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The borrowing from the Treasury to replace the 2% tax reduction is the same process the Treasury uses when the trust fund interest and/or principal is tapped.
For example, since last year, the interest has been used to make up the cash shortfall via issuing debt held by the public to replace intragovernmental debt. The total debt remained the same, but more of it was debt held by the public and less of it was intragovernmental debt.
We should be using this process as an opportunity to explain how the trust fund income and principal is phantom.
Tapping the trust fund is the same process we use for all government expemses WHETHER A TRUST FUND EXISTS OR NOT!
I knew this would be bad news. Escapeclaws might as well climb down from his tree and let whatever slouching beast that comes devour him.
Nevertheless, possible last ditch solutions for cuts:
1) Cut back on wars. For instance we could defer bombing Iran for a few more decades. (Don't cry Cheney, we're just defering the war.)
2) Use insider trading profits from the Congress to shore up social security.
3) Tax the $20 trillion in secret offshore accounts at 100%. Of course, as many of the rich who have money in these accounts will explain, this would only subtract a few cents per capita from the budget deficit--not even enough to buy each of us a cup of bad coffee. Just do the math.
4) Put the money raised by the next 10 rounds of QE in the social security "trust fund" rather than giving it to Hank Paulson and his buddies.
5) Have Obama reimburse the government for all the iterations of photoshop that were necessary to produce an authentic birth certificate.
I doubt if any of these will be tried, because the administration would undoubtedly view them as favoring one class at the expense of another, which so far they have thankfully not been guilty of.
So kudos to BK for showing that there are no possible external inputs or ways of shoring up social security and that it must stand strictly on its own in terms of receipts, even if its aggregate balances have been used to finance other governmental needs, such as shoring up Lloyd Blankfein and Jamie Diamond (and don't forget our favorite, Bob Rubin).
Federal Debt Held by the Public by U.S. Presidents and party control of Senate and House, 1901 to 2010
Social Security will be cut in real terms or nominal terms. I suspect it will be in real terms as most people don't understand the implications of inflation.
The boomers also refuse to accept a cut (even though they presided over the government that stole the money, somehow that's not their fault and they expect young people to make up the difference) so their benefits will be inflated away with indefinite QE and bogus CPI adjustments.
First, you make the call that a cut will be made. Next, you say the Boomers refuse to accept cuts.
Have some more Kool-aid.
Social Security is a disgusting, deceptive, off Balance Sheet, SPV.
They refuse to accept nominal cuts. So the cuts will be made in real terms.
Thanks, Bruce, SS is one hot topic as the gobmint has spent many years making the system more complex.
One fact remains constant, however, a tax is just a tax.
These are not segregated funds. Even after the events of the last several years most Americans still "believe".
Bruce, i like your stuff on soc sec but just once could you reference the many solutions put on the table by policy wonks that have all kinds of numbers for various options of increasing revenues or decreasing benes....really, this is quite solvable in not very painful way....remember in the 80s, soc sec was within a couple of years of insolvency before it was fixed, we are much farther from insolvency than then.
Also, the general fed budget is solvable, we had almost no deficit in 2000, we could simply go back to 2000 policy, cut defense spending back to those levels, cut Medicare Part D altogether, undo tax cut to rich, and send some taxes back to 1980 levels...some of this will hurt, defense will especially take huge hit, but we will still have best military in the world and grandma will lose some pills, but shoot, we lived thru it in the 90s and those weren't such horrible times...
Just scrap the $106k cap, and put a FICA tax on all earnings, including dividends, Capitol gains, whatever....why should I as an employed wage earner pay into a system I long ago maxed out, while a independent contractor, who also has also maxed out their Soc sec, benes in previous wage earning jobs, gets to now show most of their earnings as dividends from an S corp and pay no FICA on them or a hedge fund guy gets to similar maneuver and pay no FICA tax?
If we scrap the cap and FICA tax all income even at a much lore rate than wagers, SOc Sec solvent for long time
Because moneymutt the whole idea of Social Security is for each person to fund what they receive. Not for 1% or 10% of the population to fund 90% or 99% of the rest. The income tax already does that.
The boogie men hedge-fund managers and s-corp owners if they do actually have employees, (and even hedge fund managers need a dedicated office midget to feed them caviar and serve them champagne), will be making employer contributions to social security.
