Bush to borrow $1-2 TRILLION for Social Security reform

[Phokus]

Party of small government, amirite amirite?

WASHINGTON (Reuters) - The White House said on Monday for the first time that President Bush (news - web sites)'s plan to add personal retirement accounts to Social Security (news - web sites) would be financed in part by new government borrowing that could top $1 trillion.



Bush has made reform of the U.S. retirement program a top priority in his second term and will push for creating private accounts in a meeting later in the day with top congressional leaders.


Bush's economic advisers have been analyzing financing options for more than a year. But the White House, until now, had declined to say that borrowing would be used to cover the transition costs. Experts say Bush has few other options because of record federal budget deficits. The president has ruled out tax increases.


"There will be some upfront transition financing that will be needed to move toward a better system that will allow younger workers to invest a small portion of their own money into personal savings accounts," White House spokesman Scott McClellan said.


Asked if transition costs, estimated at between $1 trillion to $2 trillion, would be financed by government borrowing, he added: "That's what you're looking at doing as part of the transition to a better Social Security system."


McClellan declined to say how much borrowing would be needed. "I'm not committing to any cost estimate at this point, because that's based on the plan that the president endorses," he said.


Bush's economic advisers believe a short-term increase in borrowing is economically feasible, and that the cost of doing nothing would be far greater in the long term. While the nation's debt load would increase initially, it would fall as the reforms are phased in, advocates say.


Democrats have vowed to protect Social Security from "privatization" by Bush and his Republican allies in the U.S. Congress. They warn that the nation's mounting debt load could become a drag on economic growth.


McClellan countered: "The Social Security system is unsustainable. It needs to be fixed."


He said it would cost $10 trillion "if we do nothing... It will lead to either massive tax increases or massive benefit cuts for younger workers."


A recent analysis by the White House Council of Economic Advisers found that tapping the bond markets to pay for private accounts would increase the nation's debt-to-GDP (news - web sites) ratio by 23.6 percentage points by 2036.


Under this scenario, the debt held by the public would increase by as much as $4.7 trillion. But the new government bonds would be repaid 20 years later, eliminating Social Security's unfunded liability while reducing the tax burden in the long term, advocates said.


"The president, at this point, has not endorsed a specific plan," McClellan said.


But Republicans say the Bush administration favors a plan that would allow workers to voluntarily redirect 4 percent of their payroll taxes up to $1,000 annually to a personal account.


Under this scenario, bond proceeds would make up for diverted payroll tax funds and shore up the Social Security system. The bonds would be gradually paid off using future savings from Social Security as benefits growth slowed, officials said.


Bush opposes raising taxes or making changes for those at or near retirement, the White House said.


The White House had once hoped that budget surpluses, projected in 2000 at $5.6 trillion over 10 years, would fund the transition period. But those surpluses have vanished.


he federal budget deficit hit a record of $412 billion in the 2004 fiscal year that ended Sept. 30, and the Congressional Budget Office (news - web sites) has projected $2.3 trillion in accumulated deficits over the next decade.

 

[ReiAyanami]

house leader bill frist lost half a million dollars in one stock account and wants to privatize social security.

the only smart way this can turn out is that SS is revamped so that seniors have to buy secure government bonds because nobody else wants to anymore.

 

[Engineer]

Hmmmm....$1000 per year? Very low. Compounded over 40 years at a very generous 10% interest (probably not substainable), you would have this....

Your monthly deposit of $ 85.00 for 40 years with an interest rate of 10.000% compounded monthly with an initial starting balance
of $ 100.00:Year Balance
1 1178.54
2 2370.03
3 3686.27
4 5140.35
5 6746.68
6 8521.22
7 10481.58
8 12647.21
9 15039.61
10 17682.53
11 20602.19
12 23827.58
13 27390.72
14 31326.96
15 35675.37
16 40479.12
17 45785.89
18 51648.34
19 58124.67
20 65279.16
21 73182.81
22 81914.08
23 91559.63
24 102215.19
25 113986.53
26 126990.49
27 141356.12
28 157226.03
29 174757.72
30 194125.21
31 215520.73
32 239156.64
33 265267.54
34 294112.59
35 325978.10
36 361180.34
37 400068.71
38 443029.21
39 490488.23
40 542916.83

Final Savings Balance: $ 542,916.83

Not huge, but better than zero I guess.

Likewise, if the SS administration gave me back my 70,000 that was paid to them (including the company match) and it was invested for 40 years with no additional investment at the same 10% rate, I would have 3,759,046.42. That sounds like a better deal, but I'll never see any of that money.

 

[alent1234]

Originally posted by: ReiAyanami
house leader bill frist lost half a million dollars in one stock account and wants to privatize social security.

the only smart way this can turn out is that SS is revamped so that seniors have to buy secure government bonds because nobody else wants to anymore.

the fact that SS invests in treasuries is one problem with the system as it is today

 

[SuperTool]

Can we take our SS money and go live somewhere else?
I figure when it's time to retire, I'll move back to Russia and live like a king off of my SS check 🙂

 

[Spencer278]

Nothing like fixxing a bankrupte system like 2 trillion dollars in additional dedt. Just fade out SS.

