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The Best Thing to Happen to America in a Long Time
It’s hard to describe how happy I am to see Walmart facing a slump. I’m delighted to see that the cause of Walmart’s problem is the 2% increase in Social Security withholding taxes.
It’s not just Walmart that is feeling the pinch from higher payroll taxes. According to today’s WSJ (link) damn near every company that has a retail sales base is getting nicked.
We are witnessing what happens when tax rates go up. There is (new) definitive evidence that raising taxes decreases consumption. That notion is an old one, but I think the reality that is now being proven out in real time has to make a difference in how people think about taxes, government spending and the real economy.
Who is responsible for the increase in payroll taxes that is causing all the damage? Don’t blame the evil Republicans for this one. The liberal wing of the Democratic Party INSISTED that payroll taxes had to go up on January 1. Want to blame someone for the slump in retail? Blame Harry Reid (D-NV).
Why would liberal Democrats want to whack their base with higher taxes? Easy answer. Because they love Social Security more than anything else. They would sacrifice anything, including the economy and their political base, to protect SS from the criticism that it was no longer “Off budget and self financed”.
What an idiotic position. And now those who fought to get the full 12.4% tax reinstated are going to have to pay the price. The evidence is overwhelming; higher payroll taxes hurt the economy.
I've felt alone the past 4 years while writing articles on a weekly basis trying desperately to make the point that SS is at the heart of America’s economic problems. I have been vindicated. The ranks of those who will point fingers at SS is going to swell. Those apposed are now going to include all of the big retailers (and their shareholders). That will be a tremendous boost for those who are crying for substantial changes in America’s biggest entitlement program. I can’t wait for ‘them” to publicly come on-board to the opposition.
We are living with a program that was designed 75 years ago. Everything has changed – but not SS. The assumptions that were used in the 1930’s are no longer valid today. The ratio of workers to beneficiaries has fallen by 70%. The ratio of worker’s income to GDP has fallen steadily (the rise of the robots). We have substantial changes in expected life. The most significant challenge to SS is the Baby Boomers. Not one of the Boomers was a twinkle in the eye when SS was created.
1935 Plymouth - the year SS was created
America is driving a 77-year-old car. The car is dangerous. It has none of the modern safety devices; it burns leaded gas and has asbestos brake pads. It weighs twice as much as a new car, and only gets 8 miles to the gallon. Yet a small portion of the Deciders in D.C. have blocked any chance of bringing SS up to date, and making it safe to drive for the next 20 years.
The Social Security Trust Fund has said that to “fix” SS would require an immediate and permanent increase in PR taxes of 2.2% (above the 12.4% today). Based on the evidence of the past few months it’s easy to conclude that a tax increase of that magnitude would push the economy into a recession – Once in a slump, the economy would be hard pressed to recover.
Not only would higher PR taxes kill the economy, it would hurt lower paid workers the hardest. The evidence from Walmart reconfirms the fact that SS taxes are very regressive. They hurt the base of people that the liberals claim they are trying to protect. How can Senator Reid defend that outcome? He can’t.
There is an alternative. It would mean that we would have to junk the old clunker and get new, safe, energy efficient car. The new car would be expensive, but the payoff would be worth it.
SS taxes can’t be eliminated. The program is too big and very hard to unwind and IT IS needed. But SS taxes could be reduced by 3% if changes were made (Employer taxes would remain the same, worker’s payroll tax would fall from 6 to 3%).
The changes required to achieve the reduction in taxes have been discussed for years. There has to be changes in age eligibility over a longer period of time. Changes to inflation adjustments have to be made. There has to be an immediate means tax on benefits to fill the Baby Boomer bucket. The means test HAS to be based on both income AND assets. You can’t be a multimillionaire and get SS checks. That has to stop. Now. SS is, and always has been insurance. If you don’t need the insurance, you don’t get paid.
IMHO if individual payroll taxes were cut 50% from the current level, the economy would prosper. Unemployment would fall, incomes would rise. Federal tax revenues would increase, in the process, the deficits would fall. A permanent reduction in payroll taxes is the only chance I see for a sustained expansion of the economy.