Like Bruce has brought to light many times here the boomers systematically underpaid for social security and are attempting to pass the mantle to the next, smaller generation, by replacing their obligations with interest bearing bonds, which the next generation will have to pay the interest and principle of. Defacto the boomers have simply imposed another form of a delayed tax-increase for the next generation. It is these exact financial shennanigans that turned mortgages into casino chips through "securitisation".
No wonder the boomer generation bankrupted the most opulent country the world's ever seen. What amazes me is that even after this utter inability to budget or to take responsibility for one's own financial decisions some people actually have the nerve to turn around and blame their own irresponsible decisions and underpayment into their retirement funds by attacking a minority.
Buying a new Ford Explorer or F-350 every two years instead of putting the decision off for 5 years and saving money for retirement; might just have certain repercussions after all.
"the whole idea of Social Security is for each person to fund what they receive."
Ah...completely false. The system is slanted to pay out a higher percentage of actual taxes paid to the lower incomes. Someone earning the maximum each year gets a much lower percentage payout of contributions than someone earning 25,000 a year. That is the progressive part. The fact that they stop taxing at 106,000 and only on wages and not capital gains, dividends, etc is regressive. Social Security taxes are regressive when viewed as a percentage of TOTAL income. Something the top 5 percent of incomes are well aware of.
Blaming the boomers for any perceived shortfall is bunk. The knowledge of the boomer bump has been known for 60 years. More individuals contributing into the pool for 50 years before they draw benefits helped increase the size of the pool. Social Security was also revised about 30 years ago to fine tune the discrepancies. The parts of Social Security that are now dragging it down are disability payments, people drawing benefits when their spouse dies early and the whole family is drawing benefits and people getting benefit coverage after working only a few years. How many people do you know that are drawing SSI that are not really disabled. Stop blaming the boomers. It is nonsense promoted by those that would benefit from the destruction of Social Security and their ignorant partners who parrot whatever they are told.
" No wonder the boomer generation bankrupted the most opulent country the world's ever seen."
Doc , this is Bullshit. Did your parent's spoil you ?
Kinda, I was raised by wolves, a panther, and a bear...
What are you calling bullshit on? Is your opinion that the United States and EU have pristine balance sheets and the baby boom generation has handled state and personal finances well?
: "... the whole idea of Social Security is for each person to fund what they receive."
Oh, so when Social Security was first passed the life expectancy wasn't 63 yet the retirement age was set at 65? I must have misread it when I was studying...
Funny how a program to protect those who slipped through the cracks the last couple of years of their lives, has turned into America's golden retirement plan...
The 2% FICA "tax cut" is a vehicle for welfare payments. Democrats wanted to distribute welfare cash, but simply cutting checks is no longer politically viable. Cutting federal income tax isn't effective, since 50% of Americans no longer pay taxes. Since everyone still gets FICA deducted, it's long been a Democrat dream to means test and refund it.
Social Security 2011 – Another Bad Year
Submitted by Bruce Krasting
Here's the SSA outlay numbers from MTS. First the raw data. SSI is supplemental security income, a safety net program without dedicated funding, run by the Social Security Administration. FOASI is social security, FDI is federal disability. These include SSA overhead.
Oct-Dec09 FY10 Oct10 Oct-Dec10 FY11 Oct11
SSI 16 51 0 17 53 4FOASI 166 580 50 147 599 49FDI 36 126 11 32 132 11SSA total 218 757 61 196 784 64
And here's the comparison for the calendar year so far, deducted from the data above.
SSI 35 40 FOASI 464 501FDI 101 111SSA total 600 652
A reminder of their receipts (see my post above):
Jan-Oct 10 Jan-Oct 11
FOASI 458 402FDI 78 68SSA total 536 470
And put them together and here's the surpluses/deficits:
SSI -35 -40FOASI -6 -99FDI -23 -43SSA total -64 -182
That's mostly the impact of the payroll tax cut. By the way, there is an accounting mechanism by which the general budget is compensating the FOASI and FDI trust funds for the lost revenue from the payroll tax cut. I'm guessing Bruce's numbers for FOASI/FDI receipts include that compensation. Definitely payroll tax receipts are not going up.
