State Rep. Frank LaGrotta – 2/4/05

This page was last updated on February 15, 2005.

LaGrotta to Pa. congressional delegation: Vote AGAINST privatizing Social Security; State Rep. Frank LaGrotta (D-10); February 4, 2005.

In the interest of disclosure, I’ve invested in stocks since I received 10 shares of Duquesne Light stock as a college graduation present. I learned to save for my future even before that in grade school when my parents insisted I join Christmas Clubs and open a passbook savings account. Much of my retirement funds are invested in stocks and bonds (domestic and foreign, private and public) and I pay a financial advisor to assist me.

The second area of disclosure is my position on Socialist Security. I believe it was one of the largest mistakes in U.S. history. It started the idea that government should be responsible for providing financial “security” to its citizens. Over time SS led the way for Medicare, Medicaid, Welfare, and their companion programs at the state level. I believe we as individuals must be responsible for our own financial well-being. It’s simple; we cannot be truly free when we rely on our government for financial support.

Despite the above comments, I don’t support the immediate elimination of Socialist Security. After all, we made commitments to millions of workers and we can’t simply pull the rug out from under them. It took decades to get into this mess; it will take decades to get out of it. We will also need to pay to get out of this mess regardless of the solution we land on.

Below is a critique of the subject news release.

“HARRISBURG, Feb. 4 – With more than 47 million Americans receiving Social Security benefits -- including 91 percent of Pennsylvanians over 65 -- state Rep. Frank LaGrotta, D-Beaver/Butler/ Lawrence, believes President Bush’s plan to privatize the program could endanger the financial futures of millions of American workers.”

[RWC] Below Mr. LaGrotta accuses Socialist Security reform supporters of using “scare tactics,” yet the news release leads off with his belief that reform “could endanger the financial futures of millions of American workers.” I guess it’s a scare tactic only when the other guy does it.

“That’s why the 10-term legislator is asking his colleagues in the Pennsylvania House of Representatives to support his resolution asking the state’s congressional delegation to oppose any attempts to privatize Social Security.”

[RWC] We go from scare tactics to misrepresentation. I’ve heard of no plans to “privatize” Socialist Security. There’s a proposal to let workers designate that 4% of their 12.4% Socialist Security taxes go into personal accounts. These personal accounts would have investment options similar to those in existing government retirement plans. The funds in the personal accounts would remain in the custody of the Socialist Security Administration (SSA). Also, funds remaining in your personal account when you die can be distributed to your heirs. That’s not true for classic Socialist Security benefits because you don’t own anything.

It’s also very important to remember the plan is to give workers a choice. Workers can choose to leave part or all of their taxes in the classic Socialist Security plan. When politicians oppose choice for those they allegedly represent, I think we need to ask those politicians “Why?” and demand more than talking points as a response.

“However, LaGrotta isn’t stopping his fight at the state lines. He’s sent a copy of his resolution to the ranking Democratic member of every legislative body in the 49 other states, asking them to join his fight to “S-O-S” (Save Our Security) by approving a similar resolution in their state assemblies.”

[RWC] Everything is so fine and dandy that our commonwealth representatives have time to stick their noses into federal jurisdiction? We elect state representatives to represent us on state matters, not federal matters. I’m not picking on Mr. LaGrotta. I’ve yet to find a politician – Democrat or Republican – who understands his job and “sticks to his knitting.” That said, local and state politicians have every right to speak out on federal matters as private citizens.

“‘If every state legislature asks its congressional delegation to put the need of the many before the greed of a few, we can send the message to President Bush and his Wall Street friends that people are more important than profits,’ LaGrotta said, adding that Bush’s proposal is neither necessary nor prudent.”

[RWC] It’s “greed” to allow workers to exercise some control over how some of their hard-earned wages paid in taxes are invested for their own retirement? Maybe that’s greed on the Bizarro World, but not on Earth.

President Bush’s “Wall Street friends?” I thought President Bush’s friends were those evil oil companies. <g> In any case, what’s wrong with businesses that help you invest your money? What’s wrong with helping us make more money than we would make on our own? As noted above, my retirement funds are invested in stocks and bonds (both private and public) and I pay a financial advisor to assist me.

“‘Objective experts in both parties practically are unanimous in their assessment that the plan proposed by President Bush to privatize Social Security will result in higher taxes in the short run, reduced benefits for everyone under age 55 and a minimum of $1 trillion added to the federal deficit,’ LaGrotta said. ‘I am hopeful our congressmen and -women will see the folly of this and reject it immediately.’”

[RWC] Note the news release didn’t identify the “objective experts in both parties [who are] practically … unanimous in their assessment.”

