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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 The assumptions that were used in the 1930’s are no longer valid today.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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Margaret Thatcher hated socialism. Margaret Thatcher was the PM of Great Britain. Therefore, Margaret Thatcher ended socialism in Britain.
/0 .... overload.
Well, listen to Stan. He discusses it in the last 1/4 of the clip.
He says that he came to the realization that means testing had to be part of the future way back in 1994. Stan knew he would never need the insurance. He paid in knowing that he was covering someone else's nut. No complaints. Don't look into the rear-view mirror.
This is not about dipping into Stan's pockets. This about putting an extra $250,000 into his pockets. Two different things. Stan doesn't need the extra $250k. Why pay it to him?
Well because it's his $250,000 - as SS was originally concieved anyway.
or at least his total contributions plus some reasonable rate of return is/was his.
Please correct me if I’m wrong but it is my understanding that, with the exception of those who had already started working when SS was first implemented, it was –for decades- not possible to take more out of SS than you put in but that changed under the Johnson administration.
As I posted yesterday on the Druckenmiller article and as kaiserhoff noted above, the first SS recipient paid $44 in Social Security taxes over three years of working under the system and collected $20,993 in benefits during a nice long retirement. It's true that she'd worked before the enactment of SS, but the incredible amount she got out of the system in relation to what she paid in should have opened people's eyes almost half a century ago to the notion that the whole thing was a scam.
It's been a Ponzi from the start, and we who are here at the collapse of the scheme will get screwed the same as Madoff's investors.
I was off a grand?
Off all the things I've lost, I miss my mind the most;)
Spot on, Mercury. The first social security recipient, Ida Fuller, made a couple of token payments and received $22,000 in benefits. Doesn't sound like much, but this was about the same time my grandfather was buying some of the best farm land on earth..., for $32.00/acre. The early "takers" made out like bandits.
.
and now that $32 fills only 1/3 of a tank of gas...
collapse is happening and accelerating...it'll be shambles on the ground (ie 3rd world conditions widespread inside the US) long before us baby boomers have left the stage.
And the point is Stan ELECTED to take SS.
He could have just left it and not applied for it.
Hey, lay off Stan. He's not too bright and his boss made him say those things. Stan loves his momma, OK?
The basic thesis and direction of the article are on target - thank you. This is what happens when you have significant changes in tax rates, particularly with lower wage workers (right at the margin of income).
I will quibble with the implication that this is an unintended consequence. The payroll tax cut was enacted as an explicit economic stimulus. What you say about the increasing taxes for the lower wage worker is ALSO true of decreasing taxes on the lower wage worker. Additional payroll $$ in lower-income paychecks get cycled into the economy very quickly and very thoroughly.
The payroll tax cut was intended as a short term economic stimulus. If you recall, the mantra (and i think a good one) was "Timely, Targeted, and TEMPORARY". Timely was achieved - the payroll tax cut went into effect quickly. Targeted was also achieved - it targeted lower income workers (for the most part) and was recycled into the overall economy quickly. Now we see the implication of "Temporary" - as a counter-cyclical, this was put into effect when the economy was crashing, to stimulate it. Now that the cycle is (at least comparatively) ticking up, the temporary stimulus measure is being withdrawn, and we see it tempering/damaging what little recovery has been occurring.
So - before you get too far out over your skis, please take a moment to recognize that this policy actually achieved its goals, and now we're seeing the downside of the unwound - exactly as anticipated. Note that I didn't say free - the funds to cover the payroll came directly from general treasury, so we're out 2% of US payroll for about 2 years. Paying that back is the next bit of counter-cyclical, and will further dampen any recovery.
So the high will not be as high. The low would probably have been lower without this policy. Counter cyclical.
"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)."
How about I blame YOU, for being complicit in this charade by the Red/Blue BS con?
Bruce, I ordinarily enjoy reading your work, but you must have been slipped a stupid pill this morning. Like many other posters pointed out above, those are MY goddammed contributions. So fuck you, and keep your fucking hands to yourself. You and your corporatist cronies can build one less fighter plane, and that should just about repay me.
Well, if you feel that way, how about let me stop contributing and walk away, and you can keep the whole damn thing! Deal?
Yeah, thought so. Funny how I want to say "fuck you, and keep your fucking hands to yourself" too.
Regards,
Cooter
Read your post 3x and still don't follow you.
When the SS system was producing extra cash after the Greenspan commission (yeah, THAT Greenspan) upped the "contributions" (yeah, that's what they called them THEN) DC, Wall street and the MIC loved it. The day the cash flow reversed SS was "broken".
See my note to Vooter below. And keep them coming - you're writing the book for me:
Those are MY goddammed contributions. So fuck you, and keep your fucking hands to yourself.
Sorry pal, those contributions were spent the day you paid them. They're gone.
