Obama: Gut Social Security Now, Don't Wait Till The Election

Wolf Richter's picture

Incredible that a Democrat would propose loud and clear that our Social Security system should be gutted starting immediately to get an up-tick, illusory as it may turn out to be, in GDP just before the next election. But President Obama's proposal to cut the employee portion of our payroll taxes in half and also cut payroll-taxes for small businesses will do just that.

The two measures would remove $240 billion from our Social Security system during 2012 and hand it over to consumers and businesses so that they can do some magic with it.

Will that nudge up GDP? Not by much. The problem is that the money we consumers spend goes into products that are to a great extent imported. Hence, our trade deficit will rise. This has already happened with the current payroll-tax cut. Since January, it has given consumers about $80 billion in additional spending money. And true: It nudged up consumer spending.

At the same time, our trade deficit, particularly with China, skyrocketed. YTD through July, it hit $433 billion. Same period last year: $330 billion. The $103 billion increase is largely attributable to rising consumer spending (including the impact of higher prices). A humongous trade deficit like this, aside from being a terrible drag our economy, is also subtracted from GDP (GDP = Consumption + Investment + Government Spending + Exports – Imports). And true again: GDP so far this year has barely budged though consumer spending is up.

Will it create jobs? Well, let's look at our current payroll-tax cut. And we see that a few jobs are being created in the U.S., but not many, and none last month. Meanwhile, lots of jobs are being created in China. Coincidence? Maybe not. This is the result of many years of corporate efforts to offshore production and services to countries where labor is cheaper (15.4 Million Missing Jobs). So the impact on job creation, thanks again to our trade deficit problem, will be minor.

So, what does cutting payroll taxes accomplish? It reduces the flow of money into the Social Security system by $240 billion a year.

And no one can ever let a payroll-tax cut of this magnitude expire. It would be perceived as a huge tax increase. It's already happening. The current one is supposed to expire by the end of December. But heck no! Instead, an even bigger one is being proposed to take its place. So this won't be a "temporary" cut. It'll be permanent. At least until the money is gone—maybe in a decade or so if disbursements stay at current levels.

Presidential candidate Rick Perry, who called Social Security a Ponzi scheme and monstrous lie, and who wants to unwind it, couldn't have come up with a more effective plan to put his campaign rhetoric into action.

Meanwhile, in another corner of Washington, a bipartisan group of lawmakers is hunkering down, trying to figure our how to make politically feasible and perhaps sensible adjustments to our entitlement programs, including Social Security, ironically, to keep them functional for a few more decades. Makes you wonder if these people ever talk to each other.

For some people, the $2.6 trillion Trust Fund doesn't exist, and thus the whole issue would be moot. Well, for Wall Street bankers it existed enough to where they were dying to get their hands on it when President Bush wanted to privatize it. Remember? At the time, I had dinner with some of them, and so giddy were they about the prospects of all this money flowing their way that they were barely able to eat. In fact, the Trust Fund is loaded with treasuries, like any wealthy and conservative investor. Whether or not these treasuries will be worth anything in the future is another question, but not just for the Trust Fund.

Wolf Richter - www.testosteronepit.com

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chinawholesaler's picture

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jetgraphics's picture

There is no trust fund, because there are no dollars, since 1933. A federal reserve note (dollar bill) is an IOU. A trust fund filled with IOUs is not a fund - it's wishful thinking. (See Title 12 USC sec. 411)
There is no "right" to entitlements. They are entirely at the discretion of Congress - to be used to bribe the electorate.


Since each recipient is his own donor, there's nothing stopping Congress from taxing back anything and everything you receive.

FICA was and is 100% voluntary - if you read the law. But most Americans believe that they must get "their number" before they can legally work in their own country.

There is no solution to repair SocSec. The only remedy is to withdraw participation in it.

kevinearick's picture

Effectively, it is already pay-as-you-go, and all they have is make-work jobs to pay into the fund. Sucks when the ponzi cannot increase participation.

The average certified "worker" simply goes where told, when told, and collects a check/credit, with nothing but anxiety as a response mechanism to unknown input.

Don't be unknown input when the cattle stampede.

ATG's picture

This guy is on steroid rage

Thanks TD and ZH

DosZap's picture

This is almost as stupid as cutting the SS taxes now.Obama is doing NO ONE a favor.

NO one notices a 2% reduction in Gross pay..........not unless you make $3.00 an hr.

The SS System says there are not receiving enough funds NOW to pay needs.(Someone is lying).