So to the Execs at Walmart, and all of those other retailers that are feeling the SS pinch, I say "Welcome to the club". You can be the wind behind the sails for the changes that are needed. Just this once I will say that what is good for Walmart, is also good for America.
Note: Stan Druckenmiller (ex Duquesne Capital) was on TV last night with Maria Bartiromo . Stan is a very sharp guy. He said the same as I have. It’s idiotic that he gets a check from SS. The $200k he might get back in his life is not going to change his spending one bit. But it would make a world of difference to those who are making $40k a year. The Zero Hedge link to the Druckenmiller interview: Link
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SS is, in fact, the worst problem.
But Medicare is worser.
"SS is the WORST problem?"
Nope. Not even close. Brucie lacks perspective amongst other things.
No doubt, if we just raise the taxes or debase the currecy affecting people who barely have anything left over at the end of the month SS can go on ad infinitum.
my new social secuirty law would require the people collecting to have a non volunteering sponsor. instead of the government cutting the check you would need to go to the persons house who you are taking from to collect. let's cut out the middle man and get down to business. you want someones money go directly to them quit using the cover of government
Our society is to fucking complicated. It's a shell of bullshit without any core. I'm just enjoying life while the mirage persists.
Yep. Anyway, Roosevelt was told before SS became law that it was a Ponzi scheme, by members of his Administration. No matter--it was good politics. The vehicle was always decrepit, that didn't just happen.
Bullshit! Stop being a clown.
Bruce,
A good piece, as always. I think you are right, but the problem is not just that. The bigger problem is that, by starting to cut entitlements, the government would crumble the whole consumber-based economy we currently have. As the majority starts to perceive that future outlays for SS, defined-benefit pensions, and Medicare/Medicaid are to be cut, the savings rate will have to go up dramatically, and the whole consumer-based structure of the current economy would be not just seriously altered, but probably destroyed. Another Great Recession/Depression would happen + we will have some major protests this time.
I believe the establishment understands that very clearly. Thus, no chance in entitlements cuts. We will run the current scheme hoping that another internet revolution would save us by somehow doubling productivity. It will not happen. So, you probably know how it all will end....
"The bigger problem is that, by starting to cut entitlements, the government would crumble the whole consumer-based economy we currently have."
The corporations have a whole new set of Asian consumers on tap. You and other consuming Americans won't be needed so much. That's right, Americans won't matter so much to these guys. We won't be exceptional or indispensable anymore. Wonder what things will look like then?
Honestly, I strongly doubt Asia (you probably mean China here) will be able to build consumer based economy when the US consumer-based economy is crushing. They will sink with us, and I suspect where we go from fat to thin, they may go from thin to dead...
Yet my post was not about that, it was about the options available for the US government, and what I think will be chosen. To repeat, I believe the current scheme (we can call it "support the economy" or ponzi) will be continued, and entitlements will not be cut. Do I like it? No. I just think it will happen.
I mean all of Asia: including India, Viet Nam etc.
Prior to WWI England was the great superpower, then the reins got handed over to the US. It happens. And when it does, individual Americans will be in a very different world; kinda British / kinda Argentinian. It might look like a collapse to Americans, but I can assure you that the corporate elite intend to go right on sailing.
Since 911, the government's main theme has been "be afraid, be very afraid" and Brucie, despite his libertarian talk (LOL), is doing his best to contribute to that effort.
Well barring a total collapse (not happening, BTW), SSI isn't going anywhere. So keep cashing your checks and remember to remind Brucie and his friends that you intend to keep cashing your checks. If you do that, you'll keep cashing your checks.
because no one realized when the baby boomers retired there would not be enough people/slaves working to support their need for other people's money, I mean life.
Wake up its long been known SS is broke system that can only continue by stealing from one to give to another. Its wrong , its immoral, its sick. Saddeling people with others debt is disgusting.
"because no one realized when the baby boomers retired there would not be enough people/slaves working to support their need for other people's money, I mean life."
