WILLisms.com: Social Security Reform Thursday: Week Sixty-Five -- America Is Behind Sweden In Social Security Reform.

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Social Security Reform Thursday: Week Sixty-Five -- America Is Behind Sweden In Social Security Reform.

Thursdays are good days for reform, because they fall between Wednesdays and Fridays. And reform is a long-haul process, not a fleeting event. So we're going to keep plugging along with the case for reform, even as the issue goes off the political radar screen.

That's why WILLisms.com offers a chart or graph, every Thursday, pertinent to Social Security reform.

This week's topic:

Totalization.

First, just a quick refresher of one of the root causes of Social Security's problems, straight from Congressman Todd Tiahrt's website:

More retirees per worker. Or, fewer workers per beneficiary. And that's just one of Social Security's structural flaws.

Here's what those flaws will mean for workers, absent major modernization of the system:

So, yeah... blah.

But it's even worse than that. We're now (as in currently) getting embarrassed on the international stage due to our own system's inadequacy, relative to the reformed and reforming Social Security programs in other countries.

If you have any foreign parents or grandparents, you might know a little something about "totalization agreements." Basically, they're bilateral agreements between the United States and other countries (typically Western countries, with strong economies). The idea is to prevent double taxation, and/or double benefit coverage, and streamline the taxes/benefits into one country's Social Security system.

In an age before totalization agreements, Mrs. WILLisms.com's "Oma," now 94 years old, worked in Germany for a couple of decades, then Canada for several years, then the United States for decades more. At various points in time, she paid into more than one Social Security system, from abroad. And today, her benefit structure from each country is nearly impossible to figure out.

Hence, totalization agreements.

It only works when the other country and the United States have similar Social Security structures. Otherwise, it's difficult to reconcile what fair tax/benefit levels ought to be, and which country or countries ought to be collecting and paying those respective taxes and benefits.

Well, this document (.doc), sent from the administration to the Congress, outlines how some of Sweden's Social Security reforms are rendering our totalization agreement with that socialist paradise moot.

Here's an excerpt (underlining mine, for emphasis):

"When the original agreement was concluded, Sweden had a two-tier Social Security system that consisted of an earnings-related, defined-benefit program and a residence-based, flat-rate benefit program. Recent Swedish legislation restructured the system. People born after 1953 are now covered by a program consisting of three components. It includes an earnings-related, defined-contribution benefit program administered by the government, a program of individual investment accounts, and a guaranteed minimum pension payable if income-based pensions and certain other income fall below specified levels. People born before 1938 remain covered entirely under the old system, while those born between 1938 and 1953 are covered partially under the old system and partially under the new system according to a sliding scale that varies with the person's year of birth."

Sigh.

It's just embarrassing that our Social Security system is so rickety and cantankerous and obsolete, that it can no longer play in the same league as Sweden's modernized, market-reformed system.

We should have the classiest and most advanced Social Security system in the world, not the system that's too adherent to 1930-style socialism for the... socialists.

Just how ironic is it that President Bush's scary privatization plan somehow gained approval in Sweden (and other corners of Europe). That Rove! Always working in mysterious ways, even internationally.

We have a choice to make, when it comes to Social Security. We can either stick with the broken Depression Era status quo and lose some of our competitive advantage, vis-à-vis the rest of the civilized world; or, we can enter the 21st century and continue to be the greatest economic power on the globe. The choice is not difficult.

Once we make the choice to fix Social Security, the choice essentially boils down to tax hikes, benefit cuts/delays, or personal accounts.

It's time to get on the personal account bandwagon.

It's time for reform.

The clock is still ticking:

Tune into WILLisms.com each Thursday for more important graphical data supporting Social Security reform.

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Previous Reform Thursday graphics can be seen here:

-Week One (Costs Exceed Revenues).
-Week Two (Social Security Can't Pay Promised Benefits).
-Week Three (Americans Getting Older).
-Week Three, bonus (The Templeton Curve).
-Week Four (Fewer Workers, More Retirees).
-Week Five (History of Payroll Tax Base Increases).
-Week Six (Seniors Living Longer).
-Week Six, bonus (Less Workers, More Beneficiaries).
-Week Seven (History of Payroll Tax Increases).
-Week Seven, bonus (Personal Accounts Do Achieve Solvency).
-Week Eight (Forty Year Trend Of Increasing Mandatory Spending).
-Week Nine (Diminishing Benefits Sans Reform).
-Week Ten (Elderly Dependence On Social Security).
-Week Eleven (Entitlement Spending Eating The Budget).
-Week Twelve (Benefit Comparison, Bush's Plan versus No Plan).
-Week Thirteen (Younger Americans and Lifecycle Funds).
-Week Fourteen (The Thrift Savings Plan).
-Week Fifteen (Understanding Progressive Indexing).
-Week Sixteen (The Graying of America).
-Week Seventeen (Debunking Myths).
-Week Eighteen (Debunking Myths).
-Week Nineteen (Reform Needed Sooner Rather Than Later).
-Week Twenty (Global Success With Personal Accounts).
-Week Twenty-One (GROW Accounts: Stopping The Raid).
-Week Twenty-Two (Millions of Lockboxes).
-Week Twenty-Three (Support for Ryan-DeMint).
-Week Twenty-Four (KidSave Accounts).
-Week Twenty-Five (Latinos and Social Security).
-Week Twenty-Six (AmeriSave).
-Week Twenty-Seven (Cost Of Doing Nothing).
-Week Twenty-Eight (Chile).
-Week Twenty-Nine (Entitlement Spending Out Of Control).
-Week Thirty (Reform Better Deal Than Status Quo).
-Week Thirty-One (Social Security As A Labor Cost).
-Week Thirty-Two (Social Security And Dependence On Government).
-Week Thirty-Three (Social Security, Currently A Bad Deal For African-Americans).
-Week Thirty-Four (Longer Life Expectancies Straining Social Security).
-Week Thirty-Five (Howard Dean & Salami).
-Week Thirty-Six (Growing Numbers of Beneficiaries Draining Social Security).
-Week Thirty-Seven (The Crisis Is Now).
-Week Thirty-Eight (Disability Benefits).
-Week Thirty-Nine (Broken Benefit Calculation Formula).
-Week Forty (German Social Security Disaster).
-Week Forty-One (Crumbling Pyramid Scheme).
-Week Forty-Two (Overpromising, Globally).
-Week Forty-Three (Demographic Wave).
-Week Forty-Four (The Jerk Store).
-Week Forty-Five (Defined Benefit Plans).
-Week Forty-Six (Even The Empty Promises Are A Bad Deal).
-Week Forty-Seven (Our Aging Population).
-Week Forty-Eight (The Tax Increases Required To Cover Social Security's Costs).
-Week Forty-Nine (Much Longer To Get Your Money Back From Social Security).
-Week Fifty (A Vote, At Last).
-Week Fifty-One (We Can Do Better).
-Week Fifty-Two (Socialist Security).
-Week Fifty-Three (China Has The Same Problem, Only Worse).
-Week Fifty-Four (Potential Crisis Size).
-Week Fifty-Five (The Crisis Moves Closer).
-Week Fifty-Six (Big Brother Social Security).
-Week Fifty-Seven (Personal Accounts Are Awesome).
-Week Fifty-Eight (Private Accounts and Presidential Proposals).
-Week Fifty-Nine (The False Promises Of Social Security = Unwise Investing/Saving).
-Week Sixty (Declining Rate Of Return).
-Week Sixty-One (Entitlement Spending Threatens America's Defense Capabilities).
-Week Sixty-Two (Dismal Rates Of Return Only Getting Worse).
-Week Sixty-Three (Lost Time, Growing Shortfall).
-Week Sixty-Four (Solutions & Consequences).

Posted by Will Franklin · 2 November 2006 09:02 AM

Comments

Great SS post, as always. If we keep hammering at this stuff, people are bound to start listening.

Also, if you haven't yet, you should check out the new videos at www.americaislistening.org.

Posted by: Jeremy at November 2, 2006 11:47 AM

Great summary. One of the unwritten stories of 2005 was how most of the reforms proposed -- including both personal accounts, and reforms to the traditional program's growth formula -- have actually taken place throughout much of the world, including governments with philosophies more socialistic than ours. As you note, personal accounts have already been enacted in Sweden and elsewhere.

The same is true with proposals to reform traditional Social Security's unsustainable benefit formula. The proposal last year to shift away from unsustainable wage indexing to a wage/price indexing blend has been employed in many nations, as you can see by reading the GAO report on indexing systems. France, Belgium, and South Korea -- hardly captives of conservative ideology -- have gone to pure price indexing, while Finland, Poland and Portugal have gone to a formula more tilted to price indexing than wage indexing.

Another interesting note is that Congress's advisory panel warned back in 1976 that the traditional pay-as-you-go system could not deliver wage-indexed benefits without subjecting future generations to enormously higher tax rates. See pages 8 and 9 in particular.

The basic problem is that a pay-as-you-go system can only finance benefits by taxing workers at the same time as the benefit payments, and this leads to higher burdens on each successive generation of workers if the worker-collector ratio drops, as ours is doing. This is why bipartisan commissions have consistently recommended that Social Security be reformed to incorporate some advance funding, usually through personal accounts.

Posted by: feverishb at November 3, 2006 06:27 AM

I am thinking we might need to get the cattle prods out???

Posted by: zsa zsa at November 4, 2006 01:49 PM