It's also possible to check the SSA trust funds' operating surpluses/deficits from the MTS, by subtracting the interest they receive from the general budget from the Treasurys they purchase. These reflect the compensating mechanism I mentioned, so the changes exclude the effect of the payroll tax cut. I won't go through the whole math here, just show the results:
FOASI 24 6 FDI -21 -27SSA total 2 -20
So you can see there's a substantial deterioration in the SSA funds' operating balances, even excluding the effects of the payroll tax cut.
All the numbers I'm giving are in billions, of course.
Thanks Bruce for clarifying that the numbers you're quoting include the compensation that the general budget is paying to the FOASI and FDI trust funds for the payroll tax cut. I think that explains most of the difference between your numbers and the numbers I'm using from the MTS.
I still prefer the MTS numbers, but I guess it's a minor quibble. Getting back to another of your posts, I don't think either the MTS numbers or your numbers are very useful for tracking labor-market trends, because there's too much random noise in the numbers, which comes from the often big differences between the timing of when taxes are paid (and sometimes refunded) versus the timing of when work is done.
But best to you for paying such close attention to this very important space.
Yes the SS system needs some help. But the kind of help it needs is getting more people back to work so that the 941 payments expand. Also, raise the threshold limit to around $250K. OK, it is a PONZI scheme. But there are a lot of players. I for one worked my ass off all my life and SS is not the only source I have but it's no picnic and I could not live alone on just it. And I still work part time because I have to. Some of the working stiffs out there did get seperate plans through work and they cover the remainder. Some of those today don't. I'm sure McDonalds and WalMart are bankrolling 401K's at 100% matching contribution rates in huge balanced equity based plans for their floor employees.... NOT. So for the $7.50 per hour they make they have to fork over .65/hr. out of pocket income to ensure a retirement so guys like Corzine can run off and pretend it was the "Wrong Call". We need to reinstate the Glass Segal Act and kill all the bankers.
just let the illegals keep flooding in, problem solved
Immigration policy huge disaster.....legal or illegal....lack of domestic population growth meant government and companies hard up for revenue due to growth....so instead of becoming a lean and competitive economy that could produce a net export status....we flooded the country with immigrants legal and illegal to raise new tax revenues and growth revenues for companies that are not very competitive to gain new customers and hence growth.....and we have illegals from all over the world not just south of the border.....its all become a protected racket......we now have people who were born here across several generations leaving.....retirees and students.....
The next door lady, who I am nice to and allow a certain amount of my payment to her grandson to do maintainence gets the equivalent of a pension plan endowed with USD400k. She does not speak English and I am quite sure based upon the family history that she is not legal. Her long dead husband never put in the amount that she collects.Her family lays it all on the gringo to pay up for her four times per year visits to the emergengy room. She would be goood enough getting the fat SS benefit even if she was deported. If the family would support her fully, I have no problem. The family of her two generational spawn are tax feeders all. Her grandsons have been dwindling from gangster killings, but not without two lingering deaths that cost more than a million to the taxcows. None of them did anything but disrupt the public school racket when they were enrolled.
Who needs that? Why do we taxcows have to pay?
Average of 5.71% growth in benefits being paid.
767 billion in 2012811 billion in 2013857 billion in 2014906 billion in 2015958 billion in 20161.01 trillion in 20171.07 trillion in 20181.13 trillion in 20191.19 trillion in 20201.265 trillion in 2021 (half of today's total government income)
Shall be fun to watch it implode.
It's called the baby boom retiring...this was foreseen and planned for,
that is why FICa, meant to be self funding system, raised FICA taxes in 80s, so that Soc Sec trust fund would be receiving far more in tax revenue while boomers working, than it was paying out on benes. soc sec was in surplus for 25 years to build up a war chest to pay for when boomess retired and fewer younger people were paying into system. This war chest is now being drawn down, as expected,, it's just accelerated draw down becaus elf double whammy of great recession reducing tax revenue and boomers retiring early at 55 because they couldn't find a job...
You think FICA was raised in the 80s out of foresight and not just as a means to make up for tax cuts for the wealthy by screwing people who actually work for a living instead?
