by | ARTICLES, BLOG, ECONOMY, FREEDOM, GOVERNMENT, OBAMA, POLITICS, SOCIAL SECURITY, TAXES
Last week, the Washington Examiner did a nice job covering the growing Social Security Disability Insurance (SSDI) crisis, and Congress’s recent response to it. The issue at stake is the 2016 benefit adjustment, which would cut 20% of benefits for more than 10 million SSDI recipients:
“Many Democrats want to sweep the problem under the rug with an accounting gimmick that would merge the disability trust fund with the general Social Security trust fund, which, on paper, isn’t expected to be depleted until 2034. But House Republicans passed a rule [Tuesday] to protect the broader Social Security program from being raided.
In 1994, the payroll tax rate was reallocated between Social Security’s two trust funds to avoid depletion of the disability insurance fund, but another reallocation would ignore Social Security’s long-term funding issues.”
The idea for reallocation came from the bleak 2014 Social Security Trustees report, which described, “Lawmakers may consider responding to the impending [Disability Insurance] Trust Fund reserve depletion, as they did in 1994, solely by reallocating the payroll tax rate between [Old-Age and Survivors Insurance] and DI. Such a response might serve to delay DI reforms and much needed financial corrections for OASDI as a whole. However, enactment of a more permanent solution could include a tax reallocation in the short run.”
The reallocation response would be merely a bandaid, ignoring the overall Social Security funding crisis, which is why the House passed a rule prohibiting reallocation unless it is combined with “benefit cuts or tax increases that improve the solvency of the combined trust funds”. That is to say, there must be some act of long-term reform.
Apparently, the Left was having none of that; responses were swift and sharp. The LA Times headline screamed, “On Day One, the new Congress launches an attack on Social Security”. The paper further described how,
“The rule hampers an otherwise routine reallocation of Social Security payroll tax income from the old-age program to the disability program. Such a reallocation, in either direction, has taken place 11 times since 1968, according to Kathy Ruffing of the Center on Budget and Policy Priorities.
But it’s especially urgent now, because the disability program’s trust fund is expected to run dry as early as next year. At that point, disability benefits for 11 million beneficiaries would have to be cut 20%. Reallocating the income, however, would keep both the old-age and disability programs solvent until at least 2033, giving Congress plenty of time to assess the programs’ needs and work out a long-term fix.”
Clearly, Democrats doesn’t see the irony of having to reallocate 11 times already as an major fiscal problem. I’m betting that every time there was a reallocation, it was to give Congress “plenty of time to assess the programs’ needs and work out a long-term fix.” In other words, kick the can again because the issue is politically unpalatable.
The Washington Examiner spoke to 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.”
You can be sure the Dems will use this issue as a way to stir up the base between now and 2016. Kudos to the new Congress for being willing to discuss and tackle the insolvency problem instead of moving funds around automatically.
by | ARTICLES, BLOG, ECONOMY, FREEDOM, GOVERNMENT, HYPOCRISY, OBAMA, POLITICS, RETIREMENT, SOCIAL SECURITY, TAXES
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 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.
The fallacy of calling it PAYGO is that, in reality, the cash includes everything we are getting in, while the cash out doesn’t include the responsibilities due to come. The cash out formula specifically excludes the trillions promised to existing workers in the future, (while their Social Security tax is being collected today). It doesn’t really describe, as part of the expenses being incurred this year, the amount of future retirement benefits being earned and promised.
In contrast, if you give an insurance company today $100,000 to pay you a retirement pension beginning when you retired at the age of 65, the insurance company (logically and legally), the insurance company would report this as an asset offset by a liability to provide $100,000 of payments in the future. The Social Security system, however, reports that as $100,000 of profits in the year received, while the obligation to account for and provide future benefits is incredibly ignored.
When the cash in is received, that money egregiously goes into the government’s general tax revenue account and not in any Social Security Fund (anymore). The Social Security Administration merely collects and records the gross Social Security tax receipts, while the net amount, after deductions, is sent to the IRS. Yet the gross amount recorded is the amount spent by the government, resulting in the staggering deficit we face today. Therefore, it is outrageous for anyone to say that accounting for the system can be done simply by looking at the cash in-cash out.
The biggest problem with this arrangement is that it puts the burden on the wrong people. We have a growing population of retiring taxpayers and the current generation is paying off the obligation the older generation never paid for. It is a Ponzi scheme in which, depending on how you play it, you manipulate who is paying whose obligation. Therefore, the PAYGO method doesn’t work because the government takes 100% of the money they receive and they do not put away; they need it to pay today’s debt to another taxpayer, while today’s payee is stuck holding the bag.
For several years now, the Social Security trustees reports have noted Social Securities unfunded liabilities – those promises made to individuals solely in exchange for amounts they have already paid for – to be trillions in deficit. Social Security in its present form is unsustainable.
