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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 - 00:12 | 3232221 cynicalskeptic
cynicalskeptic's picture

In a world of limited resources it's IMPOSSIBLE for every child to have a better life than their parents.

The US managed this for 30 years after WWII based on real economic accomplishment - in part die to a lack of competition from a ruined Europe.  But the US standard of living for the last 40 years has been financed via an economic Ponzi scheme financed by debt.   Truth is that the US can't afford to provide even the 'safety' net we're providing now in the form of welfare, food stamps, Medicare, unemployment and all else.   The basic problem is that too many jobs have been offshored (or cheap labor brought in) so you have a huge number of pople living off the government.  What happens when the US can't continue to issue more debt to pay for all of this?  Are we going to force others to buy US debt at the muzzle of a gun?  

The rest of the world is getting fed up with a non-productive US having a better standard of living than those actuially doing the producing.  But there is no way there are enough resources on the planet for a significant part of the world's population to have anything remotely comparable to the average lifestyle lived by Americans.  

Sun, 02/10/2013 - 21:20 | 3231808 sun tzu
sun tzu's picture

the rayciss republican voters in the south didn't vote for the "black" bill clinton or john kerry either. shove it up your race pimp ass. it's funny how you left wing retards think that raising taxes will solve all budget problems. what's going on with clownifornia and illinois?

Sun, 02/10/2013 - 21:58 | 3231895 Omen IV
Omen IV's picture

George Carlin described the Republican base best:

“Think of how stupid the average person is, and realize half of them are stupider than that.”

 "the "rayciss" republican voters in the south ".......its spelled rascist Ace !

after their core as rascists -  they are reliable whores - they will vote their pockebook  - no doubt!

 

Mon, 02/11/2013 - 01:47 | 3232348 phyuckyiu
phyuckyiu's picture

Hi Omen, DASSS RAYCISSSS is a well known saying, mocking how easily discomforting truths are rationalized away by the ignorant. You need to get out more.

Mon, 02/11/2013 - 10:17 | 3232915 DOT
DOT's picture

True dat.

Sun, 02/10/2013 - 19:15 | 3231494 Whiner
Whiner's picture

DI claims are hugely bogus, especially in areas like Chicago, and Democratz cities. It will grow like student loans and together w pensions and the rest will accelerate. Even if you buy a disability policy, it provides that benefits will be reduced by your DI entitlements and there are scores of lawyers computerized to pull on these "federal benefits". As u know Obammy makes you eligible fo DI without medical opinion if u r depressed or have back pain.

Sun, 02/10/2013 - 19:43 | 3231570 ISEEIT
ISEEIT's picture

It's complete bullshit. I personally know several people collecting SSDI who are perfectly capable of work. It's just not the sort of work they would prefer to do. SSDI is a fraud just as is the majority of the welfare state at this point. The demoncrats encourage it both to purchase (with stolen funds) votes today and with the full intention of crashing the entire system over the long run.

This show isn't going on much longer anyway. When Bruce mentions 2016 I want to laugh. The US dollar will in all likelihood not even be the global reserve currency at that point and our 'system' will have already collapsed. I do understand that I might be off by a few years either way, however the inevitability of massive and adverse change is locked in by design courtesy of the political whores who own us.

Sun, 02/10/2013 - 18:54 | 3231446 The Econ Ideal
The Econ Ideal's picture

Many of us out here want to OPT OUT of the socialist SS system entirely. Speaking for myself, I'm willing to do that now even though I've paid into the system for years. The probability of an OPT OUT happening: next to 0. This system was always designed as a socialist Ponzi scheme, and with SSDI rolls increasing to buy votes over the last couple years, there is no wonder this segment has accelerating shortfalls. 

Sun, 02/10/2013 - 22:28 | 3231973 Vendetta
Vendetta's picture

the irony of it all is the bankers easy credit games in the 20's demolished the economy leading to the depression of the 30's and SS was created to keep those caught being old and broke by joblessness from dying from starvation and destitution.

Sun, 02/10/2013 - 23:24 | 3232111 brettd
brettd's picture

The bankers can write off their losses....

Can you write off you underwater mortgage?

 

Sun, 02/10/2013 - 18:48 | 3231429 pauhana
pauhana's picture

Soylent Green.

Sun, 02/10/2013 - 18:43 | 3231416 geno-econ
geno-econ's picture

DEFENDERS OF SOCIAL SECURITY ? BK, please send a copy of provocative article to head of AARP marked " URGENT " in order to get his attention. The entire AARP organization is more preoccupied with marketing to Seniors than protecting their interests---everything from pushing health and other types of insurance, annuities, reverse mortgages, walk-in bathtubs,wheelchairs to advertising for erectile dysfunction and sex enhancement toys. The AARP newsletter is filled with this crap for which they earn advertising revenues and in many cases fat commissions. You would think AARP would be the first to report on SS matters. Perhaps they should hire BK and fire their battery of useless lobbyists.