Of course the rest of Fed govt budget that did not want to tax at rate to pay for all it spent (two wars, Medicare part D, war on terrorism etc) borrowed from soc sec. Now it's really chapping politicians hide they have to pay Soc Sec trust fund back. Now that boomers are asking for their surplus back from FICA taxes set aside for them, ...this means when rest of Fed budget has to pay Soc Sec trust fund back, and politicians have to show new deficit spending as "real debt" not just loan from Soc Sec trust fund, somehting they considered soft money because apparently a promise they made to those in Soc sec system is not to be honored and can be broken at anytime, but a debt to a separate party, like China, who buys our tbills, that is something politicians will never default on and thus is hard debt. So fed govt loses twice/double now, first no "soft" hidden soc sec money to cover further deficit spending, second, real "hard" debt must be created to pay back previously hidden debt owed to SoC sec trust fund.
Soc sec is the only thing, beside higway trust fund, that taxed at rate to cover planned spending over a long period of time. Our defense budget, the next biggest the federal expense after entitlements, was never taxed for to sufficiently cover its costs over last few decades, neither was Medicare Part D, a huge budget-busting, deficit creater. When all these big increases to fed budget happening, taxes on middle class and rich were decreased, except of course FICA.....either all that money spent was necessary, and we should have taxed to cover it, or it wasn't needed and we should have cut defense spending down or never overpaid for senior pills so that spending was at a level we were willing to tax for. Soc. sec was willing tax sufficiently to make it solvent from 1980s to 2030s, but now it is seen as the irresponsible program? When all along defense spending was funded by debt? Why should solvent Soc Sec now pay for other programs that over spent or under taxed? FICA taxes are only taken from wage earners, not hedgies, not from capital gains or finacial transaction profits, so if all other fed tax revenue is too little to cover all other fed spending, and there is a huge deficit, and you cut spending on Soc sec for those retiring 20 years from now, you are repurposing those FICA tax revenues to pay for past over spending on defense and Medicare part D, you have just now taken taxes that the young working people pay, to cover tax cuts you gave to rich older people for the past ten years, simple as that
1.5 trillion deficit by 2021? Pfft, that's nothing Bernokio can't handle with his new high speed printing presses.
You gotta think outside the box Bruce. That 1.5 trillion would be a problem in a redeemable currency, but no problem in a fiat currency Ben can print till the cows come home.
Ya gottit geeze. That's why squid can keep selling prophylactic financial instruments which profits go straight to the writer's bottom line. They will most likely never be exercised. All thanks to the not so stealth helicopter of the FED.
The Trend will be increasing SS Deficits forever. Consider:
1. Boomer demographic. Larger number of Boomers are becoming elidgable for SS. The number of new retirees will grow much faster than retirees dying for decades
2. Retired Boomer are a double edge sword. The stop paying the payroll tax and start withdrawaling from it.
3. The Economy Sucks. Boomers are opting for early retirment if they can't find jobs, This pulls forward demand for entitlements.
4. This doesn't include Soaring Medicare costs, which are running yearly deficits around $300 Billion.
5. They can't raise the payroll tax very much. increasing the Cap does raise revenue very much because only a small percentage of the Population earns more than the existing cap. Raising the payroll tax rate will crush the middle class and the poor.
6. They can't cut entitlements without causing mass civil disobediance. Politicans that even discuss entitlement cuts will get booted out of office. No politician wants to leave public office during a recession\depression.
There is only One option: Print Dollars, until the dollar collapses. Then the union breaks up into regional nations.
Please, if go back to tax rates we payed in the 1980s, put a small tax on financial transactions, scrap the FICA cap and put some smaller FICA tax on all income, not just wages, (divedends of an independent contractor not consider wages, doe not have a FiCAtax) Soc sec more the solvent. Google and read some budget policy papers on Soc Sec there all reasonable, not-out-of-norm-for-tax-policy in 60s 70s 90s kinds of ways to raise more than enough money to make Soc Sec solven thru end of century and most of these tax sources will not kill economy, as they often were in place previously and did not kill economy, like in 60s, 70s, 80s...In fact a smal financial transaction tax might discourage bad things like HFT etc...
Not that new taxes don't come with some pain, of course it hurts, just like personally setting aside money for retirement hurts more than not saving and instead taking on debt... But we can easily do this if we wanted...but it seems making sure the rich pay ever decreasing amount of taxes is more important than keeping future seniors out of poverty.
