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CBO - The Coming Raid on Social Security

Bruce Krasting's picture




 

 

Every politician in America knows that Social Security (SS) is a third rail. Any Pol who tries to mess with the country's largest and most popular entitlement program is going to have the likes of the AARP coming after them. It's not possible to win an election on a platform that advocates cutting back SS.

With that in mind, I find it interesting to report that a very credible source is now predicting that Obama AND Congress will take action over the next 24 months that will substantially undermine both the long and short-term health of SS. The legislative raid on SS will certainly total in the hundreds of billions, it could top $1T over the next fifteen years.

So who is this "credible source"? And just how is this raid going to happen? The source of this information is the Congressional Budget Office (CBO); the following is how it will play out:

 

SS consists of two different pieces. The Old Age and Survivors Insurance (OASI) and Disability Insurance (DI). Both entities have their own Trust Funds (TF). OASI has a big TF that will, in theory, allow for SS retirement benefits to be paid for another 15+ years. On the other hand, the DI fund will run completely dry during the 1stQ of 2016. By current law, the DI benefits must be cut across-the-board by 30% on the day that the DI TF is exhausted.

This would mean that 11 million people (most of whom are very sick) would get slammed from one day to the next. There is no one in D.C. who wants this to happen. I don't think the American public wants this outcome either. So what are the fixes?

 

1) Increase income taxes on +$250k of income to pay for the DI shortfall. Maybe, but this will not happen with the current Republican controlled House.

2) Increase Payroll taxes to cover the DI shortfall. I see zero political support for a permanent Payroll tax increase.

3) Cut benefits by 30%. This would be insane - it will not happen with Obama running the show.

4) Kick the can down the road and raid the OASI TF for the annual shortfalls at DI.

 

Of course #4 is the path that will be taken. #s 1, 2 and 3 are not politically feasible. I have been wondering what will happen with the DI conundrum. I was surprised to see that the CBO spelled out what will happen in its report on the Budget and Economy - SS Trust Funds. The report has this footnote:

 

CBO projects that the DI trust fund will be exhausted during fiscal year 2016. Under current law, the Commissioner of Social Security may not pay benefits in excess of the available balances in a trust fund, borrow money for a trust fund, or transfer money from one trust fund to another. However, following rules in the Deficit Control Act of 1985 (section 257(b)), CBO's baseline assumes that the Commissioner will pay DI benefits in full even after the trust fund is exhausted.

 
 
 

The "loophole" to drain the OASI insurance is already law - so Congress doesn't have to do anything to raid the retirement fund. The "do nothing" plan is always the best option in D.C.

 

The footnote goes on to provide an estimate for the size of the raid:

 

For illustrative purposes, below are the cumulative shortfalls in the DI trust fund beginning in 2016. Those shortfalls do not include interest expenses.

 

DI Trust Fund Cumulative Shortfall

($s in Billions)

2016 -15

2017 -55

2018 -94

2019 -133

2020 -173

2021 -215

2022 -260

2023 -307

 

Wow! At this rate the raid tops $1T in 2029. This is is a big dent in a Trust Fund of $2.8T.

 

There is an import "tell" from the CBO. In the footnotes it highlights the fact that there is a discrepancy, and uses this an excuse to avoid establishing an adjusted end date for the OASI Trust Fund. (It's not a complicated calculation)

What CBO fails to state is that the raid on OASI will result in a significant reduction in the End Date for the retirement Fund. In its report to Congress last year SS forecast that the Retirement fund would be exhausted in 2033. The DI drain (and other negative revisions by CBO) will bring the End Date to below 2030 in the upcoming SS report to Congress. That would be a very significant development. CBO does not want to be the one who puts a new date "out there". To me, this was a cop-out by the CBO.

 

Given that discrepancy between the trust funds' operation and the baseline's assumption, CBO is not providing DI or combined trust fund totals for the year of exhaustion and thereafter.

 

The timing of this story is interesting. The question in my mind is will the "fix" come before or after the bi-election. If Obama was a gambler, and he believed the Democrats could re-take the House in 2014, then he might defer action on DI until 2015. This scenario creates the opportunity for option #1, a tax on the rich to supplement DI. Of course that is gambling, and there would be a very small window of time to push through a new income tax to save DI.

Then there is the Republicans. Do they want to push this before, or after 11/2014? I could argue both ways, but in the end, it gets back to the fact that no one wants to "do" anything with SS. It's better to do "nothing"; that makes #4 the most likely outcome.

