Social Security and Medicare shortfalls

[jreeves]

NEW YORK (CNNMoney.com) -- Treasury Secretary Henry Paulson, saying that Social Security is "financially unsustainable," called Tuesday for quick action to keep the system strong and released a report detailing the program's funding shortfalls.

The federal government will have to start paying back what it owes the Social Security trust fund in 2017 so the program can continue paying 100% of benefits. By 2041, if the system is left unchanged, Social Security will only be able to pay out 78% of benefits promised to future retirees.

http://money.cnn.com/2008/03/25/pf/soc_sec_trustees_report/?postversion=2008032517

Yipee, makes me want to jump aboard another unsustainable social program, universal healthcare.

 

[RetiredGySgt]

No No, Liberals all insist there is no problem, well rather they have insisted since Bush said there was a problem, before that they agreed there was a problem and as soon as they have control of the White house they will agree there is a problem again. There is of course a word for their behavior.

 

[indago]

Journalist Jay Bookman wrote for the Atlanta Journal-Constitution 27 March 2008:
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The nation's biggest and longest-running financial scam isn't playing out in the mortgage industry or on Wall Street. It's headquartered in Washington, D.C., and they call it Social Security.

This week, in fact, some of the leading perpetratators of that scam called a press conference, hoping to frighten the American people into extending the fraud's lifespan. As people such as Treasury Secretary Henry Paulson and Labor Secretary Elaine Chao came to the microphone, you could hear the nervousness in their voices. They know that a day of reckoning is coming.

As in most such scams, there are two versions of events. One is the official sales pitch used to bring in the suckers. The second is the hidden reality, the way the racket really works.

In this case, both versions begin in 1983. That year, Congress and President Ronald Reagan agreed to increase Social Security taxes on the working and middle classes well above what was needed to support the retirement program in the near and midterm. Surplus revenue from that higher tax was supposed to go into the Social Security Trust Fund, to be drawn upon later as the baby boom generation moved into retirement.

Officially, the plan has worked pretty much as promised. The surpluses have indeed rolled in — in fiscal 2007 alone, Social Security taxes raised $175 billion more than the program spent. Thanks to surpluses accumulated through the years, on paper Social Security is financially sound through at least 2041.

But here's how things really work: Once collected, the extra taxes charged to the working and middle classes for Social Security haven't gone into the Social Security Trust Fund. Instead, they have been treated exactly like income taxes and have been spent running government. As a result, after 25 years of paying extra taxes, tens of millions of lower- and middle-income taxpayers have nothing to show for it but government IOUs.

For the most affluent taxpayers, however, the 1983 deal has been sweet. First, they are largely exempt from paying the Social Security surtax. In 2007, for example, Social Security taxes were collected only on the first $97,500 of a person's wage or salary, and not collected at all on other forms of income.

That has produced gross inequities, as billionaire Warren Buffett has repeatedly pointed out. According to Buffett, he pays less than 18 percent of his enormous income in combined federal taxes. But because of payroll taxes, his secretarial and support staff pay a combined rate of more than 30 percent.

In fact, as Buffett and others point out, President Bush's tax cuts for the affluent would not have been possible without the trillions of surplus dollars collected from secretaries and other working Americans in the name of Social Security.

But pretty soon, that scam is going to come to an end. With baby boomers now retiring, the Social Security surplus declines every year. By 2017, when the surplus disappears altogether, two things will happen:

• Without the hidden subsidy from Social Security, the true size of our federal deficit will become clear.

• After 34 years in which the general fund was subsidized by Social Security, the flow of money will reverse. The general fund will be tapped to subsidize Social Security benefits, which means taxes will increase, particularly for the affluent.

That prospect has certain sectors of Washington in a low-level panic. President Bush's Social Security "reform" was one effort to try to squirm out of the deal cut in 1983, and other efforts to solve the problem by cutting benefits to retirees are sure to follow. As Paulson put it this week, "the sooner we take action to strengthen Social Security's financial footing, the less drastic the needed reforms will be."

