Friday - February 04, 2005
Social Security Reform: Talking Points Memo
OK, you asked for it and now you’re going to get it. The battlefield is here. I am deep in my bunker, about a mile beneath Cheyenne Mountain, prepared to withstand anything, including nuclear bombs. Below are the Republican Talking Points for Social Security Reform. I received these straight from the RNC after the State Of The Union speech. Show me where they are wrong .... if you can. Try to use facts and logic and keep the name-calling to a dull roar.
1 ■ A Social Security System designed for a 1935 world does not fit the needs of the 21st Century. Social Security was designed in 1935 for a world that is very different from today. In 1935, most women did not work outside the home. Today, about 60% of women work outside the home. In 1935, the average American did not live long enough to collect retirement benefits. Today, life expectancy is 77 years. (2004 Report of the Social Security Trustees, p. 81).
2 ■ Social Security will not be changed for those 55 or older (born before 1950). Today, more than 45 million Americans receive Social Security benefits and millions more are nearing retirement. For these Americans, Social Security benefits are secure and will not change in any way.
3 ■ Social Security is making empty promises to our children and grandchildren. For our younger workers, Social Security has serious problems that will grow worse over time. Social Security cannot afford to pay promised benefits to future generations because it was designed for a 1935 world in which benefits were much lower, life-spans were shorter, there were more workers per retiree, and fewer retirees were drawing from the system.
4 ■ With each passing year, there are fewer workers paying ever-higher benefits to an ever-larger number of retirees. Social Security is a pay-as-you-go system, which means taxes on today’s workers pay the benefits for today’s retirees. A worker’s payroll taxes are not saved in an account with his or her name on it for the worker’s retirement.
5 ■ There are fewer workers to support our retirees. When Social Security was first created, there were 40 workers to support every one retiree, and most workers did not live long enough to collect retirement benefits from the system. Since then, the demographics of our society have changed dramatically. People are living longer and are having fewer children. As a result, we have seen a dramatic change in the number of workers supporting each retiree’s benefits. According to the 2004 Report of the Social Security Trustees (page 47):
6 ■ In 1950, there were 16 workers to support every one beneficiary of Social Security.
7 ■ Today, there are only 3.3 workers supporting every Social Security beneficiary.
8 ■ And, by the time our youngest workers turn 65, there will be only 2 workers supporting each beneficiary.
9 ■ Benefits are scheduled to rise dramatically over the next few decades. Because benefits are tied to wage growth rather than inflation, benefits are growing faster than the rest of the economy. This benefit formula was established in 1977. As a result, today’s 20-year old is promised benefits that are 40% higher, in real terms, than are paid to seniors who retire this year. But the current system does not have the money to pay these promised benefits.
10 ■ The retirement of the Baby Boomers will accelerate the problem. In just 3 years, the first of the Baby Boom generation will begin to retire, putting added strain on a system that was not designed to meet the needs of the 21st century. By 2031, there will be almost twice as many older Americans as there are today - from 37 million today to 71 million Americans in 2031. (http://www.ssa.gov/pressoffice/basicfact.htm).
11 ■ Social Security is heading toward bankruptcy. According to the Social Security Trustees, thirteen years from now, in 2018, Social Security will be paying out more than it takes in and every year afterward will bring a new shortfall, bigger than the year before. And, when today’s young workers begin to retire in 2042, the system will be exhausted and bankrupt. (Summary of the 2004 Annual Report of the Social Security Trustees, p. 1). If we do not act now to save it, the only solution will be drastically higher taxes, massive new borrowing, or sudden and severe cuts in Social Security benefits or other government programs.
12 ■ As of 2004, the cost of doing nothing to fix our Social Security system had hit an estimated $10.4 trillion, according to the Social Security Trustees. (2004 Report of the Social Security Trustees, p. 58). The longer we wait to take action, the more difficult and expensive the changes will be. · Every year we wait costs an additional $600 billion. (2004 Report of the Social Security Trustees, p. 58). · Today’s 30-year-old worker can expect a 27% benefit cut from the current system when he or she reaches normal retirement age. (2004 Report of the Social Security Trustees, p. 8). And, without action, these benefit cuts will only get worse.
