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Tags: Social Security

Forget the SOTU Laundry List. Let’s Try Setting Up Three Accounts.



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Urgh. An interminable State of the Union Address. So let’s forget that, and focus on a completely different approach, laid out in today’s Morning Jolt . . . 

The Three-Accounts Plan for a Real American Recovery

We’re stuck with this guy until January 2017. We don’t know exactly what the future holds, but the outlook on the horizon isn’t good. The economy sputtering along, unemployment still high by historical standards, low workforce-participation rate, a complicated mess in health care, annual deficits that are merely ludicrously high instead of incredibly ludicrously high, chaos overseas, hoping our numbskull big campaign-donor ambassadors manage to avoid exacerbating a crisis . . . 

Imagine somebody comes along and says, “Okay, America. We’ve tried that approach and we’ve seen what it gets us. Let’s try a different approach. Let’s try an approach that sets you up with the future with three accounts.”

Those three accounts are a 401(k) or IRA, a 529 plan for education, and a Health Savings Account.

Each of those accounts operates on the same basic concept: you put money in, sometimes your employer kicks some money in, and the government gives both of you some big tax incentives. Unlike a bank savings account paying one tenth of 1 percent to 1 percent (annual percentage yield), money put in these accounts gets invested in a fund that you choose and most years increase in value by several percentage points. These funds can go down in value, but most years will go up in value, and some years will go up a lot, depending on how the market and broader economy perform and the judgment of the folks managing the fund.

The 401(k) or Individual Retirement Account: These types of accounts accumulate retirement savings; 401(k)s are set up by employers, IRAs are, as their name suggests, set up by individuals.

The 529: This is an education-savings plan operated by a state or educational institution designed to help families set aside funds for future college costs. Your contributions are not deductible when you make them, but your investment grows tax-deferred, and when you withdraw to pay for the college costs, you pay no federal tax on that. Plan assets are professionally managed either by the state treasurer’s office or by an outside investment company hired as the program manager.

The Health Savings Account:

Health savings accounts, the investment account that typically accompanies high-deductible health plans, are enjoying a boost: In 2013, some 7.2 million people had HSAs, up from 6.6 million in 2012, according to the Employee Benefit Research Institute. During that period, assets also leapt, reaching $16.6 billion in 2013, up from $11.3 billion in the previous year.

HSAs typically run in tandem with a high-deductible health care plan, with the intention that insured people tap the HSA itself to cover qualified medical expenses. Employers and insurers generally like HSAs because insured people are using the account to foot the bill for services until they hit their deductible. In theory, if employees are aware of the real cost of medical services because they are shelling out for those expenses, they’ll become more educated consumers, according to Paul Fronstin, senior research associate at EBRI.

Employers and employees can contribute to HSAs, and the chief benefit is that the funds contributed won’t be subject to federal income taxes when deposited. Any distributions made for qualified medical expenses can be made without incurring taxes.

Many successful, secure Americans have these accounts. If everyone in America had these three accounts, their worries about paying for their retirement, paying for their children’s education, and paying for their health care would be greatly ameliorated. Not completely erased, but everyone in America would have one, two, or three little nest eggs, each enjoying the fruits of compounding returns. As time goes by, your accounts would grow and your worries would shrink.

We could either mandate these accounts for every American . . . 

(sounds of conservatives drawing swords from sheaths)

. . . or we could make it unbelievably easy to set up these accounts. (My aim, of course, is to turn every American into an investor, from birth to death.)

You’ve just had a child? Congratulations, mom and dad, here’s the setup form for your 529 plan with your child’s new Social Security card. Plug a bit in every year over 18 years, and you’ll have a nice pile of money to put towards college, trade school, etc. If anything, we should expand it so that your 529 never goes away, and you can put money in at any time to use on a graduate degree, certification programs, or any other instructional course.

You’ve just turned 18? Congratulations. As you pick up your driver’s license, here’s the setup form for your IRA and Health Savings Account.

