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 | ARTICLES, ECONOMY, POLITICS, RETIREMENT, SOCIAL SECURITY, TAX TIPS, TAXES
They say March comes in like a lion and goes out like a lamb. That expression is also applicable to persons in their 80s — they go in like a lion and out like a lamb. As they start going along in those years, their ability to discern and filter out the problematic elements of society become worn down.
We see the elderly become more vulnerable to Nigeria scams, people selling them bad investments, being taken advantage of on the streets. It is incumbent for children, therefore, to protect their parents. They must think about their parents’ style of living as well as their physical and mental capabilities — preferably in advance.
As an accountant, I typically see three styles of living for older folks:
1) Independent — As parents get older, they try to work out a simple living situation. They will find a small, basic home to live in, usually comprised of one floor and no stairs, and relatively inexpensive. The parent wants to live on his or her own which opens the person up to some vulnerability, but hopefully the parents have a decent support network
2) Shared space — Here is the situation where a parent moves in with one of their children. Depending on the capacity of the parent, he or she can either contribute as a grandparent, or else carry along medical issues that will impact the household.
3) The independent living facility — This is a growing movement, which, in many ways, is also starting to become the best choice for many. With this type of facility, costs are not exceedingly expensive, and the ability to have medical help nearby as needed is usually seen as a huge benefit.
Whatever the case may be for choosing a particular living situation over another, it is imperative for everyone involved to plan in advance. Often it becomes too late and untenable to move a parent out into a home or an independent living facility because the parent, in their advanced age, does not or cannot make such a life altering change without difficulty, resentment, and confusion.
As people are living longer and more productive lives, the need to plan for the advanced years is best done early on, with everyone involved in conversations and calculations. There is no one-sized-fits-all approach, but whatever decision is made, should be a well-thought out plan that takes into account both dignity and finances.
by | ARTICLES, HYPOCRISY, POLITICS, SOCIAL SECURITY, TAXES
Faithful devotees on the Left continue to peddle the notion that Social Security is not in crisis, that it doesn’t contribute to the deficit, and there is no need for reform. However, reading through this year’s just-released Social Security Trustees report, the annual “State of the SSA”, we find that the Trustees tell a different narrative — one that is grim indeed. The following primer pulls directly from the report and then explains the statement in layman’s terms. It is copied text from summary of the entire report.
What it actually says:
“Social Security’s total expenditures have exceeded non-interest income of its combined trust funds since 2010, and the Trustees estimate that Social Security cost will exceed non-interest income throughout the 75-year projection period”.
What it means:
Non-interest income includes payroll taxes, taxes on scheduled benefits, and general fund transfers. Expenditures (payouts to beneficiaries) have exceeded (been more than) income (taxes collected ) since 2010. Social Security has not been paying for itself for the last three years. Anyone telling you otherwise is patently false.
What it actually says:
“The deficit of non-interest income relative to cost was about $49 billion in 2010, $45 billion in 2011, and $55 billion in 2012”.
What it means:
Again, right here the report describes that there is a deficit occurring and provides a tangible figure for each year. It directly contradicts the notion the idea that Social Security is PAYGO. It is not.
What it actually says:
“The Trustees project that this cash-flow deficit will average about $75 billion between 2013 and 2018 before rising steeply as income growth slows to the sustainable trend rate after the economic recovery is complete and the number of beneficiaries continues to grow at a substantially faster rate than the number of covered workers”
What it means:
The deficit is only going to worsen by about 30% over the next 5 years to $75 billion a year. Then the deficit is going to RISE STEEPLY because even more people will be claiming benefits than those working and paying into the system.
What it actually says:
Redemption of trust fund asset reserves by the General Fund of the Treasury will provide the resources needed to offset Social Security’s annual aggregate cash-flow deficits.
What it means:
The Government is using Trust Fund Asset Reserves by the General Fund of the Treasury NOW — and has been for three years — to meet its Social Security obligations. What the Left fails to understand or deliberately doesn’t explain is that we are already borrowing from reserves (think using savings) just to meet basic program costs.
What it actually says:
“Since the cash-flow deficit will be less than interest earnings through 2020, reserves of the combined trust funds measured in current dollars will continue to grow, but not by enough to prevent the ratio of reserves to one year’s projected cost (the combined trust fund ratio) from declining. (This ratio peaked in 2008, declined through 2012, and is expected to decline steadily in future years.)”
