The Plot Against Social Security: How the Bush Plan Is Endangering Our Financial Future
Michael A. Hiltzik | 2005-05-31 00:00:00 | HarperCollins | 272 | Economics
A Pulitzer Prize-winning Author
Relentless and ominous, the drumbeat echoes across the land: Social Security is on the verge of bankruptcy. But it is flatly untrue. Award-winning journalist Michael Hiltzik explains who is really behind the efforts to "reform" this system and shows that the most frequently proposed fix - diverting a huge portion of its assets into private investment accounts - will damage it beyond repair.
Reviews
I have to agree with one prior reviewer: Mr. Hiltzik's "take" *is* one-sided. That said, this book is highly readable, well documented, and portrays a shocking manipulation of a manifestly successful 75 year-old federal program by those who would profit by its privatization. I share Mr. Hiltzik's perspective: social insurance is a good thing for America and there's more at stake here than my own personal profit.
My differences with Milton Friedman, Adam Smith's "invisible hand" and unregulated, free-market capitalism put me on the side of those who favor secure investments that guarantee a safety net for vulnerable elderly, the disabled, and survivors. I have contributed to Social Security for almost 60 years. I know that I will get back less than I've paid in and that there are those near the bottom of the socioeconomic ladder who will get proportionately more. In effect, I am contributing through my Social Security deductions since the 1950's, to their secure retirement. I did this willingly and knowingly since without a social contract, a commitment to help each other, the American Dream is mere lip service.
Benjamin Franklin said, "We must all hang together, or assuredly we shall all hang separately" at the signing of the Declaration of Independence. Our contributions to social insurance are a way we can "hang together". Some will give more, but that's always been the case. If that makes me a Socialist, so be it. Or in Luke 12:48 ... "For unto whomsoever much is given, of him shall be much required: and to whom men have committed much, of him they will ask the more."
My point is that the GWBs and the FDRs of the world have profound philosophical differences about their obligations to their fellow humans, differences that will never be resolved by arguments about rates of return on investments, or the freedom to make personal choices.
All that aside, Hilzik's book became out-of-date with the ongoing Great Recession of 2008. No longer can anyone argue that an 8% rate of return in the market is inevitable!
I would read (and pay for) an updated second edition!
Reviews
The purpose of the book, as stated by the author is "an attempt to redress the balance of information" on Social Security.
"The plot against Social Security aims to propagate, and then exploit, public ignorance about the program."
Mr. Hiltzik does fulfills his purpose very effectively with his research and writing style.
He cautions that Bush's proposal would have destroyed the program and replaced it with risk and higher costs. We dodged a bullet when Bush failed to privatize Social Security!
Mr. Hiltzik exposes the Bush presentation on privatizing as another stacked deck, scripted television infomercial. He also dispels the numerous myths and outright lies about Social Security and the trust fund.
On page 95 the author addresses the correlation between Social Security and tax policy.
"The income tax rates of the rich have been kept low by four presidential administrations, which have raided the trust fund to pay for federal programs that should have been financed from the income tax levy."
Mr. Hiltzik also offers an observation about the people who are always involved in attacks on Social Security.
"While they claim to be protecting the interests of the disenfranchised, they're really fronts for the wealthy and powerful."
He shares a critical view of the program being forecast for "infinity" for Bush's benefit while the 75 year forecast is difficult enough to nail down because of a multitude of variables that change over time.
This is an excellent tool to learn about Social Security and the complexity of the program along with investigating a number of changes that could improve or stabilize the program.
Reviews
Before reading this book, I had little more than rudimentary knowledge about Social Security. When I was done, I knew much more about it.
This book is an excellent treatise on the subject. It runs down the history of Social Security, including the constant attacks it has faced throughout its existence, and debunks many of them, especially contemporary ones.
Hiltzik methodically goes through the problems with the privatization side, as well as the many blatant conflicts of interest concerning its politics and the political agenda of it. He shows the contradictions of this as part of an "ownership society" and the likelihood that Americans being in charge of their investments would yield the returns that Bush and privatization supporters practically claim to be guaranteed (and the years we have to draw on from 401(k)s and IRAs as evidence). Never forgotten is that this is a social insurance program, and just about the last one that has survived years of whacks being taken at such programs that have put all the risks of everyday life more onto individuals.
This is a solid book from an educational standpoint on the matter and is well-researched.
Reviews
MICHAEL HITZIG RESEARCH IS AN INACCURATE AS HIS WRITING IS BORING. I DO NOT BELIEVE ANYONE HAS EVER READ THIS BOOK CLEAR THROUGH INCLUDING THE FACT CHECKERS. A COMPLETE WASTE OF TIME.