Again, on paper, Social Security's financial footing is solid through at least 2041, and working Americans have been paying extra taxes for 25 years to make it that way.

But now, when they're about to start collecting on the deal, their leaders want to deny the deal existed.
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[indago]

On the date 5 May 1991, Congressman Jim Slattery, (D., Kansas), member of the House Committee on Banking, Finance, & Urban Affairs, and former member of the Budget Committee, appeared on the program It's Your Business. During the discussion, he declared: "It's time to be honest about the Social Security fraud too; and that's something, from a generational standpoint, is the biggest intergenerational fraud ever perpetrated on one generation of Americans by another."

The record of the Eleventh National Conference on Social Security, entitled "Social Security in the United States - 1938", such conference held in New York City, 8 and 9 April 1938, under the heading "Social Security Reserves and Treasury Manipulations", Arthur A. Ballantine, former Under Secretary of the United States Department of Treasury; Director, American Association for Social Security, and addressing a projected reserve by the year 1980 in the amount of $47 billion, reported:
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Under the present Social Security Act, this great reserve is to be built up by billions of dollars which are to be taken from the payroll taxes over and above the amounts needed for current payments for old age benefits. But so long as the Federal budget is unbalanced - and unfortunately the prospects in that respect do not appear to be improving - the reserves set aside from these taxes are actually expended for the current needs of the government and are not held in any form for old age benefit payments. The payroll taxes today are used to meet the miscellaneous expenditures of the government and do not, as far as I can see, in any way promote the ultimate security of old age.

RESERVES ENCOURAGE EXPENDITURES

Even if the budget were balanced, it is most doubtful whether the reserves which are to be set aside from year to year can actually be applied toward the reduction of the outstanding national debt. The habit of spending the reserves for current needs is becoming more ingrained and decided resistance will be increasingly felt to any suggestion that the reserves be used for the reduction of the debt as a means of increasing the financial stability of the government. In fact, the enlarged current expenditures made possible by the reserves will encourage the maintenance of a scale of federal expenditures which will become a definite barrier to meeting the old age payments when they become due.

THE MISTAKEN ANALOGY WITH PRIVATE INSURANCE

Obviously the Secretary of the Treasury was influenced by the mistaken analogy of the federal old age benefit plan to private insurance. Private insurance companies are rightly required to set up adequate reserves to cover future liabilities as they are incurred. These are, of course, invested in sound securities - securities other than the obligations of the insurance companies themselves. But when applied to an old age insurance plan operated by the government, a full reserve is not only unnecessary but is ineffective and a most dangerous delusion. Not only has no other government attempted to set up reserves for old age payments on a comparable scale, but reserve provisions such as our government is undertaking are a temptation to government over-spending. Thus, while the security for old age benefit payments is fictitious, the encouragement to excessive expenditure is real. The present plan is merely one of eating the cake and fancying that we still have it.
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The Social Security pamphlets declare that Social Security contributions go into special trust funds, and that these trust funds are soundly financed both for the short-range and long-range future. The 1975 Report of the Quadrennial Advisory Council of Social Security declares, on page 45, that the system is based on the "current cost" method: "Under this approach, no fund is created during the life of a worker from which his benefits are ultimately paid. Instead the social security taxes he pays are immediately paid out by the government to persons who are already beneficiaries. His own benefits will be paid from taxes that are collected in the future from persons who are then working. The tax rate is set so as to provide tax receipts that approximate current expenditures. In essence, the plan transfers money from one generation to another with the amount taken from the one generation being measured by the other generation's benefit requirements."