For the month of July SS rec'd a tad over 7B into the fund, and the pay outs were less than 3B,where did the other 4B go?.( my OLD math tells me that was a SURPLUS.

Also, SLATE has an article today on Should we stop SS immediately 100% today for all.(their column is taking opinions).

I say go ahead, stop it today, the 41% of Americans that LIVE off SS alone,they would die,murder their spouses, and themselves, and or murder the one's who stopped it.( and likely anyone else because they would LOSE it mentally).

No politician,(or their families) who voted for it would ever be able to be seen in public again, or show their faces.They would be murdered.

If the Govt wants an excuse for starting a new guerrilla war in it's back yard, GO FOR it.

Because I guarantee you, there is no one more dangerous than those who have NO hope, and no future to look forward to.

Throw in the fact the people paid into the fund (without any choice) and you have a recipe for an American nightmare.

Think the economy is bad, this would be a disaster of almost Biblical proportions.

Bank it.

ATG's picture

$4 B plus is spent on the budget and replaced with non-marketable securities

Oh yeh

saiybat's picture

"and or murder the one's who stopped it."

"No politician,(or their families) who voted for it would ever be able to be seen in public again, or show their faces.They would be murdered."

They wouldn't call that murder they'd call that killing the enemy. The Vietnam vets without their social security aren't going to be calling it murder for sure. Afterall they were trained to kill not to murder.


"Because I guarantee you, there is no one more dangerous than those who have NO hope, and no future to look forward to."

You're absolutely right.

TwelfthVulture's picture

I have now read this entire thread and I can say unequivacably that we, as a nation, are truly fucked.

Even in a place such as ZH, the majority are frightened, nay terrified, of freedom and liberty.

Free men do not pay taxes on their labor.  Free men do not pay taxes on property that they rightfully own.  Free men do not wait upon the bread crumb handouts of government.  Nor, do free men allow their aged loved ones to depend upon the handouts of government.

Some here get it, most, sad to say, do not.

I expect a 3 to 1, 4 to 1, ratio here, red to green.

rwe2late's picture


you, and apparently some others,

are much deceived by your own made-up meaningless sound-bite. Perhaps it comes from the constant bombardment of commercial and political sound-bites.

"Free men do not pay taxes on their labor or property".

Why not say "great men do not pay taxes"? Or smart men? Or prostitutes? Or billionaire tax dodgers? Or burglars? Or slaves do not pay taxes?

How about anarchists only pay taxes when they have to?

Do tell what "free men" do pay taxes on. Do tell what is un-"rightfully owned property" that may be taxed. Do tell why "free men" should not "allow" government to provide pensions to the aged.

Or are you just not so cleverly advocating anarchism?

TwelfthVulture's picture

If you truly believe that freedom and liberty are meaningless sound-bites, you sir, prove my point.

As to your second point, why should the government provide pensions to the aged?  What business does government have being in the financial services/planning industry?  I have a copy of the US Consitution that I keep in my wallet and no where sir, in that document, does it mention pensions for the elderly.

I wonder, does your mother still pay your bills?  Your rent?  Your food?  Then, why do you believe that the government should take that responsibility off of your hands when you reach some predetermined age?

rwe2late's picture


The words "freedom" and "liberty" can be bandied about meaninglessly same as "motherhood", "apple pie", "patriotism", "religion", or "hope and change".

 Your LITERAL interpretation of what the Constitution empowers the government to do is absurd. as are your false analogies between one's family, one's source of working income, and one's source of retirement insurance.

Obviously, because they didn't mention the FAA 200 years ago, the government should not be regulating air traffic.

the grateful unemployed's picture

only a free man can consent to be taxed. a friend once complained that he was being taxed at 50%. i offered him a palliative. suppose you never saw that money? suppose you just made 50% less than you do now, and there were no taxes? well that solves everything, he agreed.

the quintessential problem is "representation without taxation.." politiicans spend $2 for every dollar of revenue, and are in only a small way (50%) obligated to their constituents, who contribute 1/2 of the revenue which the politicians spend, the other 50% is derived through monetary gimmicks, which are a bigger tax on the foreign suppliers of commodities particularily labor.

so they listen to us, about 50% of the time. the more we cut taxes the less they need to listen. some refer to it as the Republic, you elect people to run your government, and you leave them alone. that is they leave you alone, and to derive some satisfaction for their part, they go elsewhere to raise campaign cash, and otherwise enrich themselves.


if you want your government back, you should consent to pay MORE in taxes, at least 50%, or demand they cut spending 50% and then they should in theory be 100% accountable to the voters, and you will have a Democracy.

as the poet said, "In a Democracy, first you vote, and then they tell you what to do. In a dictatorship, you don't have to bother voting first.."


