This page has been archived and commenting is disabled.
On Politics, Social Security and Spine
Assuming that no white knight (aka NJ Gov. Christie) enters the scene for the Republicans, this fall will be a race between Mitt & “O”. I’ve listened to them discuss their views on a hot button of mine, Social Security.
Not surprisingly, both sides have dodged this issue. They say we need adjustments and refer to the “need” to extend the retirement age. They also agree that some adjustments in the Cost-Of-Living (COLA) should be considered. Extending the retirement and COLAs would be implemented over twenty years they claim. These are “kick the can” (far) down the road strategies. Those who are under 50 today would feel the consequences.
You can’t blame the politicians for wanting to duck this issue. There is a monster block of voters (primarily the Boomers) who would love to see a plan for SS that pushed things out by fifteen years. If SS became a real topic in the election, it could potentially throw the vote one way, or the other.
The fact is, the next president will be forced to make major changes at Social Security. Ironically, the Social Security Trust Fund might be responsible for tossing SS into the political debate. An explanation:
Social Security actually consists of two pieces. Old-Age Insurance and Survivors Insurance (OASI) is one part; Disability Insurance (DI) is the other. What Mitt and O are talking about is the Old Age side of the story. This program is not yet falling off a cliff. However, the DI fund is. The question is, “How bad is DI?”
An answer can be found in the 2011 Social Security report to Congress. Ten months ago it said that the DI fund would be exhausted in 2018. This very convenient forecast put the day of reckoning for DI two years outside of the next presidential cycle.
The Intermediate, or base case forecast for the DI Trust Fund:
The next question is, “What’s the SSTF going to say in May 2012 about the new termination date for DI?” The answer depends on whether the folks who write the report for SS have “spine”. If they do, they will say that the Base Case for the DI fund shows it will be exhausted in the fourth quarter of 2016. That would mean that DI benefits would have to be immediately and significantly cut across the board. Those cuts would happen on or about Election Day, 2016.
If the SSTF produces a forecast that puts the death of DI in the 2013-16 cycle, then it is fair game to force the 2012 candidates to put forward their plans for fixing it. The SSTF will probably produce that forecast. If it does, it opens a Pandora’s box on the very big issue of what to do with the (much, much larger) Old Age side of the equation.
My expectation is based on the following: Look again at the SSTF report above . The forecast was that the DI Trust Fund (DITF) fund would end 2017 with a balance of only $7b. This means that the actual “go broke" date was 1/6/2018. (How to Spin a Forecast lesson 101… Gain 6 days, gain a year….)
The first Q 2012 data for the DI funds shows a 7% YoY rise in benefits. This is largely a consequence of the 3.6% COLA increase. (Ben B. maintains this does not exist). The other 3.5% reflects the rising number of folks getting benefits. Tax revenues are behind “schedule” (blame the economy). Finally, interest income is going to be under “budget”. The amount of investable funds is rapidly declining, and interest income on the DITF’s remaining cash is falling with Bernanke’s endless ZIRP.
The 2012 number for the DITF will have to be reduced from last year's estimates by about $5b. This has a multiplier effect, as the COLA re-base repeats itself with every year. The revision for 2012 will add up to more than $20b over the next four years. This minor adjustment will bring the termination date to June of 2017. It's still not close enough to bring the issue onto the 2012 political table. But more adjustments are in order.
The SSTF is stuck with a downbeat economic forecast from the CBO. It can’t have a rosy forecast when its “buds” up the street are saying it isn’t so. Adjusting to the CBO’s dour outlook will knock another seven months off the life of DI.
There are two possible outcomes in the upcoming SSTF report on DI:
A) The DI fund will be exhausted in 2017.
This is the spineless approach as the details will show that the actual date of exhaustion is January of 2017.
B) The DI fund will be exhausted in the 4th quarter of 2016.
That would be “show time”.