W. Allen Wallis, from Rochester, New York, Chancellor of the University of Rochester, and former special assistant to President Eisenhower, and Chairman of the aforementioned committee, testifying before the Joint Economics Committee on the date 27 May 1976, declared: "Many people think that the Social Security taxes taken out of their wages and sent to Washington each month provide for their old-age pensions and other Social Security benefits. This simply is not the case. Those taxes are levied on workers in order to pay benefits to people who already have retired and are drawing their Social Security pensions, or to pay other Social Security benefits to those who already are drawing them.... When you pay Social Security taxes you are in no way making provision for your own retirement. You are paying the pensions of those who already are retired. Once you understand this, you see that whether you will get the benefits you are counting on when you retire depends on whether the Congress will levy enough taxes, borrow enough, or print enough money, and whether it will authorize the level of benefits you are counting on. The situation is in no way analogous to putting money each month into a private insurance company which invests it and undertakes to pay you an annuity. Misunderstanding of the pay-as-you-go nature of Social Security is widespread among journalists and the public. Indeed, this misunderstanding seems to have been deliberately cultivated sometimes, in the belief that it makes the Social Security System more palatable to the public."

Publication No. (SSA) 79-10053, August 1979, from the United States Department of Health, Education, and Welfare, Social Security Administration, declares: "Conceived as a compact between generations and between the people and their Government to meet the basic income needs of Americans, social security provides a financial foundation on which to build other savings for future income. This commitment is a "pay-as-you-go" system, making a direct transfer of money from workers to those who are retired or disabled, and to the families of workers who are disabled, or have died. Your benefits will be provided from the taxes of future workers. Today's taxes are used for today's needs."

This statement alone carries the basis of fraud and deception. The system was conceived as a trust fund for the future care of a participant. It was never thought of as "a compact between generations", whereas the future generations would become liable for the care of the participant. At the aforementioned hearing of the Joint Economics Committee, Senator Proxmire, while questioning the Commissioner of Social Security, James P. Cardwell, made this statement: "Furthermore, we have the capacity under the Constitution, the Congress does, to coin money, as well as to regulate the value thereof. And therefore we have the power to provide that money. And we are going to do it. It may not be worth anything when the recipient gets it, but he is going to get his benefits paid."

 

[RetiredGySgt]

You guys haven't been paying attention, The liberals on this board have all denied that social security taxes are used for general purposes.

 

[Toro]

Many countries have a broadly diversified pension system that owns more than just government bonds and earns more than a few percent each year. SS should start investing in stocks and other investments.

 

[BruceWayne]

But here's how things really work: Once collected, the extra taxes charged to the working and middle classes for Social Security haven't gone into the Social Security Trust Fund. Instead, they have been treated exactly like income taxes and have been spent running government. As a result, after 25 years of paying extra taxes, tens of millions of lower- and middle-income taxpayers have nothing to show for it but government IOUs.

Are not all instruments of debt nothing more than IOU's?

 

[jreeves]

Are not all instruments of debt nothing more than IOU's?

I thought the sacred Social Security trust fund was only for that Social Security recipients. Why should there be IOU's to begin with?

 

[BruceWayne]

I thought the sacred Social Security trust fund was only for that Social Security recipients. Why should there be IOU's to begin with?

How do you mean? Do you want the Social Security trust to consist of cash stuffed in a mattress?

The trust is invested in US treasury notes; THE safest investment one can make.

 

[jreeves]

How do you mean? Do you want the Social Security trust to consist of cash stuffed in a mattress?

The trust is invested in US treasury notes; THE safest investment one can make.

What is the rate of return on those treasury notes? Yes I don't want my money squandered on anything other than my retirement. Why not give people the choice of investing their money in 401ks or investing in Social Security?

 

[BruceWayne]

What is the rate of return on those treasury notes? Yes I don't want my money squandered on anything other than my retirement. Why not give people the choice of investing their money in 401ks or investing in Social Security?

The rate of return fluctuates, but is readily available if you want to look it up. Right now it's around 4.5% for a 30 year note.

Well, the unfortunate thing about social programs like Social Security is they're not about choice. Comparing it to a 401k doesn't really make sense, because they're not very similar.

 

[jreeves]

The rate of return fluctuates, but is readily available if you want to look it up. Right now it's around 4.5% for a 30 year note.

Well, the unfortunate thing about social programs like Social Security is they're not about choice. Comparing it to a 401k doesn't really make sense, because they're not very similar.

Yes it's perfectly reasonable to compare the two, since people would be able to invest what is being stolen now, to what they would be able to invest in a 401K. The rate of return on mutual funds 10 to 12 percent, seems like that is a lot more in line with inflation than the 4.5% people are currently getting under treasury notes.

