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Social Security in violent transition?
Jackie Calmes at the NYT has a good summary regarding the last minute effort to get an extension of the 2% payroll tax reduction for 2012. (There is consideration this morning for a two month extension) There are some subtleties of the debate that are worth noting. Both sides agree that an extension should happen, but within both parties there is surprising opposition. The lovers of Social Security see the handwriting on the wall. They fear that a second year of a payroll tax break may be the last step leading to significant changes in America’s biggest social program.
However, that the payroll reduction hurts SS is a common misperception. That's not correct. Every month, the Treasury transfers cash to SS in order to make up for the shortfall. I follow this stuff; if these transfers had not been made, I (and a bunch of others) would have blown the whistle months ago.
As a result of these transfers, SS ends up unharmed by the tax break. Other taxpayers foot the bill. But since we have a deficit to begin with, this just adds to the countries red ink. Uncle Sam is digging into one pocket and transferring wealth to SS. This is the socialization of Social Security. What does it mean if SS becomes a ward of the state? Charles Blahous, an ex Bush advisor had this to say:
“The payroll-tax cut would take a major step toward transforming Social Security from what it has long been — an earned benefit, funded by separate worker payroll taxes — into an income-tax based system more akin to welfare.”
For years the SS defenders have pointed out that SS is self-funding and does not contribute to the deficit. That was not true in 2011 (to the tune of $115b). The on-budget expense/increase to public debt will be $120b in 2012. That’s real money.
It's an unfortunate fact that the US economy will flounder if workers pay only 2/3rd of the statutory rate in 2012. That’s how fragile the economy is. It’s not likely that things will be much different a year from now. Another “one time only" extension of the FICA tax breaks will be on the table twelve months from today. From the Times:
Robert Reischauer, Ex CBO and SSA.
“Imagine that next December the unemployment rate is 8 percent and a year later it’s 7.4 percent. We’ll still be trying to stimulate employment and terminating the payroll tax holiday will be a big hit on most families, one that will hurt job growth.”
Reischauer is right, we will not revert to the statutory rates, much less the 1% increase that is require to stabilize SSA. I think he's also correct with his projection of a huge fight:
“The nightmare that I have is that when it comes time to raise the tax back up to 6.2 percent, conservatives are going to propose that these two percentage points of payroll tax be devoted to individual accounts. That will precipitate a huge fight and could change Social Security in a fundamental way.”
There is a huge brawl in front of the country on this issue. Folks on both sides are deeply entrenched. The following is an exchange I saw on Angry Bear blog. It's an example of the rhetoric we will get, The fellow who wrote this, Dale Coberly, is a fairly well-know contributor to the SS debate. Dale loves SS and hates anyone who thinks that changes are required. If you have any doubts how visceral a fight we're in for, consider this bit of fluff:
rjsjust a heads up...Bruce Krasting says Social Security 2011 - Another Bad Year...he concludes: The current thinking is that SS is a problem that can be worried about in another ten years or so. That's simply not true.12/08/2011, 13:00:51– Reply
coberly
rjsthere are bigger liars than Krasting writing about SS. I can't keep up with them all, and with Obama killing SS outright with the permanent payroll tax holiday, and the Democrats and Progressives rallying behind him, there is nothing more I can do.
Maybe Krasting will be out of a job soon.
The stalwarts of SS recognize that the program is now vulnerable. They want bad things to happen to those who believe changes are essential. We're going to have a fight. A big one. Think, “Age Warfare”.
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Trust fund is worthless nonsense. Practical example: I go to work this month, make $4000, stick $1000 in my left pocket, call it a trust fund and then immediately write an IOU and borrow and spend it all. How much money do I have for retirement? none. Old folkes like to believe they "paid for their benefit" even though they elected politicians who ran deficits every year and spent their social security rather than cut spending or raise taxes to preserve it.
I should support the Social Security System? They pay my parents, uncles, and aunts based on their best 10 years of earnings. They're going to pay me based on my best 30 years? Sure, that's fair. But the generation ahead of me paid for their lucrative 10-year calculation? No. My rates are higher than theirs relative to expected payout. The big lie is this: They say the poor and marginal are not sophisticated or responsible enough to save for retirement. Bunk. They generally consume more than their marginal productivity the minute they start their public school education. A district pays 13,000 a year to educate someone who then earns 16,000 a year? But consumes an average expected 450,000 in lifetime Medicare benefits alone? And that's 30% of workers? And we can sustain this? No. But don't tell the old folks what their medical bills are relative to their past contributions. They and the physicians guild will both freak on you. "What, do you hate old people?" No more than they hate young people, by that logic.
