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CBO - The Coming Raid on Social Security
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.
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When my Big Mac combo is $20 there will be a fucking problem.
Maybe, but the medical costs for medicare will go down along with the new and improved slim population.
So I hear some guys talking at lunch last week and they all seem to think that eating bigmc's will make their dicks bigger. I don't think that is what will get bigger. See what education in the USA does for our future...not much.
Bruce, you can't fix a ponzi scheme, in the end they all crash and burn
Baby Boomers and seniors who voted for Hope & Change are going to get a suprise. Nice job retards.
I personally know few who did.
The only ones who will get suprised are the ones who delude themselves. The facts are there for all to see. See the truth, and act accordingly.
Can you get a bit more vague, please? I'm trying to eat.
Thanks.
I agree, Freddy, and obviously didn't vote for Dope and Chains, but what's the use of calling them retards? Their "surprise" will be punishment enough.
After all, what real alternative did the Republicans offer them? First it was Bankster-Friend Keating-Defender John "Amnesty" McCain. Yeah, real thrilling stuff there. And next it was "Massachussetts Mitt, I was against abortion and gay marriage before I was okay with them." There was NO ONE to vote for.
I'm just wondering how many of those boomers and oldsters that voted for President Predator are going to end up on his "indefinite detention in a FEMA camp" list.
Indefinite detention, no. That costs money. But Soylent Green? Maybe. Perhaps portable steamers (imported from China) to convert useless eaters and medicine users to hog slop, which is then pumped into the Hog Farms.
Still believe in the Red/Blue paradigm?
That's actually kinda quaint.
:D
LOL. Those groups already are getting some "surprises". Of course the tards still keep "kicking against the pricks".
Nice work on bringing the opposition, dumb asses.
Are you connected to the "right" arm of the duopoly?
EDIT: I see I neglected to note that I voted for neither of the twisted cocksuckers.
This idea came up under Obama. I see ZIP wrong with Freddie's observation. And like I said when this notion first hit Zero Hedge a few days ago:
Get out, bitchez!
The trust fund argument is largely bogus. Most of the OASI is still paid on a pay as you go basis. At worst there would be a small haircut. Expect the payroll base to be expanded to cover the shortfall. Since OASI is largely pay as you go, interest rates don’t matter, either. This is an aspect of the program that Wall Street simply despises: too bad for them.
The real retirement problem is pensions; both private and public. Here interest rates are paramount. These are the promises which cannot be kept.
BicycleRepairman,
Thanks for putting BK's fearmongering torest. The poor guy simply has a blindspot when it comes to SS. I wish he would give it a rest for awhile----it is a 'what if?' topic that generates a lot of fear and comments---and keeps quite a few older dudes up at night, I suspect.
BK is a very talented writer with an independent mind, so for me, it is shame to have him so focused on an issue that is so divisive of the 'elders' and the 'youngers'; I think we need to come together on more urgent matters at this critical time for the nation.
How about an article from Bruce about how the banksters would love to get their hooks into three TRILLION dollars to make it grow by 8%/annum to save older americans????
That is an article that Bruce could really get his teeth into and that many of us would enjoy reading.
Anyway, thanks again for this:
"The trust fund argument is largely bogus. Most of the OASI is still paid on a pay as you go basis."
Ah, so we should ignore divisive issues between old folks and the youngers paying their SS and Medicare benefits (the olders did not fund enough in their life times to cover what they are / will be taking out and the youngers have no chance of receiving what they have / will pay in). People (young and old) need to stop believing and expecting the government to take care of them. It is irresponsible to expect such. (I know, everyone is an entitled victim of some sort).
We need 20% of GDP government max. Cutting spending is critical and SS and Medicare is the big spending driver. But let's not talk about that because it is devisive......
Large Lockbox for sale. Cheap. Lock is broken.
http://truth-out.org/news/item/14394-the-true-costs-of-tax-breaks-and-so...
good article, Bob. Here's an excerpt:
"The larger category, which comes in at number two on the Credit Suisse Top 20 list, is a $138 billion subsidy for private pensions. It accounts for 15.3 percent of the Credit Suisse Top 20. Number 13 is Social Security at $26 billion, at 2.9 percent of the Credit Suisse $900 billion.
Those private retirement subsidies cost over 5 times as much as Social Security payments. So, if cutting costly tax breaks is the goal, then we get far more savings by putting tax subsidies to private pensions on the chopping block. But for some reason, those private tax breaks are getting a pass, while paying Social Security benefits are taking all the heat."
You sound like a cheap bastard, alright.
But why be a fucking spendthrift, I say.