Entitlements, Fiscal Limits and the Looming Age of Rage

Now that Democrats are close to parity with Republicans in the House of Delegates, there is renewed talk of Medicaid expansion in Virginia. Meanwhile, in Washington, President Trump and Republicans are pushing a tax-cut plan that would spur economic growth but, even with stronger growth, would increase deficits by $1.5 trillion over the next ten years. Nobody is talking about the $14.6 trillion national debt except as a cudgel against partisan foes. Even as Medicare, Disability, and Old Age and Survivors trust funds are projected to run out within a single generation, entitlement reform is not up for discussion.

Just a reminder… Here’s are U.S. budget deficits forecast by the Congressional Budget Office without counting proposed GOP tax cuts:

The “on-budget” deficit is what we conventionally think of the deficit. It does not include the draw-down of “off-budget” Medicare and Social Security trust funds. Data source: Congressional Budget Office.

Within eight years, the U.S. will be running $1 trillion-per-year deficits every year, pretty much forever. And the CBO forecast does not take into account the likelihood of a recession or two over the next ten years, in which case deficits will metastasize.

And here’s the off-budget forecast. Payouts for Medicare hospitalization, Social Security disability and Social Security old-age programs exceed tax revenues, but interest income on the assets will keep the respective trust funds in the black for the next couple of years. By 2020, however, the off-budget numbers shift  into deficit mode and plunge rapidly thereafter.

Barring major changes in U.S. spending programs or economic growth, here’s when the trust funds are expected to run out, according to Medicare and Social Security trust estimates:

  • 2028: Disability trust fund runs out of money.
  • 2029: Medicare hospitalization trust fund runs out of money.
  • 2035: Social Security trust fund runs out of money.

Back when the Simpson-Bowles commission tackled the deficit issue in 2010 — the last time Americans thought seriously about entitlement reform — the county had 25 years before keystone social safety net programs imploded. If Congress had acted then, it could have put the trust funds into fiscal balance with relatively minor tweaks (slightly higher payroll taxes, slightly reduced benefits, slightly older retirement ages) that had a large cumulative effect over many years. But a decade of delay will require more painful sacrifices, which means they likely never will be made.

If nothing gets done until the trust funds run out of money — what I call Boomergeddon — the programs will have to cut benefits to match revenues generated. We are only twelve years from massive dislocations to the Medicare program, and 17 years from disruptions to Social Security. Baby Boomers beware, your retirement will be a lot uglier than you realize.

As for those $1 trillion+ on-budget deficits every year, they put Virginia at special risk. Any Congressional effort to tame deficits without touching entitlements will require cuts to discretionary spending, the biggest pot of which is related to defense, intelligence and homeland security…. which happens to be Virginia’s biggest industry sector. Son of Sequester will subject the Virginia economy to chronic economic stress and fiscal pain. But instead of dealing with Virginia’s long-term structural issues, the next session of the General Assembly could well consume itself in a renewed debate over expanding Medicaid.

As Americans speak no evil, see no evil, and hear no evil, we hurtle toward an era of brutal fiscal limits, broken promises to millions of Americans, and polarization and rage that will surpass anything we see today.

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50 responses to “Entitlements, Fiscal Limits and the Looming Age of Rage

  1. you’re gonna increase economic growth by deficit spending and you call yourself a Republican?

    right… this is the current state of so-called “Conservatives” in the GOP these days. They’re as bad as the other tax-and-spend fools!

    In terms of Social Security – the narrative about the Trust Fund “going broke” as if the Trust Fund is Social Security itself is a total dishonest scam.

    Yes.. the Trust Fund will “run out of money”. It was DESIGNED to do that back when the FICA tax was increased to generate that surplus – so that it would give time needed to make adjustments to Social Security – as a result of demographics.

    The TRUTH is that Social Security itself will NEVER run out of money – as long as the FICA tax is collected. It WILL have to reduce payouts if adjustments are not made to things like retirement age and chained CPI but it was designed to do that to start with – to NOT need general fund money to keep it solvent.

    Social Security was explicitly designed to not need general fund money and it was designed to not pay out more in benefits than the FICA tax would generate.

