's not clear to me that the Clinton proposal is more than vacuous, which makes me suspicious. Hillary has to know that IRAs exist, so why would she make this proposal now?
Perhaps Hillary aims to improve benefits for those earning over $65,000 (this is not clear from the Sun article) and doesn't want to say so, but any extensions of the IRA concept will probably have next to no effect on private savings, so this idea would also be vacuous. USA Weekend Magazine pointed out in 2004 when the IRA limits were raised:
>"Even though retirement planning tops the list of Americans' money concerns, astonishingly few people contribute to individual retirement accounts -- a mere 6% of eligible Americans, according to a recent study by the Congressional Budget Office."
Given the small interest in IRAs, what help would extending the IRA concept be? High earners likely save anyway and, more so, typically have access to either a 401(k) (with limits that might bother those earning over $100,000) or a SERP. SERPs have high limits.
An intriguing question that comes to mind is why Hillary would make a proposal which may be a first step toward permitting private accounts in social security at this point in time.
Quoteland.com attributes the following quote to Bernard Baruch, the Wall Street tycoon, in 1929:
"When beggars and shoeshine boys, barbers and beauticians can tell you how to get rich it is time to remind yourself that there is no more dangerous illusion than the belief that one can get something for nothing"
Incidentally, Quoteland also attributes Baruch with the statement "Bears don't live on Park Avenue" (which may explain why I live in West Shokan).
In 2005 the stock market was coming off its 2002 lows. In 2007 the market is at or nearing all-time highs, especially if you have been investing in gold stocks as I have (Randgold (GOLD) courtesy of Howard S. Katz has had a tremendous run and I am breaking out my cigars and champagne.)
The question to ponder is why Hillary would begin to speak about expanding stock market accounts just when the market is reaching all time highs; the dollar is reaching all time lows; inflation is going from very warm to hot; the Chinese are beginning to sell dollars, portending increased inflation; and public awareness of monetary expansion, which has been going on since the 1980s, will result in political pressure to limit monetary expansion aka Fed counterfeiting aka raising the Fed Funds interest rate. That is, inflation will stimulate a declining stock market (the stock market goes up and down because of Fed interest rate policy, i.e., whether the Fed is counterfeiting many new dollars or just a few) because inflation causes public pressure to stop the Fed's counterfeiting; the Fed will then raise interest rates; and the stock market will then decline. Since 1981 the Fed has been counterfeiting many new dollars, which it calls "lowering the Federal Funds rate", and which Howard S. Katz calls "counterfeiting". With increasing inflation, now that the Chinese are tiring of giving billionaire hedge fund managers in the U.S. large welfare subsidies, the risk of a stock market collapse is increasing.
All this makes me wonder why Hillary would begin to think about encouraging small investor interest in the stock market at this point in time.
Several bloggers such as Captain's Quarter's , Cao's blog as well as talk radio have been discussing a nexus between Hillary and speculator George Soros. Whether Soros or others on Wall Street have an interest in seeing an exogenous shock to stimulate stock prices just as the fundamentals are working toward a weakening stock market is a question that deserves some scrutiny.
Another question is what will be the effects, both in terms of actual economic redistribution and in terms of psychology, of the Bush/Clinton proposals to expand stock ownership. The Fed does one thing, increase the money supply. This in turn has two effects: (1)make the rich richer by boosting the stock market because of lower interest rates and (2) make the poor poorer by causing inflation. There is probably some tipping point at which effect (1) becomes outweighed by effect (2) in fact. There is also probably a different tipping point at which effect (1) becomes outweighed by effect (2) in peoples' minds. The two are likely different. If someone has a $100,000 stock account they may be worse off from the net effect of lower interest rates and the higher price of grapefruit, but the higher stock account may be more salient or apparent to them, and they may see themselves as better off. It would not be a far stretch to imagine that Hillary's proposal is linked to the idea of encouraging this kind of wealth illusion, which would have the effect of moderating but not fundamentally changing the effects of Fed policy.
In an October 11 editorial, the New York Sun points out that Hillary Clinton opposed establishing Social Security investment accounts two years ago but now she is proposing "private accounts" (separate from Social Security) for all Americans. The Sun editorializes
"Given, this isn't giving workers back the money the government is taking in Social Security taxes as President Bush (and most of the Republican candidates for president) would do, but the accounts — even as add-ons to Social Security — are a huge victory in principle for the Bush view."
