By WHAT’S THE POINT? BY DAVID PISARRA
I love the First Amendment. It allows me to ask questions like this: Does anyone besides our brain-dead president and his band of blithering idiots at the White House believe that cutting the Social Security contribution is a good thing?
I am a lower taxes, smaller government kind of guy but let’s face facts. Americans hate to save. We are a society that loves credit cards, living beyond our means, in homes too large for our families, driving cars that are stupidly expansive, overeating on a regular basis and buying tons of junk we don’t need at Wal-Mart, then bewailing the loss of jobs in this country. We are country of near-sighted, hedonistic, live-for-the moment, impulse-buying consumers.
And these are the people who President Bush wants in charge of their own retirement.
It’s a recipe for disaster for everyone — except the retailers.
I realize that half of the country who voted for the president actually believe they can and will do better with an extra few dollars in their pockets today. It is what the man campaigned on. He told the American people they are smart enough to do the right thing for their own well being. Bush said it over and over again, “it’s your money, you should have it to invest.”
The problem with this is that the people who believe him tend to be overweight, SUV-driving Bubbas and Bubbettes who also believe that the world was created 6,000 years ago, and the Bible is to be strictly interpreted when it applies to your life but is an allegory when it applies to theirs.
These are the people who are at the lower financial ladder rungs and will be most in need of any Social Security benefits. This is a move that is bad for the stock market, bad for the individuals who will quickly be relieved of their money by unscrupulous “money managers” and be left with no savings. And, it’s bad for the program.
Let’s just assume for a moment that we take two hypothetical people: Joe who works at a grocery store and makes $40,000 a year and LaTonya, who is an expert in international trade making $180,000 a year. Joe and LaTonya will each pay 6.20 percent of their income into the Social Security system. But there’s a catch. Joe pays it on all of his income, and LaTonya will pay it on only the first $87,900 she earns. That’s because there is a maximum taxable income level. This means that Joe contributes $2,480 and LaTonya contributes $5,450.
If Joe gets to keep an extra $1,000 of “his” money, that’s about $20 a week. The odds are that he will not use that money to invest in the stock market, or put it into a savings account. He is more likely to spend it on a couple of Starbucks mocha grandes for himself and his wife, a hot chocolate for his kid and with the $7 that is left over, he’ll buy an extra three gallons of gas for his Excursion.
If LaTonya gets to keep an extra $1,000 of “her” money, it’s much more likely to end up in a stock portfolio direct reinvestment plan, or IRA. That’s because as a percentage of her earnings, it’s minuscule. But it’s a much larger percentage of Joe’s earnings and will actually make a difference in his lifestyle today.
So when retirement time comes for both of them, one of them will have a retirement that allows for enjoyment of life, and one will have to keep working, or be homeless and poor. It’s the old fable of the ant and grasshopper. The ant works all summer and can enjoy the winter. The grasshopper enjoys all summer and dies in the winter.
It’s simply irresponsible to believe that the vast majority of American workers are going to suddenly be able to manage their money more wisely. It has quite clearly been shown that this is not the case.
The number of get rich quick schemes will explode if the president’s proposal to “give you back your money” is actually implemented.
There will be a large number of losses and people will be in a much worse financial situation than they are in now. Should the American worker suddenly decide that they want to, and are able to, invest in the stock market, it would result in an artificial raising of the value of the stocks today. And 20 years from now, when those people need their money back, it would cause a huge drop in the overall value of the stock market.
This of course is to say nothing of the cash drain in the immediate future it would cause on the current Social Security system and the benefits that it’s paying out today. There is no mention made of how that shortfall is going to be covered in a time when we have a budget deficit of gargantuan proportions already.
The vast majority of Americans are unsophisticated, Wal-Mart shopping fools who elected a man that plays to their insecurities and their bravado.
President “Smaller Government” Bush wants controls in place to prevent people from “going to Vegas and rolling the dice,” but look at how people handle their IRAs and 401(k)s now. Most people still bungle the job. I have clients who borrow from their 401(k)s, don’t realize they have to pay taxes on it, can’t pay the taxes and the penalties, and now are in worse shape than if they weren’t allowed to touch the money at all.
The president says he wants to give us our money back, but then put all kinds of controls on the ways in which we can invest it, have access to it and use it. Why the need for the double speak? If we can’t be trusted to invest it wisely, then why give it back to us?
We cannot simply tell people “we trust you to do the right thing” and simultaneously prevent them from doing their own thing. The current tax code and Social Security structure provides some retirement, and what the president is proposing is a wholesale disaster waiting in the wings. (David Pisarra is a business development lawyer in the Santa Monica firm of Pisarra & Grist. He welcomes your questions and comments. He).
Originally published in the Santa Monica Daily Press print edition on January 4, 2005. Read the original PDF.