    How many other Federal programs operate like that?

    The solution to Medicare Part B is to charge people who are over 65 more than $134 a month for insurance. At a time when folks under 65 are paying hundred or thousands for insurance – we’re selling health insurance to seniors for $134 a month .. yet all you ever hear about is Social Security “running out of money”.

    There’s really nothing wrong with Social Security that can’t be fairly easily fixed. The problem is that the very same folks who say they want to expand the economy with deficit spending – oppose fixing SS because they oppose the CONCEPT of SS and instead want it to fail by refusing to fix it.

  2. The TRUTH is that Social Security itself will NEVER run out of money – as long as the FICA tax is collected.

    Yeah, but the payroll tax will contribute only 75% of what it will take to maintain benefits at current levels. If you don’t think cutting SS benefits 25% will cause a political earthquake, you’re just not thinking.

  3. re: “political earthquake”.. yes.. one that is entirely preventable but blocked by people who ideologically oppose the CONCEPT of SS.

    The reduction to 75% is preventable by some fairly simple fixes – that have been available for a couple of decades but the same folks who cannot agree on how to do health care – also do not agree that Social Security is supported by a majority of citizens.. who do rely on it – as you point out.

    Not fixing it when there are known fixes , is irresponsible…

    This is totally irresponsible behavior on the part of those who on one hand decry the 75% “problem” – then on the other – refuse to do the fixes.

    It’s a created problem by politically schizophrenic folks who like with health care cannot reconcile the realities and so choose to do nothing.

    • Larry, as far as I can tell you are saying the same thing Jim said in his blog post …

      “Back when the Simpson-Bowles commission tackled the deficit issue in 2010 — the last time Americans thought seriously about entitlement reform — the county had 25 years before keystone social safety net programs imploded. If Congress had acted then, it could have put the trust funds into fiscal balance with relatively minor tweaks (slightly higher payroll taxes, slightly reduced benefits, slightly older retirement ages) that had a large cumulative effect over many years. But a decade of delay will require more painful sacrifices, which means they likely never will be made.”

  4. You’re still not getting it DJ. Social Security is funded from FICA taxes not income or other taxes. It has nothing to do with the deficit and debt even though it’s often mentioned in discussions about the deficit and debt.

    The Trust fund was originally created from excess FICA tax revenues and was spent on the general fund which now has to pay it back. But that problem was not caused by the structural problem that Social Security has to address if it’s going to continue to be able to pay out benefits at 100%.

    I think it is misleading to have a discussion about entitlements, deficit and debt and to include Social Security as if it is out of control and adding to the deficit and debt – like Medicare Part B is – and does have to be fixed and it won’t be fixed with FICA.

    Unlike the other entitlements , Social Security is not “out of control” because of too lavish entitlements – that do impact the deficit and debt. Social Security and Medicare Part A won’t be “fixed” like Medicare Part B, Medicare Advantage and MedicAid will be fixed and it just muddies the issue to lump them together.

    • Point noted, Larry. But there still are questions with SS as to whether increases in taxes and/or cuts in benefits will undermine public support for the programs; whether the tax increases needed to sustain current benefits (as projected) will harm the economy; and whether cuts in benefits will create added poverty that will require other social spending. I’m not arguing pro or con, just identifying issues that should be discussed.

      One potential FIT change that would help would be to limit a tax deduction to reach adjusted gross income to wages and benefits paid to persons for which E-Verify has not been used to 50% of the amounts spent and a limitation on the same items to 75% for any person for whom E-Verify shows is not eligible to work in the United States. I suspect we’d get a bit more FIT paid (including corporate taxes). It would also help balance the fact that the benefits of using unauthorized workers and the costs go to different people.

      • TMT – they MUST make changes to SS – to not do so with the excuse that you can’t decide is just plain irresponsible. It’s need adjustments for two decades now and the same folks who can’t decide what to do about health care and immigration can’t do SS either.

        My understanding is that illegal immigrants pay substantial sums into SS that they will never collect. No?

