Will an economic stimulus package help us during recession?

[Texas_Roofer]

It is indeed a cash cow – and as a tax, it is a regressive tax, which means low wage earners pay a higher percentage than the highest paid wage earners.

And consider this – the “Social Security Trust Fund” is more than 20% of our National Debt. When the FICA tax starts bringing in less than Social Security pays out, we will get the double whammy – instead of milking that cash cow, we’ll have to start feeding it.

Does anybody think we can actually pay down 20% of our national debt? And do it without the Social Security surplus?

Maybe not as mentioned earlier 8% should pay the bill. Since the collection rate is 15.3% that means we tax an extra 7.3%. Or said another way the young will die of old age before they receive their fair share if SS checks(based on paying in 15.3%). Note the word “checks” Medicare is whole different issue.

 

[vern_humphrey]

Maybe not as mentioned earlier 8% should pay the bill. Since the collection rate is 15.3% that means we tax an extra 7.3%. Or said another way the young will die of old age before they receive their fair share if SS checks(based on paying in 15.3%). Note the word “checks” Medicare is whole different issue.

As I have pointed out earlier, if we take a young person making minimum wage, and allow them to keep their FICA tax, and invest it at rate of return one standard deviation below the average for mutual funds, that person would have about** $2 million** (in constant dollars) upon retirement. At 6%, that would bring them an income of **$120 thousand **a year for the rest of their lives and leave a substantial nest egg for the children.

And that for a person who never made as much as **$12 thousand **a year (in constant dollars) in his life!!

 

[Ridgerunner]

As I have pointed out earlier, if we take a young person making minimum wage, and allow them to keep their FICA tax, and invest it at rate of return one standard deviation below the average for mutual funds, that person would have about** $2 million** (in constant dollars) upon retirement. At 6%, that would bring them an income of **$120 thousand **a year for the rest of their lives and leave a substantial nest egg for the children.

And that for a person who never made as much as **$12 thousand **a year (in constant dollars) in his life!!

Not to mention the fact that owning one’s own retirement funds and being able to pass it on to one’s wife or children is mightily favored by the social encyclicals over government dependency (which is what Social Security Retirement really is).

When Bush floated his trial balloon about privatizing a portion of SS, and the USCCB opposed it, I wondered if they had ever read the encyclicals.

I trust everyone realizes that privatizing SS would then require a separate “welfare” program for persons who are or become disabled, and that SSI is woefully inadequate for that purpose. But the cost of trebling SSI benefits (reasonable in my view) are unknown to me.

With that caveat, it does seem to me that allowing people to own their SS funds, with an enhanced SSI “safety net” is the better way to do this. Of course, there would have to be a “transitional” phase during which people would have to contribute to the SS retirement of retirees without ever expecting to get anything out of it. At least, that is, until the take from the Federal Estate Tax kicks in (if they don’t change it). If they don’t change that tax, the SS shortfall will be more than paid by it alone. The heirs of the baby boomers are in for a big shock when they see what they actually inherit after that tax and, of course, the various state inheritance taxes. It should be changed, though, and a “SS shortfall tax” imposed, because the Estate Tax is going to cause such huge liquidations of stock and mutual fund portfolios as well as real estate, that the values thereof will be artificially depressed. Of course, that will allow Vern’s young wage earners to buy them at very nice P/E ratios for their retirement plans. So I expect Vern will not want a “SS shortfall tax”, and that’s a legitimate view.

 

[Texas_Roofer]

As I have pointed out earlier, if we take a young person making minimum wage, and allow them to keep their FICA tax, and invest it at rate of return one standard deviation below the average for mutual funds, that person would have about** $2 million** (in constant dollars) upon retirement. At 6%, that would bring them an income of **$120 thousand **a year for the rest of their lives and leave a substantial nest egg for the children.

And that for a person who never made as much as **$12 thousand **a year (in constant dollars) in his life!!

Now you understand, the government keeps all of that money except about $200,000 which is $800 a month for about 20 years

 

[maggieodae]

Amen!

As a wise man once said, “We cannot tax ourselves into prosperity, but we can certainly tax ourselves into poverty.”

For sure.

 

[vern_humphrey]

Not to mention the fact that owning one’s own retirement funds and being able to pass it on to one’s wife or children is mightily favored by the social encyclicals over government dependency (which is what Social Security Retirement really is).

So I expect Vern will not want a “SS shortfall tax”, and that’s a legitimate view.

Some years ago, I developed a computer simulation to test this approach.