 

I hope that some of the big Defenders of SS pick up on the information from the CBO regarding the coming raid on the retirement fund. This is a huge constituency (60m beneficiaries - 150m contributors - every politician in the country - all of the Press). If that group catches on to what is about to happen to the retirement fund, there will be a great chorus of, "Don't you dare touch my money!"

 

I'm trying to stir the pot on this one. I want DI's terminal condition to come onto the table sooner versus later. I'm hoping that if and when it does come up for discussion, it opens the door on the broader issue of what the hell America is doing with entitlements. Basically, I'm trying to pick a big fight. For the good of the country, wish me luck.

 

animals-fighting-4

 

 

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Mon, 02/11/2013 - 16:06 | 3234435 Diamond Jim
Diamond Jim's picture

hey come on guys...there are already some valuable IOUs sitting in the SS Trust fund...put there by Prez Clinton in the 90s. surely these are worth something (atleast a six pack of toilet paper), so what's a few more IOUs. Where is your faith in government ????

Mon, 02/11/2013 - 11:53 | 3233410 Weisbrot
Weisbrot's picture

remove the cap from the Social Security Tax -

those folks and business that can best afford to pay it, will -

problem solved -

 


Mon, 02/11/2013 - 11:53 | 3233409 Weisbrot
Weisbrot's picture

remove the cap from the Social Security Tax -

those folks and business that can best afford to pay it, will -

problem solved -

 


Mon, 02/11/2013 - 14:40 | 3234062 Bob Sacamano
Bob Sacamano's picture

Ah yes, welfare for the elderly -- we need more welfare state.   Ugh.

Please do not expect the government (aka "other people") to take care of you.  It is so irresponsible.

Mon, 02/11/2013 - 11:12 | 3233206 Solonsays
Solonsays's picture

The exorbitant healthcare costs paid out for rehabilitation are depleting the DI Trust Fund not the benefit payout itself.  The public would be better served if authors quit picking on Medicare/Medicaid and DI and turn the ire on the price gouging  healthcare system supported by government itself.  As for SS, the government spends all the money it borrows regardless of the source.  If we allow money the borrowed from the SS Trust Fund to be treated as a 2nd class creditor then we abet the setup to raid these funds.  Any administration can convert SS IOUs to cash by simply giving them to the Federal Reserve as collateral since they are already calculated as part of the debt ceiling. These IOUs would probably be the highest rated securities on the Fed balance sheet.

Mon, 02/11/2013 - 12:22 | 3233561 Orly
Orly's picture

As long as mega-insurance corporations can set prices for medical care with mega-hospital corporations behind closed doors, this will spiral up and up and up, Solon.  Start with making all medical care prices known to the patient.  Get this scam out into the light and they just die of shame.

Get rid of the fraud between the insurance companies and care providers and you'd be surprised how quickly ALL this stuff gets cleaned up;  Medicare, Medicaid, DI, SSI, all of it.

Thanks for bringing that up.

:D

Mon, 02/11/2013 - 11:51 | 3233396 Weisbrot
Weisbrot's picture

remove the cap from the Social Security Tax - problem solved

Mon, 02/11/2013 - 09:57 | 3232831 working class dog
working class dog's picture

The author forgets, their is NO MONEY IN ANY ACCOUNT ANYWHERE THAT HOLDS THE SO CALLED TRUST MONEY FOR OASI AND DI. THESE ACCOUNTS ARE FICTIONAL AND HAVE ALWAYS BEEN FICTIONAL AND THE FED WILL SIMPLY LEND THE TREASURY ALL THEY WANT TO MAKE IT WHOLE, JUST LIKE THEY BAILED OUT THE BANKSTERS. NO PROBLEM!!!  SO dont worry be happy.

Mon, 02/11/2013 - 10:41 | 3233058 DOT
DOT's picture

Just another example of "fiat". The value of the Special Treasuries is agreed upon and accepted by BOTH parties to the transaction. The Government and the Government. Public agreement is not required.

 

Mon, 02/11/2013 - 09:21 | 3232735 goldenbuddha454
goldenbuddha454's picture

Bruce Krasting is a real investigative journalist.  Most journalists would have passed on this one on as its quite uncomfortable for the citizens to realize finally that the ponzi-scheme, that is social security, is quickly coming to an end without more and more new money being pumped in via tax increases.

Mon, 02/11/2013 - 09:10 | 3232700 nofluer
nofluer's picture

Someone may have already commented on this - but I don't have time to read all the comments before posting and getting to work.

