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Obama in SOTU - Means Test SS?
Next week we get the State of the Union address. The question, “Is there anything that might come from the speech that will impact the markets? The economy? Maybe. One area that I think we may get a recommendation from the President is a means tax on Social Security benefits.
That is a pretty bold call by me. Should the President propose this
(and it is enacted) it does have significant implications. I have no
line into the President’s thinking. I come to this conclusion looking at
a few odds and ends.
-A friend attended an Ed Hyman ISI confab recently. He showed me a copy
of the slides used in the presentation. This stuff is private so I won’t
use Mr. Hyman’s graphs. But the handwritten notes from my friend are
interesting:
Notice the comments about SS and means testing. Let’s just say that Ed is part of the inner circle. (The Obama/Bernanke thoughts are also interesting)
-Christine Romer did an Op Ed for the NYT on January 15. Her words:
The Deficit Commission proposed thoughtful ways to slow the growth of Social Security.
One of those "thoughtful" ideas was a MT.
The President should ensure that spending cuts not fall on the disadvantaged.
A MT would do that.
The only realistic way to close the gap is by raising revenue. Some of it can and should come from higher taxes on the rich.
A MT would do that too. Ms. Romer is ex Administration. I think she is still talking their book.
- Where would the opposition come from? Republicans? On Jan. 5 influential Republican Governor, Mitch Daniels (Ind.) commented:
I always say, “Why do we send a pension check to Warren Buffett?”…
It comes down to the House on this. So where is Speaker John Boehner on MT?
Big changes are needed for Social Security, including reducing or ending benefits for retirees with "substantial" other income.
We shall see if all this apparent support stands. I don't really believe in love fests in D.C.
Speaking of love fests don't assume that this would be a slam dunk.
There are many who believe that SS is sacrosanct. Sen. Harry Reid had
this to say on Meet the Press last week. Surprised?
MR. GREGORY: Means testing? Raising the retirement age?
SEN. REID: ...don't--I'm...
MR. GREGORY: Do you agree with either of those?
SEN.
REID: I'm not going to go to any of those back-door methods to whack
Social Security recipients. I'm not going to do that.
Politics does make for some very odd bedfellows....
-Zero Hedge had an article a month ago regarding a comment by political blogger Robert Kutter. From the POLITICO.
The
second part, now being teed up by the White House and key Senate
Democrats, is a scheme for the president to embrace much of the
Bowles-Simpson plan — including cuts in Social Security. This is to be unveiled, according to well-placed sources, in the president’s State of the Union address.
Robert craps on the idea of cuts in SS as it would hurt Obama’s base. Not the case at all.
A means test hits rich old people. That’s not O’s base. It’s a very
small percent of the population. Make what you will of this.
-A SS means test is a legitimate option. I wrote about it back in July. Many others have as well. It will “sell” to a broad spectrum of the population. "Tax the rich" always sounds good. The President will have at his side Bill Gates and Warren Buffet (both getting SS checks). They will say that it’s the “right thing to do”. (they already have)
I am looking forward to see how this shakes out. Possible results?
Shrink the size of government? (Yup). Reduce the rate of growth of expenditures? (What last November was about) Stabilize SS without cutting benefits for most people? (Hard to say no.) A means test could allow for a permanent cut is SS taxes (ala 2011). (Who could say no to that!)
This is a very big step toward socialism. It would also be the first of many steps of unwinding SS. A means tax would undermine long-term support for the program. (Note: this issue could be blunted by giving Gates and Buffett a tax credit on federal estate taxes for what they lose in benefits).
Say this should happen. How do the markets react? Initially, it might be perceived as a positive. If the headline were: US Gets Serious on Debt Reduction then we might see some risk on
trades happening.
But the devil is very much in the details. It is possible this will be one of those things where the deal is: Starting in six years and increasing gradually over the next ten thereafter blah blah blah.
(Kick the can down the road) Should that be the case I (and many
others) will rain all over it. That outcome would bring a different set
of risk on/off results.
IMHO a means tax could be done with near immediate results. It could
translate into a permanent reduction of some employment taxes and it
would/could help SSA get through the next 15 years (boomers) without
forcing a run off of the Intergovernmental account (less debt to
public). Something that had both teeth and near term consequence could
possibly change sentiment. Who knows?