Instead of fining people 1 percent of their income for not having health insurance — up to 2 percent in 2015 and 2.5 percent in 2016 — let’s make it easy to put 1 percent of your pre-tax paycheck into any or all of these accounts. Let’s let Americans pay one less percentage point of their current 6.2 percent Social Security tax into their IRA or 401(k). Let’s let Americans pay a half a percentage point of their current 1.45 percent Medicare tax payment into their Health Savings Account!

(Sound of Democrats drawing swords from sheaths)

We can fiddle with the tax code to give employers huge incentives to match donations to these accounts. (Democrats: “Hey, you’re reducing revenue!” Me: “Yes, and ameliorating three big problems that all of this federal spending has tried to address and largely failed: anxiety over paying for health care, education, and retirement.”)

You know who once supported one piece of this proposal? Hillary Clinton, back in 2007, who wanted a universal 401(k). One wrinkle was that she had the federal government matching the first $1,000 in savings for married couples who earn up to $60,000 a year and would match the first $500 for married couples who earn $60,000 to $100,000 a year. These matching donations from Uncle Sam would cost $20 billion to $25 billion per year. Not her worst idea ever, but I’d prefer to give an employer a tax incentive to the employer or give the individual an expanded tax deduction — deduct 105 percent of your annual contribution? 110 percent? — than the U.S. Treasury matching your contribution.

Last night, Obama took a baby step in the right direction with this idea:

And while the stock market has doubled over the last five years, that doesn’t help folks who don’t have 401ks. That’s why, tomorrow, I will direct the Treasury to create a new way for working Americans to start their own retirement savings: MyRA. It’s a new savings bond that encourages folks to build a nest egg. MyRA guarantees a decent return with no risk of losing what you put in. And if this Congress wants to help, work with me to fix an upside-down tax code that gives big tax breaks to help the wealthy save, but does little to nothing for middle-class Americans. Offer every American access to an automatic IRA on the job, so they can save at work just like everyone in this chamber can.

As I understand it, the MyRA would have no minimum deposit or balance, and is designed to help low-income earners sock away enough money until they can get a regular IRA.

A “Three Accounts” approach to Americans’ economic security would be big, it would be bold, and it would tap into Americans’ distrust of Washington, now reaching Deepwater Horizon–level depths. We can tweak the details, but the idea is to give all Americans the tools to build their own prosperity and restore their confidence that tomorrow will be better than today.

Tags: Barack Obama , Social Security , Education , Health Savings Accounts , Retiirement

New York’s Record-Breaking Social-Security-Fraud Case



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One hundred and six people were indicted yesterday for allegedly defrauding Social Security Disability Insurance. The defendants include 72 retired police officers and eight retired firefighters who worked in New York City. Yesterday’s disability-fraud bust was the largest ever on record, since the SSA’s OIG was established in 1995, the Social Security Administration’s Office of the Inspector General has just confirmed.

Before that, Social Security was administered by the Department of Health and Human Services, and it is unclear whether that agency ever prosecuted a larger disability-fraud case.

Federal and local officials say more related busts may soon follow as the investigation continues. They estimated as many as 1,000 individuals had participated in the disability-fraud scheme, drawing up to $400 million in undeserved benefits.

Read the whole story here.

Tags: Social Security , disability

Hate the Sequester? Then Pass Entitlement Reform.



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The last Morning Jolt of the week (no Friday edition this week) features a potential lifetime ban for a prominent Democrat, why the perception of a Establishment vs. Grassroots fight gets so much media attention, and then the key question of how to think about the sequestration in the coming days:

Is the GOP Botching the Sequester?

Our old friend Byron York makes some good points here, but I don’t think the GOP’s argument is quite as garbled as he suggests.

In a& Wall Street Journal op-ed Wednesday, House Speaker John Boehner describes the upcoming sequester as a policy “that threatens U.S. national security, thousands of jobs and more.”

