Social Security: If The Rich Paid Taxes Like You And Me…Problem Solved

Over the course of the past couple of weeks we’ve been talking about how the War On Social Security was about to get under way and what happens when countries choose to privatize their systems.

Today we take on another bite-sized chunk of economic analysis: how can you get to a situation where Social Security is financially stable for the next 75 years?

We’ll describe some proposals that are out there—but the big focus of this conversation will be to look at one change that, all by itself, could not only solve the entire funding problem, but could actually allow us to lower the Social Security tax rate, immediately, and still achieve fiscal balance.

“Well, if that’s such a bright idea” you might ask, “why haven’t we adopted it already?”

That’s a great question—and after you hear the proposal, you may well have explanations of your own.

The possibility of victory can be a heavy millstone around the neck of any political candidate who might prefer, in his heart, to spend his main energies on a series of terrifying, whiplash assaults on everything the voters hold dear. There are harsh echoes of the Magic Christian in this technique: The candidate first creates an impossible psychic maze, then he drags the voters into it and flails them constantly with gibberish and rude shocks…

--From the Rolling Stone magazine article “Freak Power in the Rockies: The Battle of Aspen”, by Hunter S. Thompson

It was just this week that the Presidential Debt Commission (officially the National Commission on Fiscal Responsibility and Reform) “pre-released” some proposals for how they would resolve the various fiscal problems our country is facing these days, and among those were recommendations that the Social Security retirement age eventually be raised to 69 and that the amount paid in Social Security benefits should no longer increase as fast as inflation; both proposals, ultimately, represent cutting your benefits.

Far too many people are instinctively OK with these ideas because they assume they’ll never see a single dollar of the Social Security benefits they were promised anyway…which means far too many people believe in a giant urban legend.

Here’s the reality: no matter what, even if no financing changes are made, Social Security can pay 100% of anticipated benefits out through 2037. Even after that, if no changes are made, enough money will still be coming in to pay about 75% of anticipated benefits for roughly 50 more years after 2037. (We can’t speak to what will happen after that because the Social Security actuaries only look 75 years into the future when they make estimates.)

Here’s another reality: the total amount of wages that are subject to Social Security tax (also known as the “wage pool”) does not equal 100% of the total amount of wages paid to workers in the United States. That’s because income above a certain amount (at the moment, $106,800) is exempt from Social Security taxes.

During the 1980s and early 1990s, the wage pool represented about 90% of all wages…but because wage income has become more and more concentrated in the hands of the highest wage earners, 15 years later the wage pool now represents only about 83% of all wages.

In fact:

…due to high levels of earnings inequality, roughly 1% of the population earn 10% of all the earnings.

We know all this because of the fine work of Debra B. Whitman and Janemarie Mulvarney, both of the Congressional Research Service (CRS), who prepared the CRS report "Social Security: Raising or Eliminating the Taxable Earnings Base", released in September of 2010. (Unless you see a link associated with a particular fact, from here on out what you’re reading is based on their work.)

So if we’re looking to achieve stability in Social Security financing, the question really becomes: how do we get back to a point where the size of the wage pool remains at least stable, or even grows larger over time?

In the 1980s, facing the same problem, the Reagan Administration negotiated an increase in the tax rate for taxable income, causing the wage pool to grow to that 90% number we talked about earlier…but today, we’re going to look in a different direction.

And that’s because, as it turns out, removing that $106,800 cap and making all wage income taxable for Social Security purposes, all by itself, will either solve the funding problem entirely or get you to 99% of where you need to be, depending on the choices you make.

Here’s how it works out:

Today, the amount of Social Security benefits you’ll collect depends on how much you pay into the system; the current maximum benefit is $2346.

What you could do is “break the link” between “paid in” and “paid out” by establishing a maximum benefit, no matter how much you pay in. If you kept the maximum where it is today, and that amount rose to equal inflation over time, the CRS tells us we would actually have 115% of the money we need to get to Social Security fiscal stability. As a result, we could afford to lower the payroll tax rate by .3% and we’d still be at fiscal stability.

Those who oppose this approach will tell you it will create political trouble for Social Security going forward because Americans will no longer see it as an investment program, but instead as a “welfare” program, which is presumably more politically vulnerable.

I would disagree, for a few reasons: for one, there’s the fact that Social Security is not, and has never been, an “investment” program, for another, not many people actually make more than the maximum, anyway (94% of workers earned less than the maximum in 2007). Beyond that, those that do make more than the maximum tend to be, shall we say, geographically concentrated, mostly in the suburbs of New York City and Washington, DC:

…focusing on the nationwide average hides the diversity among the states and the District of Columbia. The share of the population above the base ranges from a high in New Jersey where nearly 12% of covered workers earn above the base, to a low in South Dakota, where 2% of workers earn above this amount…

There’s another reason this kind of change wouldn’t be as politically problematic as some might think:

CRS estimated the potential impact of eliminating the taxable wage base on future benefits and taxes. If the base were removed in 2013, CRS estimates that by 2035, 21% of beneficiaries would have paid some additional payroll taxes over the course of their lifetimes. However, the average change in taxes and benefits would be small. Looking only at individuals who would pay any additional taxes over the course of their lifetimes, at the median, total lifetime tax payments would rise by 3% and benefits would increase by 2% relative to current law. In general, those in the highest income groups would have the largest changes in both tax payments and in benefits relative to current law.

(Emphasis is original)

You should also know that, in the 1990s, the income cap on the Medicare portion of payroll tax collections was lifted; this does not seem to have caused great damage to that program, politically speaking.

So the other way this change could be made would be to continue to base maximum benefits on what’s paid in, and still remove the cap on taxable earnings.