The words "trust fund" do not apply to SS or to the disability program. LBJ eliminated the "trust fund" and rolled the "funds" into the general treasury account - and proceeded to spend the money on his Great Society and on Vietnam. Then EVERY president since (yes - even Clintoon) spent the FICA tax collections as they came in... no.... wait. Spent them BEFORE they came in (via deficit spending). I believe that $17 Tn debt we have is probably NET of the "SS trust fund" since the vast majority of the US debt is in the form of "contingent liabilities", NOT actual debt.

(I believe actual debt is running somewhere below $20 TN at the moment - all of which will be eliminated as soon as the govt confiscates the 401Ks and IRAs - which a la Kirchner and Hungary they WILL do one way or another. - via actual overt confiscation or via hyper-inflation.)

So - there IS NO TRUST FUND. Thus the government cannot RAID what does not exist. Thus there is no boogerman who's gonna steal your SS - IT'S ALREADY GONE!!!

Or to quote an eminent authority on modern finance, "Annnd.... it's gone."

 

Mon, 02/11/2013 - 08:46 | 3232660 redd_green
redd_green's picture

Re "4) Kick the can down the road and raid the OASI TF for the annual shortfalls at DI."  Dude, read your history. There IS NO OASI trust fund. It HAS been raided, the real money stolen and bonds put in its place.   The entire 2.3 trillion is gone. 

Mon, 02/11/2013 - 08:43 | 3232653 goldenbuddha454
goldenbuddha454's picture

Incrementalism:  First they came after "Millionaires and Billionaires".  Then they came after those making $400,000 for capital gains increases in the fiscal cliff deal.  Now they're coming after those making $250,000 for the DI shortfalls.  Pretty soon well be down to the family of 4 making $100k or more.  Don't ya just love that govt. you elected!

Mon, 02/11/2013 - 08:11 | 3232588 redd_green
redd_green's picture

COMING raid?  Dude, what planet have you lived on for the past 30 years. It was the Reagan administration that first started 'raiding' the SS fund, which is why there is no 'fund'.   All the SS money went into the treasury general fund, where Congress stole it and blew it on military shit, and put useles bonds in its place.   Go back and read some ancient history.

Mon, 02/11/2013 - 09:28 | 3232747 nofluer
nofluer's picture

Dude - I know - on your birthday you like to whack the paper mache Reagan head with the stick... but HE didn't start the raid - it was LBJ.

Mon, 02/11/2013 - 08:48 | 3232665 redd_green
redd_green's picture

Sorry to bust your bubble kiddies, but there is no SS trust fund.    Looks like some of you out there believed the junk in this article. 

Mon, 02/11/2013 - 03:17 | 3232410 jack stephan
jack stephan's picture

Ramon: [quoting his father] "When are you going to stop writing on the walls and make some money, when are you going to stop tagging the subway cars, when are you going to make your son legitimate... legitimate shit."

Where's the graffiti word of the day bk? By the way you guys on here are champs to learn from.

Oh, and bitchez.

Mon, 02/11/2013 - 02:28 | 3232388 devo
devo's picture

Good luck, and tell the Koch Brothers I said hi.

Mon, 02/11/2013 - 01:00 | 3232295 cornflakesdisease
cornflakesdisease's picture

Means testing people  . . . . they will simply go to means testing.

Mon, 02/11/2013 - 09:33 | 3232756 nofluer
nofluer's picture

Nope. The new paradigm will not be means testing. It will be soup kitchens, flop houses, and the morning patrol picking up those in thge streets and alleys who didn't make it through the night... which the workers on the patrol will be glad of because it will mean that THEY have a job.

Or the alternative to that is the early days of the USSR since the Global New Soviet is currently forming up...

Mon, 02/11/2013 - 01:00 | 3232294 cornflakesdisease
cornflakesdisease's picture

Means testing people  . . . . they will simply go to means testing.

Sun, 02/10/2013 - 23:00 | 3232050 andrewp111
andrewp111's picture

Obama IS gambling on a retake of the House in the midterms. He and the MSM are already setting up the narrative, his groups are already getting the funds in place, and the machine is cranking up for an epic and unprecedented fight by a President to retake the House in a 6th year midterm. Keep in mind that under Citizens United, corporations can spend unlimited dollars in independent expenditures to win elections. Hordes of earmark hungry corporations want Pelosi back in the saddle again. My bet is that Obama will be successful.

 

When Pelosi becomes Speaker again, what is done with SS finances will be the very least of our worries.

Mon, 02/11/2013 - 08:25 | 3232613 JamesBond
JamesBond's picture

retake the house?   from whom?  who in the hosue has stood in obama's way?!?