    • Well, I have undergraduate degrees in both Accounting and Finance so I’d bet that I do get it. Jim makes a simple and accurate political point in his comment. When the trust fund is exhausted the FICA taxes will only support about 75% of the benefits now being paid. What will happen politically when (not if) that occurs?

      1. Payroll taxes will be significantly increased on current workers so that former workers can continue to receive benefits at today’s level.
      2. The benefits will simply be 3/4 of what they used to be.
      3. General revenues from outside the payroll taxes (almost certainly with a deficit component) will be used to augment the FICA taxes so that retirees will not see their payments cut by 25%.

      I don’t think #1 or #2 will be politically feasible. The swamp-dwellers will simply hide the problem through #3 causing an even bigger “kaboom” when Boomergeddon finally arrives.

      Jim’s point is that this issue has been observable for decades. A few rather manageable changes to SS made 25 years ago could have averted or delayed this looming crisis. However, as the countdown to the exhaustion of the surplus draws nearer small changes won’t be enough. As usual, the swamp-dwellers in DC cling to their offices by ignoring an obvious problem.

  5. Larry, even CBO reports say Social Security influences debt when it looks at the unified budget. Social Security taxes go into a trust fund. The trust fund is required to invest in government securities. The government is effectively borrowing from the trust fund and owes it money. The government has used this mechanism to fund non-Social Security budget items.

    When Social Security outflows exceed inflows, as they now do, the government then must essentially “pay back” the trust fund with interest. In order to pay it back, the government must divert general fund revenue from other sources, cut spending, or issue more debt.

    • Izzo – remember where the money in the trust fund came from originally – FICA taxes. None of it came from the General Fund. In other words FICA tax generated a SURPLUS that was put into a trust fund and the money in that trust fund was spent for other things and IOUs issued to redeem that money when needed. But ALL of the money was generated by FICA taxes.

      In THAT context do you think SS itself is “in trouble” or “adding to the debt”
      It’s only spending what the FICA taxes originally generated and now are being redeemed with IOUs originally issued in exchange for taking the FICA tax revenues and spending it.

      To put this another way – if the trust fund that was generated with FICA taxes originally AND was off limits to spending it for anything else , would SS be “part of the debt problem”?

      Think of FICA and SS this way. FICA taxes DO generate about a billion dollars a year whereas income taxes generate about 1.5 billion dollars a year so in the unified budget they do show both –

      https://www.fiscal.treasury.gov/fsreports/rpt/finrep/fr/16frusg/FinancialStatements_2016.pdf page 54

      but the billion from FICA is earmarked to be spent ONLY for SS, SSD and Medicare Part A while the income taxes are “discretionary” and can be spent for anything but not SS.

      99% of people do not understand the distinction between FICA and Income taxes and the fact that FICA taxes are earmarked for one purpose only and even though they DO go into a trust fund – most all of it comes right back out and into checks to social security beneficiaries.

      To better understand Trust Funds – think wider.. there are dozens of them. Anywhere the Feds collect money – it is put into a “trust fund”.

      This happens with aircraft terminal fees… they go into a trust fund that is then used to improve capital facilities later and the same thing happens to that money – when it is first put into the trust fund – it gets spent immediately for other things and an IOU is issued that it uses to reclaim it’s money when it needs it.

      The same things happens to Medicare part B where people pay premiums and later that money is paid out as benefits. Those premiums go into a trust fund that works the same way.. immediately spent.. IOUS…etc.

      The Civilian and Military pension system works the same way. Civilian and Military workers pay money into their retirement system and that money goes into a trust fund that is then immediately spent for other things if it is not first spent on retirement benefits.

      the main problem with FICA and SS is that the FICA tax was originally raised to a high enough level to generate a substantial trust fund with the intent that it would be subsequently used to smooth out the financial transition to more and more baby boomers retiring and which other changes
      would have to be made to keep up with it and insure that benefit payouts were kept at 100% and not reduce.

      Despite all that planning, Congress has failed to act and make those mid-course changes and now they are facing having to reduce benefits to keep the balance between FICA tax revenues coming in and benefits going out – balanced and sustainable.

