by | ARTICLES, BLOG, ECONOMY, FREEDOM, OBAMA, POLITICS, RETIREMENT, SOCIAL SECURITY, TAXES
Our Social Security System is bankrupt. In fact, there is not enough money in the entire world for the United States to make good on its entitlement promises to its present and future retirees. And one of the key reasons for this is that the government uses a fraudulent, incompetent accounting method to report its costs.
As a CPA, it is frustrating to hear Social Security repeatedly being described as a pay-as-you-go (“PAYGO”) system, which gives credence to something that is terribly incorrect. PAYGO operates by calling all social security payments received by the Government in a year as income, and all monies paid out as expenses. It does not account at all for the fact that millions of workers are earning billions of dollars of Social Security pension every year, but since it will only be paid to them in the future, PAYGO ignores it! It would be as if your local mom & pop store promised its employees a retirement pension, but never recorded it as an expense and never put aside any money to pay for it when it would come due. This is not only totally unacceptable to the accounting professions, the SEC, and the Department of Labor, but it would be a criminal violation with jail time for any corporate officer allowing it.
The fallacy of calling it PAYGO is that it reports employees contributions as income, but the purpose of these payments is to pay for their ultimate retirement pension – yet none of this obligation to pay future benefits is recorded.
We need to be including in our current budget the amounts we are promising to pay in the future! The promises that we’ve made in the past — what we are paying out today — are not a part of this year’s costs – these are old liabilities and are part of our already existing debt. The US debt is currently being reported as just over $19 Trillion. When the real social security debt is added, the true National Debt becomes almost $60 trillion. (As an aside, Medicare payments and benefits are treated the same as Social Security – if the unrecorded Medicare existing debt were also properly included, the National Debt would be over $100 Trillion – way more money than exists in the entire world!)
It is clear that these promised benefits have ZERO chance of ever actually being paid. And the longer our legislators allow this fraud to continue, the worse it will be for ourselves, our children, and our grandchildren.
by | ARTICLES, BUSINESS, FREEDOM, GOVERNMENT, OBAMA, POLITICS, SOCIAL SECURITY, TAXES
The Social Security Administration had record spending in fiscal year 2015, totaling $944,143,000,000. This total includes Social Security payments, disability payments, Supplemental Security Income payments, and the costs to administer these programs.
From CNSNews:
“As of September, there were 59,737,817 beneficiaries getting Social Security or disability benefits, according to the SSA. At the same time, according to the Bureau of Labor Statistics, there were 148,800,000 people who had either a full- or part-time job in the United States. That means there were only 2.49 people with jobs for each of the 59,737,817 Social Security and disability beneficiaries.
At the same time, there were only 121,839,000 people with full-time jobs in the United States in September, according to BLS. Those 121,839,000 full-time job holders equaled about 2.04 for each of the 59,737,817 people getting Social Security or disability benefits.
The $944,143,000,000 spent by the Social Security Administration in fiscal 2015 equaled about $6,345 for each of the 148,800,000 persons in the country with a job as of September. It equaled about $7,749 for each of the 121,839,000 people with a full-time job.
The $944,143,000,000 that the Social Security Administration spent in fiscal 2015 was also $381,637,000,000 (or about 68 percent) more than the $562,506,000,000 that the Treasury says the government spent on the Department of Defense and military programs during the year.”
The spending items include:
— $733,716,000,000 in benefits payments from the Old-Age and Survivors Insurance Trust Fund
— $3,505,000,000 in payments to cover administrative expenses for that fund
— $4,258,000,000 in payments to the Railroad Retirement Account
— $143,009,000,000 in disability benefit payments
— $2,881,000,000 in payments for administrative expenses for the disability trust fund
— $419,000,000 in additional payments to the Railroad Retirement Account.
— $58,901,000,000 for the Supplemental Security Income Program.