What it means:
Remember, we are talking about the reserves now. The reserve amount (savings) will still grow slowly even after paying the Social Security deficit, until about 2020. This is how the Left claims that there is a Social Security “surplus”. They count the Social Security Trust Fund (deficit) + Trust Fund Asset Reserves (savings) = surplus. That is not a true surplus. That is fuzzy math.
What it actually says:
“After 2020, Treasury will redeem trust fund asset reserves to the extent that program cost exceeds tax revenue and interest earnings until depletion of total trust fund reserves in 2033, the same year projected in last year’s Trustees Report”.
What it means:
By 2020 (that’s 7 years from now) the Social Security Trust Fund deficit amount will grow and finally outpace any growth (surplus) in the Trust Fund Asset Reserves (savings). This outpacing will continue until 2033: that’s the year that the Social Security Trustees project a depletion of total trust fund reserves (the savings account runs out!). Yet because this projection date, 2033, was also in last year’s report, the Left can dismissively remark that there are “relatively few changes or surprises” in this year’s report — so that no one bothers to actually read it.
What it actually says:
“Thereafter, tax income would be sufficient to pay about three-quarters of scheduled benefits through 2087”.
What it means:
Even though you’ve faithfully paid in, you’ll only be able to get back 75% of the money. One-fourth of it gone. Poof. That means the Trust Fund Asset Reserves (savings) will have been propping up the Social Security Trust Fund a full 25% by 2033, and that Social Security will have been under-funded for 23 years by that time.
What to do about it?
Well, the very first paragraph of the Social Security Trustees report urges action:
‘Neither Medicare nor Social Security can sustain projected long-run programs in full under currently scheduled financing, and legislative changes are necessary to avoid disruptive consequences for beneficiaries and taxpayers. If lawmakers take action sooner rather than later, more options and more time will be available to phase in changes so that the public has adequate time to prepare. Earlier action will also help elected officials minimize adverse impacts on vulnerable populations, including lower-income workers and people already dependent on program benefits”
So, despite what the media and the Left tell you, Social Security is not fully funded. There is no surplus. Its current modus operandi takes the benefits being paid today and uses them to pay their current beneficiary obligations (instead of being held in trust like its original intent). It also borrows from reserves (savings) in order to meet just those basic current obligations.
The Trustee Summary concludes,
“Lawmakers should address the financial challenges facing Social Security and Medicare as soon as possible. Taking action sooner rather than later will leave more options and more time available to phase in changes so that the public has adequate time to prepare.”
It is signed by the Trustees:
Jacob J. Lew, Secretary of the Treasury, and Managing Trustee of the Trust Funds.
Kathleen Sebelius, Secretary of Health and Human Services, and Trustee.
Charles P. Blahous III, Trustee.
Seth D. Harris, Acting Secretary of Labor, and Trustee.
Carolyn W. Colvin, Acting Commissioner of Social Security, and Trustee.
Robert D. Reischauer, Trustee.
Therefore, the next time someone claims that Social Security is not in a crisis, is solvent, is able to meet all of its obligations, and/or is running a surplus, show them the Trustees report about the real situation — in the Trustees own words.
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 | BLOG, ECONOMY, RETIREMENT, SOCIAL SECURITY, TAX TIPS, TAXES
Imagine an employer gives a turkey to his employees each year for Thanksgiving. Then one year, the cost of the turkey doubles, but he still gives everyone a turkey anyway. That year, the employee is getting an increase in the value of their pay (the extra cost of the turkey).
The same logic applies to a person getting insurance with their job. If a person gets a 2% pay increase, but the medical benefits costs for the employer also increases $30 more a month then the employee pay goes up 2% plus the $30.00. Many people don’t understand those “hidden” costs regarding benefits and compensation, but that’s how it works.
In the same way, if the cost of providing a defined benefit plan costs your employer now 25% more, or goes up by X dollars more, that X dollars is ultimately additional pay going to you, whether or not you tangibly see it. Nowadays, mainly government workers and some unions are typically the only ones who have defined benefit plans; most employers have moved away from them to a defined contribution plan because of the spiraling costs inherent in a defined benefit plan. A downside, however, is that regular people in private sector jobs with 401Ks critically need to put more of their own money away for retirement because their money investment is growing so slowly.
