# Linda Lutton on Bush tax cut **URL:** \ **Category:** Great Debates\ **Created:** [August 17, 2001, 8:18pm UTC](https://boards.straightdope.com/t/linda-lutton-on-bush-tax-cut/76804 "2001-08-17T20:18:38Z")\ **Posts on this page:** 20\ **Page:** 7
**Author:** ![Tejota](https://avatars.discourse-cdn.com/v4/letter/t/958977/32.png) [@Tejota](https://boards.straightdope.com/u/Tejota)\ **Post date:** [August 21, 2001, 11:18pm UTC](https://boards.straightdope.com/t/linda-lutton-on-bush-tax-cut/76804/121 "2001-08-21T23:18:23Z")
> [@](#): > > \*Originally posted by CyberPundit \* > December, > Your point 1 seems to be a response to my question about why an SS surplus should be run but I am not sure it answers the question in any way. The basic argument of the Bush people is that assets accumulated by SS are not real assets because they are basically an IOU from the tax payers to themselves. But if you believe that what exactly is the point of running an SS surplus at all? The accounting is quite distinct from the economics. The point of running a surplus is that you can an excess of SS tax to finance an income tax cut for the rich. ---
**Author:** ![december](https://avatars.discourse-cdn.com/v4/letter/d/838e76/32.png) [@december](https://boards.straightdope.com/u/december)\ **Post date:** [August 21, 2001, 11:28pm UTC](https://boards.straightdope.com/t/linda-lutton-on-bush-tax-cut/76804/122 "2001-08-21T23:28:49Z")
> [@](#): > > \*Originally posted by CyberPundit \* > Well from the point of view of capital accumulation a dollar in lower taxes stimulates investment mainly to the extent that that dollar is saved, a very small percentage currently in the US. OTOH every dollar used to to reduce the deficit or reduce the debt will reduce crowding out significantly. OK, but lower taxes encourage busnesses to expand and new businesses to form. The tax rate is more important than ever before because we have a world economy. The US competes with other countries to attract businesses, and lower tax rates help us to compete. For these reasons, lower taxes may well do more for the economy than reduced deficits. In any event, the case the other way is far too weak to justify equating a reduced deficit with a “mythical” lock box. Let’s get real. It’s effective politics to discuss the lock box. After the fact, someone tried to give the term some sort of meaning, but in truth the term is used because it sounds good. > [@](#): > > To name only one of the inconsistencies in the Bush line; let me mention one by in PK’s latest column ie when SS becomes unable to meet its obligations in a few decades its deficits will as a percentage of GDP be roughly the same as the Bush tax cuts. In other words it is inconsistent to say that SS is going to be in deep crisis and at the same time say that the Bush tax cut was affordable and moderate. Without the Bush tax cut there would barely be any SS crisis at all. There is no particular reason why SS liabilites can’t be funded from general taxes. I think I answered this in my last post. SS has been insolvent for some time (I think) according to their own standards. Their standards are not running out of cash today, but not running out of cash over a 75-year projection. Note PK’s column today discussed the deficit in 2025, but it fails to mention how much worse it will become after that time and it ignores the huge and growing Medcare deficit. Also, since SS benefits are paid from SS assessments, it wouldn’t matter if the rest of the budget had a surplus. > [@](#): > > Could you give examples where you think PK has sacrificed good economics for ideology? I’d be happy to. Just in today’s column, PK had the following distortions: 1. Ignored SS 75-year solvency criterion. 2. He said the that a system of private accounts would “create a cash crisis.” This is a way of lying by telling a part of the truth. He’s right that private accounts would need cash in the short term, but the cash would be fully paid back, since the private acoounts would pay a portion of future benefits. In short, he implied that we couldn’t afford the private accounts, whereas we can afford them (whether or not they’re a good idea.) Also, he recommended that the SS system invest a part of their Trust Fund in real assets, even though his approach have the same “cash crisis” as if individuals made their own investment decisions. 3. He said that “as much as 30% of the value of private accounts would end up consumed by administrative costs.” This is preposterous. Similar privately operated accounts run at overhead of around 1%. Given the high efficiency of SS and the size of the program, the overhead to SS would likely be lower. 4. He insulted Bush throughout, e.g. “Bush admin’s hand-picked commission on SS” – actually it’s 50-50 between Dems and Reps. “violating the spirit if not the letter of the law” – In other words, it _doesn’t_ violate the law. BTW how does PK know the “spirit of the law”? “The commission’s analysis also somehow ignores the $6 trillion in surpluses…the mysterious disappearance…” – I just don’t believe him. They committee’s work must have been done by expert actuaries from SSA who wouldn’t ignore $6 trillion. “the administration…playing its usual game of three-card monte…” “…the only serious threat…comes from those who want to panic us…” 'Nuff said. > [@](#): > > To both Sam and December, > If you believe that the running an SS surplus doesn’t help capital accumulation and is useless doesn’t that mean that logicaly there is no point in ever having an SS surplus. Doesn’t it mean that payroll taxes should be cut to eliminate the surplus. And since the SS surplus accounts for a lot of the “surplus” shouldn’t payroll tax cuts have come before income tax cuts especially since the two have a very different distribution. I answered this already. The SS surplus comes from treating the SS program as a stand-alone insurance plan with a payroll tax rate that will be adequate to cover benefits for 75 years. **CP** , your question would make sense if SS were treated as just another government obligation. Then, one could eliminate SS assessments altogether, and just raise the income tax. Reading between the lines, PK is promoting that approach (but without mentioning that it would be a fundamental structural change.) Conceivably such a change might be a good idea, but it simply isn’t the way the system works. ---
