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Scam Alert: Watch Out For “Ownership Society” And “Investor Class”

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Both terms are warning signals of this administration’s new push to sell the privatization of health care and social security.

Before you buy into it, ask yourself: "Who benefits?"

The answer is: "Those who have more money than they need already."

Privatization of health care and social security gives them more places to stash the cash without paying any taxes. This plan also gets more money out of the U.S. Treasury and into the coffers of private financial institutions. And will require a tax increase or cuts in benefits.

Who will not benefit is the 45 million without health care because they can’t afford it already. No "savings plan" or "tax break" is going to help when they don’t have the cash in the first place.

Social security is a double scam, because not only does it work for the rich, it will cost another $2 to $4 trillion from tax-payers:

‘Partial privatization is the most costly and intellectually dishonest fix of all. Not only would it reduce the guaranteed part of the retirement package, but it would require the government to borrow $2 trillion to $4 trillion to keep paying benefits to current retirees while payroll taxes of younger Americans were diverted to new personal accounts.’ [Social Security: Finally, An Honest Debate Business Week 03/15/2004 subscription]

The Wall Street Journal agrees:

‘The problem with that idea is finding the money to pay the current generation of retirees, if revenue from current workers is diverted into the workers’ own accounts. [South Carolina’s Sen. Graham] would raise the amount of wages subject to payroll taxes to cover costs. But Mr. Bush has said he won’t raise taxes or reduce benefits.’ [Wall Street Journal 8/10/04 subscription]

As part of the pitch, they’ll probably tell you it’s good for "the investor class."

But the "investor class" is a neoconservative concoction, code for making the rich richer and getting more Republicans elected.

Yes, it is. And they’re proud of it:

In recent years National Review has pioneered two of the most fruitful theories of electoral behavior: namely, those based upon the "investor class" and the "impact of immigration." The investor-class theory holds that since most Americans now own shares in American industry, they are less amenable to anticorporate rhetoric and more favorable to such policies as the reform of Social Security. [John O’Sullivan, National Review 12/18/2000]

They say that stock ownership has grown from less than 20% of households in 1983 to more than 50% in 2001.

But there are a couple of things wrong with that.

One is that they picked a time span that coincides with the Internet bubble. Another is that they include your 401K plans, mutual funds, company pension plans and other indirect ownership, none of which benefit a great deal from the stock market (not nearly as much as the financial institutions holding your funds do). And some of which, like Enron and other pension plans, are huge losers.

The real investor class is investors with direct control of their stock market shares and that is still at 20%, not much higher than it was in the 1950’s.

And to put the frosting on the cake, the top 20% of households in income own 76% of the all the stocks, so the households that need it least will benefit the most, and those who need it most will get no benefits. (Ask yourself how many minimum wage earners play the market.)

It’s a scam.

I’m getting ready to leave the country for a week or so and don’t have time to fully develop this, but here are a few links to hold you until I get back (links open in new windows):

Tax Plans Target An Investor Class
Who Belongs to the Investor Class?
John O’Sullivan on the Investor Class – National Review
GOP Puts Stock in ‘Investor Class’
The Myth of the Investor Class

Social Security: Finally, An Honest Debate

I won’t be around after today, but would appreciate any rational debate and will get back to it in a week.

Write your Senators and House Representative and tell them what you think.

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About Hal

  • http://www.morethings.com/senate/2004/08/social-security-ultimate-ripoff.html Al Barger

    Thanks for alerting us to this “scam” Hal. We wouldn’t want to keep our own money in our own accounts. We’re SO much better off by having the federal government confiscate 15% of our income for FICA, and then blowing every nickel of money that comes in. Did I mention that there is NO Social Security trust fund?

    Whereas, if we kept our own money, instead of begging the congress to take a few hundred dollars a month out of young people’s hides to keep you going, you would instead have hundreds of thousands of dollars built up in your own name.

    You wouldn’t NEED to beg the congress to concoct a free drugs plan that we can’t even BEGIN to afford. You’d have YOUR OWN money to buy your own medicine.

    And the benefit of having the government confiscate your supposed retirement money to squander as they see fit is…?

  • http://www.tude.com/ Hal Pawluk

    So tell me, Al, what about the $2 to $4 trillion that will come from wage earners to support your freedom, and the tax breaks that help the rich but not those who need it?

    Not counting housing, the top 50% in income own 99% of all the assets in this country (Federal Reserve Survey of Consumer Finances).