The Social Security Administration estimates that such an approach would raise 95% of the amount you need to achieve Social Security fiscal stability, so you’d still need to raise a bit of money, but you would be awfully close to fiscally stable, and far better off, financially, then we are today. (A payroll tax rate increase of .1% could raise the amount needed.)

That said, I think this approach actually creates more political vulnerability for the Social Security “concept” than uncapping taxes while capping benefits, and here’s why:

If you cap benefits, you immediately get to reduce the tax rate for everyone, which is going to be very popular; an unlimited benefit still requires you to raise taxes, even after the tax cap is lifted. One of those choices is going to be a lot better received than the other, I’m thinking, especially as “no new taxes” is such a popular political mantra these days.

However, it’s also true that a substantial number of beneficiaries would see benefit increases, even if the vast majority of those folks wouldn’t actually benefit all that much:

CRS estimates that 23% of beneficiaries in 2035 would have higher benefits than under current law. This share of beneficiaries who receive higher benefits is greater than the share of individuals who pay higher taxes because some low earners receive benefits based on their spouses’ higher earnings. Most of the affected beneficiaries (20%) would see their benefits increase by less than 10% relative to current law. Only 3% of beneficiaries would see their benefits increase by 10% or more.

But if you ask me (and if you’ve read this far, you are asking me) the real political problem from an approach that allows for unlimited benefits, is that it allows for…unlimited benefits:

Annual Social Security benefit payments would be much higher than today’s maximum of $25,440. A worker who paid taxes on earnings of $400,000 each year would get a benefit of approximately $6,000 a month or $72,000 a year…while someone with lifetime earnings of $1 million a year would get a monthly Social Security benefit of approximately $13,500 a month or $162,000 a year…

Imagine, if you will, just how easy it would be to launch a political attack on a government program that pays $162,000 a year to rich people…and if you can imagine that, you can probably imagine just how much political trouble this approach could cause.

Both options, just for the sake of the discussion, raise the wage base from today’s 83% to about 92%; a 2008 estimate suggested this would raise an additional $680 billion over 10 years. (An intermediate option, raising the tax cap to something like $190,000 of wage income, would have raised about $600 billion over the same period.)

So there you go: removing the cap on how much of your earnings are taxed for Social Security purposes, all by itself, could not only solve the funding problem faced by the system going forward, but you could even lower taxes slightly while doing it; another variation of the same approach would get you to 95% of where you need to be, but would still require a tax increase to get us to fiscal balance.

One approach keeps a lid on maximum benefits, the other doesn’t; in my opinion, the plan that keeps a cap on benefits is the one with less political peril going forward.

Either way, there would be no need to “adjust the inflation index downward”, which is a fancy way of saying “we’re cutting your benefits”, and you wouldn’t have to change the retirement age, either, which is a less fancy way of saying “we’re cutting your benefits”; both are among the Debt Commission’s “pre-release” proposals.

So what do you think, America? Given the choice, would you prefer that Social Security benefits be cut, now and in the future, or would you prefer to see the wealthiest among us pay their fair share of Social Security taxes, just as every other wage earner does—and cut the tax rate, both at the same time?

This would be exactly the time to make your feelings about that choice known, and if I were you I’d be on the phone to my member of Congress now, today—and when January comes around, and a new Congress begins…I’d be on the phone again.

It’s your Social Security, and if you want it funded in a more rational way this would be the time to say so…and if you’re reaching for the phone right about now, I’ve done my job.

FULL DISCLOSURE: This post was written with the support of the CAF State Blogger's Network Project.

Social Security: They Want To Cut, We Plan To Fight

So if you’ve been following my work lately, you know that there is a renewed effort underway to change Social Security, and that the fight officially began just this very morning.

Now what’s supposed to happen is that a television ad buy sponsored by a Wall Street billionaire is supposed to get you enthused about cutting your own Social Security benefits in the future; this is the tip of a “disinformation iceberg” that is trying to get you to act, right now, because if you don’t you will never, ever, ever, ever, see a single dime of Social Security when you get older.

I was on a “let’s talk strategy” conference call today that laid out some ideas for the "next steps"; we’ll be talking about that call over the next couple of stories...but for today, we’re going to talk about something you can do that will bring the message right to your favorite Member of Congress.

He is always plotting and carrying out great enterprises, which have always kept his subjects bewildered and astonished, waiting to see what their outcome would be. And his deeds have followed one another so closely that he has never left space between one and the next for people to plot uninterruptedly against him.

--Niccolò Machiavelli, describing King Ferdinand of Aragon, in “The Prince”

With the election a week behind us, the fight is on to get you to believe that you will never see a dime of Social Security, that the danger is so profound that we must act today, and that maybe a healthy cut in your future benefits isn’t really so bad after all.

To help convince you all this is true, a series of TV ads have been produced that imply that the only other solution, short of those benefit cuts, is more deficit spending and endless borrowing. (They have a catchy name for the effort as well: “OweNo”.)

As it turns out, that’s patently untrue, but as I said, that’s a topic for another day.

The idea behind the ads, of course, is to create a space for Members of Congress to vote for these kinds of proposals—but we’re going to strike first, before the ads can really gain a lot of traction.

So here’s the idea: we all have Members who are constantly having to “come home and face the District”; what we want to do is ask those Members, right now, on camera, if they are willing to vote for cutting Social Security benefits or not.

Myself, I like the question: “Are there any circumstances that would get you to vote for cutting Social Security benefits?”

If they say yes, try this: “Why do you like cutting benefits for middle-class people and not taxing 90% of the income of someone who makes a million a year?”

(If you make about $110,000 a year or less, 100% of your income is taxed for Social Security purposes. However, no income above that is taxed—so if you make a million a year, only 10% of your income is taxed, which seems a lot like “trickle up economics” to me...but what do I know?

As it turns out, removing that “income cap”, all by itself, would fix our financing problem for the next 75 years, without cutting benefits at all—again, a topic we’ll flesh out more completely another day.)

