Reply #4: Actually, the business about shifting...

[punpirate]

... wage-based indexing to price indexing is a red herring. SS now actually does both. One's initial rate is tied to wages (higher initial stipend for higher total wages, since one has put more into the fund), and in successive years, the initial retirement rate is increased periodically by a formula based on the CPI.

The simplest way of guaranteeing benefits at or beyond a point where one can reassess economic growth isn't really necessary at the moment--current estimates (from the CBO, I think) are that the fund doesn't go negative until 2052--almost fifty years from now, and by then, virtually all of the baby boomers will be gone.

Therefore, the simplest way to guarantee funds is to incrementally increase the withholding cap every few years and reassess. The big stumbling block to that is the Repugs will scream tax increase, and Bush will remember the "read my lips" routine of his father. Therefore, the best thing to do at the moment is nothing. Let Bush finish his four more years and make sensible changes in the cap when the Repugs don't have the control they have now.

As for an auction for partial privatization rights, that money will come back to the auction winners in higher fees. Fees are one of the biggest reasons to resist any privatization scheme, since, as the experiences of the UK and Chile show, poor stock performance combined with fees can ruin a fund. It's not reported much here, but it was not long ago that the UK's fund manager backed out due to losses (after almost twenty years) and the government was forced to re-accept people who'd been in the privatized plan into the government plan. The terms were horrible--in order to get back into the government plan, the participants had to pay back the $1400 incentive they were given to leave the government plan, and most didn't have it any longer, plus they lost accrual benefits for the years they were out of the government plan. Beyond that, "guaranteed returns" sounds nice in theory, but if the plan management goes bust, you can't get blood out of a stone.

And, plan management costs are one of SS's strong points now, averaging less than 1% of benefits paid.

Here's the real truth about SS. It works fine. It's significantly reduced the number of elderly living below the poverty line. It costs next to nothing to administer. The overall rate of taxation could go down quite a bit (maybe 30%) if there were no cap on withholding. But, nobody in Congress in the last forty years has had the balls to increase taxes the wealthy by any degree which approaches the rates the wealthy paid in the `50s and early `60s.

Cheers.