Sgt.Sausage's picture

You're just now realizing this?

I saw this as a teenager. Set the WayBackMachine to the 1980's, Mr. Peabody.

Nothing's changed in that respect. No. Wait. Yes it has - it's gotten worse.  


TwelfthVulture's picture

No, not just realizing it.  Just can't believe that here at ZH so many seem to embrace the statist vision.  As a market participant, I have been here much longer than I have been posting, back when it was primarily a blog/aggregator for fellow contrarians.  This is not your grandfather's ZH.

Transformer's picture


  This is just amazing.  People, including you, continue to talk about the 2.6 $trillion as if it actually exists.  listen up.  THE GOVERNMENT ALREADY STOLE AND THEN SPENT THE 2.6 $TRILLION.  Social security doesn't have it.  What it has is fake treasury bills in a file cabinet somewhere that cannot even be sold in the TBill markets.  The reason the Gov wants to get rid of social security now, is that the amount taken in through SS taxes every month is less than SS pays out every month.

  There continues to be all kinds of media double speak (including this article) that I think is designed to confuse everybody.  SS is not broke.  If it had the 2.6 $trillion in actual cash, it could go on for years before it ran out of money.  The Gov has to make up the difference, paying back every month a little bit of the 2.6$trillion that congress stole from the  SS fund. 

   Zero Hedge continues to have articles like this that cloud the issue.  Come on Tyler, figure it out.  This is bullshit.  Social Security is completely funded for years to come if the Congress would just give back the money they stole, the $2.6 trillion, that you and I paid in years ago.  Ponzi scheme?  HELL NO, it was out and out thievery.

  What would you think of a 401 K if the administrator stole all the funds as they were paid in, and then when people wanted their money, the fund managers said, "Sorry, your 401K is broke, we have to stop it."  They'd all go to jail, of course.

  At least get the facts straight.

Transformer's picture

AND, do you realize that if all the money that was paid into SS since its inception, if that money were simply earning the prevailing bank interest through the years, SS would have some huge amount of money and would be funded for as many years as you could do the actuarial tables.  It was a theft from the beginning.  If all the money had just been put in a savings account, it would be going on just fine today, and the Gov would not have to be figuring out new ways to screw over the SS recipients every year, like fake COLA adjustments, etc.

But NO, corrupt politicians in DC just could not have those huge amounts of money sitting in government accounts, without stealing it to pay for Pork, entitilement, buying votes, corruption, you name it.

Callilng it a Ponzi scheme is a lie,  It was a boondoggle, thievery, a crime.

malikai's picture

I think the appropriate term is that it has become "sufficiently advanced".

Sathington Willougby's picture

Got it.  No taxes no fake money no fake security and no reaping molestation dividends from foreign wars. 

Let's do this, it might turn out to be something.  When the collapse comes we have to carve this out or the argument that humans aren't animals is lost again.

TwelfthVulture's picture

"For some people, the $2.6 trillion Trust Fund doesn't exist, and thus the whole issue would be moot. Well, for Wall Street bankers it existed enough to where they were dying to get their hands on it when President Bush wanted to privatize it. Remember? At the time, I had dinner with some of them, and so giddy were they about the prospects of all this money flowing their way that they were barely able to eat.

Yes.  I do remember.  At the time I thought it a bad idea and still do.  If you think bailing out the banks created a moral hazard mess wait until you see the moral hazard shit storm that a privatized social security system would bring.  Think about it, would you wisely, rationally and intelligently invest your mandatory retirement fund in 30 year treasuries?  Why?  How many do that now, with their 401K?  No, most will invest in companies like GOOG, AAPL, .....  and ..... Sino Forest.  And, why not?  If a bull market continues, you'll be chasing returns.  But, if the market crashes and there's a huge fail, think the government wouldn't step in a backstop it all?

As a poster above stated, stop trying to reform around the edges, just END IT.

mailll's picture

I pay my payroll taxes, and since S.S. is no longer a trust fund but a box of I.O.U.'s because the government raided it and it is now part of the general fund, I consider this to be all tax (payroll tax + S.S. tax).  I'm being taxed twice.  By the time I'm old enough to collect, the final solution of the termination of S.S. altogether may all ready be in place. Another way in which the middle class is being destroyed and we are turning into a land (and world) of the super rich and the poor.

All this is because many of the rich say they pay too much tax so they tax the middle class twice to cover govt. spending.  Many of the rich pay no tax at all, or they send their money to off shore secret accounts to further escape paying taxes. 