 

[BruceWayne]

Yes it's perfectly reasonable to compare the two, since people would be able to invest what is being stolen now, to what they would be able to invest in a 401K. The rate of return on mutual funds 10 to 12 percent, seems like that is a lot more in line with inflation than the 4.5% people are currently getting under treasury notes.

First of all, I think you're vastly overestimating market performance for the future. Buffett estimates it at ~6-7%.

And once again, you're comparing apples and oranges. One is an investment, and the other is a social program. The 4.5% return the trust gets is not even related to the "return" that participants get (are you aware that Social Security was around for 50 years without any trust or T-bills, that doesn't mean participants saw a 0% return).
No doubt one could get higher returns by not "investing" in a social program, but they are different by design.

 

[RetiredGySgt]

How do you mean? Do you want the Social Security trust to consist of cash stuffed in a mattress?

The trust is invested in US treasury notes; THE safest investment one can make.

Wrong, the money is spent with a promise the Government will "pay" it back later.

 

[BruceWayne]

Wrong, the money is spent with a promise the Government will "pay" it back later.

Doesn't that in fact describe every T-bill in existence?

 

[RetiredGySgt]

Doesn't that in fact describe every T-bill in existence?

Exactly HOW will they pay back money they don't have? The SS is TAXES, they have no extra taxes to pay with to return what they have spent. That is why in 30 years the system will go belly up.

 

[BruceWayne]

Exactly HOW will they pay back money they don't have? The SS is TAXES, they have no extra taxes to pay with to return what they have spent. That is why in 30 years the system will go belly up.

They'll pay back the money the same way they've always paid back money on treasury bills.

Do you believe the US Government will default on its loans? That's not an impossible scenario, but it would be quite a dire prediction on your part that would have ramifications far beyond Social Security.

 

[RetiredGySgt]

They'll pay back the money the same way they've always paid back money on treasury bills.

Do you believe the US Government will default on its loans? That's not an impossible scenario, but it would be quite a dire prediction on your part that would have ramifications far beyond Social Security.

Have you been paying attention? The WHOLE reason taxes were increased in the 1980's on SS was because in 40 years we wouldn't HAVE the taxes to pay for it without BUILDING it up NOW. Using that money to pay for normal government functions was NOT the intent NOR purpose, it was to be INVESTED to prevent SS from going Belly UP.

In 30 years we STILL won't have the tax base and we will not have the money to pay back all the IOU's from the stolen fund.

 

[BruceWayne]

Have you been paying attention? The WHOLE reason taxes were increased in the 1980's on SS was because in 40 years we wouldn't HAVE the taxes to pay for it without BUILDING it up NOW. Using that money to pay for normal government functions was NOT the intent NOR purpose, it was to be INVESTED to prevent SS from going Belly UP.

In 30 years we STILL won't have the tax base and we will not have the money to pay back all the IOU's from the stolen fund.

It is invested; it's invested in United States treasury bills. I'm not quite sure that you're paying attention...

In 30 years, the US government will still be around paying back it's debt... I can all but assure you that. You're being quite an alarmist.

 

[RetiredGySgt]

It is invested; it's invested in United States treasury bills. I'm not quite sure that you're paying attention...

In 30 years, the US government will still be around paying back it's debt... I can all but assure you that. You're being quite an alarmist.

You realize where the US gets the money to "pay" back on the bills? Taxes...... No amount of paper is gonna be around to pay back the IOU's for the funds taken.

The ENTIRE point of raising taxes in the 80's was because in the future there would be no money to cover the program. The point was to raise money NOW and invest it OUTSIDE a tax base or hold it unspent.

Put on your little beanie and think for a second. If in 2040 we won't have the tax base to pay for Social Security, HOW exactly will the government have the tax base to pay back the money it took and covered with T bills? Not only will the Government now need the money it was supposed to be saving or investing but since it SPENT it now it needs to both pay it back AND give it out in Social Security payments. With the same tax base that won't be able to pay Social Security.