Ropingdown, you bring up an interesting point I have been considering recently. It is the fact that many, even the lower level workers may be consuming more than they produce. Minimum wage, regulatory restrictions, etc. may actually cause a net loss for many. Now, the chronically unemployed consuming welfare, housing, food stamps, free education/babysitting, medical care, etc. are the easiest to see and calculate but there is still more to it. Frankly, it is depressing as I continue.
Add minimum wages, mandatory benefits, regulatory requirements and taxation and it becomes hard to come up with net productivity. Consider the fact that the entire U.S. government including your state government, county, etc. is full to overflowing with dead weight loss workers. In essence, their work causes you to have to do more work to file, certify, record, apply, recertify, reapply, resubmit, pay, hire more accountants who produce nothing, etc. The fact that we have an economy at all is a freaking miracle. What it means is that people who produce real goods and real services with real value are many multiples more productive than we may think. In the end it allows a huge socialist-collectivist-redistributionist state with completely nonproductive people in terms of welfare and government employees.
I personally think it has to fall. It will be crushed by its own weight and it will be ugly and probably violent.
I take my previous post back, apparently there are still some stupid/ignorant people who buy into the "trust fund" story. In 2011, SS is broke in the sense that it can no longer pay the promised benefits with the income it receives from taxes. What would you call a brother in-law who couldn't pay his bills from his income and only made it through the month by borrowing money from someone else?
Get a grip gramps. Government takes the money and spends it however it wants.
The value of your SS "account" is as solid as a FRN.
It's an interesting quandrary, I suppose. The thing is, as a society, we Americans refuse to pay for things. Our government tells us we don't have to, so many people have come to believe it.
I recommend a tax strike, personally. The laws and the promises and the IOUs and such are only a problem because we're paying for our politicians to lie to us. Stop paying them and they may have to start telling the truth.
I like it. But the pragmatist in me says that if that happens, they'll simply print more funbux to cover the shortfall, and give some of those funbux to certain mouth-breathers with uniforms and guns to persuade me as to the errors of my tax-phobic ways.
you've already stopped paying them dillweed, you (in the aggregate) receive two dollars worth of service for one dollar in taxes. if you want your government back you have to either fully fund current spending, or cut spending back to a level where your taxes will pay for the services.
what this is is Representation Without Taxation, and your elected officials don't give a crap about you really because you don't pay the bills. but i think we can restore the powers of Congress, by impeaching one more President, and making it stick, and then stripping his office of all the powers that office has usurped over the last few decades. (and cut back SCOTUS while we're at it)
so by not paying your taxes the ratio of revenues to expenditures could be three or four times and your elected officials will live on K street, they won't just dine there.
vote : I really don't think I'm getting two dollars for every dollar I pay
vote : I know what you're saying is true and if I pay no taxes that will fix it
just curious, i consider these facts to be the basis of discussion, we spend more than we gather in revenue, taxpayers in the aggregate are getting something for nothing (maybe you don't like where the money is spend thats' another story)
<<. . .taxpayers in the aggregate are getting something for nothing. . .>>
So TPTB have decided that they will furnish dogshit to the people for some astronomical sums of wealth and the people therefor are getting something for nothing, eh? Nice logic!
The total amount of wealth that is consumed by the federal government is much greater than the amount of dollars they collect in taxes. Every dollar that is printed makes someone's savings worth less. Those are the dollars that you claim the "taxpayer" is not paying. Most of this inflation tax is paid by the mostly elderly that thought they were saving for their retirements. It is being spent on an out of control military industrial complex and the financial "services" and insurance "industries".
Feral... Nobody told you that the inflation tax is a flat tax that hits all citizens the same? Ten percent inflation (unreported or not) is ten percent for everything all the time for every person using dollars. It has the same exponential affect on income as on spending, at all levels. Government, corporate, personal, the only way it fails to help you is you have nothing to inflate to start with. Half, or even most here are GOP shills that would support a flat tax, well the Fed gave you the biggest flat tax there is and now everybody is whining about it.
Collectivist measures can not lighten the burdens carried by individuals.
and the truth trumps your political philosophy
The truth is that humans are individuals. Maybe it's different on your planet.
So, fuckwad, do you think we should be donating discretionary income to our government so that the spending can continue?
