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Social Security 2010 Results – Long Slide into the Red
The full year results for the SS Trust Fund can now be estimated fairly
accurately from preliminary numbers. There is still an unknown. The
amount of the 4th Q negative adjustment for overstating prior years
income has not been made public. My numbers for 2010 (both operating and
pro forma the adjustment):
Operating Results (excludes restatements in Billions):
Payroll tax receipts: 655
Tax on benefits: 24
Interest Income: 118
Total In: 797
Benefits Paid: 702
RR Interchange: 4
Overhead: 7
Total Out: 713
Net 2010 Surplus: 84
Net 2010 Cash Position (surplus minus interest): -34
Adjustments:
SSA announced in October that they would incur a one-time charge of
approximately $25 billion in 2010 to adjust for overstating prior
year(s) revenue. Through the third quarter of 2010 they have recognized a
total of $16b. Therefore the range of the restatement of revenues could
range from 0 to 9 billion in the fourth quarter. These adjustments are
reflected in a decrease in payroll tax revenue. Using a mid estimate of
$5b as the 4th Q adjustment produces these results:
Net 2010 Surplus: 78
Net 2010 Cash Position (surplus minus interest): -40
(note: Due to the unknown adjustment these numbers have an error factor of +/- $5b)
While the MSM and the politicians in D.C. will point to the accounting
‘surplus’ at SSA as the measure of continuing health, I take a different
view. The only thing that matters is the cash position. That is
negative for the first time in 27 years and is a harbinger of things to
come.
SSA has produced a forecast that has the cash position returning to a
small positive number over the next few years before going permanently
negative in 2015. The economic assumptions used to produce that forecast
are not going to be realized. In my opinion we will never see another
cash surplus at SSA in history. 2010 marked the year where Perpetual
Deficits started. Unless laws are changed the cash deficit will continue
and increase every year for the next 75.
This simple graph tells the story:
Not so hard to see where the problems lie. Revenues have fallen while
expenses are rising. SSA is struggling with an employment base that is
not producing enough contributors to cover costs.
2010 was an interesting year in that there was no COLA increase. The
recession kept the CPI at a level where no increases in benefits were
granted. Were it not for this fact the benefit line would have been up
by an additional 20-25 billion. However consider that benefits paid
increased YoY by $27b. That is not an inflationary increase. This is
people living longer and many new entrants receiving benefits. This
increase is a function of baby boomers coming into the system. A
significant portion of this increase in beneficiaries is involuntary.
These are folks who are 62+ and can’t find a job, so they take an early
retirement (and a smaller check) from SS.
For benefits to have increased by 4% in a no COLA year blows my mind.
This is very clear evidence of the problem the economy is facing with
structural employment. There are some significant macro implications of
this should this big trend continue in 2011.
-This transition is a big drag on GDP as workers go from “payer” to “taker” status.
-The accelerated trend to retirement should create demand for other
younger workers. To date there is no evidence that this is happening.
The workforce is just shrinking.
In summary, it was a miserable year at SSA. The worst in their history.
The future does not look so hot either. SSA is a slave to the economy.
If the economy improves and new jobs are created the picture will
improve. But that is not going to happen in 2011. Next year will also be
a no COLA year, this should restrain increases in benefit payouts. But,
as we have seen this year, the flood of new (forced) retirees will push
benefit costs up.
I am going to wait until I see 1st Q 2011 numbers to make hard estimates
on full year 2011. Right now I will guess that SS will suffer a cash
shortfall of at least $25b. If we get modest inflation and the economy
is still in the doghouse the numbers will explode. We could easily see a
$60b cash deficit in 2012.
None of this is priced into the market in my view. 2011 will be
different. Perpetual cash deficits at SSA will not go unnoticed for
long.
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Hey Bruce, I just had one of my Brilliant ideas. We can elect Jeb Bush as our next U.S. President, privatize Social Security, watch the S&P 500 get clobbered 75% then blame it on some "darkie" Democrat who wins the Presidential elections of 2016. That way rich Republicans can keep sucking the value out of Wall Street stocks, paying 17% of their income in federal taxes, while the guy renovating your 3rd home pays 35%+ in taxes while he's trying to figure out how his daughter will go to college. Yes. We have the labourers and factory workers of this country right where you want them now Brucie!!!!!
TRaveler-2:
Those subjects are certainly worth discussing on a separate blog.
But as serious as you take your Social Security and Medicare benefits, shouldn't the government have acted as a real fiduciary with real live trust funds?
Don Levit
Pat yourself on the back for going after the aged. SS will not be in any trouble until after you and I die, if even then--unless the gov't ravages the money in the system, as it has done in the past. Foreign countries are doing this now, as you should realize.