**Author:** ![Sam\_Stone](https://avatars.discourse-cdn.com/v4/letter/s/ecccb3/32.png) [@Sam\_Stone](https://boards.straightdope.com/u/Sam_Stone)\ **Post date:** [August 21, 2001, 11:50pm UTC](https://boards.straightdope.com/t/linda-lutton-on-bush-tax-cut/76804/123 "2001-08-21T23:50:35Z")
The difference between those on the left like Cyberpundit and Paul Krugman and those of us on the right like december and I, is that we don’t believe that the government is a good steward of our money. You seem to think that the Bush tax cut was dangerous or irresponsible. My response to that would be that the GOVERNMENT is irresponsible, and therefore should not be left with a big surplus in the first place. By getting that money out of Washington, Bush kept it from being blown. In that sense, he was like a fiscally responsible wife having to hide the paychecks from her drunken husband so he wouldn’t blow the money. Congress has been on a ridiculous spending spree for some time now. Government spending has been growing faster than inflation and population increases combined, even though the economy is stronger and unemployment and welfare payments have dropped substantially. If the money were there to spend, it WOULD be spent. Of that, I have no doubt. It wouldn’t be saved for a rainy day, or used to pay down the debt. It would be blown on dozens of set-asides, bill riders, and whole new entitlement programs (and there are lots of them on the Democratic wish list - funded day-care, prescription coverage for seniors, low-income health care subsidies, etc). And the Republicans are not much better, and have their own pet programs they would love to throw money at. All the arguments about what could ideally be done with that money assumes an ideal government. In the real world, that money would be like giving crack to an addict. You’d wind up with a bloated government and whole new raft of entitlements that become politically untouchable, and Social Security would be even worse off. And I don’t understand your capital accumulation argument. Doesn’t putting the money back into the economy lead to economic growth that will also make it easier for us to handle the shortfalls in the future? I think one of the reason’s Bush’s tax cut passed was because he really did all the politicians on Capital Hill a big favor. Now the Democrats can complain about they can’t afford all the social programs they want, and those who are fiscally responsible can tell their constituents, “Hey, I’d really like to get you guys that new stadium, but after Bush’s tax cut we just can’t afford it.” This gives them a politically palatable ‘out’ to seem fiscally responsible AND in favor of social programs. Win-win for them. ---
**Author:** ![Tejota](https://avatars.discourse-cdn.com/v4/letter/t/958977/32.png) [@Tejota](https://boards.straightdope.com/u/Tejota)\ **Post date:** [August 22, 2001, 12:04am UTC](https://boards.straightdope.com/t/linda-lutton-on-bush-tax-cut/76804/124 "2001-08-22T00:04:39Z")
> [@](#): > > \*Originally posted by december \* > > 1. Ignored SS 75-year solvency criterion. relevance? Private accounts will have no effect on long term solvency of the SS. They are a zero sum game, as Alan Greenspan recently pointed out. > [@](#): > > 1. He said the that a system of private accounts would “create a cash crisis.” This is a way of lying by telling a part of the truth. He’s right that private accounts would need cash in the short term, but the cash would be fully paid back, since the private acoounts would pay a portion of future benefits. In short, he implied that we couldn’t afford the private accounts, whereas we can afford them (whether or not they’re a good idea.) True enough, neglecting the cost of buracracy, private accounts neither help nor harm. > [@](#): > > 1. He said that “as much as 30% of the value of private accounts would end up consumed by administrative costs.” This is preposterous. Similar privately operated accounts run at overhead of around 1%. Given the high efficiency of SS and the size of the program, the overhead to SS would likely be lower. I adressed this already, though you ignored it. An overhead of 1% per annum adds up over the lifetime to a significan portion of the total. If you are suggesting that the private accounts would have a 1% lifetime overhead, I think you need to explain why anyone would be willing to manage them for such a tiny sum. On the other hand, without private accounts, you have a simpler buracracy and NO cost of management as a percentage of value. Therefore, private accounts will result in a net transfer of wealth OUT of the hands of SS and INTO the hands of account managers and bureaucrats. > [@](#): > > 1. He insulted Bush throughout, e.g. Irrelevant even if true. It may offend you, but it affects the validity of argument not at all. > [@](#): > > “Bush admin’s hand-picked commission on SS” – actually it’s 50-50 between Dems and Reps. and 100% of them were known BEFORE THE FACT to be in favor of privatization. The fact that half of them are from each party is nothing more than political cover. There are NO opponants of privatization on that committee. > [@](#): > > “The commission’s analysis also somehow ignores the $6 trillion in surpluses…the mysterious disappearance…” – I just don’t believe him. They committee’s work must have been done by expert actuaries from SSA who wouldn’t ignore $6 trillion. Then you didn’t read the analysis. He is correct. They (like the Cato institute) pretend that the surplus are not real assets and therefore can’t be used to pay for benefits after 2016 when they will be needed. > [@](#): > > “the administration…playing its usual game of three-card monte…” This is true. The Bush administration has been lying with ‘fuzzy math’ since the campaign. Their budget was full of fake numbers and accounting tricks, not to mention a surplus estimate that they **knew** was inflated. (and what do you know, the new numbers are out, and the surplus is somehow GONE. Who could have known? :rolleyes:). Their 1.3 trillion tax cut is also full of tricks, like the 1-year-only estate tax repeal. There hasn’t been a single **honest** argument about money out the Bush white house yet. Why should SS be any different? > [@](#): > > “…the only serious threat…comes from those who want to panic us…” Also true. Dec, you may not like what he says. But you ought to be math literate enough to do your homework and find out who is lying and who isn’t. Try actually reading the SS commision report, it is indeed a docment meant to panic rather than inform. ---
