From Jim Gilliam's blog archives
Not private accounts, but a LOAN?

February 3, 2005 7:14 AM

Wow. Bush's Social Security plan is a total sham. The Washington Post has the details:

Under the proposal, workers could invest as much as 4 percent of their wages subject to Social Security taxation in a limited assortment of stock, bond and mixed-investment funds. But the government would keep and administer that money. Upon retirement, workers would then be given any money that exceeded inflation-adjusted gains over 3 percent.

That money would augment a guaranteed Social Security benefit that would be reduced by a still-undetermined amount from the currently promised benefit.

In effect, the accounts would work more like a loan from the government, to be paid back upon retirement at an inflation-adjusted 3 percent interest rate.

Isn't this essentially buying stocks on the margin for your retirement?

More from the archive in Social Security.

Not private accounts, but a LOAN? (02.03.2005)

Next Entry: Schwarzenegger got $450K from Fox News Channel's parent (02.04.2005)
Previous Entry: A War of Words (01.23.2005)

Read the 35 comments.


I agree, if the Post accurately presented the plan, forget about it. It's not worth the time and effort. Its a half assed effort to appease everyone without considering the interest and well being of the people who are paying for it.

Thu Feb 3 2005 7:39 AM

Dave E.:

And as I understand it, the costs to administer such a plan would increase government bureaucracy. In effect, the government would be in charge of the particulars of where your money gets invested.

Smoke and mirrors. All the while, all you hear is Bush and the GOP chanting, "privatize SS...don't let the government control your $." Well, that's exactly what the government will be doing with privatization. I sincerely hope Bush falls flat on his face with this one. The gall it takes to endorse this with a straight face...

Thu Feb 3 2005 7:55 AM

Paul Stone:

OK, let's see if I understand this. The government collects your social security taxes and lumps it in with everyone else's. From that pool of money, they loan you back a large chunk of the money you just contributed. Now, they hold that money in your name and administer it for you, according to your investment decisions.

When you retire, the government takes a look at how much money you have in your account. They attempt to pay back into the social security pool the principal, adjusted for inflation plus 3%. This is to preserve the social security "guaranteed benefits". You get to keep any profits above and beyond that level.

If you lost money, it's OK, you get to share that loss with everyone else. Your guaranteed benefits will be just the same as everyone else. So, it's in your best interest to roll the dice big time. You have nothing to lose! Gamble away!

Thu Feb 3 2005 9:25 AM

Paul Stone:

So, that's the reason that the social security guaranteed benefits "would be reduced by a still-undetermined amount from the currently promised benefit". In fact, they wouldn't be able to determine how much your guaranteed benefit would be until the *very day* of your retirement. In fact, your "guaranteed" social security benefits would never be completely secure, because they would depend on how much money people turned into the program as they retired each and every day.

Thu Feb 3 2005 9:32 AM

Paul Stone:

Interesting and salient quote from Robert J. Myers, chief actuary and deputy commissioner in the Social Security Administration (click my name for source):

"I'm all in favor of private sector investments. Middle income people, even some lower income people, and certainly higher income people, should be building on top of Social Security. Social Security never was intended to do the whole job, it shouldn't and it would be bad if it did. Again, that's the reason I quit in 1970, what I called the expansionists were out to expand the program. They did expand it some in the early '70s, but their intentions were to expand it much more, so that it would take care of all the economic needs of 90 percent of the population, and I didn't think that would be good for the character of the country. People should do something for themselves on top of this basic floor. By the same token, I don't think this basic floor should be destroyed by people opting out or privatizing out of it. Leave it alone, fix the system up, encourage private savings any way you want to. I'd even go for a compulsory IRA system where everybody had to contribute 2 or 3 or 5 percent of pay and put it into mutual funds or whatever, but leave Social Security alone as the base"

A very wise man.

Thu Feb 3 2005 9:39 AM


So, this Mark Schmitt guy would be in favor of increasing the payroll tax from 15% to like 19% and then following through with exactly what Bush wants to do, right?