Sun, 02/10/2013 - 18:10 | 3231337 piceridu
piceridu's picture

Bruce, again I want to thank you for your posts here at ZH...I may not agree with you at times, but I always appreciate your ongoing effort to bring important issues and ideas out of the shadows.

Thank you.

Sun, 02/10/2013 - 19:58 | 3231618 ebworthen
ebworthen's picture

Ditto.

Sun, 02/10/2013 - 18:05 | 3231323 GeezerGeek
GeezerGeek's picture

Someone - preferably, Bruce - please explain the sentence "If Obama was a gambler, and he believed the Democrats could re-take the House in 2015, then he might defer action on DI until 2016."

The elections for the House and 1/3 of the Senate occur, in theory at least, in November of 2014. The Democrats could, conceivably, control the House it January of 2015. Why would Obama and the rest of those bums want to defer action until 2016, which would be another election year, including (again, theoretically) a presidential election. Maybe he can simply put Lady Clinton in charge of ending DI. When the money runs out she can claim a temporary memory lapse (she's done it often enough in the past) and dismiss it with "What difference does it make?". 

Sun, 02/10/2013 - 19:10 | 3231479 Bruce Krasting
Bruce Krasting's picture

I will provide a perfectly clear explanation. I fucked up.

 

Somehow, in my fading mind, I got the idea the bi-election was in 2015. From there the before and after stuff got muddled up.

 

So I fixed the dates. Elections are in 2014, not 15, silly me.  Read it again. I think it makes sense now?

Sun, 02/10/2013 - 19:27 | 3231521 Orly
Orly's picture

I thought it would be Yelena's fault?

Ha!  Nice of you to clear that up, though.

:D

Sun, 02/10/2013 - 19:40 | 3231557 Bruce Krasting
Bruce Krasting's picture

Yelena? Possibly you mean my last editor, Valentina? She was from Latvia, didn't speak much English and knew nothing of finance, but she had many other admirable qualities.

 

Anyway, she left a few months ago. She was on some online chat room thing and fell in love with some looser from West Hollywood. Left on a Greyhound. Go figure.

 

So I have no excuses, and I'm looking for another editor. English as a first language not required....

Sun, 02/10/2013 - 19:55 | 3231609 Orly
Orly's picture

Brno.

Trust me.

:D

Sun, 02/10/2013 - 18:02 | 3231316 Lizardwoman
Lizardwoman's picture

First, clean up the DI rolls- weed out scammers and malingerers as has been suggested.

Then, go after able-bodied WIDOWS under retirement age. A divorcee has to get off her butt and work, but somehow if a woman is a widow, even if she is only 30 or 40 years old she is entitled to collect benefits. Go after these SACRED COWS and put them to work.

Charge a SS tax on all income, not just to $112K.

Sun, 02/10/2013 - 23:32 | 3232138 brettd
brettd's picture

wow...u r cruel!/sarc...

Sun, 02/10/2013 - 19:37 | 3231549 Go Tribe
Go Tribe's picture

Send the new IRS Army to the homes of the disabled to confirm injury. Or better yet, simply send the drones overhead.

Sun, 02/10/2013 - 19:05 | 3231469 DosZap
DosZap's picture

but somehow if a woman is a widow, even if she is only 30 or 40 years old she is entitled to collect benefits.

Yes and she is getting her husbands benefits,he paid for.

So what's the beef?, she can recieve bennies,and work at the same time.

Besides most widows in the 30-40yr old brkts will 90% of the time remarry and lose them anyway.

The REAL devil is in WELFARE recips.

This system is INSANE.

Example and true(and there are millions like her), 18 children by 8 Daddies, and she gets $700 a mo per head, plus Medicaid.

That is Free healthcare we pay 20k+ for, and $9,700.00 a month to feed/clothe/house them, AND  she cant marry, or she loses ALL dat monee.

OR better yet, DHS NOW  has a website set up for illiegals and Immigrants showing them how to collect Bennies, and SOCIAL SECURITY even though they never paid in one dime.

Where is the corruption?.

Sun, 02/10/2013 - 22:26 | 3231970 Matt
Matt's picture

Welfare benefits are peanuts. I doubt there are millions with 18 children; that is an outlier. There are probably millions in the 4-to-8 children range.

It costs somewhere around $50K to $100K per year to keep someone in prison. Then there are death row inmates and child molesters that cost far more. 