Now once we start gathering all these videos, we need a place to put them. Based on the call today, it looks like we’ll be going to the Owe No You Don’t! website, which, by a happy coincidence, is full of helpful resources for those looking to win this fight. The site is not ready to receive the videos today, however, but I will either update here or do a new story to let you know when it is, or if some new plans have emerged.

(Of course, if you get a good video, don't be afraid to post it to this story as a comment as well.)

I also have available a big ol’ list of who in Congress has publicly said and done what regarding changes to these programs—and if you’re wondering exactly who in Congress supports privatizing Social Security, this is the list you’ve been looking for.

The next step is to put all this video to work: so how about starting right in your own home town? Send a copy of the video to the local newspaper, or the local TV station’s “tip line”. In the other direction, I’m going to try to encourage the folks operating Owe No You Don’t! (with whom I’m currently working) to use that video to get the attention of national media—which means video of Members “ducking and dodging” will be particularly valuable.

You might even get lucky and get a “Sharron Angle”—you know, the one where the person being asked just runs off without even acknowledging that they’re being asked questions, even though you’re right there next to them the whole time, following them and still asking the question, as they hop in the car and run away in fear.

So that’s today’s homework: charge up the camera batteries, go find your local Member of Congress, either pay a friendly visit at the office or catch ‘em at a local appearance, and make them either answer questions or run away.

As we gather the videos, they become a media attraction, and we put even more pressure on these folks...and if we get really, really, really, lucky, we’ll find someone who “autotunes” the Members who run away into a viral video we’ll all be proud of.

Good hunting to you all, and in a couple days we’ll all meet back here and talk about the Social Security “tax cap” and financing stability.

FULL DISCLOSURE: This post was written with the support of the CAF State Blogger's Network Project.

Social Security: The War Begins Tuesday, And You Better Say…Oh, No!

It is my job to bring to you not just the news that took place, but the news that has yet to happen.

Today, that’s exactly what we have.

There is a war coming to try to change Social Security from a social safety net to a “revenue stream” for certain corporate interests, and that war is set to begin Tuesday morning, according to information that was provided to me yesterday afternoon.

Follow along, and you’ll be both forewarned and forearmed.

BIG MISTAKE
MANY MAKE
RELY ON HORN
INSTEAD OF
BRAKE

BURMA SHAVE

--Actual “Burma Shave” Message, 1945, from “Verse By The Side of the Road”, Frank Rowsome, Jr.

So here’s the dish: a limited partnership corporation called The Blackstone Group, through years of trading in real estate, operating hedge funds, giving financial advice to other companies and governments, and buying and selling companies (Hilton Hotels is one of theirs, the company that makes Corexit, the oil dispersant, is another), made its boss Peter G. Peterson a more-than-billionaire; a billion of that went to endow a Foundation that bears his name.

The Foundation has a particular interest in things budgetary and governmental, and they are seen as one of the groups most looking to change the way Social Security works today.

(Change, you say? Indeed, and if you’ve been following this series of stories, you already have an idea of what that might entail.)

The next thing you need to know is that there is a Great Big Deal Presidential Commission currently at work who is charged with identifying…

“…policies to improve the fiscal situation in the medium term and to achieve fiscal sustainability over the long run. Specifically, the Commission shall propose recommendations designed to balance the budget, excluding interest payments on the debt, by 2015. This result is projected to stabilize the debt-to-GDP ratio at an acceptable level once the economy recovers. The magnitude and timing of the policy measures necessary to achieve this goal are subject to considerable uncertainty and will depend on the evolution of the economy. In addition, the Commission shall propose recommendations that meaningfully improve the long-run fiscal outlook, including changes to address the growth of entitlement spending and the gap between the projected revenues and expenditures of the Federal Government.”

…and that the Commission is going to deliver a report with its suggestions December 1st.

It would be fair to say that there are those who are concerned that “the fix is in”, so to speak, and that the report will be the beginning of an effort to privatize Social Security…and guess what?

Managing the Federal Government’s Social Security money, for a handsome fee, would be a spectacular business opportunity for Pete Peterson and The Blackstone Group, and to help create the environment where that can happen, the Peterson Foundation is dropping $20 million on a TV ad campaign to try to convince you to get interested in privatizing Social Security, too.

This Tuesday morning, November 9th, Peterson will appear at Washington, DC’s Newseum to unveil the advertising campaign, presumably to the delight of the assembled throng and the sipping of the coffee of the assembled media; this according to a Peterson Foundation press release that came across my desk yesterday.

There’s even a catchy name for the reform program: “OweNo”…and if you’ve already written your own “Oh, No!” Social Security joke, you’re apparently a bit faster on your feet than the guy who tried to sell Chevy Novas in Spanish-speaking countries…or the folks who came up with this catch phrase.

So that’s the story: come Tuesday, Pete Peterson, who runs a Big Fat Wall Street Firm That Would Love To Manage Your Money For Big Fat Fees, is dropping $20 million to tell you that it’s time to “get a Chilean”…and I’m here to tell you that such a procedure is going to hurt your wallet, a lot—and when it’s all over, you’re the one who’s going to be saying “Oh, No!”

FULL DISCLOSURE: This post was written with the support of the CAF State Blogger's Network Project.

WA-Sen: Can Murray's Math Teach Democrats A Lesson?

We now know the outcome, more or less, of the Washington State US Senate race—and it looks like it’s going to be Patty Murray, D-(Actual No-Kidding Progressive), over Dino Rossi, R-(Guy Who Will Be Running Again For Something As Soon As He Can).

Murray managed to win in a State that is far more “purple” than you might think, in a vote-by-mail election that guarantees at least few days of uncertainty.

You have to do some unusual math to figure out how these elections will go, and we’re going to walk through how this race got called by NBC just a couple hours ago.