Bush just wants to take part of what I'm paying in now and put that into IRA's and such as I understand it...

Thu Feb 3 2005 4:51 PM

evil conservative666:

Easy guys. The Washington Post, who is a news outlet, published their guess of what the new plan MIGHT look like. If Bush is really willing to listen to the democrats (even though Lieberman is the only one I trust anymore), and if the dems are actually willing to help and not be political about things, then I'd imagine there will be a plan that's almost as good and not bankrupting itself anymore.

The one thing I don't think anyone can make a reasonable argument over is whether SS will dry up at some point. Getting it fixed before the first baby boomers retire is of immediate need, and I'm glad Bush recognizes this. Let's hope everyone does.

It's too early to armchair quarterback anything with this, it's only now a serious topic.

Thu Feb 3 2005 6:50 PM


The White House is pissed at this WaPo story:

Turns out to be total speculation on the part of the "reporter" and has nothing to do with the reality of the Bush plan for SS.

Good try, Jim...

Thu Feb 3 2005 7:00 PM

Jim Gilliam:

So, Aaron... can you explain how it works?

Thu Feb 3 2005 10:47 PM


No, I can't. That's why I find this argument meaningless. No one can, not yet. Bush esentially officically opened the debate with the SotU. He told congress that something needed to be done and he laid some general paramaters:

- No raising the payroll tax
- defined 'partial' privitization as 4 of the 15% payroll tax to be diverted to some sort of personal accounts
- These personal accounts are to be owned by the employees, not the gov't, etc.

He laid the framework and told congress "I'm open for debate!"

There is some additional groundwork laid out in that press release that I left a link to previously. Debating details at this point will get us no where cause there are no set-in-stone details. The concept should be being discussed and once we can all agree that we should own our own retirement instead of the gov't, then we can move on to specifics.

My two cents...

Fri Feb 4 2005 5:56 AM

Tom from Madison:

If the President were really a stong leader he would propose something concrete. it looks to me like the President is deliberately confusing the issue of whether Social Security is an insurance program or an investment program.

Those are quite different ideas with different objectives. An insurance safety net appeals to the common good. We can all work together to make sure everyone is taken care of. To put it in religious terms, we are "our brother's keepers" and we are all obliged to care for "the least among us." In this sense, social security serves "moral values" objective.

An investment program appeals to self-interest. Never mind what happens to anyone else--It's only about you. Going down this path necessarily means de-funding the other path. This fact the President fails to mention. I think that's deliberate. It's the neo-con hiddena agenda.

Unfortunately the devil is in the details. The Administration seems to not have thought through how different plans for old & young could combine private & public aspects into one manageable, solvent program.

Fri Feb 4 2005 7:19 AM

evil conservative666:

Sorry Dave, that last sentence ruins any point you might make. The only things that were ruled out in the SOtU were that taxes would not be raised to fix SS, and that nobody over 55 would have to worry about their SS changing on them in the 11th hour. If you don't understand that basic premise, how can I trust that you understand anything else about it?

Speaking in absolutes in any way right now over SS reform proves that you're more interested in blindly backing Bush or blindly hating him. Neither goes very far to make you look very smart.

Fri Feb 4 2005 8:18 AM

Dave E.:

Just because it's put in the SOTU, surely doesn't mean it's true. We've been down that road a million times.

Concentrations of power like the GOP currently enjoys don't happen very often. Invariably, the policy propounded by powerful entities fleece those not fortunate enough to be "privileged". This is basic social economics.

Therefore, I feel quite comfortable maintaining the skepticism that Bush and his ilk have clearly earned - based on their performance, not blind opposition. This is one absolute I'm quite comfortable with. I'm not about to begin trusting the most secretive administration of my generation in the interest of "working together"...especially when his SS plan has been tried in the past, but NEVER WORKED. Now if you think he's interested in working with Dems on this, you've been in a coma the past four years.