On the other hand, Obama’s administration is doing two thing that are directly and substantially increasing the cost of employers to maintain a defined benefit plan: 1) keeping interest rates so low that employers just have to invest more just to get a decent rate of return; and 2) increased regulations, which slow the growth of business and impede business gains, thereby slowing the rate of return. On top of this, the government is ignoring the huge increased cost of fringe benefits they provide (i.e, the turkeys) in their budgets – something a private company simply cannot ignore. If a private company were to do so, then it risks going out of business . Therefore, it must account accurately and completely for its costs.
The government however, won’t ever go out of business. It merely passes off these huge costs to the employee – or worse, to the taxpayer. Higher costs to the taxpayer means less money for you. Less money for you means harder savings for the future.
Overall, you will need to put away more for retirement. If you have a defined benefit plan, the long-term projections and promises may be scaled back at some point in the future once the plan proves to be unsustainable. In a defined contribution plan, continued sluggish growth for investments make it difficult for retirement plans. Whatever your strategy, know that you will definitely need more than you think you do right now.
by | CONSTITUTION, ECONOMY, SOCIAL SECURITY, TAXES
In order to understand the magnitude of government spending, debt and fiscal cliff “solutions”, it is helpful to scale down the numbers to more manageable ones that we are more accustomed to. Most citizens cannot properly comprehend the magnitude of the government finances because the amounts with which we are dealing were — at one time — unimaginable.
First, some basic facts:
1. Government annual revenue FY2012 = $2.5T ($2,500,000,000,000)
2. Government annual spending FY2012 = $3.8T ($3,800,000,000,000)
3. Government annual deficit FY2012 = $1.3T ($1,300,000,000)
4. Current total government debt = $16.37T ($16,372,000,000,000)
5. Population of the United States = 314M people (314,000,000)
6. Current total Medicare liabilities (per the Annual Trustees Report) = $42.8T ($42,800,000,000,000)
7. Current total Social Security liabilities (per the Annual Trustees Report) = $20.5T ($20,500,000,000,000)
The best way to visualize the numbers is to reduce each figure by $10 million ($10,000,000 – or 8 zeros). So for instance, $2.5 trillion becomes $25,000 and so forth. Then, we can apply those numbers for a typical family in three parts: 1) Annual Deficit; 2) Current Debt (“Shadow Debt”); and 3) Entitlement (“Future”) Debt. The following scenario will be based on a family of three. And finally, we can see the proposed fiscal cliff solutions and their impact with these scaled down numbers.
1) Annual Revenue & Debt (all numbers below are equivalents reduced by $10 million)
Revenue = $25,000
Spending = $38,000
Annual Deficit: $13,000
2) Current Government Debt (“Shadow Debt”) — think of this as your mortgage, credit cards, etc)
Each citizen share of debt = $163,700/3.14 = $52,000
Citizen share x 3 people (family of three) = $156,000.
Current Government Debt for Family = $156K
3) Promised/Future Debt to Pay to Others (Entitlements)
Medicare: $428,000/3.14 = $136,000 per person
Citizen share x 3 = $408,000 for Medicare per family
Social Security: $205,000/3.14 = $65,000 per person
Citizen share x 3 = $195,000 for Medicare per family
Total “Promised” Debt for Family of Three = $408,000 + $195,000 = $603,000
How do the Fiscal Cliff plans impact this debt?
Current Obama Plan:
Cut $850B over 10 years, plus add $1.3T in revenue
$850B = $85 Billion a year ($85,000,000,000), or $850 a year (scaled down)
Citizen share of cuts = $850/3.14 = $270 per person; x 3 = $812 a year
$1.3T = $130 Billion a year ($130,000,000,000) or $1300 a year (scaled down)
Citizen share of revenue = 1300/3.14 = $414 a year; x 3 = $1242 in revenue/year
Current Boehner Plan:
Cut $1 Trillion over 10 years, plus add $1 Trillion in Revenue
$1T = $100 Billion a year ($100,000,000,000) or $ 1,000 a year (scaled down)
Citizen share of cuts = $1,000/3.14 = $318 per person; x 3 = $955 a year
$1T = $100 Billion a year ($100,000,000,000) or $ 1,000 a year (scaled down)
Citizen share of revenue = $1,000/3.14 = $318 per person; x 3 = $955 a year
Total Current Financial Picture for a Family of Three
Annual Income: $25,000
Annual Spending: $38,000
Annual Expenses/Deficit per year: $13,000
Current Government “Shadow” Debt: $156,000 (ie. like mortgage & credit cards)
Promised Future Entitlement (SS and Medicare) Debt: $603,000
Therefore, total debt on a mere $25,000 Income is $759,000 PLUS $13,000 in annual added deficits Ask yourself is that even remotely affordable or sustainable? Now multiply that by 10 Million (10,000,000), and you’ll have the real debt numbers for the government.