Why don't I hear you brilliants talking about all the waisted war monies? Because it is easier to pick on old, defenseless people.
Why don't I hear you brilliants talking about all the monies wasted on these stupid K-death affirmative ed programs??? Because you don't want to face the truth.
Why don't I hear you brilliants talking about all these ridiculus Fed/State/County affirmative action programs. Where I live 25% of the people are state employed, with wages going up every year, PERCENTAGE wise.
Naw, fuck the old people. For 40 years I have been having SS taken from my pay. Now, I have become the problem. Medicare: too much, bumber. But, my medicare is supplemented with $400. of my monthly income, out of my pocket. Are you dummies even knowledgeable of what is what????
The issues you raise are real.
However, those issues do not address the main problem: You were betrayed by your government.
They made promises that could not be kept. They will not deliver on their obligation. They are the counter-party, and you took the risk. Your counter-party cannot pay, so it will not pay.
We can now discuss the terms of the default.
I'm sorry to hear about your poor health. IMHO, it's a pretty tight race to the finish line.
I happen to think they will keep SS going. After all it's linked to the CPI so why not? Keep sending out the checks even if it won't buy a can of cat food. Blame in on the "evil speculators" and that Uncle Sugar is still trying to meet his obligations. An outright default almost seems to honest for Uncle Sugar.
And to the poster above. You know it's a ponzi scheme right? The money that was taken in was spent the moment it showed up, from the very beginning. It's a classic ponzi, new entrants pay the old ones off. The "lockbox" is their explanation of where the excess money went, but it's in IOUs from the treasury. That's like spending you retirement but putting an IOU in your safe to cover your retirement. Funny how all ponzi schemes break down. This one had an edge, no one could opt out, but even that cannot save it in the long run.
Mark Beck:
The Treasury has to pay interest when the Social Security outgo exceeds its income (excluding interest).
It will have to redeem Treasury principal when outgo exceeds income (including interest).
The first scenario has already occurred.
Mr. Boompi:
Very well stated.
If I added anything to your wonderful explanation, I would be subtracting from it!
Don Levit
Assuming it passes, the 2% holiday for the employee share of social security should send SSA into the red permanently. It will become a political hot potato to let the 2% lapse next year. "They want to raise taxes on the poor and middle class," is what they will say. To try and offset the fiscal damage, look for a big push to remove the ceiling on contributions.
Bruce, the more interesting aspect, at least for me, is at what point, and by what procedure does SSA redeem the SS Treasury bonds. In general I am interested in the mechanics (balance sheet), but also in the political realization that money was diverted from somewhere else. A type of confirmation that SS is not only not self sustainable in 2011, but requires dipping into the general fund. Politically it cannot go unnoticed or unrecognized.
What then?
So what next, any indepth analysis of SS future funding will expose the structual imbalances, laying bare, the realization that the imbalance will never be righted, in terms of maintaining real worth, to SS receipients.
Benefits will be cut, either through monetary inflation, or a direct across the board cut.
Mark Beck
Looks like baby boomers are about to get kicked in the head starting in 2011.
So it will all end badly. What else can you expect from a ponzi scheme. Govt backed or not, SS is still a ponzi.
I betcha the 2% reduction in Social Security tax from 6.2% to 4.2% also applies to the employer matching contribution. Of course, the government has been collecting about $150B a year in "excess" SS taxes since 1986 and spending it to subsidize the general revenue budget. So, instead of a $3.6T cash surplus in the SS trust fund, it's all gone now. I guess Al Gore's lockbox idea was not so goofy after all.
SS needs to fail to meet a pay out date. Then, people will admit their is a crisis. Until then, people will dleude themsleves that it will always be there.
So what do you think they will do when SSA is a net negative for cash flow? Cutting it would be nigh unto impossibly politically. Turns out the old vote, and everyone who spend a lifetime paying in to it feel entitled to it. Looks to me that its a politically difficult cut or just more infinite debt.
This graph shows exactly why they raised the SS deduction in the 80s. They could tell back then we needed the surpluses to cover the retirees now, in 2010.
But from Reagan on, they spent the surplus and replaced the money with worthless government IOUs which have ZERO market value. To add insult to injury, they used the trust fund money to "reduce" the budget deficits at the same time they were reporting trust fund surpluses, which were ficticious.
Up until this most recent recent banking crisis and the bailouts it prompted, the looting of the SS trust funds was the biggest heist in US history.