I agree with most of what you've said, but can't help but notice you haven't suggested reducing the benefits. Both revenue and outlay need to be addressed, there is no tax-only solution to SS/Medicare.
Separate OAI from medicare. OAI is largely OK. A tweek at most is all that is needed. Medicare can never be fixed without reforming the entire health care system.
So what is the political problem?
OAI gives elder Americans a modicum of independence. This is an anathema to TPBT. Medicare feeds the medical industrial complex, so medicare is double plus good.
There is a need to separate SS into medicare, DI and OAI. OAI, assuming Obama's absurd FICA cut ends, is OK. Medicare can never be fixed without meaningful reform of the US health care system.
A point on inflation: some people assume that inflation will devalue OAI. These people need to understand that wages will be impacted in a similar manner, maybe worse. So if you are rooting for inflation to give the elderly "their comeuppance" or lessen your obligation to SS, be careful what you wish for.
This just in from Timmy G... "I have good news and I have bad news. The bad news is none of you are going to get any of your money back from Social Security. The good news is we are going to let everyone keep their Social Security number to help you keep paying us taxes and help us keep tabs on you. You're welcome."
I completely agree, Bruce. Social Security can't wait 10 years.
That's why the wars have to end immediately, the military budget has to be cut by 50% (which will still leave us with the most powerful military in the world), corporate tax loopholes have to be closed with extreme prejudice, the tax on carried interest has to be raised as high as possible, subsidies to oil and big agro have to be eliminated, a financial transaction tax has to be imposed and the top marginal tax rate has to immediately be raised to 75%, with more to come if that isn't enough. Under Eisenhower it was 90%, so don't talk to me about that not being fair. If unpatriotic, whiny multi-millionaires don't like it, they can move to Somalia.
While your at it....we should seperate church and state and stop subziding religious ventures into health care, education, and any other activity that can be manipulated through the tax exempt code....people worry about this country becoming socialist, like it isn't already....should ask themselves where the socialist masses come from....
Let SS die, don't want my hard earned money going to the blacks and disabled and elderly who didn't save.
its fairly late in the game to make this a race issue....hard to imagine someone can be this naive.....whites, blacks, and all the rest makeup the low SES demographic.....
Much better it goes to the fucking kleptocrats eh.
Divide and conquer. It works. Thanks for illustrating it so clearly.
Stop with the socialist bullshit!
What needs to be done is to end the spending, end the government tit that everyone can suckle at and level the playing field by destroying the tax code and implementing a simple flat tax.
Government has been picking winners and losers for centuries and we know from experience that they are shitty-ass pickers - they always choose themselves and their friends!
Govt has to be blind. How much you make, how old you are, how great you are at posting on some website don't matter. We need simple rules that everyone follows.
Stp the games, stop the progressive tax bullshit and stop the intrusion of govt into almost any parts of our lives. We don't need smug fuckers like you spewing your socialist crap about moving to Somalia because fuckers like you are bringing Somalia here and your too stupid to figure it out.
Fox News watchers and zerohedge readers are have a lot in common, apparently. You are saying Roosevelt and Eisenhower and Kennedy and even Nixon were socialists due to their belief in progressive tax policy? Go away from this site, learn English, read history and stop listening to Rush Limbaugh.
Why are Disability Benefits paid out of SS?
Who are the two retards that Negg'ed me.
Thanks for the answer Bruce.
The easy and stupid answer is "because".
The administration of both the OAS and DI Trust Funds has always been done by the Social Security Administration. Changing this monster bureaucracy is like stopping a run away train. Impossible.
I'm just concerned that Jon Corzine will abscond with the segregated SSI money. Oh wait, he already has.
US belligerency and warmongering around the world is agitating some to mobilization and possible action - - can China stop the NWO, or are its Communist leaders family members of the syndicate?
Bruce, I read your article twice and could find no mention of Obama and congress cutting the employee SS part of the FICA tax by about 30% for 2011. You figure that this might have affected revenues? This is an elephant in the middle of the living room. I figure the great man of the little people, Obama, did it to give the Kochsuckers more ammunition to kill SS faster. He is paid to shave points off the blue team. Did you mention it in your article and I just can't see it?
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