Friday, September 16, 2011

Saving Social Security Part I: Background

We are not going to save Social Security by continuing the same games and expenditures as have been and are currently going on. 
Cutting Payroll Taxes which Obama intends to extend through his so called Jobs Bill is not the way to keep the ship from sinking.
It is currently sinking fast and by 2012 will be broke but it will continue through borrowing and the percentage of GDP will increase to 6% or more by 2050.

Social Security was suppose to be a simply old age pension fund when first proposed but it has morphed into a monster that if truth were told , is one of the greatest contributors to the deficit. However this is denied and games are played with numbers to hide this fact.

Social Security was suppose to have a Trust Fund which would pay for old age retirement benefits however that Trust Fund doesn't exist except on paper. Why?  Because in 1969, in an agreement between Lyndon Johnson , Richard Nixon and the Congress the Social Security surplus was brought "on budget".  The so called 2,5 trillion dollar Trust Fund has been spend in it's entirety on other government programs.  I would draw you attention to the malise of Title programs instigated under LBJ and each one of them are entitled Title (what ever) of the Social Security Act. Each of them have become a nightmare of bureaucratic red tape , regulations, and wasteful spending.  Title IVA of the SSA is but one example. The same type of "stealing" continues today. (Source SS website, see Agency History)
The problem is because these monies have been spent via the Treasury, they can only be repaid or redeemed by future taxes or future borrowing.

In other words WE THE PEOPLE will pay $5 Trillion in taxes to provide $2.5 trillion in SS benefits that have been "stolen".

WE THE PEOPLE paid once as FICA taxes, to create that $2,5 Trillion surplus and will pay, AGAIN,  a second time, to redeem the funds.

If those funds had not been "stolen" the additional and unnecessary  $2.5 Trillion in taxes could have resulted in $100 Billion a year in tax cuts for 25 years and gone into the hands of WE THE PEOPLE to be spent in our households, college savings, debt reduction, retirement savings, business expansion, capital projects, new jobs etc.  But, that is only a pipe dream as of now.  The current administration and Congress insist on "borrowing" and have no clue as to how these funds will be repaid except by raising taxes over and over again.

The administration adds to the woes by cutting payroll taxes which contributes to SS funds and insists that it helps the economy.  Just more legal stealing.  The payroll taxes collected are to pay for future benefits and so they are handed over to the federal government which spends it. Every time the program runs a cash flow deficit, it redeems some of the trust fund IOU's and then the government has to borrow money which adds to the deficit.  "It is not the fault of SS but in reality the program contributes to the deficit." (Alan Viard) Of course many deny this but the proof is there.

Alan Viard offered this  in his article appearing On the Margin:
In 2009 -2010 Congress enacted four provisions authorizing implicit or explicit transfers of general revenue to the Social Security Trust Fund which only continued the pattern set by earlier provisions.
So it appears that things work both ways when it is convenient for the government  find a way to spend more money.   Social Security taxes collected from '84 to 2014 have been 'stolen'(my words, he uses borrowed) from the program. Current law provides that the surplus taxes will be paid back to SS fourfold enabling the program to pay out $7.3 trillion in benefits in excess of taxes from  2015 to 2037.  Unfortunately as with all things that look too good to be true, there is a catch.
By using general revenue financing it averts SS tax increases and benefit cuts BUT it forces larger tax increases and spending cuts(which we know do not happen) in the remainder of the federal budget. Using the general treasury as a piggy bank for SS distorts the budgetary process by giving the program the best of both worlds. Social Security receives political protection from tax increases and benefit cuts on the grounds that it is a self supporting program financed by earmarked taxes, however it is not required to live within its earmarked revenue.

The provisions mentioned above  by Viard are those from the stimulus bill, e.g. the one time $250 check for SS recipients and the Making Work Pay credits in 09 and 10 which refunded up to $400(single) and $800 (married couples) of employee's payroll taxes. ( a similar deal was put forth in the Jobs Bill  last week) Perhaps the $250 dollar SS check was a benefit for seniors but the other fiasco was nothing more than social engineering through the tax code and not an example of SS "stealing" from the general funds.

The only way, short of privatizing (which I favor and will show why at a later date) to save SS is to make the program a truly self supporting program which would collect taxes and earmark them for benefits only. In other words SS would not turn over it's cash to the Treasury to be spent on boondoogle programs as it has in the past and SS would not be allowed to receive money from the general revenue.  Don't look for liberals to favor either of these suggestions .  Spending money on useless programs (e.g.see war on poverty) is their insurance for future votes as it has always been. 

Next:  How to Save SS part II- Going Private?

7 comments:

GM Roper said...

Ticker, as a life time contributor to SS, I too am pissed. I'm especially pissed that my grandson is likely to NOT enjoy the benefit that I receive (a reduced amount since I "retired" at 63.5 yrs) and likely, neither will my daughter.

When I become eligible for medicare, (9/20) I have refused everything but part A and I didn't have any choice about that as I understood the info from Medicare. I declined parts b,c,and d. Even though I pay a "premium" for those services, they still take added money from Medicare and I can support myself via other health ins.

Truly, Perry is on the right track and people are beginning to respond to the truth-telling that he is pushing as part of his campaign.

As long as congress is willing to steal SS funds for the general fund and issue "IOUs" this will continue to be a crooked game. I'd like to be able to go to the bank, draw money out at will and issue an IOU with only a "promise" to pay it back at some unspecified date in the future.

Sorry to ramble on, but you know how we OLD FOLKS are. :)

Ticker said...

Thanks GM and it was not rambling but certainly only verified what the feeling of many Americans have about SS.
I hope you will be watching for next week when I throw out some ideas for saving SS. I am no economist but it doesn't take a rocket scientist or economist to understand that REFORM has to be made. Too bad those elected are too damn cowardly to even mention the word in an election year, well that is except Perry perhaps. Romney has said the same thing but doesn't have the balls to man up to it. If all the candidates would make this a main feature in their talks and then turn it on Obama to come up with a solution something other than scare tactics might be forthcoming but I won't hold my breath for either to happen.
Stay Tuned.

Always On Watch said...

It's not only Social Security at stake! Medicare would also be affected as Medicare premiums are deducted from Social Security checks.

Many people, such as I who working in the Lord's service (Christian education, which doesn't pay for beans) who were unable to fully fund an IRA so as not to need Social Security.

And let's now forget those like Mr. AOW: the totally disabled, many of whom are totally dependent on Social Security Disability.

Social Security monies also fund nursing-home care.

Always On Watch said...

Somebody should dig up these dead politicians and beat their cadavers.

Living politicians who participated in this scam should be tarred and feathered.

Seriously.

This Social Security debacle instigated by LBJ and Nixon is going to have terrible repercussions beyond what we can even imagine.

Ticker said...

AOW, stay tuned. Yes Medicaid is in worse shape but there is yet hope, at least in the plan I will put forward in the next few days.

Debbie said...

Think what a nice retirement we could have if we had been allowed to invest for ourselves all that money the government took for Social Security. Sickening.

This is something hubby and I are very concerned with, since we are 59 and 60 years old. Good thing we have been saving on our own, we sure could not depend on SS.

Debbie
Right Truth
http://www.righttruth.typepad.com

Ticker said...

So True Debbie. Now stay tuned for how you could have a decent retirment with SS IF it were operated correctly.