Remove excessive military spending, welfare for corporations, tax breaks for the rich, bailouts for banksters, earmarks for crony capitalists, and viola, we get less than 50 cents back for every dollar we pay in.
you only half a complaint if you get my drift
You have English, please?
So for every dollar they steal from me I get two dollars worth of bank bailouts and dead Muslims? Wow, things are looking up!
i notice my mother pays $100 a month from her SSN to Medicare. just about every COLA she gets is one hand taking from the other. (this is another reason for taking SSN early, those years before you go on Medicare that money is yours to keep - any pay your own healthcare, sigh) then of course you have to buy supplemental. Obamas health plan isn't just A ripoff, its THE ripoff.
but the pols can save SSN if they just reduce SSI benefits and send those back to the state. let the state take care of the disabled and all the egregious one time perks people receive.
i'm certain they will honor the payments to retirees. (and after the great deflation, those meager payments will actually look pretty good) i'm also certain the post office will be bigger and better in twenty years than it is now, because government isn't going away, that's just conservative hysteria. without jobs what are you going to do, hunt buffalo on the plains? conservatives have this dream world in the back of their head, when they're not playing footsie with strangers in the public bathrooms. but i'm not worried about gingrich, the more noise they make in the campaign the quicker they fall into line. (see Obama)
its just a matter of setting priorities, retirement benefits for SSN and package and transportation security for the post office.
It's a matter of setting priorities for the use of other people's money.
return to the funds original intent, retirement, and strip away the layers of entitlements over the years, including medical payments over and above what medicare or medicaid provides, and put that back to the states. the system will do just fine filling its basic obligations
Keep on tinkering, Mr. Goldberg.
so old farts eating cat food will be spared that indignity? dickens covered your point a few hundred years ago
Dickens wrote in the mid-nineteenth century -- about 160 years ago -- which is hardly "a few hundred years ago." At least you manage to consistently get your facts wrong.
Social Security became fraud when the trust fund was emptied and refilled with IOUs. The Federal corporation is negligent in it's fiduciary duty. To say that the Treasury complies with that duty, is delusion. debt upon debt brings poverty.
http://georgesblogforum.wordpress.com/2011/11/02/the-daily-climb-2/
Everybody smart knows what will happen
Tax rates will rise in retirement, reducing your benefit
Benefits will be graduated and means tested, reducing benefits
Medicare will be means tested with higher premiums for higher earners, reducing benefits,
And the government is going to be more aggressive about grabbing your home and assets when u go to a nursing home.
Whats that you say? You wont go to a nursing home? If you have a stroke and become immobile or have severe dementia adult protective services will get a court order putting you in a nursing home if you or your family cannot demonstrate that you are getting 24 hour care and equivalent nursing care at home as you would in a nursing home.
How do I know? I am a doctor and APS brings these people all the time to one of my units, a geropsych facility, under court ordered admission while they obtain permanent guardianship to ut your ass permanently in the nursing home. Then they dispose of your assets to pay for it until you are broke enough to qualify for medicaid. Your childrens inheritance is now gone.
Do like me. Start your estate planning now so you are untouchable. A revocable living trust is a start. You need to move your assets so the state cant get them. Work with a medicaid medicare planner. It will be the best 500 bucks you ever spent.
It is happening already. Social security and all other benefits are becoming welfare. The problem becomes that it is better to be poor than work and produce things. That is why you bankrupt grandma to get her on Medicaid for the nursing home. You get more by having less. Frankly, I actually don't have an ethical problem with the State taking assets to pay for a service up to a point. If you spend everything you have in life to save your life...for awhile it is a fair trade. The physicians, staff and providers of those facilities and care have to make a living, as well. There is no inherent right to get all their services for free. Having said that, there is room for charity but that is a private, not public affair.
Great post...I hope everyone reads it. But you forgot about the part that if Grandma or Grandpa spends all their money and liquidates their assets and ends up on Medicaid, Medicaid can go back 5 years and demand any and all monies that were gifted or given to children and grandchildren. They are now talking about going back 7 years. Nightmare.
Just a word of caution; about 15 years ago went thru this song and dance and as I recall a revokable trust is not really a trust and can be broken as can so called living trusts. I ended up having a very bright guy draw up a trust note that was so good even atty's wanted copies of it as most of them admit they really don't know what they are doing simply because it is not taught in law school with any regularity.
If there were any place that I would be very careful about it would be in writing trusts. If done wrong, the results can be horrific depending on the money involved.
