The article, Schakowsky Proposes Alternate Budget Plan: Save Social Security, Tax Millionaires, shows that there are far better alternatives to balancing the budget than those proposed by the heads of the Presidential Commission.

After the National Commission on Fiscal Responsibility and Reform released a polarizing deficit reduction proposal on November 10, Rep. Jan Schakowsky (D-Illinois) did not hesitate in expressing her disapproval. “This is not a package I could support,” she said  at the time.

On Monday, Schakowsky, who also serves on the commission, released her own proposal, which contrasts significantly with the plan compiled by commission co-chairs Alan Simpson and Erskine Bowles. Most notably, Schakowsky’s plan approximates a $426.95 billion reduction, a higher figure than the $250 billion target President Obama recommended to the commission. The Bowles-Simpson proposal had a final reduction amount of $200.3 billion over the same time period.

The article The Schakowsky Deficit Reduction Plan: A Proposal that Actually Strengthens Social Security offers more detail on the plan.

Is this the way progressives should have been campaigning?

When Rand Paul says that Social Security is a Ponzi scheme and should be privatized, does that mean that he thinks the private sector does a better job at Ponzi schemes than the government?

Paul Krugman’s column Attacking Social Security, puts some perspective on tn the idea that drastic cuts, or any cuts at all, need to be made to Social Security.

So where do claims of crisis come from? To a large extent they rely on bad-faith accounting. In particular, they rely on an exercise in three-card monte in which the surpluses Social Security has been running for a quarter-century don’t count — because hey, the program doesn’t have any independent existence; it’s just part of the general federal budget — while future Social Security deficits are unacceptable — because hey, the program has to stand on its own.

In talking about Social Security budgetary problems, he does say:

First, that dedicated funding could prove inadequate, forcing the program either to cut benefits or to turn to Congress for aid. Second, Social Security costs could prove unsupportable for the federal budget as a whole.

But neither of these potential problems is a clear and present danger. Social Security has been running surpluses for the last quarter-century, banking those surpluses in a special account, the so-called trust fund. The program won’t have to turn to Congress for help or cut benefits until or unless the trust fund is exhausted, which the program’s actuaries don’t expect to happen until 2037 — and there’s a significant chance, according to their estimates, that that day will never come.

I solicited a response to my post Social Insecurity – Investment Rules Need Rethinking from Arun Muralidhar a co-author of the book that I mentioned, Rethinking Pension Reform, by Franco Modigliani and Arun Muralidhar, Published October 2004.

I posted it as a comment to that other item, but RichardH urged me to make it more prominent.

Here is what Arun Muralidhar gave me permission to post:

I think the privatization folks have realized that privatization is a pipe dream (especially given that even the Chileans have reformed their system away from privatization) and the market collapse of 2008 demonstrates how individuals who were unlucky to be conceived in the wrong year and month could have been left in poverty at retirement if they were in DC plans. Also, the folks who support no change to current way of financing benefits have got to realize that a PAYGO system is unsustainable and leaves SS contributions very susceptible to small changes in population and productivity growth. The simple solution is to implement what we call “risk sharing through a common portfolio.” Because of continued inaction in Washington year after year (and squandered surpluses), there is a cost to be borne and it is currently a 1.1% permanent increase in SS taxes for all citizens – the worse part, if we keep delaying, the cost keeps rising as this is a ticking time bomb, but the fuse is long so Washington can kick the ball down the road to the next set of representatives!

The sad part is Congress is totally paralyzed (I tried contacting my rep, Congressman Rush Holt, when I lived in NJ and he claimed he did not have the time to meet and I was fobbed off onto a researcher). Someday, I hope that our elected representatives get a backbone to take this on and not strap our kids with a ridiculous tab for our inaction.

In addition to having a decent health care system, shouldn’t we ensure that we do not leave our retirees in poverty or plunder from our children to prevent such an outcome?