My bottom line is, if I choose to invest my $, I'll assume the risk voluntarily and do it independent of the govt at much less overhead. Because, believe it or not, markets fail all the time. Don't forget about Enron and Tyco - ask their former employees about guaranteed market-based pensions.

I have personal experience with the success of SS and have faith that by restoring fiscal discipline to D.C. and with minor changes, it will continue to be the one of the best government programs in our history.

As Krugman states: "Why is it so hard to say clearly that privatization would worsen, not improve, Social Security's finances?

Should we consider modest reforms that reduce the expenses or widen the revenue base of Social Security? Sure. But beware of those who claim that we must destroy the system in order to save it."

But what does he know, that sure doesn't make him look very 'smart'.

Fri Feb 4 2005 11:55 AM

Paul Stone:

WashPost has modified the article, after the White House whined that their trial balloon was shot all full of holes. Methinks this plan is being modified on the fly according to the daily polling and focus group data which Rove works from.

"The original story (available here) should have made clear that, under the proposal, workers who opt to invest in the new private accounts would lose a proportionate share of their guaranteed payment from Social Security plus interest. They should be able to recoup those lost benefits through their private accounts, as long as their investments realize a return greater than the 3 percent that the money would have made if it had stayed in the traditional plan...

...What Bush did not detail is how contributions in the account would reduce workers' monthly Social Security checks. Under the system, described by an administration official, every dollar contributed to an account would be taken from the guaranteed Social Security benefit, with interest."

Fri Feb 4 2005 12:40 PM

Paul Stone:

The Wall Street Journal looks at the history of national social security privatations around the world, and the results are not pretty:

"In Britain, a social security overhaul in the late 1980s was so thoroughly botched that today "a lot of people look longingly at [America's] Social Security system," says Stephen Yeo, a pension consultant."

Fri Feb 4 2005 12:45 PM

Paul Stone:

Based on their statements, it looks like the White House is planning to default on the government's obligations to the Social Security Trust Fund.

It's bizarre to think that the current $400 billion annual deficits are actually much worse, because they are lumping in income from Social Security taxes. Mortgaging the future to buy votes today. It's the Republican way.

Bush wants to put the country in a financial position where it is *unable* to repay the obligations to the Social Security Trust Fund. Why would he want such a thing?

Fri Feb 4 2005 12:49 PM


"Paul Stone:

Based on their statements, it looks like the White House is planning to default on the government's obligations to the Social Security Trust Fund."

Of course the federal government is going to default on the debt issues to Social Security. There was never a chance of it ever being paid in the first place, that's why the "paper" issued to the social security trust fund has no marketable value (never has and never will).

The Federal government has been using the SS surplus to fund day to day operations for 70 years, just operating without that surplus is going to result in what many will consider "drastic" cuts and tax increases. To begin to pay back the "trust fund" would result in draconian cuts to the budget with huge tax increases. The entire economy would be rendered a shambles under such a plan. The Social Security "Trust Fund" has been a Ponzi scheme from day one, nothing more and nothing less.

When IRAs and 401(k)s where introduced one should have taken that as the government's warning to not expect SS to be there when one retired.

Mon Feb 7 2005 3:14 PM

Tom from Madison:

Social security will be fine as long as everyone remembers it's an insurance program--not an investment program and not a substitute for a complete retirement program.

Insurance rates and benefit payouts can and should be adjusted to compensate for changes in demographics. This can be easily done. Simply increasing the tax ceiling for Social Security Tax would do it.

Remember when Americans refer to "the government", it's a government of the people, by the people and for the people. That means we don't steal from the elderly, the disabled or our own children based on ideologically-driven agendas.

Wed Feb 9 2005 6:31 AM


"Insurance rates and benefit payouts can and should be adjusted to compensate for changes in demographics. This can be easily done. Simply increasing the tax ceiling for Social Security Tax would do it"

Hardly a solution. Under current laws and bylaws raising the tax ceiling also raises the required benefits. The Social Security Adm will take more money in, but you'll also be required to spend more.