Reviews
I don't normally write reviews on Amazon without having read the book. However, in this case I'm going to make an exception because of the factual misinformation and distortion, not only from the book but the reviews themselves.
First, a word on my qualifcations. In addition to possessing both a CFA (Chartered Financial Analyst) designation as well as a Certified Financial Planner (CFP) degree, I have managed portfolios for 2 decades, including in excess of a billion dollars for individuals and institutions.
As for the comments offered by some reviewers:
(1) Social Security is a Ponzi scheme. There are no vested benefits as with private retirement accounts (defined benefit or defined contribution). All future benefits depend on the promise of politicians - some in office today, some in office 50 years from now. You may find this reassuring - I don't.
(2) Privatization does not mean investing 100% of your FICA contributions into stocks. It means having the CHOICE of investing in stocks, bonds, CD's, treasuries, etc.
(3) Nobody says that earning 7-8% in excess of inflation is necessary for privatization to work. If stocks can return 6-8% nominally over the next 10-30 years, and if bonds return 4-6%, then privatization makes sense for most people.
(4) The real return on Social Security contributions for anybody reading this review who is under 50 years of age is close to 1% a year. For anybody under 30 years of age, the real return is probably negative.
(5) Some people should NOT leave the Social Security system even if it was allowed; I know this is true because I understand the basics of financial planning. Individuals who are risk-averse, who do not have other defined benefit pensions, and who have minimal other assets might prefer the security of a traditional Social Security pension to investing in private accounts, even with a lower assumed rate of return. That said, the benefits should still be accrued and have more of a vested property right than the current system.
(6) Proposals to rescind tax cuts or to increase the wage base upon which the FICA tax is levied are nothing more than socialist band-aids designed to prop up a failing system. It's like saying that there was nothing wrong with Enron that a $20 billion bailout from the government couldn't fix. Increasing FICA taxes or the wage base would be a massive tax hike on small businesses and middle-class Americans. Bill Gates and Warren Buffet aren't affected by FICA - working class and middle class American are.
(7) Many American families pay $10,000 - $20,000 a year in FICA taxes to Social Security. For them, this is a lousy deal. Nowhere in these books do the authors even attempt to show how Social Security is a good deal - because they can not. The only people for whom Social Security is a good financial deal are lower-income Americans, those with dependents, and those who tap the disability fund because of health reasons. If the government wants to continue this safety net for them, fine. But why should the rest of us have to suffer?
(8) I have run the calculations for some current Social Security retirees who started receiving benefits in the last 5-10 years. For almost all of them, they would have done better in a classic pension-style 50-50 asset split between stocks and bonds with their FICA contributions than sending it to Washington politicians. In some cases, the monthly benefits would be 3X higher than they receive right now from Social Security.
Prior to 1983, all municipal and state employees had the option of opting out of Social Security and having their employer set up private-accounts (a few did). The reason that was not extended to private employers is because the private sector (employers and the financial industry) did not at that time have the mechanisms in place to offer the choices available today: 401(k)'s, ESOPs, Roth IRA's, thrift saving plans, etc. The 1983 Greenspan Commission eliminated the municipal/state opt-out; it should be rescinded and extended to the private sector, as well.
Social Security reform needs to have only four basic planks:
· Allow any individual to opt-out of the current system, with accumulated benefits frozen.
· Individuals who prefer the current system of a defined benefit plan with a guaranteed payment at retirement can stay in the current system.
· Individuals can elect to save the entire 12.4% of FICA taxes in domestic and global asset allocation stock and bond mutual funds, treasury bonds, or bank CD's. They would also be allowed to save half their FICA taxes in personal Social Security Retirement Accounts (SSRA's) while sending the other half to continue funding a reduced Social Security benefit.
· Any shortfall in revenues will be met out of general revenues, which can easily finance the shortfall from individuals opting out of Social Security by instilling spending limitations on future spending.
As I have stated, not everybody should have private accounts, even if they were made "dummy proof" so as to practically insure long-term positive real returns. The current system takes so much in FICA taxes from individuals that they cannot meet basic living expenses and save money in an IRA because they don't have enough money left after all their taxes. This is grossly unfair. All for benefits that are not defined, have no vested property rights, and which could theoretically be eliminated in the future for any individuals based on their future income levels or the whims of Congress.
This is the real outrage - not the Bush plan, which despite it's many flaws, is at least a step in the right direction.
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