By itself the DI problem is solvable. To understand what is going on, look at cash flow. The mumbo-jumbo about Trust Funds is just mumbo-jumbo. The cash flow numbers:
Unless there are changes to the program, the deficits at DI will continue to grow. The long-term, unfunded cost is 0.4 – 0.5% of GDP. That would put the cost of maintaining DI at about 10% of the military, and 5% of the cost for both Medicare and Old Age SS.
In the scheme of things, the problems at DI are small. Other problems are so large in comparison. But a “fix” at DI could add another half-trillion onto the debt/deficit in the decade after it goes broke. That’s not a small number at all.
If Obama is honest, he will acknowledge the problem and propose new taxes to fill the bucket. He will say that America is too rich a country to let disabled workers fall through a crack. He will get votes for that position.
Romney has a problem. He can’t propose higher taxes that would be earmarked to stabilize DI. He will say that DI has to be cut to the point that it becomes Pay-Go without new taxes. He will get votes for that position, but it will expose him to criticism. It will be argued that this is about the 1% versus disabled workers. Obama would have a field day with that position. “O” would be protecting the widows and orphans while Mitt would be keeping the rich, rich.
There must be a fix at DI in the next four years. The next president will guide that resolution through Congress. The “fix” will either socialize the system by diverting tax dollars to it, or the program will be starved. The solution will be a cookie-cutter preliminary version of the much bigger issue of the Retirement Fund. OASI will face a much larger wall in 2017 – 20. What will happen to DI in 2016 will pave the way for what happens to OASI in 2019.
One final chart. This looks at cash flow for DI, OASI and combined SS. We crossed the red-ink line on DI in 2005. OASI went into the red in 2010. Neither fund will ever be in the black again.
Notes:
Both candidates may try to point to fraud and abuse at DI as the problem. There is abuse, lots of it. But if it ended tomorrow, it would not move the needle. The required fix is much larger than the abuse.
Neither candidate wants SS to be an issue. If it becomes one, Obama has more to win and Romney more to lose.
»
- advertisements -
OK a little perspective from Down Under. In the 1980s Australia put in a pension system where employers contribute 9% of worker pay to a separate account that the worker gets to invest (the workers can put in more themselves). Now Australia has the fifth-largest pool of pension assets in the world, not bad for a nation of 22 million. The *median* net worth in Australia is now $220K, versus $47K in the US.
But this system would never have been introduced had they not had leftie politicians forcing the corps to do it, the corps at the time of course were screaming that it would bankrupt their businesses blah blah blah.
America has a huge, vibrant welfare system today. The problem is the Socialist recipients sucking at the govt tit are mostly mega-banks, big oil, big pharma with Medicare Part D, corps like GE paying little or no US taxes (they pay plenty to foreign governments though, because they have to). And of course the military with endless Permanent Pre-Emptive War.
The other pro-people policy I would mention is from the savvy Reserve Bank. They know ZIRP destroys savers and dis-incents lenders. So I can get a bank CD paying 6%.
It's called The Lucky Country but sometimes luck has very little to do with it.
I fail to see how that's different from making the workers put in 9% of their own money, except perhaps the corp paid more taxes on those funds (and in that case, who benefits from that? Guess what, it's your gubbermint).
And too bad this won't save you from your bubble(s). I do wish you good luck, seriously.
Huge difference my friend. Instead of a bookeeping entry in a government program that earns no returns (SocSec) and is going bust, I have a separate account with my name on it that I can invest as I like.
And yes even if Australia is a bubble (which it is, that's why I'm a renter), I still have complete legal claim on my retirement assets with my name on them earning returns in whatever I want them to (right now credit spread options trades and directional puts/calls)
You completely missed my point.
That 9% that your employer pays either causes lower wages, higher prices, or both. And if the money that they contribute is taxed at a higher rate than the employee pays, then THE GOVERNMENT is the beneficiary, as they collect more than they would without.