**Author:** ![Kimstu](https://avatars.discourse-cdn.com/v4/letter/k/ecd19e/32.png) [@Kimstu](https://boards.straightdope.com/u/Kimstu)\ **Post date:** [August 22, 2001, 12:20am UTC](https://boards.straightdope.com/t/linda-lutton-on-bush-tax-cut/76804/125 "2001-08-22T00:20:21Z")
**SS:** \*[…] we don’t believe that the government is a good steward of our money. You seem to think that the Bush tax cut was dangerous or irresponsible. My response to that would be that the GOVERNMENT is irresponsible, and therefore should not be left with a big surplus in the first place. […] If the money were there to spend, it WOULD be spent. Of that, I have no doubt. It wouldn’t be saved for a rainy day, or used to pay down the debt. It would be blown on dozens of set-asides, bill riders, and whole new entitlement programs (and there are lots of them on the Democratic wish list - funded day-care, prescription coverage for seniors, low-income health care subsidies, etc). […] All the arguments about what could ideally be done with that money assumes an ideal government. In the real world, that money would be like giving crack to an addict. […] \* Gee **Sam** , and you’re trying to convince **jshore** that you’re not a “zealot with some sort of unquestioning faith in the market”? 😉 You seem to be closing your eyes to the fact that individuals and private enterprises are often not “good stewards of our money”, either; that they are “irresponsible” and “blow” money on short-term needs too; that they are frequently dishonest, inefficient, and self-interested to an extent that would make a bureaucrat or politician blush. As I keep saying, you just can’t allocate all the virtues or all the flaws to **either** side of our mixed system. And you also seem to be ignoring the fact that the government **does** sometimes take fiscally responsible positions, such as eliminating the budget deficit and paying off part of the national debt. Your convictions about the government’s fundamental incapability to do anything right are leading you to contradict actual events. (I also think that your ideas of what constitutes the government’s “blowing” money seem strange beyond belief, since I think of day care and health care subsidies as part of the wise commitment to infrastructure investment that so many economists agree is actually **good** for the economy; but I know better than to expect to agree with a libertarian on this particular issue. :)) ---
**Author:** ![december](https://avatars.discourse-cdn.com/v4/letter/d/838e76/32.png) [@december](https://boards.straightdope.com/u/december)\ **Post date:** [August 22, 2001, 12:59am UTC](https://boards.straightdope.com/t/linda-lutton-on-bush-tax-cut/76804/126 "2001-08-22T00:59:17Z")
**Tejota** , at **CP’s** request I was showing where “PK has sacrificed good economics for ideology.” > [@](#): > > \*Originally posted by Tejota \* > > > [@](#): > > > > \*Originally posted by december \* > > > > 1. Ignored SS 75-year solvency criterion. > > relevance? PK falsely implied that absent W’s tax cut SS would have been balanced in 2025. Balance would require satisfying this criterion. > [@](#): > > I adressed this already, though you ignored it. An overhead of 1% per annum adds up over the lifetime to a significant portion of the total. If you are suggesting that the private accounts would have a 1% lifetime overhead, I think you need to explain why anyone would be willing to manage them for such a tiny sum. Well I thought of this interpretation as I was writing the previous post. If this is what PK meant, I leave it to the reader to decide whether he was inviting misunderstanding by not mentioning that 30% was a high estimate of a lietime admin cost. BTW, an investment in bonds with, say, a 0.5% per year overhead would still be a lot better than the return provided by SS. **Tejota** , if you could invest a portion of your SS in bonds, would a 0.5% overhead per year stop you? Of course not. PK was dissembling by implying that the overhead is a big deal when it actually isn’t. > [@](#): > > > [@](#): > > > > 1. He insulted Bush throughout, e.g. > > Irrelevant even if true. It’s relevant to _my_ point, since hatred of Republicans is a part of PK’s ideology, not a part of his economics. > [@](#): > > > [@](#): > > > > “Bush admin’s hand-picked commission on SS” – actually it’s 50-50 between Dems and Reps. > > and 100% of them were known BEFORE THE FACT to be in favor of privatization. The fact that half of them are from each party is nothing more than political cover. There are NO opponants of privatization on that committee. This is true, although it’s not what PK said. > [@](#): > > Then you didn’t read the analysis. He is correct. They (like the Cato institute) pretend that the surplus are not real assets and therefore can’t be used to pay for benefits after 2016 when they will be needed. True, I didn’t read the analysis. This sounds interesting, although it’s not what PK said. Also, I still can’t believe that you or PK know more about SS than the SSA actuaries. > [@](#): > > > [@](#): > > > > “the administration…playing its usual game of three-card monte…” > > This is true. It’s obviusly not literally true, and it’s an insult, since 3 card monte is a scam. I think Bush’s math is a lot more honest than Gore’s was during the campaign. But, let’s face it, politicians have traditionally be optimistic about budgets. That doesn’t make Gore and Bush swindlers. > [@](#): > > Their 1.3 trillion tax cut is also full of tricks, like the 1-year-only estate tax repeal. This beauty wasn’t a part of Bush’s proposal; it came from Congress. BTW I intend to stay far away from my children in 2010. 🙂 There hasn’t been a single **honest** argument about money out the Bush white house yet. Why should SS be any different? > [@](#): > > > [@](#): > > > > “…the only serious threat…comes from those who want to panic us…” > > Also true. Really? You can imagine no other serious threats? I could think of dozens. > [@](#): > > Try actually reading the SS commision report… Good idea. Can you tell me how to get it on the internet? ---
**Author:** ![december](https://avatars.discourse-cdn.com/v4/letter/d/838e76/32.png) [@december](https://boards.straightdope.com/u/december)\ **Post date:** [August 22, 2001, 2:03am UTC](https://boards.straightdope.com/t/linda-lutton-on-bush-tax-cut/76804/127 "2001-08-22T02:03:45Z")
> [@](#): > > “[T]he OASDI program is not in close actuarial balance over the full 75-year projection period and therefore does not meet the long-term solvency test. This result is not different from the reports of the last several years.” > > “[A]nnual tax revenue would be **sufficient to cover only about 2/3** of annual expenditures at the end of the 75-year period.” > > “In view of the size of the financial shortfall in the OASDI [Old Age and Survivors Insurance and Disability Insurance] program over the next 75 years, we again urge that the long-range deficits of both the OASI and DI Trust Funds be addressed in a timely way.” > > - 2000 OASDI Trustees Report SS revenues are supposed to be able to cover the full expenditures for 75 years. In fact, they’re only large enough to cover 2/3. This is very serious, especially because there is always the risk that costs and income may not match projections. Those who minimize the problem are playing politics in a dangerous way. ---