FIXING SOCIAL SECURITY
A MODEL

The Basic Concept:

This model is based on applying all FICA tax surpluses (the income above current outlays) to individually-controlled Personal Retirement Accounts (PRAs). In other words, each person would pay the standard FICA tax, but the government would retain only enough to cover its outlays for that year. The remaining FICA payment would go into the individual’s PRA.

Each individual is guaranteed his Social Security entitlement, no matter what. On retirement, the individual’s Social Security entitlement would be calculated as it is now, and the funds in the individual’s PRA would be used to pay the first dollars of that entitlement. Public funds would make up the difference.

As time goes on, more and more people would retire with more and more of their Social Security entitlement funded by their PRAs. This would reduce Social Security outlays, resulting in those still working being left with more and more of their FICA payments. Ultimately – between the 33rd and 34th year of the plan – most people’s retirement would be fully funded by their PRA, and Social Security would only be responsible for those unable to work or build a retirement fund.

How the Model Works:

1. Wages. The model assumes everyone in the country makes $1,000 a month, and never receives a promotion or an economic raise – that is, the $1,000 is in constant dollars, and a worker’s last pay check buys exactly what his first pay check would buy. The reasons for this are:

 By choosing a low wage scale, the model is a worst-case scenario. Social Security replaces a percentage of the worker’s high-three income on a sliding scale. The less you make the higher the replacement percentage. For example, the worker who makes only $1,000 a month would get more than half his wages replaced by Social Security. But people who make more get a lower percentage of their wages replaced. A worker making over $5,000 a month would get only about 25% of his wages replaced. The model therefore is based on low pay-in, high payout.

 Some will always raise the issue that “it won’t work for the poor.” This model is based on the poor. More affluent workers will do even better, of course, but as the model shows the poor will do very well indeed.

 The model automatically adjusts for inflation. We are using constant dollars by assuming no raises beyond the level of inflation.

1. Raising the FICA Tax. Because the model assumes no current surplus, the surplus must be generated by raising the FICA Tax. The tax is raised from 7.65% to 8%. Of course, if we are smart enough to start while Social Security is still running a surplus, we don’t need to raise the FICA tax. In addition, Medicare is replaced with Medical Savings Accounts (MSAs), discussed below.

1. Rate of return. The rate of return in this model is based on an evaluation of Fidelity equity (stock) mutual funds. Funds with over ten years existence were averaged, and the rate of return selected was one standard deviation below the mean. Again, this was designed to present a worst-case scenario.

1. Rate of retirement. The model apportions one third of the surplus generated by a retiring worker’s self-funded portion of the entitlement per active worker. In other words, if the average retiring worker in any given year has $1.00 a month from his PRA, active workers are credited with $0.33 per month in additional surplus.

1. Time. The model assumes each worker will work for 40 years, and will be retired for 20 years – an average life span of 80 years.

1. Retirement Income. Retirement income is calculated using the standard annuity formula. The assumptions are:

 The individual will live 20 years after retirement (to approximately age 80).

 The rate of return for the annuity will be the same as for the PRA (one standard deviation below the mean of annual return for established stock mutual funds.)

(Continued in next post)

 

[vern_humphrey]

(Continued from previous post)

FIXING SOCIAL SECURITY
A MODEL
7. Medical Care. The model assumes Medical Savings Accounts (MSAs) for each worker. In this model, the worker generates monthly savings of $25.00 (which represents the unspent portion of his contributions to his MSA), which is held in a mutual fund account similar to the PRA and rolled over annually. The medical care assumptions are:

 The individual will require nursing home care immediately upon retirement (again, a worst-case scenario.)

 The individual will live 20 years after retirement (to approximately age 80).

 The rate of return will be the same as for the PRA.

 The PRA annuity will also be available for nursing home or medical care.

1. Caring for those who cannot work. The model cuts off the contributions to the PRA at 8% of wages. That is, when the system is fully mature, the worker puts 8% of his wages into his PRA, but the employer’s contribution (another 8%) is used to fund retirement and other benefits for those who cannot work.

The Bottom Line:

 The system becomes fully mature between 33 and 34 years. Workers who have been fully employed during that time will be fully self-funded in their retirement from their PRAs.

 After 40 years, the worker will receive more in retirement than his actual wages.

 Retired workers who require nursing home care will be fully self-funded.

 

[LCMS_No_More]

I knew it was cold in Estes today but i didnt think it was so cold that hell would freeze over…

You know what they say about broken clocks.

 

[Al_Masetti]

Sorry for busting in here so late in the festivities and spoiling your fun.