      Everything I’m telling you is true and I can provide you links to the material if you want. The problem with the FICA/SS/Trust Fund issue is that it has been politicized and propagandized by those who basically disagree with the CONCEPT of the govt being involved in Social Security – the same way most folks of that mindset do not believe the govt should be involved in Medicare or health care in general.

      Google – How Government Trust Funds Work – and you’ll see quite a few liks that basically show all trust funds to be essentially accounting mechanisms to keep track of money they collected – that as soon as it is collected is immediately spent for other things and IOUs issue for the original fund to reclaim the money when it needs it.

      These days – every day – FICA taxes are put into the Trust Fund and at the same time SS redeems earlier IOUs to get money back to pay benefits. These transactions occur every day… such that FICA taxes are collected and immediately spent on checks sent to recipients.

      Fixing Social Security will NOT fix the budget deficit and debt.. and fixing the budget deficit and debt won’t fix SS. They are separate funds and the fly in the ointment is that funds collected for any purpose automatically go into trust funds that can and are spent immediately and IOUs issued for redemption later – and now days with SS – “later” is down to months and days from a time when it was years….as the trust fund is indeed running out.

      But again – remember a trillion dollars a year in FICA taxes is also being collected… and then paid out… that trillion dollars a year will never run out as long as the FICA tax continues to be collected.

      The money paid out will continue to be paid out but on a per person basis it will be reduced if no changes are made..

      That reduction is based on not running a deficit. In other words – you cannot pay out more than the FICA tax is bringing in – no matter what else is going on in the rest of the Federal budget. There will be no infusions of money into SS from the general fund ..it has to stand alone on it’s own FICA tax revenues unless Congress decides to incorporate it into the general fund which would be without question an unmitigated disaster.

      FICA and SS need to stay separate .. and remain self-sustaining by adjusting the FICA tax and benefit payouts to keep it balanced and not in need of other funding from general revenues.

    • Izzo – here’s a pretty good explanation of how FICA/SS/TRust funds and the deficit and debt ‘work”:

      http://www.motherjones.com/kevin-drum/2012/12/social-security-trust-fund-is-real/

  6. I bet that if you broke into Jim’s basement nerve center and tapped into his computer you’d find a program already set up. You hit “control, command,DV (for Democratic Victory).” Popping onto the screen would be all sorts of revenue and other financial flow charts each one showing a dramatic trajectory downward. He has probably recycled them from his seven-year-old book “Boomergeddon.”

    • We’re about to see how important a very few votes can be. The original vote counts from Election Day will leave the House of Delegates at 51 – 49 in favor of the RPV. However, at least one race is so close that a recount is guaranteed. Let’s say for the sake of argument that the recount doesn’t change the 51 – 49 original count. The Republicans can “go all Tarheel” on the Dems by changing the HoD rule that requires proportional representation on the HoD committees. This was apparently what was done in North Carolina. By installing “true believers” in the committees the RPV leadership can still control the HoD without the need for perfect agreement among the 51 Republicans. Democratic bills will just be quietly killed in committee. Republican bills will get through the committees only to be vetoed by Northam (McAuliffe broke the Virginia record for vetoes by a Governor during his term). Nothing will get done for the next 2 years. Maybe fine.

      Now let’s say the recount leaves a 50 – 50 split. Unlike the State Senate where the Lieutenant Governor breaks ties there is no such mechanism for the House of Delegates. When this happened in 1999 committees had two chairs – one from each party. Once again, it’s hard to imagine much of anything getting done unless Northam can really cross the aisle and use his tenure in the General Assembly to “sweet talk” some Republican votes on key issues.

      Expect the Richmond swamp-dwellers to engage in plenty of dirty pool as these recounts progress through the next few weeks. Northam could offer enticing cabinet positions to moderate Republicans in order to force vacancies in the GA. Republicans could refuse to seat a Democrat who prevails in a recount until after the Speaker is chosen.

      There’s a reason that swamps have a natural affinity for slime.

  7. I actually don’t dispute some of the facts with respect to deficit and debt – and Medicare Part B and C and MedicAid – those programs have to be changed or they are going to relentlessly add to the deficit..

    but the idea that SS and SSD and Medicare Part A are int he same boat is just plain wrong – that program is explicitly designed to curb benefits that would exceed how much FICA tax revenues there are.