**Author:** ![Tejota](https://avatars.discourse-cdn.com/v4/letter/t/958977/32.png) [@Tejota](https://boards.straightdope.com/u/Tejota)\ **Post date:** [August 22, 2001, 2:12am UTC](https://boards.straightdope.com/t/linda-lutton-on-bush-tax-cut/76804/128 "2001-08-22T02:12:26Z")
> [@](#): > > \*Originally posted by december \* > BTW, an investment in bonds with, say, a 0.5% per year overhead would still be a lot better than the return provided by SS. **Tejota** , if you could invest a portion of your SS in bonds, would a 0.5% overhead per year stop you? Of course not. PK was dissembling by implying that the overhead is a big deal when it actually isn’t. The overhead IS big deal, because without private accounts you don’t HAVE overhead. (or rather, you have a fixed-cost relatively small overhead vs. a commission-on-each-private account sort of overhead). Also, the belief that private investment will increase total value is false. I don’t care what your rate of return is, the aggregate effect will be NIL. (the actual definition of NIL, not your private one). Alan Greenspan pointed out recently the obvious: That individual accounts would have no affect on GNP, and therefore if it DID increase the total wealth in the hands of SS memebers, it could only do so by taking wealth from some other part of the economy, which in turn would cause inflation, or siphon money out of the general tax coffers or in some way reduce spending power. Money isn’t magic. It represents the value of goods and servies. Unless you actually increase the amount of G&S, then you’re playing a zero sum game. No matter how you slice it, it’s the productivity of current workers that creates the GNP, and, one way or another, retirement benefits spend a portion of that. The only way to pay SS benefits without increasing tax rates is to somehow increase the TOTAL wealth in the US. Which means that anything that doesn’t increase GNP is a non-solution. Now the People at the Cato institute (who essentially wrote the commission’s report for them) **know this also**. They are libertarians, but they aren’t stupid. So they know privatization is of no help. But they also know, that if they can change the public’s perception of SS from an _insurance against poverty program_ which is what it is (and IMO should be). to a _retirement program_. Then they can convincingly make the case that since SS isn’t as productive a retirement program for the middle class as one that was entirely private would be, we should just do away with SS entirely. And since, at that point, it would be possible to identify the _exact assets_ of each person within a (privatized) SS program. It’s a simple matter to roll that money into individual IRA’s and close down SS entirely. That is the Cato institutes goal. Though not necessarily the Bush administration’s > [@](#): > > > [@](#): > > > > “the administration…playing its usual game of three-card monte…” > > This is true. It’s obviusly not literally true, and it’s an insult, since 3 card monte is a scam. I think Bush’s math is a lot more honest than Gore’s was during the campaign. But, let’s face it, politicians have traditionally be optimistic about budgets. That doesn’t make Gore and Bush swindlers. [/quote] On the contrary, Gore’s numbers where much more honest, (allthough still not completely so.). You see, Gore didn’t _need_ to lie with the numbers. An honest reading gave the results he wanted to convey. The current arguments for the ‘benefits’ of privatization are just that, a shell game of misleading numbers and arguments designed to fool the american people. This _is_ a scam. And while I don’t personally believe that Bush is math-literate to understand this. The people who will iron out the details are. Bush is the charming, ignorant front man who can sell the idea because he _believes_ it. It fits with his prejudices and he’s too lazy to look beyond them. But all you have to do to know this is a scam is to step back and look at what wealth _is_. And what it takes to make total wealth grow. Private accounts won’t do this, they can’t. > [@](#): > > Really? You can imagine no other serious threats? I could think of dozens. In the context of fixing the solvency of SS, there are no _serious_ threats other than panic. The fair and honest answers are obvious: there must be a modest reduction in benefits and a modest increase in funds. The sooner this happens, the more modest they can be. Privatization does neither of these two things. At best it’s a distraction from solving the problem. At worst, it’s a scam designed to kill the the whole program. > [@](#): > > Try actually reading the SS commision report… Good idea. Can you tell me how to get it on the internet? \*\* [/QUOTE] [/quote] try [here](http://csss.gov/reports/Report-Final.pdf) ---
**Author:** ![CyberPundit](https://avatars.discourse-cdn.com/v4/letter/c/76d3ee/32.png) [@CyberPundit](https://boards.straightdope.com/u/CyberPundit)\ **Post date:** [August 22, 2001, 2:38am UTC](https://boards.straightdope.com/t/linda-lutton-on-bush-tax-cut/76804/129 "2001-08-22T02:38:04Z")
december, Ironically enough you don’t seem to understand the Bush argument for ignoring the assets accumulated by SS(unless that is you agree with Krugman et al that they should be counted as proper assets). That btw is the debate about the 6 trillion that you mention. The Bush argument is that because treasury bonds are just IOU’s which will be paid for by taxes they shouldn’t be considered as real assets. The (valid) counter-argument to that is that the treasury bonds bought with SS funds prevented crowding out of private investment and therefore do indeed represent real benefits to the economy. My main points is that if you believe the Bush argument that SS assets are worthless then logically you should also believe that payroll taxes should be cut to eliminate any SS surplus. Citing accounting conventions like you do isn’t a response because Bush’s argument is that the accounting conventions ignore economic reality. “For these reasons, lower taxes may well do more for the economy than reduced deficits. In any event, the case the other way is far too weak to justify equating a reduced deficit with a “mythical” lock box.” Huh? this is just pure assertion on your part. A reason to believe that the truth is almost exactly the opposite is the productivity performance of the 80’s as compared to the productivity performance of the late 90’s once the deficits started going down. The bottom line is that once you adjust for the cycle there was no significant productivity increase in the 80’s compared to the 70’s. The lower taxes didn’t do much to stimulate the supply side at all. If you want we can pull out statistics to prove this. BTW PK has been explicit in advocating using general tax revenues to fund SS deficits in the past. What is wrong with that when SS have been used in the past to fund general spending? There is no economic reason why income taxes can’t be used to fund SS. The bottom line is that you haven’t really shown any bad economics on PK’s part just that you don’t agree with his politics. Sam, First of all I am not a leftist. Honest!!😉 I don’t have any views one way or another about the virtues of government spending unless I can look at the specific programme and what it does. I am not really sure how to respond to your post since it’s seems more of a political manifesto rather than any kind of argument. You state that income tax cuts also help capital accumulation. But if income tax cuts come at the cost of deficits or non-reduction of the debt they will probably crowd out more private investment than they will stimulate. At least that is the belief of the majority of economists and it is well supported , as I said, by the relative economic performance of the 80’s compared to the 90’s. ---