Which leads to the question: Why would Republicans support a measure that threatens national security and thousands of jobs? Boehner and the GOP are determined to allow the $1.2 trillion sequester go into effect unless President Obama and Democrats agree to replacement cuts, of an equal amount, that target entitlement spending. If that doesn’t happen — and it seems entirely unlikely — the sequester goes into effect, with the GOP’s blessing.

In addition, Boehner calls the cuts “deep,” when most conservatives emphasize that for the next year they amount to about $85 billion out of a $3,600 billion budget. Which leads to another question: Why would Boehner adopt the Democratic description of the cuts as “deep” when they would touch such a relatively small part of federal spending?

The effect of Boehner’s argument is to make Obama seem reasonable in comparison. After all, the president certainly agrees with Boehner that the sequester cuts threaten national security and jobs. The difference is that Obama wants to avoid them. At the same time, Boehner is contributing to Republican confusion on the question of whether the cuts are in fact “deep” or whether they are relatively minor.

Here’s the 3-by-5-index-card version of what the GOP’s message on sequestration ought to be:

  • Our current level of spending is unsustainable. Spending must go down. Period.
  • This is a 2 percent cut.
  • Sure, if we in the Republican Party had complete control of the government, we would be implementing the cuts differently. But we don’t.
  • Congress can only appropriate funds; it doesn’t run the departments and agencies that spend the money. That’s the power and responsibility of the executive branch.
  • If the Obama administration’s response to a 2 percent cut is really to let all the criminals out of the jails and end food-safety inspections, then it is no longer disputable that he’s a Stuttering Cluster-you-know-what of a Miserable Failure.

I’m not exaggerating on Obama’s doomsday talk:

President Obama on Tuesday painted a dire picture of federal government operations across the United States should automatic budget cuts hit on March 1: F.B.I. agents furloughed, criminals released, flights delayed, teachers and police officers laid off and parents frantic to find a place for children locked out of day care centers.

“Federal prosecutors will have to close cases and let criminals go,” Mr. Obama said, flanked by law enforcement officers at the White House. “Tens of thousands of parents will have to scramble to find child care for their kids.”

While the effects may ultimately be significant, many are unlikely to be felt immediately, officials said Tuesday after the president’s remarks. Rather, they will ripple gradually across the federal government as agencies come to grips in the months ahead with across-the-board cuts to all their programs.

. . . But officials conceded that day care centers are almost certainly not going to be padlocked on March 1. Border patrols will be staffed throughout that day and the days to come. Federal agents will continue to conduct investigations, and criminals will not immediately be “let go,” as Mr. Obama suggested.

This is the Washington Monument strategy:

Named after a tactic used by the National Park Service to threaten closure of the popular Washington Monument when lawmakers proposed serious cuts in spending on parks.

Roll Call calls it “an old legislative ploy where an agency threatens to close popular services first.”

The strategy is used at all levels of government in an attempt to get the public to rally around government services they take pride in or find useful. Closing libraries on certain days of the week or reducing days of trash pick up appears to have the same effect.

Will some of these cuts stink? Yes. I dread 800,000 civilian employees of the Department of Defense working four days a week.

The GOP message is, and should continue to be, “Hate these cuts? Then let’s take on the biggest issue, entitlement spending.”

As Yuval Levin recently spotlighted, one tweak to the cost-of-living adjustment to Social Security effectively saves that program for the foreseeable future:

We might pay wealthier individuals with higher Social Security benefits lower annual cost-of-living adjustments than those receiving lower benefits. A progressive COLA could reduce high-end benefits by reasonable amounts in the near term while generating incentives — not disincentives — to work or save. A policy in which the highest third of beneficiaries received no COLA, the lowest third received a full COLA, and the middle third received half the current COLA would reduce Social Security outlays by around 12 percent over the first ten years. In fact, the savings from this measure alone would be enough to balance the program’s finances over the long term.