    If we actually put Medicare Part B/C and Medicaid on the same path – they too would be forced to look at increased premiums and/or decreased benefits to keep those programs in check and sustainable.

    Further – Jim adds to this the fact that some… a small number of cities are in financial trouble and he extrapolates this to all cities and implies that it’s a fundamental failing of governance in general.. that’s just wacko…doodle.

    MOST cities , towns and counties are reasonably well run – financially – not without their challenges and problems but in general they are fine. We have at least 7 jurisdictions in Va – all govt-run like the “bad” cities/counties but these have AAA bond ratings and have for some time – despite the fact that they manage billions of dollars of revenues and have substantial debt – it’s well managed and sustainable.

    So pointing out the “bad” jurisdictions as “indicators” of the inherent flaws of government , ergo , we’re all headed for “bombergeddon” just doesn’t do it for me.

    There is no question we do face continuing fiscal threats – but we do manage to keep most of them under reasonable control and I will admit that the tendency sometimes is to irresponsibly ignore a problem until it becomes a disaster. It’s just not the typical normal world we live in.

    • At the core of this you believe that the fundamental tenet that Social Security will be paid from payroll taxes won’t be broken. I think you’re wrong. A lot of the original promises about Social Security have been broken. When announced it was promised that the payroll tax rate would NEVER exceed 3%. Promise broken. It was meant to be a paygo system. The creation of the surplus broke that promise. When the benefits are set to drop by 25% almost overnight I can hear the sniffling cries, “Our grandparents will starve”, “The elderly will end up in shelters” and the ever popular “The children, the children, what about the children?”

      Next comes the ever so clever, “For years the Social Security Trust Fund has financed the Federal Government, now it’s time for the Federal Government to fund Social Security!” (sound of useful idiots clapping and cheering). Or, the more Republican refrain, “The tax cuts we have passed will dramatically increase the growth rate of the economy. Once that happens payrolls will rise and payroll taxes will again be sufficient to pay the full benefits of Social Security recipients. Until that happens we will fund the Social Security shortfall / deficit / crisis with money from the Federal Government”

      This isn’t about accounting it’s about the behavioral psychology of swamp-dwelling reptiles.

      • When the trust fund runs out, I fully expect SS to become more means tested — for precisely the reasons you laid out. When people are living on a SS check and nothing else, a 25% cut will be devastating. We’ll hear a never-ending litany of horror stories of elders eating cat food, having their electricity cut off, unable to afford their medication co-pays, etc. It will in fact be a tragedy on a mass scale. You’re probably right, there will be a general bail-out, if the country can afford it. Most likely, a portion of the burden will be shifted to retired Americans with other resources to draw upon.

        Social Security will be a significant part of my retirement income, but I’ll have a pension and personal investments as well. I am planning my retirement on the assumption that in 2035 or thereabouts (when I’m about 82), my SS income will be cut by 25% at a minimum.

        • A 25% cut will not be good I agree but a 75% cut would be much more “devastating”.

          The cure for SS is changes not killing it. The folks who damn it don’t have any other alternatives . The key to social security is that it mandates savings… it’s the way that social security works in 35 other industrialized countries including places like Hong Kong and Singapore, Australia, Canada, etc.. and it’s the way that 3rd world countries don’t work and older people DO starve in the streets.

          The “fix”es to Social Security are pretty straight forward and have been known for awhile. You have to increase the retirement age. You have to collect FICA tax from more than 106,000 in wages… you have to use chained CPI in computing benefit amounts, and more means-testing… all of these things driven by demographics and inflation…

          Jim talks like a 25% cut will result in “tragedy”.. how about a 75% cut or for that matter – no Social Security at all?

          I call this schizophrenic logic – it goes like this ” Social Security is a ponzi scheme and will “fail” and people will live in cardboard boxes ad starve to death – …. and that’s why we need to kill it.

          yup. that’s the essential logic of the critics these days.

          You have to kill it before it kills others…

      • As long as Social Security will not pay out more than the FICA tax will bring in – it will be sustainable and much more so than other open-ended entitlement funding.