**Author:** ![december](https://avatars.discourse-cdn.com/v4/letter/d/838e76/32.png) [@december](https://boards.straightdope.com/u/december)\ **Post date:** [August 22, 2001, 2:57am UTC](https://boards.straightdope.com/t/linda-lutton-on-bush-tax-cut/76804/130 "2001-08-22T02:57:31Z")
**Tejota** , I don’t know how old you are or what your profession is. Your post communicates today’s Democratic line, but there’s a certain amount of stuff with which I do not agree. > [@](#): > > \*Originally posted by Tejota \* > The overhead IS big deal, because without private accounts you don’t HAVE overhead. (or rather, you have a fixed-cost relatively small overhead vs. a commission-on-each-private account sort of overhead). I have invested in bond funds with overheads of around 0.5% per year. My 401k is invested in the type of fund that Bush proposes for SS. These instruments are enormously popular. It’s a cinch that they would be popular if offered by SS, despite the overhead cost. And, if anyone didn’t like the overhead cost, they could choose not to participate, since the private accounts would be volutary. **Tejota** , if private accounts are available, will you choose to put a portion of _your_ money in one? > [@](#): > > Also, the belief that private investment will increase total value is false… and therefore if it DID increase the total wealth in the hands of SS memebers, it could only do so by taking wealth from some other part of the economy, which in turn would cause inflation, **or siphon money out of the general tax coffers** or in some way reduce spending power. Taking money out of tax coffers means less government spending. Conservatives like this and liberals dislike it. > [@](#): > > The only way to pay SS benefits without increasing tax rates is to somehow increase the TOTAL wealth in the US. Which means that anything that doesn’t increase GNP is a non-solution. Take another look at the excerpt from the 2000 OASDI Trustees Report. Current assessment rates are will only pay 2/3 of promised benefits over the next 75 years. That means that assessments would need to be raised by about 50% to bring the system into proper balance! That means that **there is NO way to pay SS benefits without increasing tax rates.** > [@](#): > > So they know privatization is of no help What they mean is that privatization is of no help long-term to the overall economy. This is debateable. However, privatization certainly could help ME if I put a portion of my SS assessment into investments that earn a better return than SS would provide. > [@](#): > > But they also know, that if they can change the public’s perception of SS from an _insurance against poverty program_ which is what it is (and IMO should be). to a _retirement program_. Glad to know your opinion, but SS has ALWAYS been considered a retirement program, not because of the Cato Institute, but because of Franklin Roosevelt. > [@](#): > > You see, Gore didn’t _need_ to lie with the numbers. An honest reading gave the results he wanted to convey. On the contrary, the new programs promised by Gore would have used up the surplus several times over, and he also promised to increase the surplus! But, I don’t hold it against him; this is SOP for politicians. I DO blame him for discussing the “lock box.” If he was simply lying, then I don’t mind. But, what if he thought there really was a lockbox? > [@](#): > > And while I don’t personally believe that Bush is math-literate to understand this. I must agree. Gore, too. IIRC neither of them took a single math or science course in college. OTOH W does have the Harvard MBA, so he may have studied some finance. Ironically the recent President who knew the most math was probably Jimmy Carter, and he made balls of the economy. > [@](#): > > In the context of fixing the solvency of SS…there must be a modest reduction in benefits and a modest increase in funds. The sooner this happens, the more modest they can be. Yes, except that the changes required are not modest. They will need to be quite large, and this is a political and economic problem. There are many low-wage workers for whom OASDI is bigger than income tax. Can you imagine the impact of raising their assessment 50%. Or, can you imagine the impact of reducing benefits by 33%? > [@](#): > > Privatization does neither of these two things. At best it’s a distraction from solving the problem. At worst, it’s a scam designed to kill the the whole program. Yes, privatization does not bring SS into balance. However, it could partially cushion the impact of the inevitable benfit decreases. ---
**Author:** ![jshore](https://avatars.discourse-cdn.com/v4/letter/j/b5e925/32.png) [@jshore](https://boards.straightdope.com/u/jshore)\ **Post date:** [August 22, 2001, 3:09am UTC](https://boards.straightdope.com/t/linda-lutton-on-bush-tax-cut/76804/131 "2001-08-22T03:09:37Z")
> [@](#): > > \*Originally posted by Sam Stone \* > Government spending has been growing faster than inflation and population increases combined, even though the economy is stronger and unemployment and welfare payments have dropped substantially. Perhaps so…But another way to look at it is that government spending has been falling as a percentage of the GNP and is now down to levels not seen since the 60’s. Since the GNP is at least roughly equal to (modulo trade deficits?) everyone’s spending put together, the government is being more miserly than everyone else! ---
**Author:** ![jshore](https://avatars.discourse-cdn.com/v4/letter/j/b5e925/32.png) [@jshore](https://boards.straightdope.com/u/jshore)\ **Post date:** [August 22, 2001, 3:24am UTC](https://boards.straightdope.com/t/linda-lutton-on-bush-tax-cut/76804/132 "2001-08-22T03:24:31Z")
> [@](#): > > \*Originally posted by december \* > I have invested in bond funds with overheads of around 0.5% per year. My 401k is invested in the type of fund that Bush proposes for SS. These instruments are enormously popular. It’s a cinch that they would be popular if offered by SS, despite the overhead cost. And, if anyone didn’t like the overhead cost, they could choose not to participate, since the private accounts would be volutary. I think you are missing the point here. Tejota is trying to get at the question of the total amount of money going to retirees. You are finessing that question…which involves complicated issues like where the money is going to come from to pay the conversion costs of going from pay-as-you-go to “save my money for when I retire”…in a way that masks those costs! Tejota’s (and PK’s) point is simply that the total amount of overhead in the system right now is very small (on the order of \<1%, I believe…and that’s NOT 1% per year on your total investment compounded over the lifetime of it, as in the case of private funds). And that overhead will go up. That, in the end, means less money going to retirees but a hell of a lot going to the bureaucracy of the investment industry (which admittedly will benefit people too, but not quite what was intended…unless you are advocating privatization as some sort of job creation program). > [@](#): > > That means that assessments would need to be raised by about 50% to bring the system into proper balance! That means that **there is NO way to pay SS benefits without increasing tax rates.