"The love of money (GREED) is the root of all evil!" 1 Timothy 6:10

rwe2late's picture


Wow, some are complaining that SS recipients may receive back MORE inflated fiat bucks than they nominally paid into it! And those huge SS pensions support a lavish lifestyle that is the envy of many a CEO.

Others seem to be just plain bedazzled by TPTB razzle-dazzle.

First, the razzle:

“We” just can’t afford SS and Medicare.

Well, of course SS looks unaffordable if it is combined with Medicare.

Why not say we can’t afford SS and bailouts to TBTFs, or can’t afford SS and global militarism?

Or why not say more exactly, we can’t afford SS and the entitlements of the health care industry?

The USA is known to spend more GDP on health care only to get no better care than other countries spending much less GDP. The government indulgences to ‘big pharma’ and the health insurance industries hugely magnify health care costs, and make those costs unmanageable.

Furthermore, there is a disability crisis in the USA. It’s huge. It has many causes, such as a contaminated environment, debilitating and unsafe work, the effects of (drug) Prohibition reprise, military excess, the automobile lifestyle, and the marketing of deleterious foods.

Nonetheless, SS gets the bill for all of it.

Social Security has been until now self-financed by the working classes, and the surpluses collected used as a regressive tax to help pay for wars and bailouts. Thereby the working class has been handed the disability costs arising from all those public and private mal-investments and under-investments.

Then there is the dazzle:

Those BIG SS pensions.

Just how big? Well, not so big considering some of it isn’t actually paid out. It winds up being handed over to the IRS instead of the retiree. And a sizable chunk of the retirement pension is handed over to Medicare, well actually mandated to be handed over to subsidize health-industry Medicare.

Yep, there is a SS gap between what is being collected and what is dispensed. Of course there wouldn’t be a gap if the disability crisis was paid for properly. It would help if jobs weren’t off-shored so the unemployed were forced into early retirement. Raising the regressively-set payroll tax ceiling would also eliminate the gap.

Somehow, trillion$ are found to spend on bailout entitlements for the TBTFs.


And trillion$ more to maintain a global empire.

Bruce Krasting's picture

This article has the facts wrong. SS is not being robbed as suggested:


the grateful unemployed's picture

take the opinion of someone at FORBES? please

rwe2late's picture

"SS is not being robbed as suggested"

True. It's being robbed in a different manner.

The Forbes statement is rather amusing. Apparently, because SS taxes are thrown into the general fund, reducing SS taxation does not directly "reduce the flow into the SS trust fund".

nmewn's picture

SS is a forced governmental ponzi. It is not a "trust fund".

A ponzi relies on flow of funds to support the first in.

If it were not a ponzi, everyone could call them up and request their money right now, saying I'll take my chances on something else without the entire fiat monetary system crashing down.


Sathington Willougby's picture


Well a Ponzi scheme is voluntary and they're doing this one at gunpoint so it's worse.

Dooud's picture

Spoken like someone already collecting Social Security or expecting to collect soon. Best plan is don't count on getting any of it. If we all convert to Amish, then we don't have to pay you know. Only have to give up electricity, no big loss.

Bicycle Repairman's picture

I know you are joking, but just in case prepare to have your butter churn confiscated.

the grateful unemployed's picture

hey i did that yesterday. i missed the entire Obama speech, and the mini super bowl, which frankly is a bunch of gay dilettantes in spandex.

Bicycle Repairman's picture

The ignorance of the SS system displayed here is stunning, as is the ignorance of the political realities.  Many see Obama's cutting the payroll tax as the beginning of the end of SS.  So has anyone not gotten their checks?  Nope.  Obama and the Congress know that to miss one check would be political suicide.  Obama is borrowing the money.  Since you'd rather have the money for wide screen TVs, your kids will pay instead with interest, real interest, not phony baloney non-marketable IOU interest, fucktards.

rudykazootie's picture

At the risk of revealing my weak math skills, isn't it true that imports have NO impact on GDP?  Taking your formula:  

GDP = Consumption + Investment + Government Spending + Exports – Imports

Doesn't an imported product show up on BOTH sides of the equation (both as Consumption AND Imports)?  In other words, the worthless toy you buy from China would appear as an import, but also as consumption when bought by the consumer, effectively cancelling each other out.

If that's correct, I'm not saying that running a huge trade deficit is good, just that it wouldn't have an effect on GDP.

Assuming I'm missing something, thanks in advance for keeping the ad hominem attacks to a minimum...