Is being completely dense part of your internet persona? SSI is reviewed constantly be actuaries. They say it's OK.
Go back to sleep now.
and actuaries know what inflation will be and they know what the population will be and they know what the cost of living adjustment will be and they know when payroll taxes will be taken and when they will not and they know how many people will be diabled and they know what laws will dictate if someone is disabled or not and they know how much money will be printed or not between now and then and they know what interest rates will be.
If that came from anyone else I would think it was a joke. Unfortunately you are the joke. The actuaries know. hahaha
You certainly know very little.
did an actuary tell you that?
What about the other pension program. the other one that government employees and others connected to the system get... Why does no one talk about that one. Only SS? Is it because it is a way better. And is also a government expense.
The real big unaffordable cost is Medicare and it is full of corruption and colusion. Here listen to this piece and tell me that SS is the big problem... http://www.ritholtz.com/blog/2013/02/tds-steven-brill-on-why-medical-bil...
Way to much BS and way to little intellect in the media today.
Most private and public pensions have an 8% ROA built into them. Think they'll earn anywhere near a 8% ROA? KABOOM!!
Then the private pensions will be dumped on the The Pension Benefit Guaranty Corporation (PBGC) i.e. the taxpayer or the FED. For the public pensions, the law allows the taxpayer to be tapped directly.
Now these pensions will blow up before SSI. What politician is going to bail these pensions out and then cut SSI?
What about the other pension program. the other one that government employees and others connected to the system get... Why does no one talk about that one. Only SS? Is it because it is a way better. And is also a government expense.
The real big unaffordable cost is Medicare and it is full of corruption and colusion. Here listen to this piece and tell me that SS is the big problem... http://www.ritholtz.com/blog/2013/02/tds-steven-brill-on-why-medical-bil...
Way to much BS and way to little intellect in the media today.
The fraud began when SS was implemented, by FDR. The govt creates a tax, purportedly to fund Old Age Survivors, ie, a pension fund. Immediately, the jackals in DC mis-direct the money and spend it on non-income-producing activities, mostly associated with getting re-elected. Presto, the fund begins busted, and gets more busted every day. And consistent with the banksters debt serf plan, the Fed then inflates the currency (average 13% annually for the last 10 years), thus allowing the SS benefits promised to be paid in Bennybux. All this, and the illegal income tax, are designed to prevent the 99% from ever rising above debt serf status, because people who actually have honest money have freedom and independence, and thus are a real obstacle to achieving the perfect fascist kleptocracy long envisioned by the banksters.
As others have pointed out, we have plenty of Bennybux (TARP to the infinite power) for the kleptocracy and their immediate cronies, so we can print whatever we want, thus there is no concern that SS benefits 'can't be paid because the 'fund' is broke.' There never was a fund, and the govt is completely broke in every aspect, so if we can print (tax those holding Bennybux) for the benefit of banksters, we can print to meet the obligations to our elderly. So all the 'debate' about the need to 'fix' SS is merely kabuki to demonstrate that the govt does not consider any promise worth keeping, in the same way that steady manipulation of the stock market by the PPT is just an in-your-face demonstration that the kleptocracy is in full control of reality. Until it isn't.
Fishhawk
Zerohedge, Widowmaker's favorite place for distraction and misinformation..
Bruce, you can cry all you want for social security while the rule of law burns with monetized justice.
Incorporated money is the new master, and politics sucks it's tit. The individual is 100% moot.
There is nothing but a printer and Fuckup-Bernanke
Y'all live in a broken world, and nothing "conjured" out of ANY crony bank or government will fix it.
The only priorities that matter in America are guns and gays.
Show me a real market or shut the fuck up.
And based on the nanny state that we live in where Republicans can't be elected as they oppose free phones among other things, expect more of this until the collapse. No one has any stomach for prudent spending or cuts anymore. Latest MW headline indicates that employers are starting to disallow spouses to be on employees health insurance. Advise your children accordingly.
That's right. The Republicans cannot even propose cutting obama-phones. SSDI is exploding. The barriers to receiving it are almost non-existant.