        SS was promised to not pay out more than FICA taxes brought in. That’s a promise kept. The fact that the FICA tax created a surplus – that was then taken and spent for other purposes is not SS fault . It’s basically the way the govt works with ANY earmarked revenues taken in. It spends them immediately and the trust fund redeems the IOUS later.

        You say when the benefits drop… that people will starve to death in cardboard boxes.. they ought to have you on FOX for the gullible that will believe that tripe… oh wait..

        You’re funny – you blame SS for generating too much FICA tax so the govt spent it. That’s not a Social Security problem.. .. Social Security would work just fine if they never took it’s FICA taxes to start with – and the midcourse adjustments made that have been known to be needed since 1984 when the FICA tax was increased .

        But we’re back to the bigger problem here and that is – Social Security is not a silver bullet, it’s has it’s flaws and needs to be periodically adjusted but you have no viable alternatives.. you tear down SS and what would you replace it with? nothing? See this is where the critics go off the rails.. they tear up what we have and then want to walk away.

        That’s not governance

  8. Larry, even in the Mother Jones article you cite, he says Social Security contributes to the deficit. You don’t need to complicate it to see why. It is a pay-as-you-go system, meaning the current generation of workers pay for the retired generation. If the outflows to pay benefits exceed the inflows from FICA, as they do now by $70B or more per year, the difference must be made up by general funds to pay the obligations to the trust fund. And since the government runs a deficit, this general fund obligation contributes to the deficit.

    Yes, you can complicate it by saying there is a trust fund made up of government bonds, and that the surpluses from years past were used to keep down the deficit, but the unavoidable conclusion NOW is that Social Security is increasing and will increase the deficit.

    All pay-as-you-go systems are susceptible to demographics. If there are fewer workers paying for more retirees, the burden on the fewer workers becomes higher. This is why Jim uses the word “Boomergeddon”.

    • SS’s “contribution” to the deficit is just getting back the original FICA tax revenues that were created.. in other words no general revenue money was provided to Social Security – it was repayment of FICA tax money taken and spent.

      re: ” If the outflows to pay benefits exceed the inflows from FICA, as they do now by $70B or more per year, the difference must be made up by general funds to pay the obligations to the trust fund. And since the government runs a deficit, this general fund obligation contributes to the deficit”

      Not true at all! The “fix” to SS is to change FICA, the retirement age and the chained CPI – INSTEAD of using any general fund money at all.

      Either this is too complicated for people to understand – and its really not that complicated or people with political agendas purposely want to confuse it in order to attack SS as a concept.

      If you fix FICA/SS – you do not have to use a penny of general fund. That’s the simple truth. Every penny of benefits paid out have come solely from FICA taxes and will continue to do so – if the fixes that have been known for two decades are implemented.

  9. Where in this thread is anyone arguing or even appearing to want to do away with social security? In fact, who is arguing that on the national stage?

    There was for a while a discussion about whether the current system is the best way to build retirement wealth; but the Democrats with an enabling media shut it down. However, when compared to the prospective net worth of every American if his lifetime FICA contributions were invested in a low-risk fund, the FICA payments are a pretty lousy deal — even before any benefits reduction. But this is a discussion Democrats refuse to allow.

    401Ks and Simple IRAs are going to ameliorate the SS boomergeddon for many but of course not enough, unless the current appallingly irresponsible academic, political and media leadership of hate and smear and smash all traditional American values and mores destroys the economic engine.

  10. re: ” Where in this thread is anyone arguing or even appearing to want to do away with social security? In fact, who is arguing that on the national stage?”

    Where is the alternative that has wide support of both parties?

    You cannot “repeal” something first then SAY you’re going to talk about a replacement later – and never get to a definitive proposal that passes muster in how it would function AND has bi-partisan support.

    George Bush and company wanted to convert SS to the stock market – and that idea went belly up when the stock market itself tanked and severely eroded the “wealth” of virtually everyone who had an IRA or 401k.

    Despite that – I’m still in favor of IRA and 401Ks but keep in mind they are tax-advantaged – i.e. subsidized by the govt like other tax-advantaged benefits like employer-provided health insurance – to the total tune of about a trillion dollars a year in tax expenditures.