    Why would you want to give them more?

    I’d also like to see a clear explanation of where the millions upon millions of citizens who barely make enough to survive are going to find your hundreds of thousands of dollars to save.

    It’s a fine theory as theories go, but a theory which has no connection to reality.

  • http://www.morethings.com/log Al Barger

    What has no connection to reality, Hal, is so-called “Social Security.” Where exactly is the security? There is NO Social Security trust fund, and approaching $10 TRILLION in unfunded liability.

    Oh, I know, we’ll just make The Rich Pay Their Fair Share. There aren’t, however, that many rich people, and not $10 trillion worth.

    You can SAY that 1% of the people own everything, or whatever your little Marxist fantasy is, but it just doesn’t have much to do with reality.

    In fact, the feds are taking about 15% off the top of wages just for FICA. If you had that same 15% ssimply run up in basic bonds and mutual funds collecting dividends and interest for 50 years, the average factory or office worker would end up with most of a million dollars. That’s not magic, just the basics of compound interest.

    Paying out 2 to 4 trillion dollars in the shorter term to buy out and pay off Social Security liabilities as we transition to a rational economic model would be FAR cheaper than continuing to generate deeper and deeper unfunded liabilities.

    So let me dumb it down a bit: If you keep your own money and put it in basic investments, you’ll have something to show for it. If you give it to the federal government to squander, then the money’s gone – which is exactly the case now.

    On what grounds could you possibly even TRY to argue that keeping your own retirement money is a worse deal than simply having the federal government confiscate and squander it?

  • http://www.tude.com/ Hal Pawluk

    That’s just weird, Al. Why on earth would you htink the Federal Reserve is marxist? I didn’t make the numbers up and you can find the rest of the story in Business Week: Where Wealth Lives April 19,2004, p.p. 34-37 (subscription).

    I didn’t say anything about the top 1% you use, but the Federal Reserve tells us that the top 1% does own 9% of the housing and 34% of all other equity in the country (30% of everything combined).

    Is Business Week marxist in your fantasies, too?

    The rich paying for everything isn’t mine, it’s a Peter Camejo thing – just go back to his platform when he ran for governor of California: “Tax the Rich.”

    Your 15% FICA (which includes the employer contribution) is interesting, as it represents the major hit on income for most taxpayers – 76% pay more in FICA than they do in income taxes.

    However, removing it still wouldn’t do much for those who need it most. If you were making $20,000 a year in wages you’d get to keep about $3000. This wouldn’t cover your health care, much less allow you to save “hundreds of of thousands of dollars.”

    And if you were making the minimum wage, you might get to keep an amount that would allow you to have a good diet.

    Dumbing it down is just that, and moves the discussion back out of the realm of reality.

    And your last question is a false dichotomy.

  • http://www.morethings.com/senate Al Barger

    If you were making $20,000 a year in wages you’d get to keep about $3000. This wouldn’t cover your health care, much less allow you to save “hundreds of of thousands of dollars.”

    Well no, not hundreds of thousands of dollars in one year, but do the math. $3K times 50 years is $150,000 in basic investment. But it would likely end up worth at least several times that due to 50 years of interest and dividends.

    Now, this is already approximately $150,000 plus interest and dividends more than you’ve got to show for giving that money to the federal government.

    With $150,000 investment made over a lifetime, you’d surely end up with AT LEAST a half million dollars you could cash out. Plus, that’s based on your starting figure of it being someone who makes as little as $20k.

    In what possible manner is a half million dollars+ in your own account a worse deal than NOTHING in the non-existent Social Security trust fund?

  • http://www.morethings.com/senate Al Barger

    Also, you suggested that my last question in comment #3 was a “false dichotomy.” That question again was: On what grounds could you possibly even TRY to argue that keeping your own retirement money is a worse deal than simply having the federal government confiscate and squander it?

    This is not a false dichotomy, but rather simply an observation of the actual facts on the ground. The federal government has run Social Security, specifically it has run Social Security into the ground. They’re taking that 15% RIGHT NOW, and in fact blowing the money. Did I mention that there is no Social Security Trust Fund? NONE.

    They’re not only not investing your retirement money to get interest, they’re blowing every last frickin’ nickel of the principal.

    You have not one damned dime saved up in Social Security. Again, in what possible way is this system superior to actually having money and stocks in your own accounts?