Funny, that excuse doesn't seem to fly when we make it to the IRS. 'Sorry guys, I spent all the funds you want for taxes, it's gone already. Next year tax me before I've spent it, hey.'?
The other point made still stands, why not allow one to voluntarily withdraw from future contributions, chalk the past ones up to a loss and move on?
We just read in a previous ZH post today many great traders assert that its better to cut a loss early than throw good money after bad. Myself and probably many others would take that option on SS and leave now, eat the loss but do something productive and guaranteed our choice with the future contribution percentage we'd have control over once again. And what if we're told later on that we did too well and now our returns are forfeit, what then? That's not "insurance". Mandatory to pay in, no way to decline, and you still may not receive any payout whatsoever assuming you live long enough to reach the moving goal post of disbursement age.....
Sounds like a scam only the mafia could love.
It's just another tax. Same everywhere in fact.
As to the "I've spent it already" - remember that The System is backed by "The Law", and "The Law" says they have a priori rights to your money before you spend it - in bankruptcy the State is the preferred creditor.
Of course "they" also have the force behind them (militia ("police"), and military) to enforce their demands. Want to try to "push back"? You'll either be dead, or labelled a "terrorist" (and so be good as dead).
(Unless you have the right family connections, when none of the above really applies . . . . .)
I got called away from the computer in mid-comment, but agreed with your point down there off of Vooter's post, Bruce. I know that.
One thing I wanted to add is that in some years when I was paying my self-employment taxes, I topped out on my SS payments. Those years are gone now, and for various reasons, so is the retirement I had been trying to set aside. Will I get any of those SS contributions back? Hell no. But let's see what THEY can do about getting those guaranteed student loans paid, eh?
Of course they are gone.
Bruce you are getting to the core of the issue here. The question you are posing is WHAT ARE YOU GOING TO DO ABOUT IT?
Bitching on the internet only gets someone so far. That is to say nowhere.
I hope you make that the last chapter of your book and just leave it blank for your viewers.
So you are admitting that the whole thing was a lie from the beginning and yet you want to keep it going? Be sure to make that clear in your book as well.
the problem with socialism is that you eventually run out of other people's money and so reid - totalitarian asshole that he is - had to raise taxes and rightfully so if the system is to survive in its present form - and that was only a cheap bandaid at best.
but requiring wealthy people to pay into a system for which they receive no benefits is a hard sell....the plutocrats' hostility to the entitlement state is one reason why the rockefeller axis of evil has declared war on america - first salvo was 11/22/1963 - in the first place - although only a minor one since they have promoted it as a means to economic ruin.....but the idea that the state can curb plutocratic power is ludicrous to them.....benefit-free ss payments smacks of such a curtailment....(and yes i know that the 1% and higher could give a rat's ass, but those lower down the chain won't see it that way....i have read too money posts here to know the answer to that issue)
the lie of the american politician is that you can appropriate largesse at someone else's expense and kick the day of reckoning down the road.
but a means test has problems....i could be a millionaire in assets but need every cent of that to earn a pittance from the 1% or less interest i earn on my money due to the criminal bankster cartel setting interest rates so low....my home might be the bulk of my estate but should the government force me to liquidate it to keep ss benefits?....
it is also a crime to steal from me through dishonest inflation measures - so that is a non-starter for me....the government already under reports inflation, but you want to under report it even more....the honest solution is simply to lower benefits - but then you are back to the problem of taking from me but giving me my property when i need it - and doing so without interest.
none of the solutions proposed here, or commonly elsewhere, are suitable. mandatory savings would be a start of a solution. what the rest of it is, i don't know. but government is not it.
It's all just marketing, really.
requiring wealthy people to pay into a system for which they receive no benefits is a hard sell
It's not that they "receive no benefits." It's that they pretend the benefits don't apply to them because they are so rich.
So let's take the Social Security example. A rich guy TODAY could easily claim, "I don't derive any benefit from Social Security--I made $200 million last year on my investments, the $24,000 that I get in SS payments is more of a nuisance than it's worth."
The more gullible listener might agree--sure, he says his SocSec income is trivial, and by his standards, it IS, so he's right--he had to pay into that system for years and now derives no real value from it. But the monthly checks he gets are only part of the *benefit* that obtains from a social safety net like SS.
What's far more relevant to this hypothetical rich guy is that the businesses which he is invested in derive some of their earnings/profits from the OTHER people who receive Social Security checks and don't ALSO make $200 million a year. If he owns Apple stock, for example, that absurdly inflated share price is an outcome of a LOT of Americans spending money on Apple products. Some of those products were sold to the other Social Security check recipients.