Tags: Barack Obama , John Boehner , Sequester , Social Security

Is the U.S. Really Ready for Romney-Ryan Reforms?



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From today’s Morning Jolt, already in subscribers’ e-mailboxes . . .

Is the Country Ready for Genuine Romney-Ryan Reforms?

Periodically I’ll still feel a sense of disbelief that Paul Ryan is the Republican vice-presidential nominee.It’s not that it’s a bad choice by any stretch of the imagination — the last few weeks have shown us that.  But it sure as heck is a high-risk pick. The selection automatically made the Romney campaign’s mission in its first term to be entitlement reform and serious budget cuts. That’s always been easier in theory and rhetoric than in practice. There’s a reason politicians were terrified of entitlement reform for decades; cycle after cycle, Medi-scare tactics worked. They worked, and they worked, and they worked, no matter how badly the budgetary projections for that program and Medicare and Social Security worsened.

Tuesday night, Chris Christie said of the Democrats, “They believe seniors will always put themselves ahead of their grandchildren.” Well, they have a pretty good body of evidence for that belief.

Maybe it changes this cycle. I hope it does, and there’s quite a bit of evidence, so far, that the era of effective “Medi-scare” attacks is coming to an end. Politico, late last night:

Democrats thought Paul Ryan’s Medicare proposal would shift the focus away from Mitt Romney, terrify the elderly and take places like Florida and other key states off the table.

That’s not happening. Not yet, anyway.

Polls and interviews show that for now, Romney’s selection of Ryan hasn’t fundamentally shifted the dynamics of a deadlocked race.

The polls leave no question that huge numbers of people oppose the core of Ryan’s plan. But they show something else too: Democrats haven’t yet been able to turn that opposition into a way to take down the Romney-Ryan ticket.

They’ve still got time, with millions of dollars in TV ads, three presidential debates and a vice presidential debate to chip away at Ryan. And the economy is still the most important issue for voters — so important that some voters who don’t like the Ryan Medicare plan may vote for Romney anyway because they like him better on the economy, pollsters say.

But Republicans have used years of attacks on the president’s health care law as a model for a fresh assault on Obama’s own Medicare record, charging that he cut the cherished entitlement program to pay for “Obamacare.”

And so far, that seems to have at least neutralized Democrats’ attacks on Ryan.

“Medicare just may not be the killer issue that a lot of people thought,” said Peter Brown, assistant director of the Quinnipiac University Polling Institute. “That doesn’t mean it won’t be, but so far it is not.”

But we’re not out of the woods yet, and let’s remember what one of the central points of the Ryan plan is: WE DON’T CHANGE ANYTHING FOR SENIORS. One of the reasons the Ryan plan isn’t as toxic among seniors as other past entitlement-reform proposals is because it doesn’t actually change anything for the voting demographic that’s most reluctant to change anything.

Representative Cathy McMorris-Rodgers touted Ryan as “a man with the courage of his convictions, a man not afraid to tackle the toughest problems.” He’s not the one I’m worried about!

Because Romney’s pick of Ryan really brought this election down to the core question: Are we willing to live with less government or not? Are we willing to turn away the free stuff offered by Leviathan or not? Are we willing to do things for ourselves, or do we like that siren’s call of government being Santa Claus, offering us everything we want, and promising somebody else will pay for it?

We’ve all heard of how some Republicans don’t live up to the ideals of limited government — farm-state conservatives who deem their ethanol subsidies and farm price supports as vital, the companies that love their special provisions in the tax code, regulations, and what we call “corporate welfare”; the Republican congressmen who still cling (bitterly?) to their earmarks and pork. If it doesn’t end — our wasteful crap and their wasteful crap — the future of the country is shot.

Considering how the crowd ROARED when Ryan said, “we welcome this debate. We will WIN this debate,” the Republicans, at least the ones in Tampa, are ready to put this choice before the country.

