Tom Moore's Response to Concord Coalition's Concerns with Saving Social Security Paper

Response to Ellanor Fink's, Member Relations of the Concord Coalition, e-mail message of June 6, 1997.

From: oldfreak@ix.netcom.com(Thomas Moore)

Subject: Re: Social Security reform

To: EllanorF@aol.com

Dear Ms. Fink,

You wrote: >

>Dear Mr. Moore: >

> Thank you for emailing your proposal for Social Security reform to the >Concord Coalition. It is heartening to see more and more people thinking >carefully about the looming problems ahead for Social Security and suggesting >ways to address the shortfall. The more people who understand the actual >dimensions of the problem and its urgency, the more willing our political >leaders will be to venture a solution.

That is why I posted this paper. I have just sent a mass e-mail to the members of Congress whose e-mail addresses I had. I am hopeful that some of them at least will read my paper and use it as a starting point to begin resolving this problem before it is too late.

> Your proposal, as we read it, recommends investing 40% of the Social >Security trust fund's annual surpluses in dividend paying stocks and >increasing that percentage so that, by 2010, the SSTF would not own any U. S. >government securities.

If nothing is done now, under the high cost alternative, the SSTF will not be investing in U.S. government securities after 2015 because the Fund will be insolvent. I don't see that as a major issue, as I will explain shortly.

> The key to increasing fixing Social Security is to increase savings. >Investing some or all of the trust fund's surplus in the stock market does >not increase savings. It simply shifts it from one form of investment -- U.S. >treasuries -- to another -- dividend paying stocks. The level of the debt >doesn't change.

The other paper I have posted on my Home Page so far, Financing the Rehabilitation of our Inner Cities, also addresses this problem indirectly, as one of the beneficial side effects of the proposal. As our inner city areas are rebuilt, the tax base will increase, which will reduce the debt, and new businesses will move back to these areas to serve those who move into the rebuilt areas, which will increase the number of places where people will be able to invest their money, which will increase savings and provide jobs. As more people are working, they will then have more money to save and invest, making them less dependent upon government programs.

By investing more into the stock market, companies will have more money available to imcrease their capital investments, which would hopefully improve productivity enough to provide more money for increased savings. Also, I have no problems with increasing the limits of tax deferred investments in IRAs or with making them more available to people covered by pension plans and 401K plans. As long as the budget cuts needed to cover any revenue shortfalls this move would cause are made.

The debt does begin to change in 2025 as the SSTF begins to sell excess stocks to stay within the gradually reduced percentage limits. The proceeds from the sale of these excess stocks would be used to pay off the principle on the federal debt. Under this plan, the entire U.S. federal debt will be completely paid off by 2035, probably sooner.

> If the gov. were to invest heavily in the stock market, it would have to >find buyers in the market for its bonds in order to finance the portion of >the debt that currently is financed with Social Security surpluses. Most >likely, it would have to raise interest on the bonds in order to get >investors to buy them. That would make the interest on the debt go up.

I acknowledge this potential problem in my paper. I hope to ease these effects by gradually phasing in the program and easing out of investments in U.S. govt. securities over a 10 to 15 year period, which hopefully will ease the impact on interest rates. Also, by placing a time limit upon when the Social Security Trust Fund will no longer be financing the federal debt, I hope to force the President and Congress to work together to begin reducing the debt, which would also ease the pressure on interest rates.

> Many people are rightly very concerned about having the government be a >big player in the stock market. They have no confidence in politicians making >the best investment decisions for Social Security. In addition, the >government would be the largest investor in every company that it invested in >and, by dint of that influence, would be the controlling investor in those >companies. This effect can be avoided by using "index funds," but your plan >specifically calls for investing in stocks that pay high dividends.

I agree with these concerns. That is why I built safeguards into my proposal. I stressed that the shares the government owns would be NON-VOTING shares, and would be purchased and sold according to strict formulas, with disqualification only for egregious criminal conduct. There would also be percentage limits on the amount of shares of a particular company that the government could own.

> We will watch your Home Page to see what kind of response you get for your >proposal.

With your permission, I would like to include your message and my responses on my Home Page. Very shortly, I hope to have it where people will be able to leave their comments directly so that others will be able to read them and comment on them. This, I hope will encourage others to think about the problems with Social Security and other issues so that we may be able to come up with a workable solution.

Thank you for your response. I hope I have addressed the concerns you have with my proposal. I will be the first to admit that my proposal is not perfect, but I feel that it provides a solid foundation for the reform of the Social Security System that is needed to keep it from bankruptcy. I completely agree with you about how important it is to get people to start thinking about this looming problem. That is why I posted my paper. Hopefully, it will encourage people to begin discussing possible solutions to this problem.

Very cordially yours,

Thomas Moore

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