Bruce thinks he'll kill SSI? LOLOLOL.
Means testing is not appropriate for what is essentially a forced savings program (it is not insurance). However, SS should definately be taxed as income, partially means testing the rich the way they always are right now.
What is the practical impact of means testing? The baby boomers have saved nothing for retirement. What are you going to tax exactly? There's nothing there and SS itself doesn't even get you to the poverty line. You want to tax a guy's tender vittles?
What part of "pay as you go" is lost on people? It's nice that for a while more was paid in than needed. So, as the amount paid in declined people were still paid.
What you pay in is for today's recipients. If there is nobody to pay in when it's your turn, that's life.
Pay as yo go......
Participation in Social Security's SSDI (for disability) program has increased something like 400% since the financial crisis.
It is due to default in 2016 and there are some who actually need and should have it. Those taking advantage should be hanged from the streetlamps.
You'll be paying, Rhone. You and your buddies. And if we need a little extra, you'll pay that, too.
"We are witnessing what happens when tax rates go up." CORRECTION: We are witnessing what happens when taxes go up on the poor and underclass who need every penny that comes in to sustain themselves.
Surely, if we can bail out banks and corporations, and pump $85 Billion per month into Mortgage Backed Securities - we can fund SS regardless of Treasury receipts.
Why have any pretense to speak of right or wrong, of funding levels, of whether or not there is enough money - when clearly there is an infinite supply for banks, insurers, and corporations?
Bruce doesn't want to address the elephant today, he is busy addressing the strawman.
Of course there is infinite supply of funds for banks. Without that the country would implode. Once a very large bank implodes, it spreads to thers and a domino efffect on the entire economy. They lose nothing if ss fails........Bastards. Government is only out for themselves
Bingo. This is what Michael Hudson calls The Big Lie. We can print unlimited money to bail out bank gambling debts; we can print unlimited money to blow up goat herders in the middle of the desert; but OH NO a program for the actual people like SS must be fully self-funding on a current basis.
Maybe we should get the banks to "pre-fund" their ongoing bailouts; or get the military to pre-fund their invasions.
[Ebworthen: Surely, if we can bail out banks and corporations, and pump $85 Billion per month into Mortgage Backed Securities - we can fund SS regardless of Treasury receipts.
Why have any pretense to speak of right or wrong, of funding levels, of whether or not there is enough money - when clearly there is an infinite supply for banks, insurers, and corporations?
OpenThe PodBayDoorHAL: Bingo. This is what Michael Hudson calls The Big Lie. We can print unlimited money to bail out bank gambling debts; we can print unlimited money to blow up goat herders in the middle of the desert; but OH NO a program for the actual people like SS must be fully self-funding on a current basis.
Maybe we should get the banks to "pre-fund" their ongoing bailouts; or get the military to pre-fund their invasions.]
EBW, printing money to cover lack of tax revenues is part of what caused the problem, and is driving inflation now. The answer is not printing even more money, but living within our (tax revenues) means.
OTPBDHAL: Printing money will not soundly support anything, whether its bank gambling, goat herders or SS. More Monopoly money / confetti / green toilet paper will not make SS any sounder, or better supported.
The idea about pre-funding is better, but not really manageable either. Can you imagine pre-funding WWII? "Sorry, Adolf, you have to hold up on invading the Sudetenland, we're not fully pre-funded yet."
Your comments above remind me that bad planning, bad execution and bad policy based on defective Keynesian economics has ruined far more than anything else I can name offhand.
You are correct but you are missing the point.
As OpenThe PodBayDoorHAL said and referred to, it is a big lie.
Politics is also a lie, because all politicians and government perpetuate the lie.
There is no reason for anyone to pay taxes or have any allegiance to a nation which willfully chooses to give free money to banks/insurers/corporations, declare corporations "individuals", not apply the rule-of-law to them, and give them free money while taxing citizens then denying them what was promised while taking away their individual liberties.
The U.S.A. is dead, it is staring us in the face, DEAD.