Tags: Medicare , Mitt Romney , Paul Ryan , Social Security

Social Security Is Not Risk-Free



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I was struck by a particularly interesting stream of nonsense emanating from the mouth of the head of the Democratic Congressional Campaign Committee, Rep. Chris Van Hollen of the extraordinarily poorly governed state of Maryland. If we were to privatize or partially privatize the nation’s public-pension system, he argued, that would be the equivalent of “gambling.” Not investing, but gambling.

“If you privatize Social Security,” he said, “the end result will be that that money is not there. There is not a stable source of retirement money because we’ll be literally gambling it on Wall Street.”

Gambling. Literally?

Representative Van Hollen, as a pampered member of Congress, one day will enjoy a very nice pension funded by taxpayers. But he’s also an alumnus of a powerful Washington lobbyist/law firm, the well-connected son of an ambassador, and, even though he is not particularly well off by the standards of congressional Democrats (his ethics filings show his net worth to be considerably less than the price-tag on John Kerry’s yacht or Charlie Rangel’s sundry real-estate holdings) he’s not going to starve to death. If ever he leaves Congress, he will have a very lucrative career ahead of him. Chances are, he’ll retire a rich man. Is he going to invest all the money he makes in Treasury bonds? Does he invest all of his money in Treasury bonds today?

Presumably not. Most wealthy people invest their retirement savings in a mix of stocks, bonds, and other investments. The smart ones start off investing aggressively when they are young, getting more conservative and more liquid as they get older. That’s how you retire rich. That is not gambling. That is investing.

But many Americans, particularly Americans of modest means, find it difficult to save and invest. One of the reasons that they find it difficult to save and invest is that Uncle Sam skims 12 percent off the top of their paychecks and forces them to “invest” in Social Security — which, for most Americans, is an investment that provides embarrassingly low returns; for many Americans (such as black men, who are relatively short-lived), Social Security is a money-losing proposition.

Americans should keep this in mind: There is risk when investing in stocks and bonds. But there is also risk — real, terrifying risk — when “investing” in Social Security. Social Security’s unfunded liabilities are $108 trillion; if it were a bank or an insurance company selling retirement annuities, it would have been shut down long ago, and its executives probably would have been charged with crimes.

There is no corporation in the world that I am aware of with $108 trillion in net liabilities.

If you invest in a diversified basket of corporate bonds, there exists a possibility that some of them might go bad and default. (Speaking of which, junk bond issues are at an all-time high; what is it going to take to get Ben Bernanke’s attention? A giant flashing neon sign in the sky? A personalized message from God? An unexplainable rash in the shape of Milton Friedman?) Stocks and bonds go bad sometimes; that’s why you don’t put all of your money into one company. But for people of modest means, who will be almost entirely dependent on Social Security, all of their eggs are in a red, white, and blue basket — and they’re about to get scrambled by Congress and the Obama administration. When the time for choosing comes, and Washington has to decide whether to pay its bondholders in Beijing or little old blue-haired ladies in Muleshoe, Texas, waiting for their Social Security checks, who do you think is going to get shorted? The bond markets have the power to end Congress’s ability to borrow money on amenable terms — and that prospect scares the political class more than anything short of manual labor.

Don’t fall for the false-choice argument: There is risk to investing in stocks and bonds, but there is risk — probably greater risk — in counting on Social Security. You own your stocks and bonds, but Social Security can be taken away from you at the whim of Congress — or its value diluted by inflation when we start printing money to pay for all of the spending that Obama & Co. have been up to for the past couple of years.

Americans understand this, I think. Let me ask you to engage in a little thought experiment: Imagine that you are 25 years old. Given a choice between having the value of your future Social Security benefits in-hand today, either in the form of cash or in the form of a soberly diversified investment portfolio, or the promise of a Social Security check in 40 years, which would you choose? Why? Once you answer that question, you will know that Representative Van Hollen is talking through his hat.

– Kevin D. Williamson is deputy managing editor of National Review.

Tags: Democrats , Fiscal Armageddon , General Shenanigans , Social Security

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