Monday, November 10, 2008
Triggered by the financial crisis the past two months, the hearings reportedly were meant to stem losses incurred by many workers and retirees whose 401(k) and IRA balances have been shrinking rapidly.The Social Security Administration's own FAQ notes that Social Security is supposed to be one of three legs of a stool, the other two being pensions and income. Government would now have control of two of the three legs. But don't worry, your money won't be subject to the vagaries of the stock market. You all will get 3% and it will be safe.
The testimony of Teresa Ghilarducci, professor of economic policy analysis at the New School for Social Research in New York, in hearings Oct. 7 drew the most attention and criticism. Testifying for the House Committee on Education and Labor, Ghilarducci proposed that the government eliminate tax breaks for 401(k) and similar retirement accounts, such as IRAs, and confiscate workers� retirement plan accounts and convert them to universal Guaranteed Retirement Accounts (GRAs) managed by the Social Security Administration.
...The current retirement system, Ghilarducci said, �exacerbates income and wealth inequalities� because tax breaks for voluntary retirement accounts are �skewed to the wealthy because it is easier for them to save, and because they receive bigger tax breaks when they do.�
Lauding GRAs as a way to effectively increase retirement savings, Ghilarducci wrote that savings incentives are unequal for rich and poor families because tax deferrals �provide a much larger �carrot� to wealthy families than to middle-class families � and none whatsoever for families too poor to owe taxes.�
Or will it?
On Oct. 21, Argentina�s government, led by Peronist President Cristina Fern�ndez de Kirchner and her predecessor, N�stor Kirchner, announced their intention to expropriate $30 billion held by Argentine citizens in private pension funds (similar to 401(k) retirement savings accounts). The Kirchners need the money to refinance old bad debts so that they can borrow yet more money to keep the country afloat. The announcement rocked investor confidence in Argentina and sent the Buenos Aires stock market plunging.Placing your money in a lock-box with the SSA is, as P.J. O'Rourke once said, "like giving whiskey and car keys to teen-age boys." So in 2005 we had an attempt to privatize Social Security; in 2009, an attempt to nationalize 401k's? Al Franken for one favors it. (h/t: reader jw)