Another example would be the personal security that comes from living in a society in which there is no imminent threat of starvation for a percentage of the population. In countries where the poor literally starve, it is virtually impossible to maintain the INFRASTRUCTURE that exists in the developed world, because there's always some destitute and hungry asshole prepared to steal the copper wire out of the street-lamps so he can afford some rice for the day. The costs of protecting that infrastructure from the truly poor is often far GREATER than the cost of just paying the poor some nominal amount to prevent them from being sufficiently motivated (by hunger) to try to steal the stuff in the first place.
When you really examine the competing systems, it sure looks like it's a far better deal for that rich guy to have paid some percentage of his income in taxes than it would be for him to build and staff a self-sufficient fortified compound which would give him access to the same luxuries he can enjoy as a resident in the USA. Some of the rich in the USA bitch constantly about how horrible their tax-burden is, but they all have the option of moving to equatorial Africa or S. America and building their own compounds.
Why don't more of them do just that? Answer: too expensive. More expensive than the taxes.
let it go, let the blood flow, and america will slide no mo.
A newer sleeker ponzi scheme?
Don't index to inflation, cool then Zimbabwe Ben will reduce those payments to the point where won't pay for the stamp to send them. Means test it, cool those with half a brain will use proper financial planning to sidestep it. And really Bruce where is your cutoff for means testing, you say millionaires, is that house wealth? So the little old lady who lives in nice part of Boston with the house her husband paid off, is she rich?
The problem is it's a ponzi scheme. If you truly know how to make a ponzi scheme go on forever and make everyone happen then I vote to elect you supreme dictator for life!
Like your work Bruce, but you make so much out of this policy wonk shit, and ignore the real issues.
I visited Kissimmee, last week, a dusty little Florida town, near Disney, but really back woods nowhere.
The ONLY PEOPLE DOING WELL ARE GOVERNMENT EMPLOYEES! You can take one look, and see who has a cushy, sit on your ass, gubbermint check, and who is scrambling to make ends meet.
It's the same in the whole damn country, and it's only getting worse. There are no real, decent, private sector jobs, NONE.
This economy is a slow motion train wreck. Hedge accordingly.
America, as we knew it, is dead. Long live the insurgency..
brice always does this, he starts out like this 35 plymouth, and then he makes a wrong turn (assumption) and ends up in the weeds.
Everything has changed – but not SS.
the problem with SS is mission creep. it's not the old people getting substinence payments that burden the system, its the medicare overlap, the education overlap, the disability overlap. SSN became the universal solution. SSN barely resembles what it was in the beginning.
there are a number of ways to rollback these redundant programs, but most of them require the states to step up and take responsibility. and if the state of XYZ doesn't care much about its disabled, then the Feds need to resist the urge to fix the problem. we have seen in the past how mandated social policy fails at the local level, where revenue isn't available. its no smaller a problem than the state of the union itself. and my city leaders (for instance) are doing some fancy development, while they turn off street lights, curb ambulance service, and close schools. SSN is one of the solutions that all sorts of local governments have come to lean on, the Feds will take care of their needs, we can spend all our money on corporate upgrades to our tax base.
and it will be a very different america if local goverment has to actually recycle their own tax dollars back into their communities, rather than laundering it through the washington bureaucracy, where it somehow gets inflated (thanks to bubbles bernanke).
but if walmart is feeling the pinch then the poorest americans are feeling it, and that ain't good.
Social Security and Medicare as currently conceived have to be completely reworked.
The demographics are simple: two working people can't pay adequate taxes to cover costs of "end of life" for some nameless third person.
No incremental approach is going to have a hope in hell of accomplishing anything until that one fact is *reflexively* understood by the citizenry. Step one has to be educating the public about THAT problem.
Bah, we'll collapse first.
What do you think collapse is going to look like? I submit to you that we are currently collapsING. It's going to take awhile--perhaps the remainder of both of our lives.
Somewhat O/T, but as a part of the larger picture,
seems like the long-term goal of Skeeter is to have The State own all means of production and distribution after the current system is collapsed via Cloward-Piven.
Bruce
You can not be more happier than I am. That Chinese outlet store is getting what it deserves.
The question of the day:
Who wins in the end?
The marxists with their Cloward-piven strategy that has worked marvelously, or
the fascists who have succeeded in ensuring that only the 1% win.
Or do they coalesce for one big totalitarian daisy chain?
Time for a daisy cutter.
on the capitol building
facists? who could be more fascist than obama? wakeup , the democrat party is the american nazi party of hitler ,el duce lovers. end of story.
Because the corporate elite are in his pocket (or is it the other way around????)
Wake up - both sides suck shit and blow it in our faces.