This was an increase of $33 Billion from fiscal year 2014. A quick analysis of the beneficiaries for the month of October included: “39,968,311 retired workers, 2,330,148 spouses of retired workers, 641,654 children of retired workers, 6,077,209 survivors of deceased workers, 8,922,858 disabled workers, 143,164 spouses of disabled workers, and 1,749,236 children of disabled workers.”
by | ARTICLES, BLOG, ELECTIONS, FREEDOM, OBAMA, OBAMACARE, POLITICS, TAXES
The latest reports on the budget deal show some entitlement changes coming to Social Security Disability Insurance (SSDI) and the Social Security Trust Fund. The text of the bill is here.
According to analysis of the deal, spending would be increased “by $80 billion over two years, not including a $32 billion increase included in an emergency war fund. Those increases would be offset by cuts in spending on Medicare and Social Security disability benefits.”
The deal sought some much needed structural changes to the SSDI program, because it was slated to reach insolvency sometime in 2016 — which, of course, would play right into the Presidential election cycle.
Some of the proposed changes include: “a medical exam now required in 30 states before applicants could qualify for benefits would be required in all 50 states. That change was projected to save the government $5 billion.”
Another reform looks to be restructuring work and benefits reviews, “in which some people who receive disability benefits could earn money from working with less fear of triggering a review that can result in benefits being cut off. Instead, people participating in the projects could see their benefits gradually curtailed as their income rises … ”
While these changes are a start, they come at a price that no one in the media is really talking about in depth. The NYTimes casually mentions that there were be a reallocation of “funds among Social Security program trust funds to ensure solvency of the disability insurance program.” That sounds well and good, until you get to the details.
The reallocation of roughly $150 billion over the next three years comes from the Social Security Trust Fund in order to rescue the nearly bankrupt SSDI Trust Fund; in other words, we are borrowing money from one entitlement program to another!
SSDI was slated to receive across-the-board 20% cuts in 2016 as a way to deal with its nearly-depleted funds. But that is a very messy topic for a very messy election year. This deal papers over the SSDI funding problem — infusing it with cash from Social Security over the next three years, and extending the insolvency question for the disability question until around 2022.
“Congress has been kicking the can down the road on disability insurance reform for decades and 2016 should have been the end of the road—time for meaningful reform. Instead, policymakers want to provide a little more roadway for the disability insurance program by whacking off a portion of Social Security’s roadway.
This isn’t the first time the disability insurance program has run out of money and it isn’t the first time Congress has kicked the can down the road. As recently as 1994, the disability insurance program was about to run out of money and Congress increased the disability insurance payroll tax by 50 percent, from 1.2 percent to 1.8 percent. That increase was coupled with a stark warning that the disability insurance program was in dire need of additional reforms to sustain it over the long run.
What has Congress done to reform the disability insurance program since then? Nothing.
Rather than looking to improve the efficiency and integrity of the program, Congress sat idly by as the percent of the working-age population receiving disability insurance benefits increased from 2.8 percent in 1994 to 5.1 percent today.”
This cash infusion — from Social Security of all places! — merely obfuscates the larger question of true entitlement reform. Using Social Security Trust Fund money was a perfect cover for lawmakers because it can be explained as a routine “reallocation of Social Security funds”, without explaining it is essentially robbing Peter to pay Paul. It is a known fact that both programs are slated to run out of money in the future. This deal just extends the life support for one program, while shortening the life of another.
Though lawmakers made a few minor changes to SSDI, it wasn’t enough. There are major systemic problems with SSDI. Just last month, a report by the Government Accountability Office (GAO) found that for 5 years (FY2009-FY2013), disability payments totaling $371.5 million were overpaid to many individuals — all while the program is running out of money. In this instance, “the SSA’s ‘internal controls’ rely on beneficiaries to self-report overpayments.” Why not fix this problem? Start somewhere. But that would be hard. It’s easier to throw new money at the problem (again) instead of actually tackling tough entitlement reform, thereby kicking the can down the road for future lawmakers to deal with (again). All this deal did was hide the problem so that it did not become an issue for any of the Presidential candidates next year.
Last January, I wrote on this topic, reporting a conversation with Charles Blahous, (a Trustee of the Social Security and Medicare Trust Funds,) about the Social Security situation. Blahous described how “the problem is not that disability needs a bigger share of the overall payroll tax than it now has, but that Social Security as a whole faces a financing imbalance that needs to be corrected. The single most irresponsible response to the pending [disability insurance] trust fund depletion would be to do nothing other than paper it over with a reallocation of funds, delaying meaningful corrective action as long as possible.”