Follow this link to the editorial in the Worcester T & G.

I posted this response to this Editorial as a comment on the web site:

Wow, I cannot believe that I am seeing this as a T & G editorial. I have been advocating this since at least 2004.

Read the book – Rethinking Pension Reform, Franco Modigliani, Arun Muralidhar, Published October 2004.

http://www.cambridge.org/uk/catalogue/catalogue.asp?isbn=0521834112

It spells out a well thought out plan to modify Social Security investment policy in ways indicated by this editorial.

Imagine if Social Security had been allowed to invest at the depths of the market in March 2009. That investment by Social Security would already be up by 60% or more.

Previous publications by Modigliani and Muralidhar show even more detail than in the book. They had an FAQ that showed how they resolved just about every possible objection to their plan. Ted Kennedy was going to have them testify before Congress, but I don’t think that ever actually happened.

Follow this link to what I posted back in 2004 about this topic.

Follow this link to a recent letter to the editor of the Worcester T & G that asked:

Can it be true? Did I just read that the federal government wants to cut Social Security benefits for American retirees …

I remember reading the story, but I apparently did not remember what the headline said.  Here was my response.

William,

You ask if it can be true.  You ask “Did I just read that the federal government wants to cut Social Security benefits for American retirees”

Well, you have been duped again by the Worcester T & G or whatever other media you read.  This may be the impression you got from reading the headline, but you might have gotten a different impression if you had read the whole story.

There is just enough of a hint of truth to the headline that the T&G can claim they weren’t lying, but they are definitely trying to distract you from understanding.

There will be no COLA (Cost of Living Adjustment) this year because the cost of living has actually dropped due to the recession.  In their wisdom, the lawmakers prevented Social Security from reducing your payment when the COL drops.  They can only raise it when the COL rises.

It turns out that the cost of Medicare is rising.  You know, the thing that Obama is trying to bring under control?  Because Social Security deducts the cost of Medicare from your check, your check will be smaller next year.

If the T & G keeps you in the dark about what is really going on, how will you know what needs to be fixed?

Follow this link to the original article.  The headline on the web site reads, No cost of living hike for Social Security. If this is what appeared in the print addition, then I guess it wasn’t as misleading as I had thought.

The article did go on to say:

Nevertheless, monthly payments would drop for millions of people in the Medicare prescription drug program because the premiums, which often are deducted from Social Security payments, are scheduled to go up slightly.

Given the current state of the debate, I knew that the rising cost of Medicare would be used as an excuse to not reform the rising cost of Medicare. Do we live in a topsy-turvy world or what?  As Yakov Smirnoff would say, “Only in America”.

I just realized that the current financial bailout by our government is tantamount to a forced privatization of Social Security with all the costs going to the Social Security beneficiaries but none of the benefits.

The Social Security Trust Fund is running a current account surplus.  The surplus is being “invested” in special government bonds at low interest rates. The government is taking the proceeds from these bonds and spending them however it wishes.  Some of that spending is on the bailout of our financial institutions.  In the latest bailout plan, the government is taking huge ownership stakes in these institutions by taking warrants for stock options in return for the money given to these institutions.

Chances are very good that after the recovery these warrants will be worth considerably more than what the government has paid for them.  I don’t see any plan to give some of these profits to the Social Security Trust Fund that helped finance the bailout.  After this is all over, the government will still consider that the Social Security Trust Fund will not have enough money in the future to pay all benefits so they will either raise FISA taxes, or cut benefits, or both.

Why not give the Social Security Trust fund some of the proceeds from the investments they helped to finance?  After all, if it was a good idea for Social Security to invest in equities when they were priced very high, it is a much better idea to invest in them when they are priced low.

Admittedly, the Treasury is taking on some risk that supposedly the Social Security Turst Fund is not taking on, so a fair split of profits will require some thought.  This requirement of some thought should not be an excuse to deny Social Security any take in this transaction.