 

[OS]

What really gets me about this is later generations have to eat the cost (interest+principle) of this reform anyways. How is this really any different than perptually paying into a bankrupt social security setup? Paying off the debt later down the line is money that comes from everyone's paycheck anyways.

 

[nageov3t]

fiscal conservatives surrender.

 

[alent1234]

Originally posted by: OS
What really gets me about this is later generations have to eat the cost (interest+principle) of this reform anyways. How is this really any different than perptually paying into a bankrupt social security setup? Paying off the debt later down the line is money that comes from everyone's paycheck anyways.

later generations will have to eat the cost one way or another

the original premise of SS was 15 workers per retiree and people working for 40 years and living less than 5 years after retiring. In the 1930's the life expectancy was around 70.

Today we have something like 5 worker per retiree and people are living much longer. It is also predicted that the worker/retiree ratio will drop to 2/1 or 3/1 in the coming years as life spans increase even more. On top of this the AARP fights any proposal to increase SS taxes on retirees or decrease benefits.

 

[wirelessenabled]

Borrow and spend. That's the Rebubs!

 

[dannybin1742]

The White House had once hoped that budget surpluses, projected in 2000 at $5.6 trillion over 10 years, would fund the transition period. But those surpluses have vanished

vanished in a tax cut..........by republican controlled house, senate, and executive branch

 

[wchou]

Originally posted by: Engineer
Hmmmm....$1000 per year? Very low. Compounded over 40 years at a very generous 10% interest (probably not substainable), you would have this....

Your monthly deposit of $ 85.00 for 40 years with an interest rate of 10.000% compounded monthly with an initial starting balance
of $ 100.00:Year Balance
1 1178.54
2 2370.03
3 3686.27
4 5140.35
5 6746.68
6 8521.22
7 10481.58
8 12647.21
9 15039.61
10 17682.53
11 20602.19
12 23827.58
13 27390.72
14 31326.96
15 35675.37
16 40479.12
17 45785.89
18 51648.34
19 58124.67
20 65279.16
21 73182.81
22 81914.08
23 91559.63
24 102215.19
25 113986.53
26 126990.49
27 141356.12
28 157226.03
29 174757.72
30 194125.21
31 215520.73
32 239156.64
33 265267.54
34 294112.59
35 325978.10
36 361180.34
37 400068.71
38 443029.21
39 490488.23
40 542916.83

Final Savings Balance: $ 542,916.83

Not huge, but better than zero I guess.

Likewise, if the SS administration gave me back my 70,000 that was paid to them (including the company match) and it was invested for 40 years with no additional investment at the same 10% rate, I would have 3,759,046.42. That sounds like a better deal, but I'll never see any of that money.

true, its too much for anyone to handle! you might use it to buy illegal drugs, so it makes no sense to give you that much at at one time. maybe split it in montly payments of 1k for 40-50 years? doubt you'll live that long but hey that's the trick to keeping the rest of your money.
oh i forgot! let's taxes you at a percentage of 30 as well so out of 1000, you get to keep 700 cuz it's income!

 

[ntdz]

the debt is starting to trouble me, we need to get this under control, NOW. Cut spending in conjuction with SMALL tax increases should do the job.

 

[Dissipate]

Originally posted by: ntdz
the debt is starting to trouble me, we need to get this under control, NOW. Cut spending in conjuction with SMALL tax increases should do the job.

This debt does not have me worried at all. I want to see the whole federal government bankrupt by 2020. I will break out the champagne the day that happens (if it happens).

 

[OS]

Originally posted by: alent1234

Originally posted by: OS
What really gets me about this is later generations have to eat the cost (interest+principle) of this reform anyways. How is this really any different than perptually paying into a bankrupt social security setup? Paying off the debt later down the line is money that comes from everyone's paycheck anyways.

later generations will have to eat the cost one way or another

the original premise of SS was 15 workers per retiree and people working for 40 years and living less than 5 years after retiring. In the 1930's the life expectancy was around 70.

Today we have something like 5 worker per retiree and people are living much longer. It is also predicted that the worker/retiree ratio will drop to 2/1 or 3/1 in the coming years as life spans increase even more. On top of this the AARP fights any proposal to increase SS taxes on retirees or decrease benefits.

More or less, but what I'm also getting at is this "reform" is merely just sweeping the problem under the rug, hiding it from financially illiterate voters and delaying the inevitable. If you borrow more now, it still must be paid off. Combined with our already obscene debt, which there is no hope of paying off anytime for decades, this might just bankrupt the country down the line.

 

[ntdz]

Originally posted by: Dissipate

Originally posted by: ntdz
the debt is starting to trouble me, we need to get this under control, NOW. Cut spending in conjuction with SMALL tax increases should do the job.