** > > There are many low-wage workers for whom OASDI is bigger than income tax. Can you imagine the impact of raising their assessment 50%. Or, can you imagine the impact of reducing benefits by 33%? Even if the relatively conservative scenarios of economic growth used in the SS accounting do pan out, one can get SS solvent by much less painful scenarios. Apparently, just eliminating the earnings cap above which the SS tax cuts out would get you a good deal of the way there. ---
**Author:** ![CyberPundit](https://avatars.discourse-cdn.com/v4/letter/c/76d3ee/32.png) [@CyberPundit](https://boards.straightdope.com/u/CyberPundit)\ **Post date:** [August 22, 2001, 3:45am UTC](https://boards.straightdope.com/t/linda-lutton-on-bush-tax-cut/76804/133 "2001-08-22T03:45:17Z")
BTW talking about conservative scenarios is it true that the growth assumptions for the SS proposal are different than those used for the tax cut? Another thing about the tax cut worth noting are the outrageous accounting gimmicks needed to make it fit in the parameters set by Congress ,for instance, the sunset provision which means that all the tax cuts are going to be repealed in 2011. It’s completely bogus to assume that there is going to be a repeal all the tax cuts the year just before an election. When you take out the gimmicks the true size of the tax cut is probably 2 trillion or so. ---
**Author:** ![panzermanpanzerman](https://avatars.discourse-cdn.com/v4/letter/p/e9bcb4/32.png) [@panzermanpanzerman](https://boards.straightdope.com/u/panzermanpanzerman)\ **Post date:** [August 22, 2001, 4:09am UTC](https://boards.straightdope.com/t/linda-lutton-on-bush-tax-cut/76804/134 "2001-08-22T04:09:14Z")
TEJOTA: \<\\> Yep, expenses matter. But if it’s 1% per annum, that’s a little less than what the average stock mutual fund charges in expense ratios. Are you saying that investing your 401k money for 30 or 40 years in a broadly diversified stock fund is a stupid idea? Before you answer, let me remind you that the long term return on the S&P 500 is around 11% per annum(including the reinvestment of dividends.) Your typical fund will produce this amount, less expenses and trading costs (figure 2-4%.) So you still have a net historical appreciation of 7-9%. In contrast, your SS contribution typically yields maybe 2%. So you have a spread of 5-7%. So over 30 years, the stock portfolio is going to generate a balance that is NOT “30% less” than what you would expect from SS, but 150% or more greater. Granted, past performance is no guarantee of future results. But even if the long term performance of US Equities in the next 30 years is only HALF what it’s been for the last 60, it’s a no-brainer. So, no…that guy’s account isn’t ridiculous–just simplistic, short-sighted, and stupid. And looking at the spread, compound interest is a blessing. 🙂 I think it’s pretty disingenuous for opponents of private investment to attempt to claim that compound interest is on the side of risk aversion. It is clearly not. VOLATILITY may be a reason for caution. But not compound interest. Kimtsu: \<\\> Which is fine. After all, it’s THEIR money! But in the long run, private wealth tends to multiply at 8-10% per year. So while the results of individual stewards vary widely, in the aggregate the private sector is a couple of orders of magnitude better stewards than the SS Administration. TEJOTA: \<\<\<\\>\> Cool. I vote we siphon money out of the general tax coffers and do it immediately. The sooner the better. Whew! Another no-brainer. 🙂 Now, explain to me again how something can provide significant increases to the total wealth of SS members (nearly everyone in the country) but somehow not help the economy in the process? What the heck is the economy if it isn’t US? \<\<\<\\>\> Gore advocated a ‘lockbox’ proposal while simultaneously opposing any kind of privatization. The very position is a lie–there is no such thing as a lockbox without segregating SS funds from treasury funds, which is impossible without privatization (where else are you going to stick all that dough for years at a stretch?). It’s the fiscal equivalent of a division by zero. So either he was stupid or or lying through his teeth. And I don’t think he’s stupid. \<\<\\>\> That’s funny. They’ve been doing just that for decades. CyberPundit \<\<\<\\>\> The counterargument fails. Treasury Bonds bought with Social Security contributions crowd out private investment almost by definition. Bush’s advocating using more SS money for private investment, and the naysayers are saying using it for private investment is a bad idea because it might crowd out private investment? That’s absurd. By the way, who do you think ultimately pays the interest on treasuries? The taxpayer, that’s who. So the net return on investment to the taxpayer from treasuries in the SS portfolio is nil. \<\<\\>\> I believe that would be an excellent idea and we should do so as soon as practicable. The payroll tax is probably the most regressive tax we have (other than the lottery and cigarrette taxes.) We should immediately harness the surplus wealth and use it to begin converting the SS system from a Pay as you go model to a fully funded model. \<\\>\> I think you’ve got your causalities mixed up. We had an information technology revolution around that time. Productivity didn’t increase because deficits went down. Deficits went down because of the increased productivity. \<\<\< The bottom line is that once you adjust for the cycle there was no significant productivity increase in the 80’s compared to the 70’s.\>\>\> I’m curious to see your cite, and to see if it’s adjusted for inflation. Since the 17-year bull market started in 1982, I’m simply not buying it yet. Sorry for the length of the post. ---