But which party started medicare, medicaid, foodstamps, social security etc. Were there any republican votes for obamacare? Study history, you might learn a lesson or two. Which party started the FED and the income tax in 1913 (hint Woodrow Wilson). Which president first raided SS to pay for the Great Society and the Vietnam war (Hint LBJ) on the credit card. Do you really think that if Goldwater had defeated Johnson in 1964 we'd currently have 16T$ in deficits or have abrogated the gold standard (there would have been no need without the "great society")? This fabian socialism (learn about it!) has a very long history-but its most important event in the US was with Wilson in 1913 and the fake WWI which he wanted to increase debt and thus collectivism. Who started the League of nations which morphed into the UN? Without debt there is no need for the FED and which party is the party of debt and social welfare? Or going back further, which is the party of states rights and limited central government espoused by Jefferson and which that of large standing armies, central banking and collective debt (Hamilton). The leopard never changes its spots but loves the Wolf in Sheep's clothing approach (the symbol of the Fabian socialists)
The solution is simple: eliminate the welfare state, restore personal responsibility and sound money. If you're lazy and/or stupid you won't do very well, of course but that's just evolution in action.
Daisy chain would be the optimal result for the enemy's side.
SS is not insurance it is OUR money we put in, it was taken from us, whether a millionare like Stanley or a minimum wage worker. How is it insane he gets a SS check when it was his money that was taken and put in? Needing it or not is beside the point we put in IN not really an entitlement.
The money that was put in was immediately spent. The payments going out today are from current payers. The system is broken because it is touted as a savings plan, but it isn't. It's a ponzi. The government spends the money you paid in, it is not holding it for you. The problem is equally well known--back in the day, the ponzi worked because a lot more paid in than ever received benefits. Today, the tables have turned. It's doomed and would already be gone except the money printers are keeping everything running.
But even if you don't like that reasoning, consider this: The dollars you paid in decades ago were worth a hell of a lot more than the devauled dollars you are going to get out later. You'll get your full payment, but it won't buy you a can of cat food to eat.
The full name is: Old Age and Survivors INSURANCE
I pay for car insurance and pray I don't have to use it. Same with my house, health too. I paid for SS "insurance" and now I don't have a "claim". No financial accident or fire for me. Call it luck? I don't know. Whatever. Doesn't matter.
You, like me, paid for this insurance. If you need those benefits, I want to see that you get them in full. But if you're living in Palm Beach with the third wife, no, nothing for you.
Listen, I CHOOSE my insurance provider. I choose the rate according to what and how much I want covered. I can even in most cases choose NOT to have any insurance at all regardless of whether it is a good idea or not.
SS affords zero choice. The amount, how, when and if it is paid, the coverage? All dictated by point of a gun. THAT IS NOT INSURANCE.
I don't know what it is but it is not insurance so stop calling it that.
Even better, an insurance policy is a contract. You read it, you sign it, both sides are bound by the terms. SS? No contract of terms, no explicit acceptance by the payer, and the terms may change at the whim of the currently elected. That is a huge problem. The dollars I have paid in to date were paid in under a set of rules that may no longer apply tomorrow.
We understand what insurance is, SS is clearly not insurance. No more than income taxes are voluntary.
This is extremely disappointing coming from you, Bruce. You are like a politician who won't admit he is wrong and instead comes up with yet another scheme just to maintain the status quo, paid for by honest people who trusted him the first time. That you claim that SS is "needed" means you are nothing but a socialist in capitalist's clothing.
Well then Bruce we are going to have to fight. Your attitude now is not the way this program was sold not the way it has been promoted over the years.
When this POS system crashes I pray the people never again trust the government to handle ANY matter outside of defense and the courts. They simply are driven to bad decisions by the voters 100% of the time. I won't bore us all with the list but as others have said far better than I can, the government allows the stupid to thrive. Without the protection of governemnt and the legaizing of incompetence many programs and business never would have gotten of the ground.
Imagine a private pension fund looking at the birth rate after WW2. The board would have decided to raise rates then. Benefits would have been reduced then. Instead the government just looked away and said...we will deal with that later. It is the same with EVERYTHING the government does. It is inherent!! This Soc Sec problem is not a one off. It is the way governments work.
Seems handling defence is pretty costly (for the USA!)
Maybe you ought to go ahead and privatise that too (oh, I see you already have - via the particularly costly and inefficient Military-Industrial Complex "Big Boys' Club")
How long before the US manages to elect a Mugabe?? Sooner than many think I suspect . . . . . . .
Done.
Obama Mugabe. That's exactly what we have now, American style.
"The full name is: Old Age and Survivors INSURANCE"
SORRY...if the U.S. government wanted to treat Social Security as an insurance policy, then they should have started doing that 70 years ago. The fact is, it has NEVER been treated as an insurance policy--anyone who has put in over their working lifetime has collected at age 65. I don't care WHAT the program has been called. You want to start means-testing now? Then start it with people just entering the workforce. And if that doesn't jibe with your new theory of how Social Security should be run, TOO BAD. Get ready for a violently angry public, because it's coming...
It's insurance like the policies the Mafia sells. Buy the insurance and we don't break your kneecaps.
Protectionism and Insurance - always seem to be such a nice pair of identical twins