Sunday, January 16, 2005

How to Retire Rich.

Yesterday's post anticipated by one day, the New York Times editorial page weighing in on the subject of Social Security reform.

Their conclusion:
Preserving Social Security while increasing savings outside Social Security is a better way to achieve a prosperous retirement.

News to me is the Administration has two proposals on the table to increase investment incentives. The first is a no-cost, no-legislation-required proposal: the IRS can implement a two-account deposit for your tax return, one of which presumably is your savings account. The other was passed in 2001 is an incentive which "offers a matching tax credit for retirement savings by low- and middle-income taxpayers." They peg the total cost at a "relatively modest" $7B. It's yet to be implemented. The cost is of course, less than 10% the amount the Bush administration was willing to shovel to it's biggest contributors.

Read the Editorial.

Saturday, January 15, 2005

It's time to call the Bush proposal to "privatize" Social Security what it is: The Emperor's New Clothes.

The myth of fine garments has been bought by most of the major media, since there is little evaluation of the personal and collective merits or flaws of the plans.

Imagine a future world in such a plan. You are splitting your contribution, say 50-50 between the public and private sectors. Your feelings about the value and necessity of your public contribution are likely the same as they are under the current arrangement. Let's inspect your attitude towards the private sector contribution.

You look at a private-sector Social (??) Security contribution as another form of IRA. But is it the same? Hardly. I may add $3500 to my IRA at my choice. I'm likely to, since at tax time, I can see the value to my bottom line, and importantly, it's my choice. But, now imagine I'm compelled, at federal regulation to "invest" a like amount of money. Do I have a choice. Not likely. Do I have a choice about the public sector contribution? No. Is it possible the private sector choice is optional? If so, I think I'd rather invest the money in an IRA. What is the value added of the federal government in compelled investing? Nothing. Other than to increase contempt for the federal government. That's the real purpose behind this scheme.

This administration has no sense of the "full faith and credit of the federal government". Their object is to diminish, if not eliminate the concept from the public forum.

If the government is really concerned about the less than lustrous savings record of the American Investor, and wanted to do something about it, our leaders would be talking about incentives to increase the average American's average investment.

When the public sees the current proposals are little more than government shoveling money to Sleazy Alley (the one off Wall Street), the awareness will stir the till-now somnambulent voters to action.

Some of the few discussions of the proposals are coming from the opinion pages: Here's a Paul Krugman editorial, The British Evasion in the Times about the failures of the British 20-year experiment with private retirement accounts. He answers one of my questions: some of the value-added will be restrictions on where the investments may be placed. And he adds a reason to why the public confidence in the government management will be further reduced.

Krugman references an illuminating article on the British experience by Norma Cohen in the American Prospect. Apologists for privatization will be left only with the theological argument after reading this article.

Not to overlook the American PAC, here's MoveOn.Org's take on privatization, where they ask, "What's the Rush, the Need, the Prospects for guaranteed benefits, and a few other pertinent points.

Where's the news, especially the fashion reporters who should be inspecting the Bush administration's social security garment?