Not saying you are wrong, but the IRS is very specific on what a trust is and what it allows. Milestones
Also it is not fair that only the non productive will get the most money and benefits. Asset planning can make you look poor on paper. Only chumps will get penalized. The non productive and cunning will get full bennies. In an unfair system that rewards non productivity there are ways to game the system.
Looking poor... not to mention benefits if you are in a profession with high risk of lawsuits. When the SHTF and you are already structured, less worry. When the SHTF, its too late to plan.
Hehe very true.
Lawyers frequently sue for more than your insurance can pay in order to pressure you to settle. There is hardly anything in my name that can be touched, so I am not scared to go to court. If they get too aggressive i wouldnt mind a two year sabbatacal. Never had two months so i dont know how to spell it. In the middle of the second year declare bankruptcy.
Your honor I have health problems and no prospects right now. I need a fresh start.
It takes years to figure out how to make yourself judgment proof yet still maintain functional control over your assets. You also need an aggressive junk yard dog financial planner and it helps to have family you can trust 100 percent.
Looking poor... not to mention benefits if you are in a profession with high risk of lawsuits. When the SHTF and you are already structured, less worry. When the SHTF, its too late to plan.
I thought this discussion was about social security, not banking.
The world's biggest forced Ponzi is in trouble? Say it ain't so!
The Latest Rumor: Fed To Fund IMF, Bypassing Congressional Refusal Of European Bailout
http://chasvoice.blogspot.com/2011/12/latest-rumor-fed-to-fund-imf-bypas...
SS=middle class welfare, community health program spending, SSI (even children can collect), college benefit for survivors, and what have you.
Its as though the tax man is offering a big rebate if you buy today.
Unfortunately, you have no choice.
Are you talking about social security, or veteran's (and I use that term loosely) benefits?
SS=Overfunded middle class welfare.
TARP, PDCF, TSLF, TAF, QE, QE2, QETWIST, TAX-FREE TRADING, FANNIE, FREDDIE, WARS..... = Unfunded welfare for douchenozzles like you.
It's about a 25 to 1 ratio....yet Granny's the problem?
Go ahead and conflate away any chance of clarity, you do it so well.
And yes, when talking about SS granny and gramps are central to the issue.
btw I come from a long line of douchenozzles.
You got a problem with that ?
Ahem, it was kind of obvious.
Bruce,
Here's how it's supposed to work. When you borrow money from somebody, you have to pay them back PLUS INTEREST, right?
For 28 consecutive years, Social Security has provided Congress with a slush fund, with surpluses totaling more than $2.5T. Here's the data if you'd like to dispute that:
http://www.cbo.gov/ftpdocs/120xx/doc12039/HistoricalTables%5B1%5D.pdf
(Table E-1). And this is "revenues vs. outlays". Go through the entire data presented and you can verify that this does not include the interest that should have been compounding.
Now let's assume that Congress "borrowed" that money at the psychotically low rate of 2% annually. Go do the math, I'll wait.
You'll find that with the above assumptions (unfair to SS participants as they may be), the amount owed to the system stood at more than $3T at the end of 2010. In the sake of honesty, you should have adjusted for interest due.
More myths:
"Treasury transfers cash to SS" - Treasury doesn't have "cash," they have IOUs, so it's really not fair to call the deficit "real money." You're selectively determining what is real and what's not.
"Other taxpayers foot the bill" - Again, Bullshit, unless by "other taxpayers" you mean children yet unborn.
Lastly and most importantly, you need to recognize that that extra "$1000 per household" is part of a larger scheme that adds about $24,000 in new debt to that same household's ultimate tax burden. And that most of that additional $23,000 winds up in the hands of insolvent bankers, war profiteers, useless government employees, etc. etc. etc.
What a fuckin' sweet deal.
Please explain how this occurs when you are actually borrowing the money from yourself?
It's akin to someone thinking that he still has all the money he's ever transferred from his savings account to his checking account because he's written IOU's out to himself.
Stop thinking of SS as a seperate entity. It is the State. Plain and simple.
I've already responded to one person too stupid to respond to today (maybe two...no wait maybe three), that's my limit.
Good. Now you have time to go take Accounting 101, and learn about consolidated accounting of 100% owned subsidiaries.
Do they teach anything about "fudiciary accounts" in 101?
Is the money in your bank account your money or the bank's money?
When you borrow money from somebody, you have to pay them back PLUS INTEREST, right?
Boy did you wake-up on the wrong planet.
Can I borrow a few bucks...