by | SOCIAL SECURITY, TAXES
Could it be that the Senate Majority Leader is so clueless with respect to Social Security that he believes it is a solvent program? Harry Reid recently reiterated the claim he made last year on Meet the Press: that we are not in a crisis in Social Security, that Social Security is fully funded for the next forty years, and that the arithmetic works. What’s worse, this man had the audacity to suggest that the problem of Social Security was merely fiction — perpetuated by people who do not like government!
The facts: Social Security is underfunded to the tune of $ 7.7 trillion, and it’s getting worse every day. Had any private company or organization operated in such an underfunded way, its principal would have been charged criminally.
Clearly, we cannot have rational discourse over matters as serious as Social Security if the Senate Majority Leader does not care to realize that the program is in an absolute calamitous state. It’s difficult to imagine that he would intentionally try to dupe the moderator with his flim-flam. The only plausible explanation is that Harry Reid is so intellectually challenged that he doesn’t understand the issue himself.
Anything short of his resignation says something about the fact that politics trumps rational analysis in our political system. That Reid is allowed to speak such buffoonery and not be excoriated by anyone, or even that such a person can get to this political level and be so flagrantly incompetent is very disconcerting. I am staggered by the fact that his comments are not the headlines of all the major newspapers.
by | GOVERNMENT, HYPOCRISY, SOCIAL SECURITY
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, SEC, and virtually everybody.
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.
According to the Social Security trustees, in a report released this past fall, unfunded liabilities – those promises made to individuals solely in exchange for amounts they have already paid for – amount to an $18 trillion 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.
by | HYPOCRISY, SOCIAL SECURITY, TAXES
One of the most common means by which politicians deceive their constitutents is by referring to Social Security as a either a tax or as a retirement system — but usually only as the politics or issues of the day suit them.
We have politicians who stand strongly behind the concept that Social Security must be maintained because it’s a retirement system that people pay for. I certainly believe, as FDR did when he started Social Security, that this is a forced retirement system. As such, it is critical that the entity managing it (the federal government) include Social Security’s actuarially calculated expenses in the current year. By not doing that with their accounting, they are able to simultaneously mischaracterize Social Security as a tax.
If Social Security is truly a retirement and disability plan, it is patently unfair to also consider Social Security collections as a tax that is paid. This is hypocrisy to the citizens contributing toward their retirement. Therefore, when you hear a politician calling Social Security a tax, understand that such a description qualifies it as an entitlement supported the general revenue fund. It can’t be both. The true Social Security Fund, as it is currently being collected and paid out, has been stolen from the taxpayers.
Social Security as a retirement plan has lost its meaning along the way. Yes, benefits promised to recipients have been much more than the amounts taken from pay. For that reason, and for the way by which Social Security is accounted by the government, the system is broken. Nevertheless, we must fundamentally maintain the view that Social Security is the way by which people pay for their own retirement — if we are to fix the imbalances.
The way to lead Social Security back to health is to convince people that the amounts taken from their pay is protected and truly going to their retirement by reclaiming the Social Security Fund so it reflects that reality. Often when it’s realized how little income tax many people pay, the focus typically goes on to how much people do pay toward Social Security. This is not altogether a bad thing. With citizens trying to retire at the age of 65 but often having life expectancies until 90, people need to contribute more money to their retirement.
We need to restore Social Security to a level of sustainability by moving it back to being a path to retirement, view it as a forced retirement system, and hold it accountable in that regard. By modifying the system to be more like present-day 401ks, people can better realize the amount that they are actually putting in. In doing that, more people will ultimately be happy with their Social Security accounts and will also make a mockery of such recent legislation as the payroll tax holiday.
If though, the powers that be continue to insist Social Security is a tax, then the fact becomes that people are really not paying for their own retirement. Therefore beneficiaries are not entitled to anything other that what Congress on a whim decides, because it is subject to the general revenue fund via tax revenue. This would be an outrageous outcome. It turns Social Security into a means by which the people are dependent on government to provide a modest stipend by extracting money from us.
by | SOCIAL SECURITY, TAXES
Dick Durbin has a love affair with Social Security. How else can one man continuously defend Social Security and mislead the country about its insolvency? He incessantly claims that Social Security does not add to the deficit. What he doesn’t tell you is that is he specifically and purposefully excludes accounting for the billions in promised future payments to workers.
And consider this: A company or organization earns $100.00 but spends $200.00. It only has to pay $100.00 now, while the other $100.00 is due for payment in the future. The question then becomes – to what extent is there an obligation to account for a method of repayment, should you have no money to do so? This is the very situation that Social Security is in. In contrast, the SEC is very explicit in saying that any company which tries to avoid accounting for obligation repayment will be considered to have issued a dishonest financial report.
Yet this is exactly what Durbin has been saying for years – when will he be brought to justice and held accountable for his outright lies?
by | ECONOMY, SOCIAL SECURITY, TAXES
Though I applaud the refreshing boldness that Mr. Cain had shown by proposing to America an actual plan for tax reform, there are two serious drawbacks to his solution that show his fiscal naivete. Most critics would point to the unsavory proposal of having both a sales and income tax in force at the same time, making it possible for future Congresses to increase rates and turn us into Europe. But it is actually the plan’s impact on Social Security that is most devastating.
Cain’s plan would eliminate the Social Security tax and related withholding, and cover retirement pensions as a true “entitlement” (welfare) system out of general tax revenues. This is not what Social Security was intended to be as established by FDR; that is, a system in which people paid for their own retirement. Once liberal politicians started promising individuals far in excess of what their contributions paid for, with no actuarial consideration nor funding whatsoever, Social Security’s demise became assured.
In order to overcome its crippling insolvency, Social Security must go back to its original intent — a self-funded retirement plan. This could be achieved by taking any of many possible forms, but must include the concept that individuals themselves are paying for their own retirement; ie, they are putting money into a plan which will become their invested retirement fund.
By contributing more deeply to the entitlement problem and making Americans further wedded to the government, Cain’s tax plan is a failure. Such a solution ultimately departs from his avowed conservativism.