Wed Feb 9 2005 11:54 AM

Tom from Madison:

The disingenuousness coming from the right is so thick you can smell it. Neo-cons are committed to ending Social Security and are looking for ways to make it happen. Too bad they won't just come out and admit it.

I have confidence that American ingenuity can put social security on a sound fiscal basis if we all make modest sacrifices for the common good. Apparently the Neo-cons prefer to appeal to the inner social Darwinist.

Wed Feb 9 2005 2:21 PM


Typical liberal responce, get hit with a fact and cry about how unfair the tactic is.

Thu Feb 10 2005 5:45 AM

Tom from Madison:

Hey genius with no name! The only fact you hit me with is the way the current law connects pay-outs to collections. This could be changed easily with appropriately written legislation. As I stated earlier, fiixing this problem could be done simply and easily.

The senior citizen poverty rate is 10.5% [an historically low number]

Social security is a big reason why. It's a safety-net insurance plan and it's working.

Thu Feb 10 2005 12:24 PM


Only problem is the democrat leadership will do anything they can to prevent even modest reform to SS:

February 9th 2005: Rep. Paul Ryan (R.-Wis.) was asked at a CATO conference in Washington whether he had persuaded any Democrats to back his plan to rescue Social Security from its financial troubles. Ryan said he had been working with friends on the "other side of the aisle" who were favorable toward his solution, but he faced an enormous problem: intense pressure on his colleagues from the minority leadership.

"We were in planning stages [with friendly Democrats]," said Ryan. But each essentially told him: "I like what you're doing. I like this bill. I think it's the right way to go. But my party leadership will break my back. The retribution that they are promising us is as great as I have ever seen. We can't do it."

Thu Feb 10 2005 1:53 PM

Tom from Madison:

An anecdotal report from 1 representative is just that. Don't read too much into it.

That said, any retribution Republicans get would likely be deserved. Republicans are proposing a draconian scheme to fix a system that is working.

If only Karl Rove could keep more Dems and old people from voting, maybe THEN retribution could be avoided!?

Thu Feb 10 2005 2:08 PM


Tom, go home and take your meds, the ones that help you see and comprehend.

The retribution spoken of comes from the democrat hierarchy and will be applied to those lowly democrat congressmen who don't Goosestep to the tune proclaimed by Herr Dean and friends.

Thu Feb 10 2005 2:28 PM

Tom from Madison:


Reminder: real men can agree to disagree without resorting to name-calling or innuendo. I'm sorry you can't and will pray for you're redemption.

1) Democrats don't want to support Bush's plan and won't. They can point to other recent half-baked Republican schemes like the medicare PRESCRIPTION DRUG BENEFIT. What a fine example of cost savings THAT is turning out to be!
2) Republicans are the ones who are afraid to support Bush's SS "plan". They should be.

Today's goose-steppers are the Republicans. The State of the Union telecast is an interesting case in point. The orchestrated applause every 30 seconds would have been impressive if we were watching trained seals. Unfortunately these were mostly Republican Senators and Representatives. True conservatives should be ashamed at where their party is going.

Blind loyalty in not a virtue. It's a profound fault. The neo-cons are have it in spades. THEY are the ones who are moving us in a fascist direction. Again, the Neo-cons are charging others with what they themselves are most guilty of.

Fri Feb 11 2005 5:41 AM


The Republicans are looking for converts and the democrats are looking for heretics to burn at the stake. As for name calling? I was only pointing out your inability to comprehend what you read, I'm sorry if chemicals do not correct that situation.

Fri Feb 11 2005 1:52 PM

Tom from Madison:


What I'm telling you is the drug-free truth, the kind you won't hear from Rush Limbaugh!

There is too much corruption on Wall Street and in the White House to put faith in the President's plan.