Only those who were not paying attention didn’t realize a long time ago that Socialist Security was terminally flawed. That’s why I decided many years ago to make sure my retirement plans didn’t depend on Socialist Security or Medicare. These are Ponzi schemes pure and simple. The only way they could “survive” would be for the United States to have unsustainable population growth so that the taxes collected could keep up with an ever-growing number of beneficiaries.

Anytime you hear a politician – and especially a Democrat – complain about the federal deficit, your “BS” alarm should go off. Even among Republicans there are few who really care about the deficit beyond talking about it. When it comes to spending someone else’s money, Democrats and Republicans are almost equally addicted.

“LaGrotta accused privatization supporters of using ‘fuzzy math and scare tactics’ to convince people that Social Security is in serious financial trouble.”

[RWC] Here’s the “fuzzy math” the news release refers to. Assuming no new Socialist Security tax increases and no new benefit changes, in 2018 the amount of benefits paid will begin to exceed taxes paid by workers. Again assuming no changes to taxes or benefits, the federal government “IOUs” accumulated by the Socialist Security Administration from 1937 to 2018 will run out in 2042. Mr. LaGrotta would prefer we didn’t know these figures come straight from the SSA¹, not from some shadowy group of “privatization supporters.” Assuming no tax increases, estimates are that benefits after 2042 would need to be cut anywhere from 25% to 33% to balance tax collections with benefits paid. Estimates that far out are always “fuzzy” because no one has a crystal ball or a time machine, but that doesn’t invalidate them.

When I mentioned no new tax increases or benefit increases, I meant no increases not already covered by law. For example, current law requires the maximum taxable earnings to increase every year and benefits to increase every year based on wage indexing and the Consumer Price Index.

Though the years vary a bit, this is the same scenario presented by then-President Bill Clinton in his 1999 State of the Union Address. Mr. Clinton said, “Today, Social Security is strong, but by 2013, payroll taxes will no longer be sufficient to cover monthly payments. By 2032, the trust fund will be exhausted and Social Security will be unable to pay the full benefits older Americans have been promised.”⁶ If anything, Mr. Clinton’s figures were “scarier” than today’s estimates. As a note, the “trust fund” to which Mr. Clinton referred never existed. Every cent of Socialist Security taxes went into the general fund with the SSA receiving the equivalent of “IOUs.”

While Mr. LaGrotta accused others of using “fuzzy math,” he provided no math at all – “fuzzy” or otherwise – to support his position. Instead, the news release demonizes people who claim there is a problem and who provide new potential solutions.

The news release failed to mention personal accounts were a recommendation of the bi-partisan President’s Commission to Strengthen Social Security.² The late Daniel Patrick Moynihan, former Democrat senator from New York (Sen. Clinton’s immediate predecessor), co-chaired the Commission and spoke out in favor of personal accounts as far back as 1998.³ No one at all familiar with political history can question the late Mr. Moynihan’s liberal credentials. The Americans for Democratic Action – a liberal advocacy group – gave Mr. Moynihan an 83% lifetime “Liberal Quotient” based on his votes for liberal issues. His average LQ for the 1990s was 90%. All but two years of the 1990s his LQ ranged from 90% to 100%.

The news release wants us to forget that in 1998, Democrats themselves claimed Socialist Security was in crisis. See references four and five at the bottom of this page. Remember then-President Clinton repeating, “save Social Security first” when there were budget “surpluses?” Given that nothing has been done with Socialist Security during the intervening years, were Democrats lying in 1998 or are they lying now?

“The reality is that Social Security can be made stronger with a few minor adjustments to the program such as raising the limit of taxable income, presently $90,000,” LaGrotta said. ‘This privatization scheme actually takes money OUT of the system and is only designed to make Wall Street investment bankers richer at the expense of the most vulnerable members of society.’”

[RWC] These are the same “few minor adjustments” that have been made for the past 70 years. The news release mentioned raising the maximum taxable income, but failed to mention this has been done 39 times since 1950. Today’s $90,000 maximum is 30 times the original $3,000 of 1937 and now increases every year by law. It more than doubled in the last 18 years alone and increased nearly $14,000 since 2000! The release also failed to mention today’s 12.4% Socialist Security tax is 6.2 times its original 2%.

Personal accounts are “designed to make Wall Street investment bankers richer at the expense of the most vulnerable members of society?” Perhaps someday Mr. LaGrotta will provide a credible defense of that allegation instead of making a “drive by” attack using Democrat talking points. Are we to believe this was the goal of Sen. Moynihan when he made the proposal about seven years ago? Was that the goal of then-President Clinton when he proposed investing a portion of Socialist Security taxes in private securities?⁶

Does Mr. LaGrotta think so little of people that he truly believes proponents of reform are driven by a desire to loot Socialist Security? You’ve lost a debate when you resort to demonizing the opposition. When the facts and truth are on your side, there’s no need to resort to character assassination.