Nothing addresses all of America’s problems. A means test is an option
that should be considered. Depending on how it is done, it could make a
difference. I think it will come on the table next week.
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Wow, Bruce. What a fabulous source you have there. What is the Ed Hyman ISI confab? Also, about the SS system. I am 51 this month and I have to say that when I found out they changed social security to a "welfare program" and not a pension, and that there was no "trust fund" was about the time I started earnestly becoming interested in politics. i pray Obama does say something about means testing in the SOTU because maybe a few more of my republican friends who think everything is going just fine will start asking "why and how does government get away with lying and changing a contract like this" Then again it will be kind of hard to get them to take their attention off of their new car and vacation and their next project at the office.....
All the best to you. I enjoy your work so much
I have the solution. Once an American citizen hits 75, we put them to sleep. Problem solved.
Wonderful idea skippy!!!
Until YOU get there, and are in good health.
Why don't we lower it to 65, so then you can come after me to try to put me to sleep, and I can jerk your fucking stomach out your anus and cram it down your throat and choke your miserable yuppie ass to death. Fucking idiot.
You might want to wait a couple decades before implementing that particular policy.
Today's 74 year olds were born in 1937 and grew up in austere times with their fathers away at war for a good part (or the rest) of it. They also came of age at a time when masculine virtues were actually encouraged and firearms training and ammunition were subsidised by the government. Oh, and they also tend to think baby-boomers have always been a bunch of whiny pussies bent on ruining the country.
I short they are definitely not, despite their age, the demographic you want to move into the nothing to lose category.
You keep the 50% of the SS benefits you paid in. The 50% of the SS benefits your employer paid in are subject to means testing.
Excellent idea.
I predict something worse than means testing -- a net worth tax levied on all assets with the proceeds used to "fix" SS and all manner of budgetary ills. Back in the early '90s, Jesse Jackson proposed a one-time, 15% tax on retirement accounts, but Congress can surely improve on that and make it an annual ritual. Throw in the estate tax and the "rich" will pay womb-to-tomb.
"a net worth tax"
No can do! Eisner v. McComber by the Supremes.
States can do this but not the Feds. For example the late "intangibles tax" levied by Florida.
Or all 401k accounts "become" the new SocSec++.
I think they know better than that.
Wait...check that...LOL.
I go back and forth on that one...on the one hand I say...self, if I were they, what better way to get at least 30% of those private retirement assets into my boney little hands than to scare the crap out of the people into thinking those assets are about to be seized (early withdrawal penalties & taxes)...on the other hand...what you said ;-)
nmewn, queue the scary music for:
"401(k) Foe Teresa Ghilarducci, the Most Dangerous Woman in America"http://money.usnews.com/money/blogs/capital-commerce/2008/10/29/401k-foe...
That qwm needs some serious dose of stfu.
- Ned
(how much snow did all y'all get ;-)
Yeah I heard that one...bounced it off my kin...they allowed there would probably be a resurgence in lead poisoning ;-)
(how much snow did all y'all get ;-)
I happened to be out of town that day (went down to Largo where my wifes family is)...everyone said a trace here & there.
But the wind is what kills me...never got up over 40 some days!...yeah I know, wimp...but we ain't used to that shit!...LOL.
I'm thinkin if Al could invent the internet, he could do sumpin bout it...but at least we got Barry & the oceans are receding...sigh ;-)
Great call, Bruce. Expect the same from the Japanese when they "reform" their pension system this spring.
Bruce, how cash flow negative will SS be this year? 100 billion? Can you provide an estimate. I can't see the revenue side improving much if at all and the expenditures are really exploding.
Plus we must factor in the SS tax reduction.
Thanks
We're doomed.
Understatement of the year.
Fear not, our best & brightest are working on it.
On second thought...
Bruce, how cash flow negative will SS be this year? 100 billion? Can you provide an estimate. I can't see the revenue side improving much if at all and the expenditures are really exploding.
Plus we must factor in the SS tax reduction.
Thanks
pton,
Explain that one to me.