Remember Enron in 1999? Before Ken Lay's Enron house of cards collapsed, he made $39 million in annual salary. He gave $550,000 to Bush's first presidential campaign. While this was going on, Enron was in the process of bankupting the company by booking projected earnings as real and thereby stealing millions of $ from stockholders and employees with 401(k) plans.

As bad as Enron, WorldCom, Global Crossing, and other corporate scandals were, at least they didn't involve social security dollars taken from the general public.

The last thing we need is the federal government encouraging social safety net funds to end up in the hands of people like Ken Lay.

Now I wouldn't call opposing this scheme "heresy", it's common sense. Nor am I suggesting anyone be burned at the stake. I'd rather have both sides make their case rationally and let the rule of reason and fair play decide.

Sun Feb 13 2005 11:54 AM


Tom, just what is your fascination with large balding men? Is Rush now the boogeyman under your bed? Frankly I think he’s a blow hard and don’t know why people listen his program but you must spend a large percentage of your day hanging on every word of his and his equally annoying sidekick O’Riley.

As for the dangers of investing in the stock market, currently over 50% of Americans own stock and I challenge you to name a successful fund manager that advocates putting all your money in government bonds for you entire life or any financially successful person who advocates the same.

Current liberal policy (page 119 of your handbook) requires that one sticks their fingers in their ears and cry “LA LA LA LA LA LA LA LA I CAN’T HEAR YOU” (repeat) whenever asked what the democrats will do about the Social Security problem. Until a more educated response comes forth I don’t think the issue is going to have much input from their side of the isle.

Mon Feb 14 2005 11:33 AM

Tom from Madison:


I don't blame you for being embarrassed by Rush Limbaugh and Bill O'Reilly. Yet there is no denying they play a huge role in selling the neo-con message. It's important to remind people who the conservative media elite are. These are multi-millionaires who have nothing in common with most people. Yet they claim to champion the cause of the common man. They are profound hypocrites. Apparently we agree that they are not worth listening to. Congratulations!

That said, it is strange to hear you distance yourself from Rush and Bill while simultaneously parotting their every position. To put it another way, they issue the talking points and shills like you are repeating them. Conincidence? I doubt it!

The stock market is a fine place for many kinds of assets, but not social security insurance funds. Social Security should not be viewed as just another kind of retirement program. It is an insurance safety net.

Comparing social security funds to mutual funds is an apples and oranges comparison. As I said earlier, the problems with corporate malfeasance have not been sufficiently addressed by the SEC and others who are supposed to uphold the law and protect investors from further fraud.

Combine that with a President who owes his election to Rangers and Pioneers like Ken Lay and we have the recipe for a real disaster on our hands. I don't trust these people to do the right thing with billions in social security assets.

Mon Feb 14 2005 8:38 PM

Dave E.:

First of all:
Portion of U.S. stock owned by the wealthiest 10 % of Americans: 9/10
(Economic Policy Institute, Washington D.C., 1999)

"Unlike many other proposals for Social Security reform, our plan does not call for the creation of individual accounts within Social Security. Individual accounts, which include tax-favored private sector accounts such as 401(k)s and IRAs, already provide an extremely useful supplement to Social Security, and they can be improved and expanded. But they are simply inappropriate for a social insurance system that provides the basic tier of income during retirement, disability, and other times of need.[...]
Our plan represents the most auspicious way of reforming the program because it: balances benefit and revenue adjustments; restores long-term balance and sustainable solvency to Social Security; does not assume any transfers from general revenue; does not rely on substantial reductions in disability and young survivor benefits to help restore long-term balance; strengthens the program's protections for low earners and widows; does not divert Social Security revenue into individual accounts; and preserves Social Security's core social insurance role, providing a base income in time of need that is protected against financial market fluctuations and unexpected inflation."


Besides, has anybody had the displeasure to listen to Bush attempt to explain his own plan himself? On Feb 4th in Tampa, some lady asked him about how his plan would fix a certain problem, and he stuttered and stammered himself into such a massive state of confusion I actually, almost felt sorry for the woefully underqualified Prez. I dare anyone who endorses this President to defend that!