I find the Clinton proposal odd for several reasons. First, since 1982 I have been putting previously $2,000, now $5,000 (I believe $4,500 if you're under 50) into Individual Retirement Accounts. The idea was created in 1974 as part of the Employee Retirement Income Security Act of 1974. Paul J. Yakoboski of the Employee Benefit Research Institute notes that:
"The Economic Recovery Tax Act of 1981 (ERTA) extended the availability of IRAs to all workers, including those with pension coverage. The Tax Reform Act of 1986 (TRA '86) retained tax-deductible IRAs for those who did not participate in an employment-based retirement plan (and if married, whose spouse did not participate in such a plan), but restricted the tax deduction among those with a retirement plan to individuals with incomes below specified levels. In addition, TRA '86 added two new categories of IRA contributions: nondeductible contributions, which accumulate tax free until distributed, and partially deductible contributions, which are deductible up to a maximum amount less than the $2,000 maximum otherwise allowable."
Hence, there is absolutely nothing new about retirement accounts for anyone. They are currently available to anyone and everyone, and if you don't have a 401(k) or pension plan, they are tax deductible. It is true that the $4,500 limit is a low percentage of income for anyone earning over $65,000. But there also is such a thing as a SERP, self-employed retirement plan, which serves high earners. As the financially savvy know, Roth IRAs also are available to those who earn less than $150,000. It's not clear to me that the Clinton proposal is more than vacuous, which makes me suspicious. Hillary has to know that IRAs exist, so why would she make this proposal now?
Perhaps Hillary aims to improve benefits for those earning over $65,000 (this is not clear from the Sun article) and doesn't want to say so, but any extensions of the IRA concept will probably have next to no effect on private savings, so this idea would also be vacuous. USA Weekend Magazine pointed out in 2004 when the IRA limits were raised:
>"Even though retirement planning tops the list of Americans' money concerns, astonishingly few people contribute to individual retirement accounts -- a mere 6% of eligible Americans, according to a recent study by the Congressional Budget Office."
Given the small interest in IRAs, what help would extending the IRA concept be? High earners likely save anyway and, more so, typically have access to either a 401(k) (with limits that might bother those earning over $100,000) or a SERP. SERPs have high limits.
An intriguing question that comes to mind is why Hillary would make a proposal which may be a first step toward permitting private accounts in social security at this point in time.
Quoteland.com attributes the following quote to Bernard Baruch, the Wall Street tycoon, in 1929:
"When beggars and shoeshine boys, barbers and beauticians can tell you how to get rich it is time to remind yourself that there is no more dangerous illusion than the belief that one can get something for nothing"
Incidentally, Quoteland also attributes Baruch with the statement "Bears don't live on Park Avenue" (which may explain why I live in West Shokan).
In 2005 the stock market was coming off its 2002 lows. In 2007 the market is at or nearing all-time highs, especially if you have been investing in gold stocks as I have (Randgold (GOLD) courtesy of Howard S. Katz has had a tremendous run and I am breaking out my cigars and champagne.)
The question to ponder is why Hillary would begin to speak about expanding stock market accounts just when the market is reaching all time highs; the dollar is reaching all time lows; inflation is going from very warm to hot; the Chinese are beginning to sell dollars, portending increased inflation; and public awareness of monetary expansion, which has been going on since the 1980s, will result in political pressure to limit monetary expansion aka Fed counterfeiting aka raising the Fed Funds interest rate. That is, inflation will stimulate a declining stock market (the stock market goes up and down because of Fed interest rate policy, i.e., whether the Fed is counterfeiting many new dollars or just a few) because inflation causes public pressure to stop the Fed's counterfeiting; the Fed will then raise interest rates; and the stock market will then decline. Since 1981 the Fed has been counterfeiting many new dollars, which it calls "lowering the Federal Funds rate", and which Howard S. Katz calls "counterfeiting". With increasing inflation, now that the Chinese are tiring of giving billionaire hedge fund managers in the U.S. large welfare subsidies, the risk of a stock market collapse is increasing.
All this makes me wonder why Hillary would begin to think about encouraging small investor interest in the stock market at this point in time.
Several bloggers such as Captain's Quarter's , Cao's blog as well as talk radio have been discussing a nexus between Hillary and speculator George Soros. Whether Soros or others on Wall Street have an interest in seeing an exogenous shock to stimulate stock prices just as the fundamentals are working toward a weakening stock market is a question that deserves some scrutiny.
Another question is what will be the effects, both in terms of actual economic redistribution and in terms of psychology, of the Bush/Clinton proposals to expand stock ownership. The Fed does one thing, increase the money supply. This in turn has two effects: (1)make the rich richer by boosting the stock market because of lower interest rates and (2) make the poor poorer by causing inflation. There is probably some tipping point at which effect (1) becomes outweighed by effect (2) in fact. There is also probably a different tipping point at which effect (1) becomes outweighed by effect (2) in peoples' minds. The two are likely different. If someone has a $100,000 stock account they may be worse off from the net effect of lower interest rates and the higher price of grapefruit, but the higher stock account may be more salient or apparent to them, and they may see themselves as better off. It would not be a far stretch to imagine that Hillary's proposal is linked to the idea of encouraging this kind of wealth illusion, which would have the effect of moderating but not fundamentally changing the effects of Fed policy.
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