You cut SS taxes by 2.5%?,the very last ONE that should be cut, and then you come back and start redistributing the funds that are the American peoples?,out of those VERY funds??.
THIS is borderline insanity, its as if HE wants to start some major shit.
If he does it, he will have accompished his goal.
The first of many social benefits to be stripped of anyone except the dirt poor. What part of income redistribution did you misunderstand ?
I'm a little more interested in your letter's 25% flat tax. I wonder if Big O realizes that this will hit the poor much harder than the rich.. and whether this will also eliminate the FICA and MediCare taxes on my paycheck..
Yes, a flat tax would crush the working poor. So what else is new?
We should, instead, have basically a consumption tax that would go a long way towards transforming our society, if done correctly.
Milk and eggs are not taxed. Cars are. Therefore, smaller cars. The idea would also lead us away from conspicuous consumption in that super-luxury items may become priced out of the market by marginal buyers. Therefore, we save more.
How about this? Capital gains (particularly for 4X traders ;) would not exist, allowing the home-gamers, who are destined to save Wall Street's ass, can easily re-invest in America. (Queue the bunting, the band and the Blackhawks...).
It could work but not, as you point out, as an across-the-board 25% sales tax.
Not is there was a significant income tax exemption per person and dependent. the 25% flat tax would only be on avery $ above some floor.
Crush the working poor is an understatement... probably about a third of the workforce would immediately go from in the black (barely) to getting eviction and foreclosure notices. I can't even imagine the amount of violence that would generate.
But the Fed will buy their mortgage.
Always look on the bright side of life.
I'd like to know more about who was presenting these slides in the first place. Sounds like a lot of conjecture to me.
Ed Hyman? Google him. Been around forever. Excellent reputation.
The name rings a bell from back in the day. He was a regular rotating Elf on Wall Street Week with Louis R., I think.
I would agree with a means test and not a means tax. Once a person becomes eligible for Social Security, the SSA can talk to IRS, see what this person is worth and then have their checks titrated to their net worth.
Don't send them a check and then tax them for it. Now, you have two more tasks in a wasted line you don't even need at all.
Have a voluntary opt-out for people who want to "donate" their SS income to pay off my great-granddaughters debt. You may get a few there.
The problem is going to be the hard-headedness of people like the gentleman above, who is going to keep his check out of principle, even though, by his own admission, he doesn't need it.
Unless this is spun out as a chance to save the American Dream, replete with crying eagles and fly-overs, it will be a tough sell. And even then, I'm pretty sure the American public are getting fairly jaded to that sort of patriotic mumbo-jumbo anyway.
The means test is a better way to go. That way, you don't have millions of boomers getting SS denied at the same time. Only on the sixty-fifth birthday does one have a gripe, so we can spread out the anger a bit and keep it off the evening news.
Orly,
SCREW that
If your retiring at 62.5, SS kicks in, if you sign up for it. At 65+/- (is when Medicaid comes into play.)
Also if you have savings, you should not have YOUR rightful money stolen from you,simply because you worked your frigging butt off,while D.C. homos have gotten wealthier, and live like Kings in a caste system.
I have been praying for BARRY to pull a " BLACK SWAN MOVE", on the American people.
Nothing he can say or do, short of a Default, will change my course.
No Mas.
Now you're going to get me into Boomer-bashing, which I had hoped to avoid but knew would be inevitable...
Oh, so now, all of a sudden, social security is in some jeopardy because Boomers decided to wake up from their narcissistic stupor and realise that they've had their head so far up their own asses they couldn't see that, not only were they screwing over their kids and grandkids (no biggee for the greatest generation since, well, us...) but they screwed themselves, too.
Too busy living high on the hog and looking in the mirror over the Italian marble in their McMansions' "personal retreat" to take care of the fact that you're running out of money really fast. Funny, seems like I have been hearing about Social Security since the day I was born and, frankly, I'm about yay tired of it.
Without giving away exact numbers, it is apparent that you have had a loooooong time to take care of your little problem but were too busy discoing, snorting cocaine, spending insane amounts of money and running up huge deficits, with a great plan to leave your kids and their kids with exactly what they came into this world with: nothing. It is only you who are so blessed, so privileged...