“LaGrotta said the recent downturn in the stock market is proof positive that the privatization of Social Security would be risking the retirement income of millions of Americans, who are uninformed about prudent investing strategies.”

[RWC] The news release failed to note President Bush’s proposal would attempt to take market volatility into account. Below is a quote from President Bush’s 2005 State of the Union speech.⁷

“The goal here is greater security in retirement, so we will set careful guidelines for personal accounts. We will make sure the money can only go into a conservative mix of bonds and stock funds. We will make sure that your earnings are not eaten up by hidden Wall Street fees. We will make sure there are good options to protect your investments from sudden market swings on the eve of your retirement. We will make sure a personal account can't be emptied out all at once, but rather paid out over time, as an addition to traditional Social Security benefits. And we will make sure this plan is fiscally responsible, by starting personal retirement accounts gradually, and raising the yearly limits on contributions over time, eventually permitting all workers to set aside four percentage points of their payroll taxes in their accounts.”

Mr. LaGrotta appears to support the “lowest common denominator” approach; i.e., hold everyone down because not everyone will come out ahead. This philosophy is a hallmark of socialism. Using this logic, we should all be forced to give up our cars because some of us have accidents that kill people and destroy property. Perhaps we should stop eating because some of us will choke to death.

We also have to wonder how much Mr. LaGrotta’s position is colored by personal experience. A magazine article quoted Mr. LaGrotta as saying, “If my parents didn’t have Social Security around to take their money and invest it for them, and if they’d have had to make their own investment decisions, they would have lost it all.”⁸

At least Mr. LaGrotta recognized the government forcibly took his parents’ money. On the other hand, Mr. LaGrotta was a tad generous when he said Socialist Security “invested” his parents’ money. First, once the SSA took it, the money no longer belonged to his parents. Second, as noted above, Socialist Security taxes go into the general fund and the SSA gets the equivalent of an IOU for the principal (tax revenue) plus the then current rate for Treasury bonds. Because they are low-risk, Treasury bonds have a low interest rate. In general, Treasury bond interest rates are barely above the rate of inflation. While it makes sense to include Treasury bonds in a balanced portfolio, especially as you near retirement age, it makes no sense to invest solely in Treasury bonds for your entire working lifetime. Finally, depending on your lifetime earnings and how long you live, the rate of return on your Socialist Security taxes can be negative. That is, you can receive less in benefits than you paid in taxes. That’s some investment.

“‘The market is much too volatile to provide the same guaranteed benefits that people have now,’ he said. ‘By privatizing Social Security, someone who worked hard his or her entire life may retire with benefits much lower than he or she planned on or needs to live.’

[RWC] The news release erroneously claimed Socialist Security has “guaranteed benefits.” Supreme Court decisions have affirmed there is no guarantee of benefits. What Congress giveth, Congress can take away.

The news release claims, “By privatizing Social Security, someone who worked hard his or her entire life may retire with benefits much lower than he or she planned on or needs to live.” Based on current estimates by the SSA itself, that is exactly what will happen if we do nothing or simply play around with tax rates and taxable income limits.

Face it, there are no guarantees regardless of your position on the issue.

“‘This proposal is bad policy and bad politics and must be rejected!’”

[RWC] Ah, the crux of the matter, “bad politics.” Fortunately, I’m not one who believes doing the right thing is “bad politics.” Then again, I’m not a career politician.

I conclude with what I believe sums up the “Is it a crisis?” question. Legendary broadcaster/entertainer Art Linkletter recently had this response when asked his opinion. “If your doctor told you that the colonoscopy you just had revealed a small cancer which is going to kill you in 25 years, I’ll bet you’d consider yourself in crisis right now, wouldn’t you?”

1. Status of the Social Security and Medicare Programs; Social Security and Medicare Boards of Trustees; March 23, 2004.

2. Strengthening Social Security And Creating Personal Wealth For All Americans; President’s Commission to Strengthen Social Security; December 21, 2001.

3. Moynihan’s Social Security Plan; James K. Glassman; The Washington Post; March 24, 1998.

4. “Save Social Security First”?; Byron York; National Review; January 14, 2005.

5. Who Will Rescue Social Security?; David S. Broder; The Washington Post; November 29, 1998.

6. 1999 State of the Union Address; The Washington Post; January 19, 1999.

7. 2005 State of the Union Address; CNN.com; February 2, 2005.

8. Business Technology: The Silos Of Protectionism: Time To Raise Them, Or Raze Them?; Bob Evans; InformationWeek; March 15, 2004.