This debt does not have me worried at all. I want to see the whole federal government bankrupt by 2020. I will break out the champagne the day that happens (if it happens).

could you elaborate on why?

 

[imported_Leaf]

Sometime in 2006 the dollar will crash and the economy will collapse anyway.

 

[43st]

I thought in the third '04 debate Bush said he would halve the debt in 4 years? What's going on here?

 

[galperi1]

Originally posted by: Thera
I thought in the third '04 debate Bush said he would halve the debt in 4 years? What's going on here?

ROTF, the same thing that happened in his first term. You really didn't expect anything to change did you 🙂

 

[Red Dawn]

Originally posted by: galperi1

Originally posted by: Thera
I thought in the third '04 debate Bush said he would halve the debt in 4 years? What's going on here?

ROTF, the same thing that happened in his first term. You really didn't expect anything to change did you 🙂

Of course not and those who voted for him knew he was full of sh!t, just not as much as Kerry.

 

[Genx87]

More or less, but what I'm also getting at is this "reform" is merely just sweeping the problem under the rug, hiding it from financially illiterate voters and delaying the inevitable. If you borrow more now, it still must be paid off. Combined with our already obscene debt, which there is no hope of paying off anytime for decades, this might just bankrupt the country down the line

The debt while obscene in absolut dollars is nowhere near its highest point in terms of GDP.

I thought in the third '04 debate Bush said he would halve the debt in 4 years? What's going on here?

You need to listen better. He and John Kerry both talked about lowering the deficit by half in 4 years.
I believe last years deficit was nearly 500 Billion. Bush has got the deficit for 2004 down to ~410. He is 160 billion from his goal.

 

[Mursilis]

Originally posted by: alent1234

Originally posted by: OS
What really gets me about this is later generations have to eat the cost (interest+principle) of this reform anyways. How is this really any different than perptually paying into a bankrupt social security setup? Paying off the debt later down the line is money that comes from everyone's paycheck anyways.

later generations will have to eat the cost one way or another

the original premise of SS was 15 workers per retiree and people working for 40 years and living less than 5 years after retiring. In the 1930's the life expectancy was around 70.

According to this CDC table, the average life expectancy was just under 62 years in the 1930's (1935, to be precise, the year the Social Security Act was passed). Obviously, not many people were even expected to ever draw SS benefits.

Today we have something like 5 worker per retiree and people are living much longer. It is also predicted that the worker/retiree ratio will drop to 2/1 or 3/1 in the coming years as life spans increase even more. On top of this the AARP fights any proposal to increase SS taxes on retirees or decrease benefits.

Not to mention the fact that old people vote, and young people don't; thus, the old are screwing over the young, and the young are doing nothing about it.

 

[TastesLikeChicken]

At least Bush is actually trying to fix the problem, which is more than can be said for many that came before him.

 

[GrGr]

"As for the bubble economy, pensions and Social Security will go first. The
US can't afford to bail them out and still plan the giveaways to the
wealthiest 10 percent of the population who are the net creditors to the
bottom 90 percent. Pension obligations were expected to absorb only 5 or 10
percent of production costs, but now they are absorbing nearly all the
reported profits, and threaten to eat into the money available to repay the
banks and bondholders. The big investors want to be paid, and this means
taking money that was earmarked for employees.

The only question is whether the US government will bail out the individual
wealthy investors. The working motto in such cases is that big fish always
eat little fish. Breughel had a great etching on this topic.

The states and the municipalities will go next. They are among the little
fish. Bush's tax cuts have slashed their tax receipts. Cutting taxes for New
York City and most other localities is causing layoffs and widening
unemployment, just the opposite from what Bush's economists claim to be the
case. Today's mode of supply side economics will lead to shrinking markets,
shrinking employment and intensify the financial squeeze on California and
other states, as well as cities throughout the country."

Michael Hudson

 

[Engineer]

Originally posted by: Genx87

More or less, but what I'm also getting at is this "reform" is merely just sweeping the problem under the rug, hiding it from financially illiterate voters and delaying the inevitable. If you borrow more now, it still must be paid off. Combined with our already obscene debt, which there is no hope of paying off anytime for decades, this might just bankrupt the country down the line

The debt while obscene in absolut dollars is nowhere near its highest point in terms of GDP.

I thought in the third '04 debate Bush said he would halve the debt in 4 years? What's going on here?

You need to listen better. He and John Kerry both talked about lowering the deficit by half in 4 years.
I believe last years deficit was nearly 500 Billion. Bush has got the deficit for 2004 down to ~410. He is 160 billion from his goal.

GDP doesn't mean much to an ACCUMULATING debt. GDP is also 1/3 (thanks GrGr) imports.

The projected deficit was 500 billion, not the actual. He knew the 413 figure when he said that he was going to cut it in half. Even still, cutting to ONLY 206.5 sucks. Oh, and Kerry wasn't elected so it doesn't matter what he said.