But now all of a sudden, you're defiant! Now, all of a sudden, you're gonna stand up for what's right! They're not gonna take my social security, by God! They'll have to pry that $185 check out of my cold, dead hands! I'll give it to charity, I'll bury it in my backyard but you're not gonna take my money.
Typical Boomers. Take 'til the end. Leave nothing for anyone because you're the greatest thing to ever walk the Earth. Take, take, take. Go on and take until you can't take no more...
Then, I say, good riddance.
It really is pathetic.
+100
As in, a rolled-up $100 bill. Eff tha boomers, sell your McMansions and BMWs and live off that. They loved Reaganomics while they were working, now they say we must have a return of the great society. Bollocks.
Need has nothing to do with anything, unless you want to quote Marx.
Here's a thought: Let people keep the money they earn. If they want to donate to charity, they are welcome to do that.
If MT is applied to the populace then ALL politicians should be means tested too. If they are wealthy and have sufficient means then their retirement pay should go into reducing the deficit.
Yeah....and Sophia Vergara needs a push-up bra.
Enjoyed listening to you on the air this morning, Bruce. Hope to hear you again soon...
Made my day Hulk. Tks.
b
link?
I start at 34:
http://www.ksfo560.com/FlashPlayer/default.asp?SPID=17750&ID=2086634
I heard it, too. Thanks for that.
Someone is in there supporting the EURCHF cross. Must be getting heavy by now...
Hildebrand?
I caught you this morning on Sussman, best interview I've heard in a while!
Surely even the moderately rich and a variety of tax lawyers will quickly work up a scheme to defeat a means test. Nice idea, though.
Means testing is inevitable, but like all the inevitable pain headed our way no one wants to be the one to talk about it.
If Obama brings it up, the GOP will vilify it as an attack on SS. It will go nowhere, other than as a political cudgel for the GOP.
This is no longer a country that faces growing problems or takes bolds steps. The entitlement programs won't be dealt with until after the programs experience a bona fide system failure. After that, there will be reduced benefits for all, but especially for the wealthy.
Charles Hugh Smith had a wonderful article just today outlining how to address Social Security shortcomings. Hell, of course means testing is one such item.
That, and raising the retirement age, and raising the FICA taxes threshold. Go read his posts the last three days as he got into the subject. Its good.
Look folks ... gaze at a pie chart of federal outlays and you'll see that SS and Medicare take the lions share. Granted Medicare is 3 times the cost of S.S. -- let's leave that for another article/day (because solutions to it get into confronting all the high power, well funded lobbyists behind 'sickcare').
Bottom line is that these items HAVE TO BE ADDRESSED.
They are the 800 lb gorilla in the yearly budget.
GOP vilify it? I quote the head of the House, He said yes. You can't get more "red" than that.
I saw the quote, but don't believe it. Any murmurs of the House GOP working with Obama on anything of substance will be gone by next month.
The GOP is thinking about 2012 and nothing else. And they still believe in the formula which just gave them success: don't cooperate on anything.
As I stated above, our country no longer has "leaders" who do bold things, so I don't think it pays to expect bold things to happen. Hell, even the financial crisis wasn't drastic enough for them to pass any meaningful reform of the banks. Easier just to hand them taxpayer money and carry on.
This is also why we will have QE3 and GOP resistance will be token.
This should spawn an entire growth industry in ways to hide wealth.
Spot on. Actually one of the leading reasons given from those who appose it.
Think of that for a second. People older than 65 who have significant wealth and income greater than $200k a year are going to en mass change their investments in order to avoid/evade taxes? I don't see it like that. If it did happen, then the IRS would have to lock em up. What a hoot that would be....
Mr. Bruce,
I think this radical Socialit will GO MUCH farther.
MEANS TESTING, will not be inclusive of just Salary, it will be total assets.
You got 3-500k saved up?.
You get shit on.
Another reason this MT business might have unintended consequences is the effect on charitable giving. I have a couple of well to do pals who donate their entire social security benefit and more to charities and have done so for years. Of course, they get the tax break, but they must feel it's a better use for the money than what the government will do with it. Whether they'd continue giving at that level without the ss check, I don't know.
Charities get HUGE support from people of signifigant means with a conscience. The rich are not all pigmen/women.