How much money does a retired politician get, and how many years do they need to hold office to get those benefits? When you count municipal, county, State and Federal, how many retired politicians are you paying for?

The corruption is EVERYWHERE.

Sun, 02/10/2013 - 18:39 | 3231401 Matt
Matt's picture

Please explain why a person making $250K should pay full payroll taxes on that income, if they cannot collect comparable benefits upon retirement or if unemployed or disabled.

You know what it is called if you charge someone for a service, but then do not provide it?

Sun, 02/10/2013 - 18:50 | 3231433 DosZap
DosZap's picture

Matt,

Please explain why a person making $250K should pay full payroll taxes on that income, if they cannot collect comparable benefits upon retirement or if unemployed or disabled.

You know what it is called if you charge someone for a service, but then do not provide it?

 

I will tell you why, when those that made 50k, get the same treatment,just like NOW.

Sun, 02/10/2013 - 22:21 | 3231958 Matt
Matt's picture

1) when a person makes $50 K per year, how much do they pay into Social Security?

2) if they become disabled, how much do they receive in benefits?

3) If a person makes $100 K per year, how much do they pay into Social Security?

4) if they become disabled, how much do they receive in benefits?

5) If a person makes $500 K per year, how much do you think they should pay into Social Security?

6) if they become disabled, how much do they receive in benefits?

7) if they become disabled, how much do you believe they should receive in benefits?

Sun, 02/10/2013 - 17:56 | 3231301 Quant Jockey
Quant Jockey's picture

All over but the crying. Death panels in Obamacare will take care of the disabled. Forward!

Sun, 02/10/2013 - 18:08 | 3231334 GeezerGeek
GeezerGeek's picture

Just out of curiousity, which death panels are you talking about. The one's suggested by the thoroughly discredited Sarah Palin or those suggested by the highly acclaimed and widely admired Mr. Krugman?

 

Sun, 02/10/2013 - 18:55 | 3231447 DosZap
DosZap's picture

The one's suggested by the thoroughly discredited Sarah Palin

Discredited, but she was correct,(because there is one) now WHO is discredited??

Sun, 02/10/2013 - 18:45 | 3231422 Colonel
Colonel's picture

The ones in Oregon or in the "Nether"lands. All leftards follow the same script no matter their geographic location.

Sun, 02/10/2013 - 17:51 | 3231290 sangell
sangell's picture

Make anyone with a less than total irreversible disability subject to an annual reevaluation of their 'condition'. Offer rewards for turning in malingerers and fakers. Get the deadbeats off of DI!

Sun, 02/10/2013 - 18:24 | 3231259 New_Meat
New_Meat's picture

"This would mean that 11 million people (most of whom are very sick)..."

Bruce, that statement is now worthy of examination  Here in the snowy wonderland we call the Commonwealth, our Senior Senator won a suit that required direct mailing of voter registration forms (with a postage paid return envelope) to the entire list of "beneficiaries" from our "Department of Transitional Assistance."  Apparently, this was a difficult endeavour, as some ~19,000 of these letters went unreturned.  Hot on the case, the DTA "scrubbed" the list and now the number of unresponsive recipients of monthly directly deposited checks is about 50,000 or about 20% of the subsidized population.  Many have called for the DTA to stop scrubbing their lists.

Similarly, radio and local TV are awash with law firms skilled in arranging certain individuals and the SSDI cash stream to meet.  Evidently, this remains a good business proposition from the lawyers' perspectives. I'm about to ask Trav7777777 to investigate "Peak SSDI" but I fear that event is no where in sight.  Your excellent article, however, gives us some guidance in this area; certainly more definitive than other proposed "peak" events.

I am fortunate to work with a number of excellent colleagues who, through local circumstances, are rabid Red Sox fans.  They assure me that the capability (apparently or as we say locally "anecdotally") to scam the various welfare systems is beyond the ken of even the most cunning New Yawkah.  I have no data to confirm or deny this canard.

- Ned

{I'd bet that you remember New York going BK back when.  I was upstate at the time and we were all cheering for that event.}

{{Do you actually wade through all of this stuff?  Sniffing out nuggets from footnotes?  My hat, sir, is off to you.}}

Sun, 02/10/2013 - 23:37 | 3232153 brettd
brettd's picture

Commonweath of MA...or VA?  

If MA...Va should copy you!

bd

Sun, 02/10/2013 - 21:05 | 3231763 Orly
Orly's picture

NVM.

Not necessary.

:D

Excuse me.

Sun, 02/10/2013 - 17:37 | 3231251 lindaamick
lindaamick's picture

This whole topic may end up being moot. 

Read about the goings on in Mali and North Africa in general via AFRICOM, the US military arm.