13 ■ Increasing payroll taxes is a band-aid, not a permanent solution. Payroll taxes have been increased more than 20 times since 1935, and we still have not fixed the problem. The Social Security payroll tax, which was once 2%, is now 12.4%. To meet the needs of the 21st century, payroll taxes would have to be raised over and over and over again on American workers, stifling economic growth and job creation. Economists calculate that under the current system, the payroll tax would have to rise to more than 18% if our children and grandchildren are to receive their scheduled benefits. (2004 Report of the Social Security Trustees, p. 165).
14 ■ Under the President’s plan, personal retirement accounts would start gradually. Yearly contribution limits would be raised over time, eventually permitting all workers to set aside 4 percentage points of their payroll taxes in their accounts. Annual contributions to personal retirement accounts initially would be capped, at $1,000 per year in 2009. The cap would rise gradually over time, growing $100 per year, plus growth in average wages.
15 ■ Personal retirement accounts offer younger workers the opportunity to build a “nest egg” for retirement that the government cannot take away.
16 ■ Personal retirement accounts provide ownership and control. Personal retirement accounts give younger workers the opportunity to own an asset and watch it grow over time.
17 ■ Personal retirement accounts could be passed on to children and grandchildren. The money in these accounts would be available for retirement expenses. Any unused portion could be passed on to loved ones.
18 ■ Personal retirement accounts would be voluntary. At any time, a worker could “opt in” by making a one-time election to put a portion of his or her payroll taxes into a personal retirement account.
19 ■ Workers would have the flexibility to choose from several different low-cost, broad-based investment funds and would have the opportunity to adjust investment allocations periodically, but would not be allowed to move back and forth between personal retirement accounts and the traditional system. If, after workers choose the account, they decide they want only the benefits the current system would give them, they can leave their money invested in government bonds like those the Social Security system invests in now.
20 ■ Those workers who do not elect to create a personal retirement account would continue to draw benefits from the traditional Social Security system, reformed to be permanently sustainable.
21 ■ Personal retirement accounts would be protected from sudden market swings on the eve of retirement. To protect near-retirees from sudden market swings on the eve of retirement, personal retirement accounts would be automatically invested in the “life cycle portfolio” when a worker reaches age 47, unless the worker and his or her spouse specifically opted out by signing a waiver form stating they are aware of the risks involved. The waiver form would explain in clear, easily understandable terms the benefits of the life cycle portfolio and the risks of opting out. By shifting investment allocations from high growth funds to secure bonds as the individual nears retirement, the life cycle portfolio would provide greater protections from sudden market swings.
22 ■ Hidden Wall Street fees would not eat up personal retirement accounts. Personal retirement accounts would be low-cost. The Social Security Administration’s actuaries project that the ongoing administrative costs for a TSP-style personal account structure would be roughly 30 basis points or 0.3 percentage points, compared to an average of 125 basis points for investments in stock mutual funds and 88 basis points in bond mutual funds in 2003.
23 ■ Personal retirement accounts would be phased in. To ease the transition to a personal retirement account system, participation would be phased in according to the age of the worker. In the first year of implementation, workers currently between age 40 and 54 (born 1950 through 1965 inclusive) would have the option of establishing personal retirement accounts. In the second year, workers currently between age 26 and 54 (born 1950 through 1978 inclusive) would be given the option and by the end of the third year, all workers born in 1950 or later who want to participate in personal retirement accounts would be able to do so.
24 ■ Personal retirement accounts would not be accessible prior to retirement. American workers who choose personal retirement accounts would not be allowed to make withdrawals from, take loans from, or borrow against their accounts prior to retirement.
25 ■ Establishing personal retirement accounts does not add to the total costs that Social Security faces. Personal retirement accounts effectively pre-fund Social Security benefits already promised to today’s workers and do not represent a net increase in Federal obligations. The obligation to pay Social Security benefits is already there. While personal retirement accounts affect the timing of these costs, they do not add to the total amount obligated through Social Security.
Posted by The Skipper on 02/04/2005 at 11:33 AM
Filed Under: • Social-Security •
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