As long as that money came out before taxes, and the employee has TOTAL CONTROL of it (e.g. they can put it into physical gold that they control, foreign real estate, etc.), then I only have a quibble that it's not entirely voluntary.
But I have a feeling you don't have that sort of control over it.
OASI stands for Old Age and Survivors INSURANCE.
We need to treat SS as insurance. From what you say, you deserve the insurance.
Others (including me) don't need the insurance.
Exactly where you draw the line between those that need the insurance and those that don't is a tricky question. But it is one that needs to be asked and answered.
If SS was "means tested" now (and in the future) it would mean that the amount that someone who was 30 today had to contribute would be much less.
I have no problem with you getting what you signed up for. But there is not enough to go around, so something has to change.
The very worst mistake the country could make would be to "stick it" to everyone under 50. The boomers know that. They don't expect to be the next "Great Generation", but they don't want to the "Worst Generation" either.
There is a real risk that history will call it the Worst.
And yes, I'm a boomer. It's one of the reasons I write.
WTF!?!?!
Here's some change for you: Just give people back what we took from them, and end the whole damned thing!
What has to change is the fantasy that STATE SOCIALISM, IN ANY ASPECT, IS SOMEHOW WORKABLE.
Or the fantasy that it's "insurance." Call it what they will, it will always be theft, and thus always be immoral and unconscionable.
Somehow the illogical idea of using evil means to accomplish good ends never occurs to them, as it is "heartless" to think about it.
Yet it's that brainless aspect that creates the very social problem that needs addressing.
Here's some appropriate grafitti for Bruce
http://farm4.staticflickr.com/3480/4061607691_cf3a9c5587_z.jpg
It is not my kids problem to furnish you with the lifestyle you feel that you deserve. Im sorry that you did not adequately plan and prepare, but you need to realize that a very large number of those behind you feel very little repsonsibility to maintain you in the style you feel you deserve. If you cant afford life that is the responsibility of your own children, not mine. Trying to pass off your lifelong bar tab on a bunch of kids is reprehensible- when you were young those ahead of you did not demand such a large volume of your blood to maintain their existences.
The government didnt provide me with services I didnt want to pay for, it provided "services" I never wanted in the first place- the ones I need are functions of the state not the central government and I fundamentally disagree that many of them are within the powers of the federal government in the first place.
I can explain your junks.
Success has many fathers, but failure is an orphan.
The US state is a failure.
For my part, I have some responsibility in this mess, as it wasn't until ~10-12 years ago that I woke up, and 5-6 years ago that I got active in trying to change things.
But just TRY and saddle me with the bill. Because I ain't payin'.
It doesnt bother me a bit, a large portion of the US has degenerated to the point that they are completely dependent on someone else to care for them. We have a vast swathe of the population who live in large urban areas that do and produce absolutely NOTHING of value- were I one of them I wouldnt like it either.
Between the lefties here and some of the flat out internet conspiracy types that never cracked a board in their lives junks on this board are often a badge of honor. I dont like them either, we will see who is left standing in a decade and how much money they actually get by the time things play out.
eugene12
I agree,theft on their part should not cause you or I to have to go on an austerity program.
Piss poor planning, and illegal spending of funds NEVER meant for what they use them for, should not cause me any inconvenience.
If it does maybe its time for some new rope.You try living on $1200-$2000 a month, with ZERO help from families.(fortunately I am not in that category, because of other savings)...................but stealing my money, whether I MUST have it of not is not acceptable to me.
If THEY (FEDS) had left the funds alone, this would be a moot discussion.You expect tens of millions to suffer because of government corruption and theft of OUR monies?.
Screw you,you political scumbags.
yet people still want government to do more and more.
It's little but "agenda." It's predominantly self-righteous "financially secure" deadbeats with attitude: They don't wanna pay those damn debts!
It could really change their game.
Other debt should always be paid.