  • RedTard

    The problem is the people who are retiring now, Al. They don’t have 30 years to wait on dividends and, as you stated, there is no fund waiting for them. Are you suggesting that we just tell one generation, woops, I’m sorry we are switching systems and there is no money for you.

    A privatized retirement fund would be great for me as I have plenty of time to pay into it but I don’t think it would be fair to my parents when there are no funds available to pay their SS.

  • http://www.tude.com/ Hal Pawluk

    No, Al, you do the math.

    With $3,000 a year in FICA savings and health care/plan costs of $5,000 a year, you may not live those 50 years.

  • http://www.morethings.com/senate/2004/08/social-security-ultimate-ripoff.html Al Barger

    Red, we’re obviously not going to just dump the old folks out in the street – although I don’t know what else we possibly CAN do if we wait for the train wreck in about 12 to 15 years as even the immediate FICA income becomes less than the projected monthly payout.

    Paying for people who are old now is where we get saying that it will cost a lot of money to get out of the current system.

    One way or another, taxpayers are going to be bailing out the bankrupt shell of our current system. The quicker we start, the sooner you get to start accumulating your own money, and the less painful it is overall.

    There are a number of methods to use in transitioning out of the current mess. For a fuller discussion, please see my campaign paper on Social Security.

  • http://www.tude.com/ Hal Pawluk
  • http://allamericaninvestor.blogspot.com Robert T DeMarco

    Obviously a bit of controversy here. Since nobody mentioned it I will. A growing number of 401k investors do have control over how their funds are invested. About 40 percent of these holders can now open a brokerage account. The rest usually have a list of options which they can choose from. In addition, a large fraction of 401 k’s turn into IRA Rollovers. This occcurs when you leave a company and Roll it Over.

    The best point on here is kinda lost in the translation. If your representatives in the Congrees had invested the Social Security taxes as they came in, there would not be a problem. Instead they spent it and put IOU’s into the trust fund. PS–all these chumps were elected by US the people.

    Finally, the Bush administration wants to end inheritance taxes. This inspite of the fact that two of the riches men in the World–Warren Buffet and Bill Gates oppose such a measure. I guess their opinion is worth considering since they stand to pay $$Billions in taxes.

    The baby boomers are in line to inherit about $15 Trillion. My guess is they will get their asses taxed off when all gets said and done. And this is where a large fraction of the money to pay-off the IOU’s will come from.

  • http://www.morethings.com/senate Al Barger

    Yes, lots of Americans have actual legitimate PRIVATE retirement accounts. They’re just SCREWED for the big whopping 15% that’s been taken out and smoked up for crack rocks, or whatever they do with those hundreds of billions of dollars they squander every year, though.

    Of course, THIS is where the poorer folks get the real screwing. They can’t really afford the 15%, but AFTER the 15% off the top (plus the income tax, state level taxes, etc) poor folks are really strapped to try to save any more. Rich folks might be able to afford to just write off that 15%, but poorer folks simply cannot.

    Hal, a link to a definition of a logical fallacy does not mean that I’m making one. The empirical evidence, the facts on the ground are that the federal government has totally and utterly destroyed trillions of dollars in retirement wealth.

    We do essentially face the basic choice of privatizing our retirement funds, or continuing to give them to the government. Perhaps you’d like to argue that we should continue giving our retirement money to the federal government, and that they will now straighten up and fly right.

    That’s not a “false dichotomy.” That’s just plain dumb.

  • http://www.tude.com/ Hal Pawluk

    Al, are you contending that your two choices, loaded words and all, are the only two?

    Plus you keep talking as if everyone had money to put in these “private accounts,” in spite of the reality all around us.

    Pfui – I have to go pack.

  • http://www.morethings.com/senate Al Barger

    You might sit around and conjure up some Neverland scenarios, but in practice it does amount to a choice between government squandering your money or having private accounts that are YOURS.

    Plus, if people can’t afford money for an actual retirement account, how can they afford the 15% that they’re simply being robbed of now? Even the working poor would have that 15%, if the federal government were not using it to buy crack rocks.

  • http://www.tude.com/ Hal Pawluk

    I’m back, and you’re the one living in Neverland.

    Are you telling us that Bush is smoking crack?

    If the practice of government is to squander the money (on things like invading Iraq for partisan political purposes), then we need to change the government.

    Government is supposed to represent – and assist – the citizenry; when they don’t we should dump them.