So here’s what we do know: if you want to win an election in Washington, you basically have to carry some combination of King (Seattle, and Washington’s most populous, and liberal, county), Pierce (Tacoma, and Seattle’s southern suburbs, with a significant military population), Snohomish (Everett, and Seattle’s northern suburbs, also with a Navy population), Clark (Vancouver, and the northern suburbs of Portland, Oregon), Kitsap (home to a Naval Shipyard, an aircraft carrier homeport, and nuclear missile submarines), Whatcom (Bellingham, a college town and almost a suburb of Vancouver, British Columbia), and Spokane (the largest in very super conservative Eastern Washington) Counties.

You also need to know that Washington is a virtually 100% vote-by-mail state, and that votes in the mail with an Election Day postmark, no matter when they arrive, are valid votes.

There was an amazing amount of anti-Murray advertising, most of it in the form of secret money coming from either the US Chamber of Commerce or Karl Rove’s various groups; the basic themes of the ads suggested Murray caused all the unemployment and debt ever experienced in American history and couldn’t wait to make things worse.

Pro-Murray ads centered on her...well, her Progressive record—and her ability to bring jobs to the State...and that message was being transmitted in a State with high unemployment.

And as we’ll see, all of this created exceptionally high voter turnouts, particularly for midterm elections.

Now let’s do some electoral math:

We can look at the Secretary of State’s handy website and see just what’s arrived so far; it typically updates each day from here on out at 4:30 PM Pacific time, but there may be additional updates each day.

As of 7:30PM, November 4th, which is the most current update I have available, Murray is up by 45,000 and change with roughly 1.85 million votes counted so far.

But what we really need to know is: how many votes are there still to be counted?

The site has a county-by-county page that reports about 617,000 ballots are “on hand to be processed”...but that won’t include those that are still in the mail. We’ll talk more about them later.

Right now the largest concentrations of “on hand” ballots are, predictably in King (270,000), Pierce (30,000), Kitsap (29,000), Snohomish (88,000), and Spokane (65,000) Counties.

Snohomish, Kitsap, and Pierce Counties are running about 50-50 so far, and that means nothing is likely to happen in those counties that will change the outcome in any significant way, so we will put them aside for this analysis.

King County is running almost 65-35% Murray, and Spokane County is running 56-44% Rossi, so that’s where we turn for the rest of our analysis.

Now what we need to know is how many votes have yet to arrive in the mail, and the way we do that is to look at potential levels of voter turnout.

Huh?

It works like this: King County has almost 1.1 million registered voters, 500,000 have already been counted, and 270,000 are waiting to be counted—and that’s 70% turnout, if no other votes arrive.

It’s pretty rare to see 70% + turnouts in midterms, but we’re already there, so let’s assume turnouts of 75% and 80%. At 75% that means 55,000 more votes are coming, at 80% 110,000. Add all the uncounted votes up, assume the current 65-35 distribution of votes holds up, and that suggests her margin, at those turnout levels, would grow by some number between 211,250-247,000 votes. If no more votes arrive, her margin should grow by 189,000 votes.

Spokane County has 260,000 registered voters, with about 120,000 ballots counted and 65,000 more sitting in trays not yet counted. That’s a 70.5% turnout, again, a remarkable result for a midterm, and, as we mentioned, they are voting for Rossi, 56-44%. Let’s again model for 75% and 80%; we would expect 15,000 or 23,000 more in the mail from those outcomes.

I also looked at every county with more than 5000 votes left to be counted. Those that are on the east side of the State are consistently 65-35% Rossi, Western Washington counties are running more or less 50-50, but they are mostly going to Murray.

And guess what? If I’m any good at arithmetic, Spokane County doesn’t have enough votes to get Rossi over the top, even if you get 80% turnout and 100% of all currently uncounted votes go for Rossi...and I think that means we can call this one for Murray by about 210,000 at 75% turnout in those two counties, minus any other result in the State, which are not going to be enough to swing the tide.

As I’m finishing this up, NBC is also calling for Murray.

So there you go...a good Progressive wins, with extraordinary turnouts in a year when other candidates had lots of their base stay home, and despite a massive “secret money” campaign for Rossi, courtesy of Karl Rove and the US Chamber of Commerce.

And just to make it even sweeter: she ran her campaign fully embracing her record, and standing up for her tough votes. She didn’t pander conservative, and her progressive voter base stood up and got her over the top.

That’s a message the Evan Bayhs of the world did not learn—and it’s a message Members of Congress...and a certain President...ought to learn, and fast, if they want to win in 2012.

On Social Security Investment, Or, What About Chile?

With the election over, it’s time to move on to new things, and the folks at the Campaign for America’s Future have asked me to do some writing about Social Security, which sounds like some big fun, so here we are.

We’re going to start with some reasonably simple stuff today, just to get your feet wet; by the time we get a few stories down the road there will be some complicated economic analysis to work through—but let’s begin today by looking a bit south.

Those who support privatizing Social Security in this country often point to Chile as an example we could follow, and that seems like a good place to get the conversation going...so set your personal WayBack Machine to Santiago, May, 1981, and let’s see what we can learn.

“Of what avail are any laws, where money rules
alone,
Where Poverty can never win its cases?
Detractors of the times, who bear the Cynic's scrip,
are known
To often sell the truth, and keep their faces!”

--Ascyltus, from Petronius’ “The Satyricon”

In 1981, Chile adopted a privatized Social Security-like (pension) program that requires most workers to contribute 10% of their income to a private investment account. They may contribute up to 20%. These accounts are maintained by a number of private companies (known as Administradoras de Fondos de Pensiones, or AFPs) that compete for the business by advertising directly to the investing public.

These providers charge commissions and fees for certain services which are paid on top of the contributions.