Anyway, an economic stimulus typically takes 10 months to have any effect. Usually the recession is over by then and recovering from the excesses that generated the recession, by itself.

Unless, the “stimulus package” carries harmful elements within it. Then, the recession will last longer. Or the economy will be dragged into “stagflation”. Usually brought about by a heavy layer of increased regulations that clog up the economic works.

Ever watch a traffic officer directing traffic and when things become unmanageable, he steps aside to the curb to take a break and after a while, the traffic sorts itself out.

The only way an economic stimulus package can work is if stifling regulations are swept aside. Reagan did that with controls on gasoline, for example. In one day, all the logjams were removed.

So, also Bush and the Congress could implement a simplified tax structure to take effect for last year … 2007 with the tax returns due in between January 1 and April 15, 2008. The problem of course is that the IRS doesn’t have the time to design and print new tax forms. Unless some very simplified postcard tax form were to be devised. [How much did you make? Send it in.]

A Flex Fuel policy would be helpful in cutting petroleum prices virtually overnight. For details, see “Energy Victory” by Robert Zubrin. He advocates that all cars be equipped to burn a flexible mix of alcohol (primarily methanol made from coal, natural gas, and waste products) and gasoline.

Amazon was out of Zubrin’s book, although they may be back in stock now. Interested folk can get an autographed copy by sending a check for $25 to Robert Zubrin, Pioneer Astronautics, 11111 W. 8th Avenue, Unit A; Lakewood, CO 80215

He gave me his permission to post that.

The other thing that might have a fast effect would be to make the Bush tax cuts permanent. Right now they are set to expire in 2010, so taxes will increase substantially. Planning business
investments is difficult if you think your tax burden will increase or if your returns will be hampered by increased government regulations (which have not yet been published … but you know that they are coming.)

 

[vern_humphrey]

Now you understand, the government keeps all of that money except about $200,000 which is $800 a month for about 20 years

Imagine how prosperous we would all be if we didn’t have the government “helping” us.

 

[goofyjim]

All these are great suggestions for the average worker. But what about the disabled that can’t work and haven’t been able to due to a long term disability that started before they had time to establish any work history. They survive off Social Security Disability payments because no other job was able to offer them disability insurance. And since they are unable to pay in, when all the other workers stop paying in to a system there will be nothing left for these disabled. I know some of the heartless Republicans will say go out and get a job but it is not that simple. And I am all for PRAs as recommended here but there must be some other taxes in place for these disabled so they are not on the street.

 

[vern_humphrey]

All these are great suggestions for the average worker. But what about the disabled that can’t work and haven’t been able to due to a long term disability that started before they had time to establish any work history. They survive off Social Security Disability payments because no other job was able to offer them disability insurance. And since they are unable to pay in, when all the other workers stop paying in to a system there will be nothing left for these disabled. I know some of the heartless Republicans will say go out and get a job but it is not that simple. And I am all for PRAs as recommended here but there must be some other taxes in place for these disabled so they are not on the street.

Did you miss the point that the savings returned to the worker are what’s left after all Social Security payouts are made? Those who are on disability will continue to draw disability, just like those who are currently retired will continue to draw their Social Security.

 

[goofyjim]

Did you miss the point that the savings returned to the worker are what’s left after all Social Security payouts are made? Those who are on disability will continue to draw disability, just like those who are currently retired will continue to draw their Social Security.

But the worker couldn’t possibly get back all he put in after the payouts are made. If they did and the retirees and disabled still got their checks you would then have to cover these payments with something from the general fund. If every president hadn’t dipped into the Social Security till for the last fifty years we wouldn’t have this problem. But they did and now we are paying the price because there is no way to go back and account for all that was stolen, essentially.

 

[vern_humphrey]

But the worker couldn’t possibly get back all he put in after the payouts are made.

Nobody said he’d get all of it back. We’ve got ourselves in a hole, and we’ve got to dig ourselves out.

But the point is, we can dig ourselves out.

If they did and the retirees and disabled still got their checks you would then have to cover these payments with something from the general fund.

Did you miss this part?

**8. Caring for those who cannot work. ** The model cuts off the contributions to the PRA at 8% of wages. That is, when the system is fully mature, the worker puts 8% of his wages into his PRA, but the employer’s contribution (another 8%) is used to fund retirement and other benefits for those who cannot work.

If every president hadn’t dipped into the Social Security till for the last fifty years we wouldn’t have this problem. But they did and now we are paying the price because there is no way to go back and account for all that was stolen, essentially.

That’s correct. We’re in a hole, and we must dig ourselves out.