 

jb

Sun, 02/10/2013 - 22:56 | 3232042 a growing concern
a growing concern's picture

Bruce, maybe you should just sit back for a while and stop worrying about the minutiae of SS.  Everyone knows its fucked in the next 10-20 years, but there's a good chance it won't matter on an even shorter time period.

Sun, 02/10/2013 - 22:16 | 3231945 goldenbuddha454
goldenbuddha454's picture

If you guys would have elected ALGORE  Social Security would have been put in a lockbox which would have had an encrypted key only he could have opened via his internet creation.

Mon, 02/11/2013 - 08:37 | 3232635 goldenbuddha454
goldenbuddha454's picture

And there wouldn't have been any global warming like what just happened in the northeast!

Mon, 02/11/2013 - 00:05 | 3232212 OpenThePodBayDoorHAL
OpenThePodBayDoorHAL's picture

Fucking too right. At least Gore would have avoided a couple of trillion dollar MidEast wars. We could have funded ScoSec with that money.

Sun, 02/10/2013 - 23:58 | 3232190 cynicalskeptic
cynicalskeptic's picture

Bush wanted to privatize it to keep the financial markets markets inflated - for just a little bit longer....... the Ponzi scheme was running out of new money 

How happy would you be if your retirement funds were all tied up in Mortgage backed securities or.......

 

it's still going to happen - though not with Social Security funds        just wait - 'cause you're not going to have a choice.  Your 401K is going to be 'invested' for your 'safety' in T-Bills (after all somebody besides the Fed has to buy them)

Sun, 02/10/2013 - 21:36 | 3231849 egoist
egoist's picture
Sun, 02/10/2013 - 22:10 | 3231931 H E D G E H O G
H E D G E H O G's picture

"most popular entitlement program" Always like your take on things Bruce, but I have to take exception to this statement AGAIN about this being an entitlement. THE ONLY FUCKING ENTITLEMENT WAS WHEN THE FUCKING GOVERNMENT THOUGHT THEY WERE ENTITLED IN TAKING $50-65 DOLLARS OUT OF MY FUCKING PAYCHECK EVERY FUCKING WEEK FOR 33 YEARS! 1716 WEEKS, JUST GIVE ME MY FUCKING MONEY BACK AND WE'LL CALL IT EVEN DAMMIT! 

Sun, 02/10/2013 - 21:31 | 3231836 trillion_dollar...
trillion_dollar_deficit's picture

This article is incorrect. SS has already been raided. Obama did it in 2011-12 with the payroll tax holiday. Helped pump about 1%/yr back into the economy in the run up to his re-election. 

Sun, 02/10/2013 - 23:15 | 3232090 Dr. No
Dr. No's picture

No; there were transfer payments from the general fund to cover the holiday.  Bruce covered this.

Mon, 02/11/2013 - 08:54 | 3232673 dunce
dunce's picture

The general fund runs trillion dollar deficits so it has no money, so they must have borrowed money to put the IOUs in that lock box. I could be wrong, i often am. Putting the fun in fungibilty.

Sun, 02/10/2013 - 21:18 | 3231800 Lokking4AnEdge
Lokking4AnEdge's picture

When the calculations of how much SS deductions should be there were many more people in the work force. Now that the formula has changed it must be that the rediculously low limit for SS payments should be raised substantially.

Couple that with cutting the fraud in collecting DI benefits and you got the problem solved.

Republicans better learn to give up on raising some taxes or they will lose all the votes.

Sun, 02/10/2013 - 20:17 | 3231676 gwar5
gwar5's picture

Good get Bruce. SS is being raided daily by inflation recalculations to cheat COLAs and will leave the elderly to eat dog food.

 

Sun, 02/10/2013 - 19:58 | 3231617 DarthVaderMentor
DarthVaderMentor's picture

There is a fifth option.

 

Raid the nation's 401(k)'s and IRA's and fund the DI TF with these funds. They can also charge SS payroll taxes on 401(k) and IRA gains, as well as Roth gains. 

 

They've already started issuing reports on how terrible the sheeple are as investors. Converting the 401(k)'s and IRA's to annuities with the cost of DI and even OASDI built into the formula would be the most politically acceptable way for the average American to accept this. One good equity market scare and the people will be ready for the government to take over their accounts.

Mon, 02/11/2013 - 02:23 | 3232385 ghostfaceinvestah
ghostfaceinvestah's picture

Exactly.  Raiding 401(k)'s and IRA's is the route that will be taken.

Sun, 02/10/2013 - 20:56 | 3231754 Orly
Orly's picture

"One good equity market scare and the people will be ready for the government to take over their accounts."