An additional 3% is collected from most workers for Disability Insurance; 7% more is deducted from wages for health care.

At retirement, the money is either used to purchase an annuity from a private provider to provide a steady source of income or it’s withdrawn at a set rate over time directly from the account.

Those who are self-employed do not have to pay into the system, but they have the option to do so if they’re so inclined.

If you don’t have enough in your private account to purchase an annuity or to withdraw steady amounts over time, but you’ve been contributing for more than 20 years, you will receive a minimum pension from the Chilean Government...but you will also lose any contributions you made to your private account.

AFPs are regulated as to how they may invest; if, through investment losses, they do not have enough money to capitalize the accounts they carry they must provide the money out of their own cash reserves. If they follow the rules, and still lose so many assets they can’t continue to operate, a government bailout is in order.

At the same time, a second “welfare” program (PASIS) was established to create a “safety net” that would provide a benefit of 75% of the poverty level or 25% of your last 10 years’ earnings, whichever is higher.

You can’t collect from both programs, but it is possible to collect from neither. More about that later.

Employers do not contribute to funding the system, however, all employers were forced to give 17% pay raises to their workers to come up with the money for the workers to make their contributions. (Chile was a military dictatorship at the time, making the “forcing” process much easier than it would be in the US today.)

The system is just turning 30 years old, and we’re now seeing the first big wave of workers who are eligible to retire.

So how has all this been working out for Chileans?

The first thing we learn is that the poorest workers probably won’t do well enough to qualify for “top tier” pensions, even though it’s projected that they’ll tend to pay for the benefit over their working lives...which will reduce their income over their working lives. (It’s also projected that workers with higher incomes should do reasonably well.)

Since most workers are poor (Chile has some of the most unequal income distribution on Earth), in the end it’s starting to look like the problems of finding enough money to support the social safety net are actually getting worse, and not better.

Additionally, other problems have come to light:

--You have to find money to “transition” from one system to another, and transition costs have been quite expensive indeed: 6.1% of Gross Domestic Product (GDP; that’s a measure of the total output of an economy) in the 1980s, 4.8% in the 1990s, and 4.3% until 2037. If we were to duplicate the Chilean experience in the US economy, 6% of the 2008 GDP (about $15 trillion) means about $900 billion annually in transition costs for the first ten years, and something north of $600 billion annually for the last 37 years of the exercise.

(Keep in mind that Chile only provides 2/3 of their population with either PASIC or a pension; since we cover a higher number than that in the US, expect those numbers to come in higher than we're guessing here.)

Why are so many not covered? Lots of workers are working outside the “official” economy to avoid making contributions that they won’t get back later (in 1994, it was estimated that only 52% of workers regularly contribute to their accounts); additionally, many women have never participated in the labor force.

--Because the service providers are competing for the business, administrative costs (read: advertising and sales commissions) have been far higher than in the US Social Security system, where administrative costs have been at .07% of distributions, or lower, since 1990. To put this another way, during the 1990s the US Social Security Administration was paying $18.70 per year to administer a claim; at the same time Chile’s various providers were paying an average of $89.10 to do the same thing.

--All that competition, some say, has lead to lots of changing of providers, which tends to make any investment program less efficient over time. (In 1996, half of Chilean workers switched providers; it’s estimated that reduced pension accumulations across the entire system by about 20%.) The Chilean Government made changes in 1997 to try to work through this problem, and they seem to have had some considerable effect.

Evidence suggests most of the switching not related to consolidation in the AFP business is being done by a small percentage of account holders, with some switching as much as eight times in a year; today the average Chilean seems to change AFPs about once every five years. Unemployment also seems to be related to switching; this because the unemployed can establish a new account with a lower set of fees if they move to a new provider.

--Many Chileans, despite living in a system that has, for almost 30 years, required them to manage their own money, actually know very little about that money.

Less than half know that the contribution rate is 10%, only 1/3 know how much (within 20%) is in their accounts, and, according to work done at the University of Chile, “few” actually know what they pay in fees and commissions.

--Those who end up in the welfare program are guaranteed 75% of the poverty level; that suggests that if you’re elderly and on welfare, you’re living in poverty. Because of limited funding, there are qualified elderly poor in Chile who do not receive any benefit.

Today, in the US, about 12% of the elderly live in poverty. Without the current Social Security system in place, it’s estimated that 49.9% of the elderly would have been living in poverty in 2002.

--In Chile, taxes to cover the transition costs tend to rise faster than the “assets under management” for most workers, leaving them less well-off than before—an effect that is most common among the “financially illiterate”...meaning, of course, most Americans. In other words, reform, in Chile, tends to help the wealthiest and best educated at the expense of those who are less of either.

That’s a whole lot of detail, so let’s pull pack and look at the “macro” picture:

Chile has operated a version of a privatized system since 1981, and for the most part the working poor will never see any benefit from the transition. Since Chile doesn’t have much of a middle class, it’s hard to see how the Chilean experience would affect our middle class.

The US Social Security system has reduced the estimated rate of elderly poverty from nearly 50% to roughly 10%; such a reduction in poverty did not occur in Chile with their privatization.

The costs of moving to the same system here, if our experience were the same as Chile’s, would run anywhere from $600-900 billion annually for at least 50 years. Of course, since we provide a Social Security safety net to almost all of our citizens, as opposed to 2/3 of the population, as Chile does, it’s reasonable to assume our costs would be more or less 1/3 higher.

Chile forced its private-sector employers to raise wages to cover the workers’ costs of transition; I’m aware of no proposals that would, or could, impose such a cost on employers in the US.

It appears that Chilean-style privatization encouraged about half the population to engage in “under the table” work, making the funding problem for the system even worse that it would be otherwise.