But not those "Special Issue Securities"/Treasurys held by the Social Security Trust Fund.
Oh, no, everything about debt--and paying it--changes when those are the debt in question.
Talk about entitlement mentality.
I'm a boomer. These guys are boomers. We had the best start to life of any generation, ever. Now is the time for us to figure out what we are going to do now, to prepare for our declining years. They are not counting on SS as their solution. Neither should I.
Newsboy, you appear to be one of those reasonable boomers who understands properity does not rain from the sky. It is earned. Please talk sense into your cohort.
Give me all the money I paid into the SS system plus interest, lump sum, and I'm more than happy to walk away. But the asshats that insist that this is an "entitlement" are so full of it that there eyes are permanently brown. If I paid all that money into an 401k, you're then going to tell me the 401k is an "entitlement" program. Sweet Jesus, get real.
It seems a quibble, but the "entitlement" label was never intended to be directed at the person, but rather describes the spending function as part of the federal budget. Unlike most spending, SS and a few other programs are mandatory in that if Congress never met again, the funds would be authorized to be spent in perpetuity. Everything else - most of DoD, the FBI, road building and even the operation of the Congress and Executive itself, etc. - would stop once that year's appropriation ran out. They all expire at the end of the fiscal year. After that, a new spending bill must be passed.
The mandatory programs are on auto-pilot until they are changed. Thus, anyone who qualifies for the programs under the terms already in law is entitled to the program's benefit. It has nothing to do with having paid in.
Lazy journalism and a populace that is too busy to care have allowed the usage to be corrupted so that we think that we've done something to entitle us, as individuals.
connda,
If I paid all that money into an 401k, you're then going to tell me the 401k is an "entitlement" program. Sweet Jesus, get real.
Again, use some common sense, your comparison is idiotic.
Your investing into a 401k,is YOUR choice.......................SS is NOT voluntary.
You can choose not to participate, or go in as much as they will let you.You get to control where you want YOUR funds(out of your checks) to be placed.
Now Einstein, tell us how that in anyway is comparable to the SS System?.
It IS an entitlement system, because it is OUR money(just like the 401k), we expect a ROI(or at least a return of our investments,involuntary as they are) , don't you?.
All of us (human critters) tend to congregate with those of like mind. The boomers have become dulled by years of comfort and diversion, but not all of us, just as not all of the young are couch potatoes with iPads.
Prosperity comes from holes in the ground, not the sky. The effect is similar. This period of history is an abberation, which is preparing to come to an end...
That is a very hard point to make to anybody who is not mentally prepared to negotiate with such a relatively harsh adjustment (90%? More?).
Newsboy,
The boomers have become dulled by years of comfort and diversion
Oh really, working for 30-40 yrs for that SS, is called being dulled by comfort and diversion.
WE did not set up the system, we were just required to participate, or else.
Your idea of comfort and diversion are a tad different than mine..................Screw SS, just write ne a check for what was forcibly taken from my labors.We call it even, they do not even pay interest.Hell of a deal, huh?
I would even take the hit and kiss it goodbye to put a halt to it to keep those coming up behind me from being screwed even harder then they are gonna be.
The idea that "I got ripped off, so everyone younger then me should agree to be ripped off too" is entirely destructive.
Even if we got the $ back from clawbacks from the TBTF, billion dollar banker bonuses, etc.?
Would that actually enough to fix the problem?
Maybe not, but it's a start.
I'm all for clawing back the funds that were garnered from fraud, and if it can be used to help make whole those who got ripped off by SS, all the better.
Inflation is the only way to get it back, and we all know how well that is going to work.
I'll buy that for a dollar!
I don't believe Obama is considered a boomer is he? 1961? Wasn't boom already over?
Bummer not Boomer
Tail end - seems the census bureau counts up until 1964 as boomers.
Baby Boom 1946-1964 (US)
http://geography.about.com/od/populationgeography/a/babyboom.htm