Background on Social Security

Social Security Trust Fund

The Clinton plan is to have the federal government continue to control the investment (which implies investing in Treasury Bills, which means lending to the National Debt).
The Congressional plan is to have individually controlled retirement investment accounts (which implies investment in the Stock Market, Bond Market, and Money market)
Alternative plans are to have government-controlled investments in the stock market or other private markets.

Social Security Investment

Due to the enormous amount of money involved, where and how the Trust Fund is invested will dramatically impact the economy.

 $0.6 trillion      Total amount currently in the Trust Fund   (1999)
 $3.0 trillion      Estimated amount needed by peak year       (2015)
 $2.9 trillion      Expected total budget surplus for years 2000-2009
 $1.8 trillion      Total amount of most recent federal budget (2000)
 $5.6 trillion      Total amount of the federal National Debt  (1998)
$11.6 trillion      Total market capitalization of the NYSE    (1999)

‘Lockbox’

The ‘Lockbox Bill’ aims to protect the future Social Security surplus by removing it from the control of federal budget makers.

The vote in Congress was 416-12 in favor of the bill.

It would require a ‘super-majority’ vote on any bill that would add to the budget deficit, which implies borrowing from the Social Security Trust Fund.

IRAs and other Retirement Accounts

Individual Retirement Accounts (IRAs) allow saving $2,000 per year tax-free, to be withdrawn beginning between ages 59 and 71.

Keough Plans for self-employed people allow saving $30,000 per year tax-free, to be withdrawn beginning at age 59.

Salary Reduction Simplified Employee Pension Plans (SAR SEPs), allow investing $6,000 per year tax-free in stocks, bonds, mutual funds, or precious metals.

401(k) company-sponsored retirement plans allow investing $30,000 per year tax-free in any investment vehicle, including real estate and insurance.

Medicare and Medicaid

Medicare and Medicaid will become insolvent under current estimates by 2015 (1999 budget discussions may push that to 2025).

There were 39 million Medicare beneficiaries in 1998; that number is expected to rise along with Social Security retirement figures.

Senior Drug coverage is currently $24-$44 per month insurance premium to cover $1,000-$2,500 per year in drug costs.

Medicare deductible on tax returns is currently $100 per year; also expected to rise in current negotiations.

Social Security Buzzwords

The biggest component of the Social Security debate is whether people should be allowed to privately invest their retirement money. Fully doing so has the effect of replacing the Social Security system with a federally-run retirement investment plan.

Liberals and populists generally oppose privatization of Social Security. Look for buzzwords like "risky" to describe the stock market component, or "maintain confidence in the Trust Fund" to describe the federally-managed system.

Moderate liberals and populists generally favor some components of privatization and pay lip-service to the concept of the stock market. Look for buzzwords like "government investment in the stock market," which means maintaining complete federal control of Social Security while attempting to reap the greater profit of private investment.

Conservatives and libertarians generally favor privatization. Look for buzzwords like "personal choice" or "individual control" of one's retirement account (to contrast the lack of individualization of the current Social Security system).

Moderate conservatives and libertarians favor privatizing some components while maintaining federal control of the overall system. Look for terms like "increase IRAs" (individual retirement accounts in addition to Social Security accounts); or "Remove the Earnings Test," which means allowing seniors to earn income without diminishing their Social Security payments.

Moderates from both the right and left generally support Social Security reform which increase the value of the Trust Fund while still providing benefits to all citizens. Look for terms such as "increase the retirement age," which would increase the Trust Fund by delaying the age at which benefits could be received.

Some centrists from both the right and the left support reforms to better account for the Trust Fund, generally by taking it "off-budget" or putting it in a "Lock Box." That refers to the accounting method for Social Security, which does not maintain a separate bottom-line for the Trust Fund but instead assigns its surplus or deficit to general treasury funds. Accounting separately for Social Security would disallow political machinations of the surplus and, in this view, would enhance the future long-term survival of Social Security.

Related issues:

Budget & Economy (Trust Fund issues)
Tax Reform (distributing surplus)
Health Care (Medicare & Medicaid)

Background info:

Policy.com Articles
Nolo.com Social Security FAQ
Economic Security 2000 Social Security Advocacy
Retirement Savings Financial info

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