It has nothing to do with politics or accounting and everything to do with morality.
Uhh, only slight disagreement. I recognize that US money is approaching Monopoly money / confetti / green toilet paper as a limit with high velocity. I agree we owe little allegiance to the current Politburo, Party-in-charge, or system in general as it exists today. Our money (USD) is a lie, because of past lies on SS, Medicare, Defense, H&HS, and all the other Federal mendacities.
I was trying to say that sound money is required, and that printing more green toilet paper would not make SS or any other program sustainable.
That clearer? Hang in there, it's not going to get better until the lies stop; then, it will only change.
I agree on the sound money, and after they actually start prosecuting and jailing the criminals on Wall Street.
It frustrates me to read Bruce's articles about SS funding when it is a dead end debate because the government is utterly immoral and corrupt; arguing over the accounting or how we can accept less for what we were promised and talking about austerity is like negotiating with your kidnappers from your cell for half a sausage or ankle chains that chaff your skin less.
The problem is that you were kidnapped for ransom and chained in a cell when you paid for over 50+ years for a promised vacation in a quiet cabin with nice views.
"Maybe we should get the banks to "pre-fund" their ongoing bailouts; or get the military to pre-fund their invasions."
LOL. Didn't you get the memo?
Bruce,
A couple of comments:
I agree with you - there is no way SS is going away.
They want obamacare to become the next SS but it can't. SS is long-term in nature while obamacare is immediate. With SS, politicians can safely retire and die before it blows up.
If a 2% increase in payroll tax can cause some pain for retail sales, what will be the impact of the consequences of obamacare?
DC
Brucie doesn't care about Obamacare or medicare or pensions or the MIC i.e. the real problems.
SS is his little hobby horse only he isn't going to ride it anywhere.
The disability part was insurance, the base SS was a survivors benefit plan. If it was simple insurance, the price would have been different. A 20% savings rate is considered enough for a passable retirement in most places. Taking 13% in a very rich country should give a minimum retirement for all. If it was simply intended for those who fail to work 10 quarters, or through no fault of their own failed to save anything, it would cost a lot less.
What you are asking for is insurnace for folks who failed to plan for retirement, and spent most of their money on wine, women and fast cars and wasted the rest.
We have disability insurance for some, and minimum SS for those who work 2 and a half years out of a possible 40 year working life. The minimum SS payment is already way above what was put in by those folks receiving it. To just continue increasing the level of means testing just makes the final falilure of the scheme that much bigger.
SS is a busted ponzi scheme. There is no way to resurrect it, certainly not with the wild levels of moral hazard you suggest. Means tested benefits always create a gap between those below and above whatever limits are set, that make it nearly impossible to move from one group to the next. It's a real ugly way to create our own version of a proletariat for the next class war.
You reap what you sow, assholes.
Actually, we are reaping what the Lost Generation (WWI generation) sowed.
In keeping with Bruce's idiot generational warfare theme, why don't we dig up the lost generation and take their gold teeth. Also lets pull down any WWI monuments. They don't deserve them. They were our grandparents, but they suck, right?
You really think people get buried with gold in or on them?
We should check anyway. Just like an IRS audit. If it's there, we should get it, right? Besides, if we don't, some of those goddamned baby boomers might try to sneak their gold teeth into their coffins. Got to set an example.
Stan Druckenmiller (ex Duquesne Capital) was on TV last night with Maria Bartiromo . Stan is a very sharp guy. He said the same as I have. It’s idiotic that he gets a check from SS.
Well you don't get a SS check unless you apply to SS Stan.
And an expectation of a SS check is not idiotic if you paid into the program in good faith for years with the understanding that SS was insurance intended for you under the terms as defined at the time.
By that reasoning it's idiotic for Stan or anyone else to be allowed to keep any money he "doesn't need".
When the government spends itself into insolvency it's always so logical to just take more from whomever still has any wealth to take. But eventually you run out of other people's money.
Yes; as Margaret Thatcher said; "Socialism is fine, except that you run out of other peoples money to spend". Easy to remember. Wraps it up nicely.