You may notice that the real pay-off in this system comes some 30+ years after we start. We are doing this for future generations, not for our own benefit. We will continue to get exactly what the Social Security System pays now – it’s future generations who will benefit.

 

[goofyjim]

Nobody said he’d get all of it back. We’ve got ourselves in a hole, and we’ve got to dig ourselves out.

But the point is, we can dig ourselves out.

Did you miss this part?

That’s correct. We’re in a hole, and we must dig ourselves out.

You may notice that the real pay-off in this system comes some 30+ years after we start. We are doing this for future generations, not for our own benefit. We will continue to get exactly what the Social Security System pays now – it’s future generations who will benefit.

Sounds good. Can one who becomes disabled use payments from a PRA the same way Social Security worked and not be taxed on the withdrawals? This would seem a fair tradeoff to help them replace Social Security Disability.

 

[vern_humphrey]

Sounds good. Can one who becomes disabled use payments from a PRA the same way Social Security worked and not be taxed on the withdrawals? This would seem a fair tradeoff to help them replace Social Security Disability.

One who becomes disabled would draw Social Secuirity Disability as they do today – his PRA would not be touched until he retired, and then only to make up his total entitlement.

 

[Ridgerunner]

I know some of the heartless Republicans will say go out and get a job but it is not that simple.

I’m not sure if you’re being ironic or not, but I don’t think I would be so quick to say “heartless republicans” in this particular instance.

Never in my life have I seen a time when it was so easy to get SSD, and it started early in the first Bush II administration. My suspicion is that it is part of that “compassionate conservatism” he used to talk about.

There are other factors, certainly, that could explain it, at least in part; chief among them being that neither the Dictionary of Occupational Titles or Onet, which the “voc rehab experts” use take the Americans with Disabilities Act into consideration, or the labor shortage (until now, anyway) that caused a lot of employers go accommodate even beyond the requirements of the Act.

Even then, I have seen people who could clearly meet the essential functions of many jobs get SSD, when I never thought they could, and when, in truth, they couldn’t have under previous administrations.

I do admire Vern’s model. I do not see, though, where it takes into account any improvement in SSI benefits. Possibly, updating the DOT or Onet might save enough money to do that, but I’m not sure it would.

But in general, I think Vern’s model comes a lot closer to the teachings in the social encyclicals than does the present system.

I’m not sure how much of this is “on topic”, so I’ll add that maybe making the tax cuts permanent (they can always reverse them later if they want, but the uncertainty of “twilighting” them really is bad because it discourages long-term investment planning) and adopting Vern’s SS plan is the right “stimulus package”. Most definitely Vern’s plan would put a lot of assets to more productive use than the government tends to do, and its adoption alone might do more to end the recession than giving everybody $500 or whatever to go spend on Chinese goods at Walmart.

 

[Texas_Roofer]

So how about we add an over reaction?

biz.yahoo.com/ap/080122/fed_interest_rates.html

Does this President believe in any form of free markets?

 

[Ridgerunner]

The President does not determine what the Fed does. Still, I will agree that a short term stimulus package, which the President DOES propose, is likely to be counterproductive.

Whether the Fed overreacted or not depends on how it is reading whatever tea leaves there are on economic activity and inflation, in advance of anything “official” on them. I doubt there’s much to look at.

But clearly, the market isn’t really impressed. Gold dropped at first, then gained after the Fed’s announcement. So, the gold bugs, at least, view the rate cut as inflationary. Still, since the rate cut won’t stop a recession from happening (though it may well prolong it) I sure wouldn’t be buying gold or oil right now. I see the Euro is up a touch, but I wouldn’t be buying it either. Those European experts evidently think they’re immune from recession, but I suspect they have a lesson to learn very soon.

If I had to guess, I would guess that Bernanke’s crystal ball is clouded. Had it been me, I would have left rates alone so the “hard bump” would come quickly and be over with quickly. But I’m not the Fed chairman, so they didn’t ask me.

 

[whatevergirl]

But the worker couldn’t possibly get back all he put in after the payouts are made. If they did and the retirees and disabled still got their checks you would then have to cover these payments with something from the general fund. If every president hadn’t dipped into the Social Security till for the last fifty years we wouldn’t have this problem. But they did and now we are paying the price because there is no way to go back and account for all that was stolen, essentially.

I might sound naive, but I don’t fully grasp why the government was allowed to ‘dip into’ SS funds…taxes should be used for programs government is seeking to implement–not our future’s financial security money. (not that it’s enough even if it wasn’t tampered with, but you know what I mean) Why has this been allowed to go on?