Frequent switching of account providers is great for the providers, as it creates lots of chances to collect fees for opening and closing accounts and the like—but it’s not so great for the account holders, who are losing up to 20% of their potential earnings more or less because maintaining a sales force and running lots of ads are effective business practices.

It is unknown what happens when a shock like the recent recession hits the system, and we are awaiting research that will help us understand what happens when and if the State is required to refund losses incurred by the AFP if they “follow the rules” but still lose so much money that they lack sufficient capital to operate.

The costs of operating the PASIS program go up even as the cost of operating the retirement accounts are also still high, and the question of whether Chile can continue to expend “safety net” coverage to the 30% of the elderly poor who are not covered remains unknown.

So there you go: there are going to be lots of proposals to privatize Social Security this year, “getting a Chilean” may well be one of the options you hear Conservatives promote—and hopefully by now you have some idea why this doesn’t look like nearly as good an idea as some folks would tell you it is.

Next time, we’ll talk about proposals to invest Social Security money in Treasury debt, and whether such an effort is actually an investment at all.

It’ll be at least medium geeky...and hey, who doesn’t love that?

On Asking Experts, Part Two, Or, What's An LBGT Voter To Do?

It’s been a few days now since we began a conversation that addresses the issue of how frustrated some number of LBGT voters are with the Democratic Party this cycle; this because they find themselves either frustrated at the lack of progress on the civil rights issues that matter to them, or because they see both the Democratic and Republican Parties as unreliable partners in the struggle to assure equal rights for all.

In an effort to practice some actual journalism, I assembled a version of an online “focus group” at The Bilerico Project (“daily adventures in LBGTQ”), with the goal of gathering some opinions on this subject in the actual words of those frustrated voters.

Part One of this story focused on “stating the problem”, and today we’ll take on Part Two: in this environment, with Election Day staring us in the face, what is an LBGT voter to do?

As before, there are a variety of opinions, including a very informative comment I was able to obtain from a genuine Member of Congress, Patrick Murphy of Pennsylvania’s 8th District, and that means until the very end you won’t hear much from me, except to help “set the stage” for the comments that follow.

A monk asked Ma-tsu [Baso]:
What is Buddha?
Ma-tsu replied: “The mind is Buddha”

A monk asked Ma-tsu:
What is Buddha?
Ma-tsu replied: “The mind is not Buddha”

--From the book “Zen Flesh, Zen Bones: A Collection of Zen and Pre-Zen Writings”, compiled by Paul Reps and Nyogen Senzaki

We’ll begin today’s discussion with a housekeeping note: in order to keep the story moving in a linear fashion, from one topic to the next, in some instances I edited portions of multiple comments from the same person into one comment. I also edited some comments for length.

The disclaimer out of the way, let’s start the conversation with Zoe Brain, who sums up Part One rather neatly in one comment that absolutely did not have to be edited together:

We had a Dem super-majority in the Senate.
We had a Dem majority in the House.
We had a Dem president.

It wasn't enough. We need more. So let's use the only weapons we have for behaviour modification; our money and our votes, to make sure that the next time this can possibly happen, around 2020 (though 2028 is more likely), we won't have a repeat performance.

Andrew W responds with a bit of legislative “nuance”...and in doing so, he makes the point that looking beyond Democrats for solutions may be the way to go:

A "Democratic Super Majority" is different than an LGBT-Majority. We have never had an LGBT super majority. In the current US Senate we have only 56 votes. After November we will have 51 or 52 votes.

Stop saying "Democrats." It misses the point. Our challenge is to find 60 US Senators that support our equality.

SoFloMo makes a similar point:

Perhaps we have become too comfortable surrounding ourselves with other gay folks and straight allies. We're terrified of losing the only friends we've had in politics, so we cling to them despite the abuse.

We need to encourage one another turn our outrage into concrete action. Just feeling bad won't do any good.

Here’s some more from Andrew W:

We spend way to much talking about the "Religious Right," bigotry exists in anyone that accepts the traditional Christian belief that we are wrong. That's 70% of Black voters and they are primarily Democrats...

... We need people as our allies, not organizations. We need to educate, enlighten and enroll our neighbors, friends, co-workers and even strangers. Two-thirds will support our equality - especially if we leave religion and politics out of the conversation. Both religion and politics divide people - we just want to ask people to stand for one thing, our equality.

Try it out over the next week. You'll be surprised.

So let’s get to the big issue: vote, or don’t?

Here’s Bill Perdue’s take on the question...

On Tuesday, November 2nd, 2010...vote left or cast your protest vote by sitting it out (barring important referenda, propositions or initiatives).

The only good vote is a protest vote. In a system run by competing gangs of like minded hustlers voting is not important except as a way of validating that system....

...It's a fool's errand to believe that participation in a rigged electoral system is the way to change. It's the road to perpetual lesserevilism, betrayal and defeat.

Elections can be used to organize and educate movements in struggle but elections don't bring change except in the sense that they (rarely) ratify changes forced by mass actions in the streets, workplaces and barracks. Those are the kind of battles we can win and those are the kind of battles that produce fundamental, permanent change as opposed to hopey-changey.

...followed by Andrew W:

While "mass demonstrations" may sound appealing or possibly effective, they aren't going to happen. The biggest crowd in D.C. is likely to be for two cable-tv comedians at the end of this month.

Polling data indicates the religious grip on "beliefs" (including the traditional Christian belief that homosexuality is wrong) is weakening. Of all those that define themselves as "religious" only about one-third are "literalists" and I would suggest their beliefs are virtually unchangeable. I'm not suggesting we try to change those minds, but rather we marginalize them by enrolling the other two-thirds. Most of them will put equality before religion.

The other dynamic is age - we are much more likely to get support from those under the age of 40 because they are less religious.

We need the young people that put Obama in office to turn out on November 2nd. Unfortunately, many in this audience have heard the GetEQUAL [a pro-civil rights group] narrative that "Obama didn't keep his promises." Young people are likely to believe that "we're angry" and not vote...