Read about the Asia pivot and the US behind the scenes supporting the growing disagreement between China and Japan.

Read about continuing support of chaos in Somalia, Uganda, Yemen, Bahrain and of course Iraq and Afghanistan.

Money, Money, Money

All the money printing by the Fed is REQUIRED to keep the increasing military adventures going. 

The gov is not worried about SS.  Hell, they don't even recall they have constituents anymore.

Sun, 02/10/2013 - 17:38 | 3231242 Banksters
Banksters's picture

Hasn't it already been raided?

 

Social Security IOUs stashed away - Washington Times

 

The retirement nest egg of an entire generation is stashed away in this small town along the Ohio River: $2.5 trillion in IOUs from the federal government, payable to the Social Security Administration.

Lock box my ass.

Social Security combats bullet rumors

http://www.cnn.com/2012/09/04/us/social-security-bullets/index.html

(CNN) -- Praise the Internet and pass the ammunition: the blogosphere is roiling with conspiracy theories over a Social Security Administration shopping list for 174,000 hollow-point bullets.

 

CNN, I wipe my ass with your journalistic integrity.  

 

 

Sun, 02/10/2013 - 18:34 | 3231392 Matt
Matt's picture

Do LEO really target shoot with hollow points on a regular basis?

Sun, 02/10/2013 - 18:52 | 3231438 DosZap
DosZap's picture

Do LEO really target shoot with hollow points on a regular basis?

Nope, but they must shoot enough of their carry round for what to expect and if it willl function 100% of the time.

Sun, 02/10/2013 - 17:33 | 3231234 whoknoz
whoknoz's picture

100 years of the FED and incomr tax and the country is dead broke and living on fantasy $$...don't belive SS (however it is distortd from its original intent) will make the 5 score mark, but if it does, "payments" will buy little or nothing and the surviving population will living a hellava lot differently than we are today...

Sun, 02/10/2013 - 17:33 | 3231233 Lokking4AnEdge
Lokking4AnEdge's picture

There is a huge fraud in the DI system.

Get rid of the fraud and have all income pay into the system and there will be no problem.

We need someone with Kahunas to start to move things in the right direction.....

Sun, 02/10/2013 - 20:42 | 3231730 pashley1411
pashley1411's picture

There is huge fraud in every government system, DI being only one of many.     The government sets up rules and procedures, everyone and their dog figures their way around both, the government plays catch up with more rules and more procedures.   Pretending you can squeeze out "waste-fraud-and-abuse" is in the same league as "we're from the government and here to help". 

Sun, 02/10/2013 - 19:45 | 3231584 RockyRacoon
RockyRacoon's picture

It's Spanish, not Hawaiian:

cajones 
Web definitions
Cojones is a vulgar Spanish word for testicles, denoting courage; it is considered a curse word in Spanish.

Sun, 02/10/2013 - 20:04 | 3231632 ebworthen
ebworthen's picture

Or as my landscaping crew members from Latin America used to say, "Con huevos!" or "with eggs!" or "put your balls into it you!" when lifting something really heavy or wielding the pick-axe to dig a hole.

Sun, 02/10/2013 - 22:11 | 3231932 RockyRacoon
RockyRacoon's picture

Either way... it ain't the Hawaiian "priest, sorcerer, magician, wizard, minister, expert in any profession".

Cajones   Cajónes
Spanish pronunciation: (ka?'xon 'is)
Noun.

1.) NOUN: Slang for "testicles".

2.) NOUN: To "use" them, is to possess strength and bravery.

Sun, 02/10/2013 - 23:06 | 3232069 Orly
Orly's picture

Ever notice when you go to "lyrics," they all have the same errors?  They are copying from each other, so I guess that makes them quintuply incorrect.

:/

Tue, 02/12/2013 - 01:37 | 3235891 RockyRacoon
RockyRacoon's picture

I give up.  You win.

Sun, 02/10/2013 - 23:04 | 3232058 Orly
Orly's picture

 

cajón nm (caja móvil encajada en mueble) drawer n   Abrió el cajón de la cómoda y sacó las llaves. cajón nm (caja grande sin tapa) crate n   AmL ataúd coffin, casket n
Sun, 02/10/2013 - 20:02 | 3231629 Orly
Orly's picture

Cajones means, "drawers," like a chest of drawers.  Must be some gringo usurpation.

The real word is "huevos."  Eggs.

Sun, 02/10/2013 - 17:29 | 3231219 Lokking4AnEdge
Lokking4AnEdge's picture

There is a vry simple solution-Payroll taxes should be deducted on ALL INCOME, not only on the first $112,000 like it is today. Every other country does that.  There is just not enough money to pay benefits when the deductions are levied with a limit.

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