Ho hum. Another pointless post from Krasting about that terrible program, Social Security. I'm not going to waste much time debunking this latest nonsense (except to laugh at the graph that goes backwards...nice touch) since Bruce Webb at Angry Bear shot holes in this crap years ago.
If one wants to actually learn something about Social Security, go over to Angry Bear's archives and prepare to get schooled.
I love the picture of the Grandma:
"What we have here, is a FAILURE to communicate"
The reason Bruce does not count interest as cash is because interest is "paid" by issuing additional Treasury securities (debt).
The trust fund balance is not an indication of its solvency.
The balance is an accounting mechanism which states the "draw" the trust fund has on the Treasury without an appropriation.
Once the "draw" is made, the process is just like paying for battleships - the "draw" is paid out of current revenues and debt.
The trust fund makes it no easier to pay benefits than if it didn't exist.
All the FICA dollars go into the Treasury, just like income taxes, excise taxes, etc.
I can provide governmental excerpts and links to back these statements for anyone who is interested.
Don Levit
Part of the problem with Social Security is that Congress saw fit to add in large numbers of non-payees to reap generous benefits. Recent immigrants, anyone reaching the age of 70, mentally and physically disabled (SS)I) etc. How many more categories will Congress toss in to reap benefits?
This is a good chart to view:
http://www.nationmaster.com/graph/eco_soc_sec_exp_as_of_gdp-economy-soci...
Whereas the gubment is giving SS benies to non-payees they should fund it by cutting other "programs" instead of stealing from the people that have paid into it. Like anything that makes sense has a snowballs chance......
Chart's ok but a breakdown by Non-payees vs payees--- is that available?
I guess the silver lining (if there is one) is, less of a surplus means less money for the Washington pols to steal.
Whether any of that old-fogeyish GAAP-style budget math actually matters anymore now that the Fed is openly monetizing the debt in as large of quantities as are needed, is of course a valid question.
On another SS-related note, Matt Taibbi`s latest blog post starts with an amusing "ya got the wrong dude, dude" moment apparently suffered by conservative commentator David Gergen in a recent roundtable, which then morphs into a very nice discussion of social security, the Bush tax cuts, and the nature of Washington "consensus" politics:
http://www.rollingstone.com/politics/matt-taibbi/blogs/TaibbiData_May201...
Revenue falls from "Depression". There, fixed it for you.
Thanks Bruce, well done. Any quick way to break out government salaries and health care wages from this data? Much of this is clearly a lot of tail chasing. It would be interesting to know how much of a private sector is left, and this seems to be a relatively clean data base.
BK- As usual, excellent analysis. Please forward to CNBC, CNN, CBS, ABC...on second thought, Isn't it Black Cyber Free Laptop Tuesday?
and then why are they reducing contribution rates from 6.2 to 4.2%?
has somebody done the math ?
what effect will the reduced intake have on the finances ?
I'm a newbie, but I look at the fact that Obama is looking to reduce contribution rates the same way I look at The Bernank releasing the information on who he gave all the money to (which he was not legally compelled to do). I think that perhaps "they" are saying "time to aim for the ditch boys! Let's get this ball rolling." I wonder if they are just wanting to get the total collapse moving.... Nobody could be THAT stupid, so this is the only conclusion I can draw...
The proposal will not impact SS on a net basis. The plan is to reduce SS taxes by $120b in 2011. But the government will reimburse SS dollar for dollar of this amount.
So net-net it will not affect the books of SS. But it will add $120b to the general deficit.
Sort of in one pocket out the other.
100% political posturing.
I'm waiting for the day when Peter pistol-whips Paul over this shit.
Yes but when I remove my right hand from my right pocket and instead put my left hand in my left pocket it is much harder for me to play pocket pool. Oh that is right, by the time Congress gets done I won't be able to afford pants any longer.
wont matter, there are no balls
Sort of like the way the gubment has repaid the SS fund in the past?? With IOU's!! That'll help.....
I assume that's rhetorical, but of course, the answer is because, "revenue has nothing to do with expenses". The government has never balanced its books before, and there's no reason to start now.
From the article:
Of course, that's another $25B that's not budgeted, so add it to the pile. We'll continue to have a bond issuance "run-rate" at 50% *over* the "official" deficit.
You know, I'll bet if the Tea Partiers manage to stop the raising of the debt ceiling, then you'll just see more and more of the budget go off of the books. Well, I'm sure it will happen either way, with the only difference being the rhetoric (and who is made to suffer).
If they can create a non-inflationary CPI in this environment, why they can do anything!
I may not have a PHD but I'm going to guess that it won't help the situation.
"SSA is a slave to the economy."
The shackles are mutual.
I've self-flagged just to save everybody time.