The term PAYGO is used for the lay person; cute semantics – but misleading at best, willfully dishonest at worst. It mischaracterizes the program for the political purpose of allowing politicians to declare that Social Security does not contribute to the deficit, and therefore, should not be overhauled in any major way. But until we agree to start recording Social Security (and Medicare) in budgets in actuarially sound way, we will never be able to honestly and effectively deal with their fiscal crises.
How we talk about and understand Social Security and its funds needs acute attention because we face another looming crisis of funding: Social Security’s Disability Insurance (SSDI). SSDI benefits are slated to be cut by 20 percent near the end of 2016, at the same time that SSDI has seen a massive increase of recipients in the last few years. This is certain to be a major issue for the Presidential elections.
Already the Democrats are stirring up the base on this issue. Last week, Sen. Elizabeth Warren claimed that “The GOP is inventing a Social Security crisis that will threaten benefits for millions & put our most vulnerable at risk”. Obviously this is patently false. The entire Social Security program needs massive reform instead of incrementally kicking the can further down the road to avoid making difficult, but necessary changes for the long haul.
by | BLOG, ECONOMY, NEW YORK, POLITICS
That’s me!
Senator Kirsten Gillibrand’s website proudly proclaims “as the mother of two young children, Senator Gillibrand knows that working families are struggling in this difficult economy.” But Sen. Gillibrand’s positions regarding the economy don’t support such a statement.
When Gillibrand appeared on Meet The Press on April 21, she stated that she refuses to support even the trivial chain “CPI” adjustment of Social Security benefits “because it is not significantly affecting the current deficit”. This reform (backed even by President Obama in his April 7 budget) changes the formula for calculating cost-of-living increases in Social Security, thereby reducing future raises slightly. Gillibrand’s extreme position, on the other hand, flatly spurns any changes that will reduce the looming catastrophe of Social Security.
Gillibrand is well aware that the reason that the current deficit is not being significantly affected is that her children’s future retirement payments are being confiscated, being used to pay for current retirees (whose retirement payments were similarly confiscated). This is the well known Ponzi method of entitlements – taking money from current workers who think — and are being told by Ms. Gillibrand – that they are paying for their own retirement, when in fact the money is being stolen to pay for others whose money was similarly taken under false pretenses.
The current total Social Security liabilities, per the Annual Trustees Report, has ballooned to $20.5 trillion. The liabilities are the promised future payments to workers currently paying into the system. Gillibrand is aware that each year that goes by significantly increases the burden to her own children – and ours, which weakens the economy. For her staunch advocacy of this position, she should be granted the well-earned title of PONZI MOM.
by | BLOG, POLITICS, SOCIAL SECURITY, TAXES
Rep. Jose Serrano, the Democrat from NY who proposed H.J. Res 15, also put forth another bill — H.R. 211 — on Friday.
This bill proposes “To amend title XIX of the Social Security Act to waive the requirement for proof of citizenship during the first year of life for children born in the United States to a Medicaid-eligible mother”.
Govtrack notes, “This bill was assigned to a congressional committee on January 4, 2013, which will consider it before possibly sending it on to the House or Senate as a whole”.
So the longtime Congressman who introduced the legislation to amend the Constitution and repeal term limits for President also wants to amend the Social Security Act with regard to citizenship.
What is the point of this legislation? Why is proof of citizenship in this situation not a positive thing? Thoughts?
by | ARTICLES, FREEDOM, SOCIAL SECURITY
It is a national tragedy that people may be willing to put aside the issue of Social Security reform because Congressional Leaders on the Democrat side – such as Dick Durbin and Harry Reid – have been standing behind the position that Social Security is not a problem. While discussing the impending “fiscal cliff” negotiations last week, Harry Reid proclaimed (yet again), that
“Social Security is not part of the problem, That’s one of the myths the Republicans have tried to create,” he said. “Social Security is sound for the next many years.
Reid justifies this outrageous and distorted view by asserting that Social Security is not adding to the current deficit since the the cash in and out is roughly the same. While that may technically true, it is technically true only in the sense that it is analogous to an individual who is running up millions in credit every day — and then that person says that since he doesn’t have to pay it back right away till next year or the year after, it doesn’t affect his immediate budget.
The fallacy of this logic is that although the Social Security cash in may be equal to the cash out, the cash in includes everything we are getting, while the cash out doesn’t include the responsibilities due to come. The cash out formula they are referring to excludes the trillions that are being promised to existing workers in the future while their Social Security tax is being collected today. As the years go by we are continuing to incur the deep cost of future payment obligations that the Democrats are conveniently not accounting for – and it’s going to get impossible to pay those bills when they come due. Yet, those obligations are every bit as real as charges on a credit card.
Equally disturbing is the fact that the media is complicit in promoting this fable. Each year that that passes without fixing the system creates trillions of additional deficit to be paid by our children and grandchildren. Our media is feeding the Democrats’ incompetence by promoting their sham and failing to report the truth about the insolvency of Social Security.
(crossposted at redstate.com/alanjoelny)