And those debt “Fiscal Cliff” Solutions for the Family Scenario?
—Obama’s Plan: cuts a mere $812 a year for 10 years and adds $1242 in revenue
— Boehner’s Plan: cuts a mere $955 a year for 10 years and adds $955 in revenue.
Those are not real solutions!
These numbers, brought down to equivalent figures, are a scary and sober reminder about just how deep in debt our country is. And both “solutions” barely make a dent in solving our fiscal crisis. So, what do we do? Where do we go from here? What reforms are needed — both short and long-term?
Cross-posted at redstate.com/alanjoelny
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)
by | ECONOMY, FREEDOM, POLITICS, SOCIAL SECURITY, TAXES
There have been renewed talk about reviving the bipartisan Simpson-Bowles recommendations as a Republican bargaining strategy. Though the package isn’t perfect – Republicans cringe at the tax increases while Democrats despise the spending cuts – in many ways, it seems better and more reasonable than some of the other offers currently on the table.
Simpson-Bowles could work under two circumstances: 1) Congress must first repeal the $1 trillion/year spending binge we’ve seen during the first Obama administration and start at FY2008 budget levels; and 2) the deal must include the healthcare revisions that were contained (and subsequently removed by Obama before the final draft) in the original Simpson-Bowles negotiations.
The virtues of Simpson-Bowles right now are that it includes entitlement reform, reigns in spending better than other current proposals, simplifies the tax code, and most importantly, is a bipartisan commission that originated from President Obama. Simpson-Bowles isn’t perfect, but it could be doable. And because Simpson-Bowles originally had more Democrat support than Republican support, it would put the Democrats in a tough spot if they rejected it now during the fiscal cliff talks.
Coming off the fresh wounds of the staggering Romney loss, the Simpson-Bowles package may be just what the Republicans need as a rallying point in order to emerge as the winners of this current standoff crisis.
Crossposted at redstate.com
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 | CONSTITUTION, FREEDOM, POLITICS, SOCIAL SECURITY, TAXES
The act of defiance of our President against our Constitution and Congress is the latest in a string of executive activism that defines Obama’s administration. The content of the Dream Act is, in and of itself, not that controversial. What Obama announced was a policy very similar to Mark Rubio’s undrafted legislation that was expected to enter Congressional debate very soon. Instead, the controversy lies with Obama’s blatant disregard for the proper function of our government.
The astonishing thing is that Obama didn’t even try to work with Congress. Remember, Obama was the guy who was supposed to bring everyone together – and he just ran roughshod over everyone. Now compare Bush to Obama. I’m not much of a fan of Bush in general; however, he did try to get his somewhat unpopular ideas passed through Congress – and a fairly hostile Congress at that (remember Social Security reform, immigration reform, etc). Yet Bush didn’t circumvent our Constitution – and he wouldn’t have even considered the idea. Obama, on the other hand, did precisely that, with no attempt to work together, and no notice that the Executive Order was coming other than a few hours prior to a press statement.
With this action on a very volatile and polarizing issue, Obama is purposely catering to a particular voting bloc in order to gain for himself the election in November. He attempted this with his HHS mandate, expecting the majority of women to support his initiative…which he found was not quite the case. What’s next? Speculation has it that it will be marijuana legalization in October, mainly to bring independents, youths, and libertarians to the voting booth.
It is not the issue itself –immigration — that is the problem in this case. Rather, it is the willful disregard for our Constitution for the sake of an election power grab. Obama has demonstrated that he is willing to toss aside our founding document on a major and specific issue as a means to sway a large segment of the population. If Obama can cheapen the presidency by begging for donations vis-a-vis gift registries, and if he can imperialize the presidency through his continued unchecked actions, this country is in grave danger for November. Obama doesn’t have to commit blatant voter fraud anymore; he merely has to Executive Order it done.
