| Number 78 | July 14, 2000 |
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This Week:
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Greetings, I’m going kind of heavy on the Social Security stuff this week. And who cares? Why do I make such a big deal about this? There are a number of reasons that I make such a big deal out it, and I think they will become clear if you take the time to read all three installments, of which this week’s is the 2nd. (There may be a couple of other ones later on this year.) As you might imagine from reading the “Quote” of the Week, I had planned to talk a little bit about the estate tax and the current effort to repeal it. It’s really kind of a minor issue, but I was going to link it to the debate about the death penalty, and the role of the media, and... oh, well, there’s always next week. Welcome to the new readers this week. I certainly get a charge out of hearing from people in other states, other countries. People ask for subscriptions and tell me their daughter sent them a copy of the Notes, or they got it from a friend, or they saw a copy at work, or who knows? Now they have to subscribe, they tell me! I appreciate all of your efforts to spread the word about Nygaard Notes. Thank you. ‘Til next week, Nygaard |
- Citizens for Tax Justice website, in the section, “What arguments can be made in favor of the estate tax?” |
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I was overwhelmed this week when I received an unexpected gift of $500 from a reader who wishes to remain anonymous. Readers will recall that, three weeks ago, I was complaining about my computer problems and half-jokingly appealed for funds to upgrade the system. A very generous reader heeded my call, and surprised me with the generous gift. I wasted no time at all, and the new machine is sitting right beside me, along with the new monitor to replace the one that was killing my eyeballs. The more writing I do, the more I realize how important a reliable computer is to me and to this project. I spend many hours a week doing research on the Internet, corresponding with the many readers who write to me, and helping to maintain not one, but now TWO, websites (see article this issue). So this gift will not only make my eyes less sore, but will also allow me to work more quickly and efficiently with the many programs that I utilize so much. And I can finally stop worrying about crashes! For those of you who care about these things, what I now have is an AMD K-6III 450, with a new 17-inch KDS monitor. Many thanks to Walker, Stuart, Tom, and others for the technical advice that allowed me to make what I think was a very smart purchase. A heartfelt THANK-YOU to “Anonymous!” You know who you are. |
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Long-time readers will know that my project before Nygaard Notes came to dominate my life was something called the “Social Security Project of Minnesota.” This was an educational and advocacy project that consisted of myself and a few other activists - notably the extraordinary JD Walker. We did a lot of research, writing, speaking, and agitating around the issue of Social Security reform, with the aim of exposing the dangers of privatization and also of proposing progressive alternatives for the program that would be more in line with what I think are the best values of Americans. “But this is exactly what you are doing now in Nygaard Notes!” you say. Correct, but there’s more. Back about a year ago, we closed down the Social Security Project of Minnesota (SSPM). We predicted that the issue would not be seriously discussed during a presidential campaign, thereby making the Project irrelevant, at least until after the election. Boy, were we wrong on that one! Since George W. Bush injected his privatization ideology into the campaign, it’s a bigger issue than it ever was. So, we have begun resurrecting the SSPM, although I doubt we will have the time to develop it as fully as it was a couple of years ago. The main thing we have to offer right now is a website, which has much information about Social Security, from its history to the meaning of privatization to who-knows-what. A lot of the information was published in 1998 and 1999, but it is still almost entirely current. For example, Minnesota Senator Rod Grams just hosted a speech last week by Jose Pinera, the architect of the almost-fully privatized Social Security program in Chile. The SSPM website has an analysis of that plan. Senator Grams holds Chile up as a model; we tell another story. The site also includes more recent research and analysis that sheds light on the debate as it is occurring in the 2000 presidential campaign, such as my analysis of the plans of both Bush and Gore. And it includes lots of wonderful links to other progressive sources of information about this crucial issue. Coming up on the site (if I can ever find the time!) is a detailed analysis of the radical privatization plan of Sen. Grams, who coincidentally is running for reelection to the Senate this year. You can find the Social Security Project of Minnesota’s website at: www.freespeech.org/sspm. I encourage you to visit the site as an antidote to the misinformation you will be getting from the corporate media. As always, we welcome comments on the site and the information contained therein. |