Just like saying they'll take our guns...I pray they try it.  It will be the end of it all for them, believe.

Sun, 02/10/2013 - 23:15 | 3232091 brettd
brettd's picture

Who's target #1?

Sun, 02/10/2013 - 23:05 | 3232068 andrewp111
andrewp111's picture

Don't laugh. They almost did this in 2009, but Rep. Miller's  (D-CA) bill to confiscate all 401K accounts under Eminent Domain and to give the former owners a SS benefit based on the July 2008 value would have passed if Bernanke had not reflated the stock market. You can thank QE1 and Bernanke's "green shoots" for tabling this bill.

If there is another crash, you can bet your bottom dollar that a scheme like this will come back.

Sun, 02/10/2013 - 19:57 | 3231615 ebworthen
ebworthen's picture

Yet more evidence that the U.S.S.A. is a Ponzi scheme; of the bankers, by the bankers, for the bankers.

The bankers lackey politicians get seconds.

Citizens who pay the taxes get crumbs.

PONZI!

Sun, 02/10/2013 - 19:45 | 3231586 Waterfallsparkles
Waterfallsparkles's picture

Everyone keeps talking about "Entitlements", yet no one is talking about Welfare, Section 9 housing, food stamps, welfare for dependent children. 

I have to differenciate between Social Security which is a contributory benefit and Welfare which is a non contributory benefit.

Why is no one working on Welfare reform?  After all, most of the Beneficiarys never paid a dime into the system for their benefits.

Mon, 02/11/2013 - 10:27 | 3232967 DOT
DOT's picture

A tax is a tax. Money the government TAKES from you is called TAX!!!!!!

Now that SCOTUS has "liked" the ACA, fines and penalties are now recognized as taxes.

There is no such governmental function that asks for "contributions"; pay or go to jail.

Any questions?

Mon, 02/11/2013 - 09:08 | 3232696 dunce
dunce's picture

My brother died of cancer leaving three children behind in about 1980. Shortly after that i looked into their survivors benefits and found that the law had changed from providing benefits as long as they were in school through college to ending upon graduation from high school. There were no protests because orphans do not vote and the surviving parent has a big job trying to raise children by them self. I never heard a word about "it is for the children". The kids were so screwed up that none wanted to go to college though they were all capable of college level work so it did not matter in their case.

Sun, 02/10/2013 - 23:23 | 3232107 masterinchancery
masterinchancery's picture

"most of whom are very sick"???--Anyone who has worked in this area knows that the DI fund is being depleted by millions of fraudulent, or largely fraudulent  claims, as the unemployment insurance runs out. Some of the ALJs have never rejected a claim. Yes, I want to dump them off the rolls.

Mon, 02/11/2013 - 09:26 | 3232740 Gordon Freeman
Gordon Freeman's picture

@master

Thank you for finally stating that!  I can't beiieve it took this far into this idiotic thread to come out with it--DI is a scandal of almost incomprehensible proportions.  I see these people every fucking day, and believe me, the VAST MAJORITY are NOT "disabled"...

Sun, 02/10/2013 - 23:17 | 3232098 brettd
brettd's picture

Or the "bio"fueled ships in the Navy sailing at 30.00/gal!

 

Sun, 02/10/2013 - 19:47 | 3231582 Omen IV
Omen IV's picture

So Bruce  10,000 boomers reach 65  "each day" for the next ten years

by the 2016 election you have 12 million voters - substantially white - who past GO and more on the threshold who are likely to have one principle issue

the banksters destroyed their equity in the housing stock and they havent had much yield in the past 5 years from bonds - the stock market worked but by 2016 who knows -

with obama gone - the black guy - the rascist republican vote that dominated the solid south and midwest  - no longer has a reason to get excited - so what is their issue?

liberty - democracy - freedom or...........money and medical?      i say that "survival" trumps philosophy!

most of these people dont have a million dollars stashed away and even if they do it would yield at best - $30,000 +/-  per million  - decent retirement lifestyle starts at $75,000 - they need every dollar they can get  - so now that the 2012 propaganda scam wasnt successful - what will they do on ANY election: President, Senate or House - if someone threatens them?

my bet is the wage level goes to $500,000 for FICA

 

 

 

 

Sun, 02/10/2013 - 23:25 | 3232112 masterinchancery
masterinchancery's picture

Which will merely destroy more jobs, and raise little revenue.  Don't you guys ever learn?

Sun, 02/10/2013 - 23:23 | 3232106 brettd
brettd's picture

Many parent's goal is to make the lives of their children better than their own.  

At 20K/year for college, and no employment after that education, how does this happen?

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