**Author:** ![CyberPundit](https://avatars.discourse-cdn.com/v4/letter/c/76d3ee/32.png) [@CyberPundit](https://boards.straightdope.com/u/CyberPundit)\ **Post date:** [August 22, 2001, 4:47am UTC](https://boards.straightdope.com/t/linda-lutton-on-bush-tax-cut/76804/135 "2001-08-22T04:47:37Z")
“Treasury Bonds bought with Social Security contributions crowd out private investment almost by definition” LOL. You are joking, right? If people lend money to the government (by buying treasury bonds) that means there is less money to be lent to the private sector. Conversely the less the T-bonds that the public buy the less crowding out. Are you somehow under the impression that T-bonds represent private investment? “Bush’s advocating using more SS money for private investment, and the naysayers are saying using it for private investment is a bad idea because it might crowd out private investment?” Actually investing SS surpluses in the stock market (without privatisation) could be a good idea but it is the GOP which opposes this. The problem with the partial privatization is that it means that in the medium run there will be less taxes to pay for SS benefits. Under the plans of one of Bush’s advisors Feldstein this would be offset by a fairly long period of borrowing which would also act to crowd out private investment. Another problem with partial privatisation is that it reduces the redistributionist aspect of SS. I suspect that is the hidden agenda behind the whole thing anyway. “Productivity didn’t increase because deficits went down. Deficits went down because of the increased productivity.” Check out any productivity study and you will find that a substantial portion of the increase in productivity is because of capital-deepening ie more capital per worker which in turn is because of more investment available to the private sector which in turn was because the govt. was gobbling less surplus. The IT revolution itself was driven to an extent by this higher investment. ``` {" By the way, who do you think ultimately pays the interest on treasuries? The taxpayer, that's who. So the net return on investment to the taxpayer from treasuries in the SS portfolio is nil. " ``` For the nth time: this is not true when you consider the real benefits to the economy because of higher capital accumulation because of less crowding out. The T-bonds represent real assets and are claims to the increased GNP because of this additional capital. I will dig out the productivity statistics tomorrow. Actually if you feel upto it, go dig around the BLS web site and you should find them. ---
**Author:** ![Tejota](https://avatars.discourse-cdn.com/v4/letter/t/958977/32.png) [@Tejota](https://boards.straightdope.com/u/Tejota)\ **Post date:** [August 22, 2001, 5:13am UTC](https://boards.straightdope.com/t/linda-lutton-on-bush-tax-cut/76804/136 "2001-08-22T05:13:51Z")
> [@](#): > > \*Originally posted by december \* > **Tejota** , I don’t know how old you are or what your profession is. relevance? Say I’m out of school and have a minor in math. > [@](#): > > Your post communicates today’s Democratic line, but there’s a certain amount of stuff with which I do not agree. If so, then on this issue in these days the Democrats are telling the truth. But I doubt it, I don’t believe _anyone_ in power is currently saying that benefits will have to decrease. > [@](#): > > **Tejota** , if private accounts are available, will you choose to put a portion of _your_ money in one? Depends on the terms, of course. I hope it doesn’t come to this. I already _have_ a retirement account, and I really don’t want the goverment to interfere in that, and I certainly don’t want them telling me how much I _must_ put away for my future. I have no intention (and thankfully no need) to depend on the social safety net to keep me from starving in my old age. > [@](#): > > Taking money out of tax coffers means less government spending. Conservatives like this and liberals dislike it. Bullshit. Libertarians like this. Conservatives just want the money spent on conservative causes rather than liberal ones. The Cato institute is harcore libertarian. > [@](#): > > Take another look at the excerpt from the 2000 OASDI Trustees Report. Current assessment rates are will only pay 2/3 of promised benefits over the next 75 years. That means that assessments would need to be raised by about 50% to bring the system into proper balance! That means that **there is NO way to pay SS benefits without increasing tax rates.** That is true, and I never said otherwise. But don’t be to trusting of this report. Notice that they NEVER SAY how much you would have to reduce benefits or raise taxes starting NOW in order to balance things out. That’s because those answers would seem too reasonable. What they say instead, is that if we wait until the SS trust fund is _exhausted_, and THEN change benefits and/or taxes, you would have to reduce benefits by 50%. This is not an accident, but a deliberate attempt to make the problem look worse than it is. This document only gives the **worst case** scenario. You know how compound interest works, if we start NOW we only need make relatively modest changes, but the longer we wait, the more dramatic the changes need to be. > [@](#): > > What they mean is that privatization is of no help long-term to the overall economy. This is debateable. However, privatization certainly could help ME if I put a portion of my SS assessment into investments that earn a better return than SS would provide. Everything is debatible, but there is till only one correct answer. Remember, this is a zero sum game, you can’t benefit without someone else being harmed. I should hope and expect that you have your own IRA or 401K as a retirement. You probably don’t think of SS as _your_ retirement plan. And for good reason, because it isn’t and never was intended to be. It’s emergency backup. _insurance_ > [@](#): > > Glad to know your opinion, but SS has ALWAYS been considered a retirement program, not because of the Cato Institute, but because of Franklin Roosevelt. Nope, All you have to do is look at the name to know that this is not true. _Social **Security** _. Not _National Retirement_ or anything of the sort. SS was always about making sure that the poor, particularly _women_ (who at the time didn’t work, and normally outlived their husbands) didn’t stave in their old age. But Roosevelt was a canny old man. And he knew that if he taxed everyone and guranteed _everyone_ a benefit, then the program would be too popular to kill. But it was never meant to be a pension fund, it was to gurantee the minimum necessary. _Security_ not _Wealth_. The Cato boys know this too. To kill SS, first they have to sell people on the idea that it’s a retirement savings plan, and then point out how badly it does that for middle income people. (It actually currently returns pretty good rates for the poor) > [@](#): > > IIRC neither of them took a single math or science course in college. OTOH W does have the Harvard MBA, so he may have studied some finance. George was a legacy, there was no way he could flunk out if he attended classes no matter how little he actually learned. The MBA is meaningless. The fact that he got the lowest grades he _could_ get suggests that he learned little. He might have earned those 'c’s. But his subsequent life makes the smart bet that he didn’t. Gore on the other hand, is known to study the topics that interest him and for his ability to master their details. Whatever they may have been when the got out of school, there is no question who is more knowledable person _now_. > [@](#): > > > [@](#): > > > > In the context of fixing the solvency of SS…there must be a modest reduction in benefits and a modest increase in funds. The sooner this happens, the more modest they can be. > > Yes, except that the changes required are not modest. They will need to be quite large, and this is a political and economic problem. There are many low-wage workers for whom OASDI is bigger than income tax. Can you imagine the impact of raising their assessment 50%. Or, can you imagine the impact of reducing benefits by 33%? Those numbers apply only if we wait until 2030 to begin reducing benefits. The say nothing about the cost if we start now. The amount of _time_ involved is more significant than the amount of money because the rate of change money in vs money out changes over time. > [@](#): > > Yes, privatization does not bring SS into balance. However, it could partially cushion the impact of the inevitable benfit decreases. No, it can’t. Remember: **Zero Sum Game** Privatization can’t create money, it can only shift it around. Someone wins, someone looses. Or maybe what **you** gain here you loose somewhere else. Or more likely, some of each. But actually, it’s worse. Because overhead costs are higher in the privatization scenario. What actually happens is a net transfer of wealth from SS benefits to whoever manages the system (which is likely to be a private company). The poor are probably worse off, and the rich better off. Although how extensive this part of the effect is depends on the details of the privatization plan. tj ---
**Author:** ![Tejota](https://avatars.discourse-cdn.com/v4/letter/t/958977/32.png) [@Tejota](https://boards.straightdope.com/u/Tejota)\ **Post date:** [August 22, 2001, 5:15am UTC](https://boards.straightdope.com/t/linda-lutton-on-bush-tax-cut/76804/137 "2001-08-22T05:15:00Z")
> [@](#): > > \*Originally posted by CyberPundit \* > \*\*BTW talking about conservative scenarios is it true that the growth assumptions for the SS proposal are different than those used for the tax cut? Yes, it’s true. ---
**Author:** ![CyberPundit](https://avatars.discourse-cdn.com/v4/letter/c/76d3ee/32.png) [@CyberPundit](https://boards.straightdope.com/u/CyberPundit)\ **Post date:** [August 22, 2001, 5:32am UTC](https://boards.straightdope.com/t/linda-lutton-on-bush-tax-cut/76804/138 "2001-08-22T05:32:26Z")
That’s really too cute. Use optimistic assumptions to say that the tax cuts is moderate and affordable. Then turn around and use pessimistic assumptions about the same variables to say that Social Security is in crisis … Talk about wanting to eat your cake … etc. ---
**Author:** ![Tejota](https://avatars.discourse-cdn.com/v4/letter/t/958977/32.png) [@Tejota](https://boards.straightdope.com/u/Tejota)\ **Post date:** [August 22, 2001, 6:31am UTC](https://boards.straightdope.com/t/linda-lutton-on-bush-tax-cut/76804/139 "2001-08-22T06:31:03Z")
**panzermanpanzerman** said: > [@](#): > > In contrast, your SS contribution typically yields maybe 2%. No, your SS contribution yields todays benefits. SS is not a savings plan. But if you prefer to compare it to an investment plan, then you’d better also factor in the fact that SS pays disability benefits and helps to care for dependents if you die young. As such, its return on investment should be expected to be lower than a pure savings plan. What return would you expect from a life insurance/disability insurange/savings plan? Woudn’t 1-2% be typical. **december** might have this data. ---
**Author:** ![december](https://avatars.discourse-cdn.com/v4/letter/d/838e76/32.png) [@december](https://boards.straightdope.com/u/december)\ **Post date:** [August 22, 2001, 1:05pm UTC](https://boards.straightdope.com/t/linda-lutton-on-bush-tax-cut/76804/140 "2001-08-22T13:05:16Z")
> [@](#): > > \*Originally posted by Tejota \* > days the Democrats are telling the truth. But I doubt it, I don’t believe _anyone_ in power is currently saying that benefits will have to decrease. The actuaries all know this. > [@](#): > > I really don’t want the goverment to interfere in that, and I certainly don’t want them telling me how much I _must_ put away for my future. W’s plan is VOLUNTARY, so you should be OK with it. > [@](#): > > Conservatives just want the money spent on conservative causes rather than liberal ones. Huh? Is that why Reagan’s support came only from hard core libertarians? > [@](#): > > "That means that there is NO way to pay SS benefits without increasing tax rates. That is true, and I never said otherwise. [/quote] Please re-read you prior post. > [@](#): > > But don’t be to trusting of this report. Notice that they NEVER SAY how much you would have to reduce benefits or raise taxes starting NOW in order to balance things out. That’s because those answers would seem too reasonable. What they say instead, is that if we wait until the SS trust fund is _exhausted_, and THEN change benefits and/or taxes, you would have to reduce benefits by 50%. This is not an accident, but a deliberate attempt to make the problem look worse than it is. This document only gives the **worst case** scenario. Your confusing two different reports. The OASDI report is simply the annual report on the solvency of SS. It has nothing to do with Bush’s proposals or the SS Reform Committee. > [@](#): > > Everything is debatible, but there is till only one correct answer. Yes, we’ll know the correct answer in 75 years. > [@](#): > > [It’s a] zero sum game, you can’t benefit without someone else being harmed. No, we’re discussing massively different economic approaches to spending, taxation and borrowing. It’s by no means a given that these approaches must prodce the same long-term result. We have economists, such as Alan Greenspan, who spend a lot of effort under the theory that economic policy CAN make a difference. > [@](#): > > You probably don’t think of SS as _your_ retirement plan. And for good reason, because it isn’t and never was intended to be. It’s emergency backup. _insurance_ This is true. It was historcally described as a “floor of protection.” > [@](#): > > Those numbers apply only if we wait until 2030 to begin reducing benefits. The say nothing about the cost if we start now. No, the numbers I quoted compared income and outgo over the nxt 75 years. . > [@](#): > > > [@](#): > > > > Yes, privatization does not bring SS into balance. However, it could partially cushion the impact of the inevitable benfit decreases. > > No, it can’t. Remember: **Zero Sum Game** Privatization can’t create money, it can only shift it around. Someone wins, someone looses. Or maybe what **you** gain here you lose somewhere else. Nonsense. You are saying that economic policy has no net impact. You can repeat the words “zero sum game,” but that’s not a proof. [/QUOTE] [Previous page](https://boards.straightdope.com/t/linda-lutton-on-bush-tax-cut/76804.md?page=6) [Next page](https://boards.straightdope.com/t/linda-lutton-on-bush-tax-cut/76804.md?page=8)