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Last week, in Part 1, I described the essential elements of the Personal Retirement Account (PRA) plan for Social Security that has been proposed by presidential candidate George W. Bush. I then began the process of explaining the nine principles of Social Security and speculating on the effect that a PRA plan would have in regard to each principle (The “PRA Effect”). This week I complete the process by looking at Principles #4 through #9. Social Security Principle #4: Contributory and Self-Financed. The fact that workers pay earmarked contributions from their wages into the system reinforces the concept of an earned right (Principle #2) and gives contributors a moral claim on future benefits above and beyond statutory obligations. And, unlike many foreign plans, Social Security is entirely financed by dedicated taxes, principally those deducted from workers' earnings matched by employers, with the self-employed paying comparable amounts. The entire cost of benefits plus administrative expenses (which are only 8/10ths of one percent of income) is met without support from general government revenues. This self-financing system has several advantages. It helps protect the program against having to compete against other programs in the annual general federal budget - which is appropriate, because this is a uniquely long-term program. It imposes fiscal discipline, because the total earmarked income for Social Security must be sufficient to cover the entire cost of the program. And it guards against excessive liberalization: contributors oppose major benefit cuts because they have a right to benefits and are paying for them, but they also oppose excessive increases in benefits because they understand that every increase must be paid for by increased contributions. Thus a semi-automatic balance is achieved between wanting more protection versus not wanting to pay more for it. PRA Effect: Very little. This principle may be strengthened under a PRA plan, as each individual is the owner of their own account. However, when some of the individual accounts fail to produce enough to provide sufficient replacement income, as they inevitably will, the government will have to use general revenues to bridge the gap, which will erode the “Self-financing” part of this principle. Social Security Principle #5: Redistributive. One of Social Security's most important objectives is to pay at least a minimally adequate benefit to workers who are regularly covered and contributing, regardless of how low-paid they may be. This is accomplished through a redistributional formula that pays comparatively higher benefits to low-paid than to high-paid earners. The formula and the idea behind it make good sense. If the system paid back to low-wage workers only the benefit that they could reasonably be expected to pay for on their own, millions of retirees would end up on welfare even though they had been paying into Social Security throughout their working lives. This would make the years of contributing to Social Security worse than pointless, since the earnings deductions would have reduced their income throughout their working years without providing in retirement any income above what would be available from a welfare payment. The redistributional formula solves this dilemma, and, in so doing, reduces the burden of welfare for everyone: those who would otherwise end up on it and the rest who must pay for it. PRA Effect: A PRA system would completely eliminate the Redistributive aspect of Social Security. This may be the single biggest difference between a PRA system and the current program. Social Security Principle #6: Not Means-Tested. In contrast to welfare or other “poor people’s” programs, eligibility for Social Security does not depend on the beneficiary's current income and assets; nor does the amount of the benefit. This is a crucial principle. It is the absence of a means test that makes it possible for people to add to their savings and to establish private pension plans, secure in the knowledge that they will not be penalized by having their Social Security benefits cut back as a result of having achieved additional retirement income security. The absence of a means test allows Social Security to provide a stable role in anchoring a multi-tier retirement system in which private pensions and personal savings can be built on top of Social Security's basic, defined protection. PRA Effect: None. Social Security Principle #7: Wage-Indexed. Social Security is portable, following the worker from job to job, and the protection before retirement increases as wages rise. Benefits at the time of initial receipt are brought up to date with recent wages, reflecting improvements in productivity and thus in the general standard of living. Without this principle, Social Security would soon provide benefits that did not reflect previously attained levels of living. PRA Effect: PRA accounts would be just as portable as in the current system. Social Security Principle #8: Inflation-Protected: Once they begin, Social Security benefits are protected against inflation by periodic Cost of Living Adjustments (COLAs) linked to the Consumer Price Index. Inflation protection is one of Social Security's greatest strengths, and one that distinguishes it from other (except federal) retirement plans. Although a provision for automatic adjustment was not included in the original legislation, the importance of protecting benefits against inflation was well understood, and over the years the system was financed to allow for periodic legislation to bring benefits up to date. PRA Effect: No private pension plan provides guaranteed protection against inflation, and inflation protection under state and local plans, where it exists at all, is capped. Therefore, the value of benefits received from a PRA would decline over time - they could even run out entirely - regardless of the value of the original contributions. Social Security Principle #9: Compulsory: Social Security compels all of us to contribute to our own future security. A voluntary system simply wouldn't work. Some of us would save scrupulously, some would save sporadically, and some would postpone the day of reckoning forever, leaving the community as a whole to pay through a much less desirable and less efficient safety-net system. With a compulsory program, problems of adverse selection -- that is, individuals deciding when and to what extent they want to participate, depending on whether their individual circumstances seem favorable -- are avoided (as are the problems of obtaining adequate funding for a large safety-net program serving a constituency with limited political influence). PRA Effect: This is one of the details that Mr. Bush doesn’t talk about. Most likely all workers would be required to contribute to their PRA. But beyond that it is not clear what would be compulsory. The above list, as I said, comes from former Commissioner of Social Security Robert Ball. I do not agree with all the principles listed above. Next week I will talk about my own principles, what they are based on, and the real reforms that we could enact to conform to those principles. |