GrrrlRomeo has some thoughts as well:

The second thing I'd tell them is don't think of it as voting for Democrats, think of it as voting against conservatives. Look, anti-gay Christian conservatives have no problem holding their noses and voting for a Republican just to vote against gays or abortion.

I'm sorry that people were under the impression that we could really get this stuff done in 2 years. There are 420 bills backed up in the Senate. It's obvious to me that the Republicans were doing everything they could just to make the Democrats fail so that the progressive base would throw one of our predictable tantrums and not turn out.

I do understand. I was with the Green Party in 1996 and 2000 as I was unable to forgive Clinton. But whatever Obama hasn't done...he has not done anything so unforgivable as Clinton signing DOMA [the Federal Defense of Marriage Act].

More on the subject, from symbiote

I would tell a frustrated gay voter this: Own it! You vote. You make your choices. You allow yourself to be lied to, over and over, in a repetition of craving. It is time to look for candidates who support equality for all, and vote for them--even if they don't win. It is a natural consequence of change that the first people for whom we vote will lose.

But if continue to vote for people solely on the idea that they are "electable," then we will never build support for candidates that share our views, and thus, we ourselves destroy their "electability."

Andrew W opines further on what a voter should expect from a politician—and what they shouldn’t:

... After reflection, I would add this: tell this "democratic voter" that there is no "promise" in politics, only "hope." As in life there are no "guarantees." All we can do or expect is our best efforts. The idea that politicians have "let us down" is not the exception, it is the rule. We should learn from that. We should understand we cannot "hire" politicians to save us - we need to do it ourselves.

Politicians are motivated by their constituents beliefs - it is what gets them elected. That is OUR job - changing minds. Instead of expecting politicians to handle the job, we should simply do it ourselves. We've spent 40 years betting on politics and we have little to show for it. That should make all of us think twice about continuing to believe "somebody else" will save us. Our equality is our responsibility...

... Our only political hope is targeting a few States where public opinion could change enough to turn the tide. Senators will either reflect the views of their constituents or they will be replaced. We need to change those views.

An additional question I had for the “focus group” was what you say to voters who do not differentiate between “the Democrats” or “Congress” and supportive and unsupportive legislators?

Here’s what Tim W’s thinking:

I would tell them the same thing I have said many other times. If the Democrat is a true ally in actions and not in words then they deserve our vote. If not I will be voting for someone who is. We are where we are because the Democrats feel we have no where else to turn to. The politics of fear that we aren't as bad as the Republicans doesn't cut it anymore...So the old scare tactics don't work. Democrats need to be held responsible for their actions.
We definitely should not be giving money to the DNC [Democratic National Committee], DSCC [Democratic Senatorial Campaign Committee], OFA [Organizing for America, the Barack Obama campaign’s “legacy” organization], or the newest branch of the Democratic Party the HRC [Human Rights Campaign, a pro-civil rights group]. That money is being wasted to elect the Ben Nelson and Blanche Lincolns of the world. Give money to candidates that are pro-gay be it Dem, Rep, or Green.

Bolton Winpenny offers another perspective:

I recently started publicizing the idea to stop supporting democrats that don't support us...While I understand the risk of giving republican's power, I don't think we have much gain that warrants a large risk. This conversation, along with the Get Equal campaign, "We'll Give when we Get" and other similar sentiments makes a big statement that the Democrats will hopefully listen to...Things are changing in the Republicans where they seem more interested in anti-abortion and anti-Christian than they are anti-gay...

What does work is spreading awareness and education... Shortly after LGBT Freedom Week 2010 a PA [Pennsylvania] senate subcommittee voted down 8 to 6 (tabled) a move to add "one man and one woman" into our constitution. Two years prior, the same committee, with only one member change, passed a similar bill 4 to 10.... Four votes changed after a state-wide campaign to spread awareness and education over the LGBT plight for equality.

Bill Perdue would tell you that, in some instances, you just won’t find any supportive legislators:

If they're in unions or one of the other struggle movements they should be encouraged to break with the Democrats and move left.

Their real incentives come from corporations so we have to provide an counterbalance of mass movements and mass demonstrations to get concessions. When the profit margin hits the fan, as it does in the case of ENDA [the Employment Non-Discrimination Act] and equal wages, expect no concessions.

Still another topic from the group: what’s to come after this election?

Deena has a theory:

Bielat will defeat Barney Frank and Pelosi will no longer be speaker of the house when Republicans win the majority. In one sense that will be tragic yet in another it will set the tone for 2012 when progress can be made. I think it is the best change in recent history because the house will know lip service is what it has always been -- BS. Obama will also have to pay attention or he is toast in 2012.

As does Bill Perdue:

The next anti-incumbent Congress will do no better than the last anti-incumbent Congress and in 2012 the Republicans will suffer for it. They're as rancid and rightwing as their Dem cousins and even less popular, because they don't bother lying about it...

And now: a point of personal privilege.

I have kept my opinions out of this discussion, because it really wasn’t about me, but as we close out this conversation—and the election cycle—I am going to tell you that there was one comment that struck me as being the closest to what I might say if I was a voter in this situation; it comes from John Rutledge, and it required no editing at all:

I have been in the same angry place as the writer before and will likely be again. After all, this is personal. This is our lives.
I just read the Obama interview in the Rolling Stone. I hear a brilliant mind, fair and balanced. Possibility is alive, like never before. It is also close to passing us by with the upcoming elections. Now is not the time to indulge in wallowing. I now this fight is tough, but we just can not give up. We have to continue to push. Being resigned and cynical is only being that. It makes one useless to bring about change. So choose. Go home and bitch to whoever is willing to listen, be ineffectively righteous, or suck it up and get in the game. Grow or blow.