MarketTruth's picture

CNBC... Rick Santelli... Social Security is a a Ponzi scheme


rudykazootie's picture

At the risk of revealing my weak math skills, isn't it true that imports have NO impact on GDP?  Taking your formula:  

GDP = Consumption + Investment + Government Spending + Exports – Imports

Doesn't an imported product show up on BOTH sides of the equation (both as Consumption AND Imports)?  In other words, the worthless toy you buy from China would appear as an import, but also as consumption when bought by the consumer, effectively cancelling each other out.

If that's correct, I'm not saying that running a huge trade deficit is good, just that it wouldn't have an effect on GDP.

Assuming I'm missing something, thanks in advance for keeping the ad hominem attacks to a minimum...


The Alarmist's picture

The formula comes from the old GNP ... Consumption is domestic goods consumed.

AdahPrice's picture

As a rico suave stockbroker, I must say, wow, did I get drunk last night.  Also, SS is a ponzi scheme, so turn your life savings over to me, so I won't have to flip burgers.  By the way, bears make money.

malek's picture

the Trust Fund is loaded with treasuries

You forgot one very important word there: "non-marketable"

blunderdog's picture

"So, what does cutting payroll taxes accomplish?"

It's a tax cut for the poor and working-class, moron.  Duh.

Maybe you think only tax-cuts for the rich can be good, but I'd make the case that boosting demand by cutting taxes on the people who spend 100% of their earnings is a good idea for a dead economy.

Would you suggest increasing payroll taxes?  How about eliminating the earnings cap?

(Tyler? Better trolls, please.)

Bicycle Repairman's picture

Dude, the cut in the payroll tax is simply Obama buying votes.  Yes, the working class will spend the money immediately, but to the extent they spend it on Chinese goods, the USA economy is definitely NOT stimulated.

blunderdog's picture

So a tax cut is only good when it buys rich people's votes?

the grateful unemployed's picture

dude he's buying them with your money. the mortgage cramdown program with 4% mortgages for everyone, will go onto Ben B's balance sheet, which is your taxpayer liability.

FeralSerf's picture

Bullfuckingshit! It's not his money! It's the (mostly) retired folks' money.  They're the ones that have their savings in CDS drawing real negative interest rates!  And while the robber barons are stealing the retirees savings on this end, they're making up for it by stealing their social security pension too!

Bicycle Repairman's picture

I understand.  I've got an answer for the cramdown, I'm getting the payroll tax cut and ultimately SS as well.

captcorona's picture

It means that the end of the Social Security Ponzi ends that much faster....

blunderdog's picture

How do you figure?  There's no connection between receipts and spending.

On the off-chance you ARE correct, it sounds like the perfect reason to continue.

captcorona's picture

Lets try this another way..it means that the unfunded liability's take up more of the Federal Budget to pay off the promises made by the Social Security tax..sooner than we thought.


How's that work for ya?

BTW.. Justice Cardozo was the 1st Latin Supreme Court Justice not

Sonia Sotomayor

blunderdog's picture

So what?

This is not a problem which will be solved by lawyers, I guarantee.

catch edge ghost's picture

Social Security is never going away.  It is an integral component of the system. For the central planner, it is as crucial as the fiat, the tax code, the legal tender and bankruptcy laws, the minimum wage, etc.  Without a mechanism for a flexible, mandatory payroll deduction and a minimum wage, it beomes hugely difficult to manipulate the cost of labor. Without those controls. every thing else the planner attempts delivers him only agony.

I believe the guttings have nothing to do with stimulus or GDP, that these are deliberate steps in Social Security's reformation with shocks and "offers you can't refuse", to be disclosed later. As in 2016-2024, pushed by which ever GOP front man is installed.  It will come bundled with tax reforms to lower income taxes and increase consumption taxes.

When it is complete, workers will remain subject to mandatory savings. That capital will continue to flow where it always has, into corrupted markets. To the peasants though, it will look and feel more like a 401k than a Ponzi. 

They will seem to have choices.  Will they put it in the Emerging Markets -fuck China Value ETF or in the Mega Cap America Fuck Yeah Growth Fund of America Fuck Yeah Fund?  Hard to know...

Of course, that's just a beginning, I'm looking forward to the 5x NY Yankees Ultra-Long Concessions ex-Budweiser type of funds.

captcorona's picture

Everything is going away...the question is the time line..On a long enough time line the survival rate for everyone is ZERO...that means this Country, You, This economic sytem, that means this World order..The question is... does in happen in your lifetime or later. You must be new to this site..scroll up and read the top right corner.

Are you kidding's picture

All I give a fuck about is MY lifetime...and you?