Finally, I know he can answer for himself, but I suspect Tom keeps a close eye on those nattering nabob conservative blowhards because they tend to represent the most vociferous faction of the conservative agenda. They distribute marching orders to dittoheads and deliberately obfuscate facts with their "commentary," all designed specifically to demonize liberals. This concerted effort has been going on for years. They are completely shameless about pandering to peoples emotions, not speaking rationally to peoples minds. That, needs to be monitored. And consider this: If this was actually a Democratic administration with the same Bush track record, the Republican noise machine would be like gangbusters calling for the guys head. I mean, shit...look what a simple blowjob did to Clinton?

Mon Feb 14 2005 8:47 PM


Finally, an intelligent response.

Dave E; I've read the proposal put forth by Peter R. Orszag and Peter A. Diamond, it appears to be a solid plan operating within the realm of reality. It doesn't address all issues, but what plan does? One question, is there anyone in congress advocating this plan?

I'm not an advocate of private of accounts managed by the government (last people I want handling my money), but the Social Security issue must be dealt with in some way in the near future.

"Finally, I know he can answer for himself, but I suspect Tom keeps a close eye on those nattering nabob conservative blowhards because they tend to represent the most vociferous faction of the conservative agenda. They distribute marching orders to dittoheads and deliberately obfuscate facts with their "commentary," all designed specifically to demonize liberals. This concerted effort has been going on for years. They are completely shameless about pandering to peoples emotions, not speaking rationally to peoples minds"

I also agree with this statement, which is why I don't bother listening to talk radio, especially programs that are exclusively political. Tom's problem is many of his statements sound as if he's a "ditto head" for Al Franken or some other left wing blow hard, simply parroting someone else's limited talking points without much understanding of the subject matter. When he dragged in Limbaugh's drug use on a thread about social security, he demonstrates his limited knowledge on the subject and displays it in a failed attempt to be clever.

Tue Feb 15 2005 6:41 AM

Tom from Madison:

Dave E:

thanks! Yes, I do monitor what Limbaugh, O'Reilly, and other right-wing spinners are saying simply because they have a huge audience and they are spreading so much dis-information.

It's a shame what they've done to political discourse in America. Name-calling and baseless accusation are now central parts of the conservative play-book. When you can't debate, obfuscate!

Limbaugh et al have empowered legion shallow shills to spread their Gospel of faux populism. If you dare to be a "liberal", Dhermesc and other similar trolls will resort to personal attacks which may include: 1) charges of racism, 2) suggesting you might be gay, 3) suggeting you're mentally ill, 4) suggesting you're on drugs, 5) play-ground taunts.

I believe Progressives will prevail if we stay on message and challenge the bull-sh*t ad hominem attacks where ever we encounter them. We have the facts and the moral high ground.

Tue Feb 15 2005 6:50 AM

XxX aka Killzen:

Hmmmm...on Limbaugh: have you heard his promo blurbs lately? Replete with strained analogies, insults and 'Ha Ha Ha's'. He not only sounds infantile, but completely swallowed up in his own self-importance...he seems prime for film at 11

Wed Feb 23 2005 6:41 AM


Lot of misinformation on this thread. First off, there are no guaranteed benefits, second, there is no "trust fund" and third it's not "insurance".

In Helvering v. Davis (1937), the court held that Social Security was not an insurance program, saying, "The proceeds of both (employee and employer) taxes are to be paid into the Treasury like internal-revenue taxes generally, and are not earmarked in any way."

In a later decision, Flemming v. Nestor (1960), the court said, "To engraft upon Social Security system a concept of 'accrued property rights' would deprive it of the flexibility and boldness in adjustment to ever-changing conditions which it demands ... " That flexibility and boldness mean Congress can constitutionally cut benefits, raise retirement age, raise Social Security taxes and do anything it wishes, including eliminating payments.

Wed Feb 23 2005 11:46 AM

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