Finally, as I promised, we’ll wrap all this up with a comment from Congressman Patrick Murphy (PA-08), who has been absolutely supportive of advancing civil rights for LBGT citizens, despite the fact that he’s a freshman in Pennsylvania, which kind of makes him “double vulnerable”.

I managed to catch up with Murphy on a live chat at Bilerico, where I asked him what he would tell voters who see Democrats as unreliable partners and don’t recognize that some Members are more supportive than others.

We’ll close out this conversation by giving him the last word on the subject:

...Some of you have brought this up today and I couldn't agree more. The far-right wing and hate mongerers are coming at me with everything they have because they know that if they knock me off, no member in a tough district will stick their neck out for DADT or other LGBT issues for years. I need your help to win this thing and show these guys that we won't back down from doing what's right.

On "Military Endorsements", Or, Another Weird Christine O'Donnell Story

I have a ton of things on the desk at the moment, and I don’t have the time to really run out this story before Election Day, but I want to bring to your attention something very strange that I found on the 2008 “Christine O’Donnell for Senate” MySpace page.

What it basically comes down to is that the United States Marine Corps and the United States Army are “Christine O’Donnell for Senate” MySpace friends, or that there are persons who have created United States Army and USMC MySpace pages that purport to be official that have “befriended” her candidacy. There’s also a Navy page that appears to emanate from a US Navy recruiting office in California on her ’08 campaign’s “friends” list.

At a minimum, all of this would seem to be a combination of inappropriate behavior and poor management of social media; at worst, you have activity that is “some kind of unlawful”, either on an administrative or civil level.

I’ll make this fast...but I’ll also make it interesting.
Follow along, and you’ll see what I mean.

So here’s the deal: as I mentioned, Christine O’Donnell, perennial Senate candidate from Delaware, has a “Christine O’Donnell for Senate” MySpace page associated with her 2008 Senate campaign, and she has a “Friend Space” on that page.

As of the evening of Saturday, October 23rd, right there in the middle of the second row of friends, immediately below the National Republican Senatorial Committee and “Rush”, are “Marine Corps”, “U.S. Army”, and “U.S. Navy”.

Click on the Army page (http://www.myspace.com/army) and the Marine page (http://www.myspace.com/marinecorps), and they appear to be official US military pages, with the full set of “enrichments” that you would expect on a professionally created page.

The Navy one is a bit different, starting with the address (http://www.myspace.com/nrselkgrove), which is clearly not as succinct, if you will, as the other two. It’s also not as graphically rich, and it appears to be a lot more “homemade”.

If you look at the address, after the slash you see “nrselkgrove”. It turns out NRS Elk Grove is a Navy Recruiting Station in Elk Grove, California, a Sacramento suburb. I called the phone number I found, and sure enough, the phone message seems to confirm that this is correct.

I left a message identifying myself, explaining the situation, and offering the folks on the other end of the line a chance to contact me for comment; as of now that has not occurred, and if it does I will be the first to let y’all know.

I sent a message to the Marine Corps press folks asking for some kind of explanation a few days ago, they have also not responded as of this writing.

So what’s the big deal?

Well, right off the bat, the Hatch Act says that Federal executive branch employees cannot engage in politics while they’re acting as Federal employees, and this kind of looks like that, at least as far as the actions of the Navy recruiter who apparently created that Web page are concerned.

The Naval Inspector General says that:

When acting in their official capacity, service members may not engage in activities that associate the Navy with any partisan political campaign or election, candidate, cause, or issue.

And that makes perfect sense: obviously we don’t want members of the military services giving the impression that those services endorse or oppose specific candidates for public office; the Navy recruiter's MySpace page befriending the Senate Candidate's MySpace page surely creates that impression.

Of course, it is possible that someone who has nothing to do with the Navy created the page, that’s true of the Army and Marine pages as well...but if that were true, there are additional concerns we can easily see.

If the three services are totally and completely disassociated from those MySpace pages, then does the military have an issue with anyone at all creating “official” pages on their behalf and then doing things with the pages that the services would not be allowed to do...and if they don’t have an issue with it, don’t you think they should?

Thanks to the experimental work of FNS Chief Social Media Correspondent Blitz Kreiger (who is an actual person with a nom de plume), we do know for a certain fact that the Army and Marines' pages will "friend" anyone, automatically. To confirm that, visit the MySpace page of "Osama Sodomy Laden", who was able to "befriend" both the Army and Marines instantly.

It would appear, at an absolute minimum, that some kind of safeguard is needed so that NAMBLA, or Osama Sodomy Laden, or...”Christine O’Donnell for Senate ’08”...doesn’t put a huge chunk of the US military on their friends list.

Finally, it’s possible that the various military services have policies galore to prevent this sort of thing from happening, but they are unaware of the existence of these MySpace pages. It would be kind of embarrassing...but it is possible.

So let’s sum up what we have:

There are a series of three MySpace pages, each purporting to represent a military service; each has a prominent place on the Christine O’Donnell ’08 campaign’s MySpace friends list.

I did not take the time to determine the “ownership” of two of those pages; the third is associated with a Navy Recruiting Station in California.

It's possible that various military regulations, the Uniform Code of Military Justice, the Hatch Act, or a series of bad decisions relating to how you manage social media are implicated in the presence of the services as “friends” on the Senate Candidate’s page; if not we have to consider another question: what happens if a disassociated third party uses your marks and logos to create a Web page that you’re either unaware of...or that you allow to exist, even after you become aware of it...and that page is used in a manner that creates the appearance of impropriety?

Since I'm 0-2 when it comes to getting someone from the military to answer my questions when I ask them about it, I can't tell you exactly which explanation is correct, but obviously it’s not a good thing when the appearance is created that the military supports specific candidates, and it’s something that should be fixed as soon as possible.