Unfortunately,that’s JUST what we did.
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Washington Free Beacon had a sobering article about the lack of fiduciary responsibility in the Social Security Administration. A report by the Government Accountability Office (GAO) found that for 5 years (FY2009-FY2013), disability payments totaling $371.5 million were overpaid to many individuals. “The report examined how concurrent Federal Employees’ Compensation Act (FECA) payments affect Disability Insurance (DI) overpayments.”
The most recent annual Social Security Trustees report showed that the projected date of insolvency for the Social Security Disability Insurance Trust Fund is late 2016, a date that remained unchanged from the prior year. With this crisis looming in the background, the report of overpayments is especially concerning. From the article:
“The GAO found that SSA did not detect concurrent FECA payments for about 1,040 individuals during at least one month from July 1, 2011, through June 30, 2014.
To test SSA’s internal controls, GAO randomly selected 20 beneficiaries for review. In all 20 cases, SSA’s controls failed to detect and prevent overpayments. In seven of the cases, SSA did not detect overpayments for more than a decade, and each of these individuals received $100,000 in overpaid benefits.
One of these seven individuals received FECA benefits in the 1980s and was approved for disability benefits 14 years later in 1994. The GAO found that this individual received $200,000 in overpayments for more than 20 years.
The SSA’s “internal controls” rely on beneficiaries to self-report overpayments.
“SSA officials told us that if beneficiaries do not self-report benefits, there are no system prompts that would alert SSA staff to ask beneficiaries if they are receiving any workers’ compensation benefits, including FECA payments,” states GAO. “SSA officials agreed that relying on beneficiaries to self-report benefits presents a challenge in identifying overpayments related to the concurrent receipt of FECA benefits.'”
Congress is aware of the projected date of insolvency, but has yet to agree on a path forward. What’s more, the date roughly coincides with the 2016 election, so of course no one is willing right now to make any decisions or provide any possible solutions. Without any changes, benefits will be reduced by nearly 20%. Currently the Disability Trust Fund provides more than $100 billion a year to roughly 11 million recipients, making it the largest government assistance program in the country.
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I recently read a letter to the editor about Social Security in the Wall Street Journal that irritated me. Not the letter writer per se, but more by the Wall Street Journal choosing to print a letter that perpetuates a widely perceived myth about Social Security.
The letter was simply this: “Oh, please don’t blame older Americans for “eating up the budget” through payments of Social Security and Medicare benefits. It is the federal government that raided the Social Security Trust Fund. Older Americans have contributed to this for years. Where is the money now?”
The problem with this letter writer is that they really just don’t understand the truth that people who have paid into Social Security are getting many, many more times the actuarial value than what they put into it. It’s not a simple misunderstanding on this. It really, truly is just a flat-out lie that people who put 30-40 years worth of payments are merely getting back just what they put in.
The politicians need this lie to survive because they risk alienating a large voting bloc of older Americans if they merely even suggest that Social Security needs reform. But it does; the egregious state that Social Security is hidden by the way the federal government accounts for it. They even have a special name for it. Social Security is repeatedly described as a pay-as-you-go (“PAYGO”) system, which gives credence to something that is terribly incorrect. PAYGO is not a system at all; rather it is a method of reporting that hides earned realities, making it totally unacceptable to accounting professions, the SEC, and virtually everybody outside the government.
Calling it PAYGO helps to perpetuate the fallacy that beneficiaries are merely receiving what they paid into to. I don’t want to pick on the poor letter writer, as she doesn’t seem to really know how Social Security works (or hasn’t worked). But the Wall Street Journal should know better.
I suppose it is fitting that the 1936 Bulletin announcing Social Security ends like this: “What you get from the Government plan will always be more than you have paid in taxes and usually more than you can get for yourself by putting away the same amount of money each week in some other way.”
This is why we have accrued trillions in unfunded liabilities such as Social Security. If it sounds too good to be true, it probably is.