    It’s the very same problem the GOP is encountering right now with so-called “tax reform”. Simply stated – you cannot give a tax break to someone without that money coming from someone else or ELSE that tax break becomes an addition to the existing deficit.

    There is no “hate and smear and smash” to simply fiscal realities or there ought not to be. When someone proposes a cockamamie idea a fiscally irresponsible idea under guise of “fiscal conservatism” it ought to be “smashed” because it’s basically a lie.. masquerading as something it’s not.

    In every industrialized country on the planet – the problem of people saving enough for retirement so that the govt does not later have to spend money on their needs – is mandated savings.. from Singapore to Australia, to China to Canada… it’s the same. They all mandate that people put aside a certain percent of their earnings that unlike IRA/401 cannot be retrieved and spent.

    Ideological conservatives strenuously disagree with the govt-mandated aspect of this and would undermine and destroy SS based on their disagreement that govt should be the agent that forces the savings.

    Most folks – even a lot of Conservatives do not buy that idea. They support the mandated savings and what they might change is how – perhaps not like FICA but there is no doubt in most sane people’s minds that two things have to be true. 1. mandated savings and 2. you can’t go get it and spend it before you retire.

    You have two essential choices conceptually – Either you mandate the savings or you deal with elderly people with no income living in poverty without adequate shelter or food and we KNOW this is TRUE because we have more than 170 countries in the world where this is the reality if you don’t have the mandated savings. In a country that has Medicare and Medicaid for the elderly – it would make zero sense to not have a companion social security program. What good is health care for them if the can’t afford a place to live or food to eat?

    But this is where the hard right takes us on these issues. They’d tear up the current system with no real idea what to “replace” it with – because for them – it’s a ideological issue of the govt role which they disagree with so strongly that if they had their way – they’d destroy SS and we’d end up like 3rd world countries.

    Most sane people – if you put this question to them will not buy this hard right vision… about social security and the govt role in mandated savings.

    It’s a fundamental disagreement about the role of govt .. but as I said – if you get down to the essentials – most folks are not going to buy the hard right vision of this. Lots of bitching and bellyaching about it but when push comes to shove – people do not buy that hard-right “no govt” role.

  11. I agree with you about the need and the role of government in this. I am not reading or aware of any serious hard right effort to do away with Social Security; but I wouldn’t give it the ink you have here as it’s just not a threat or a serious idea.

    I am not a “Conservative” but I don’t think the Limbaugh’s or even Buckley’s ghost is advocating eliminating it without a replacement. However, in my view there is a lot of myopia and just plain wrong-headedness in the Cruz camp’s ideology and perhaps they are.

    My grandfather’s argument with Roosevelt who started all this was that it was creating a socio-cultural zeitgeist where people would become increasingly dependent and increasingly oriented to the idea that it was someone else’s responsibility to bail them out of their difficulties and that success would come to be measured not by what I can earn but what I can take. Those lectures to my young ears and mind which was much more interested in girls and football than a national zeitgeist were in the 50’s.

    I do think there might be better ways to preserve and grow the FICA contributions than pour them into a trust which is instantly flushed. But I know that’s not going to happen.

    • re: ” I do think there might be better ways to preserve and grow the FICA contributions than pour them into a trust which is instantly flushed. But I know that’s not going to happen.”

      You could put them in a non-govt investment but what would be safer than US Treasury bonds?

      That’s the gold standard, right?

      The other thing to realize is that there are dozens of “trust” funds in the US and every one of them works the same way… if they take revenues in – those revenues are spent instead of the govt having to issue more debt. Those funds are issued IOUs just like SS is and they get redeemed when those fuds need the money. It works that way for the Airports funding, Military and Civilian pensions, the US gas tax… etc…

  12. The central problem with entitlements under democratic government is that, once initiated, those early entitlements (that typically are quite fair and humane on their merits) inevitable grow into a pervasive culture of dependency that spreads throughout the society and its government, eviscerating the independent spirit of its people, until ultimately that culture of dependency gobbles up the governments discretionary spending.

    To date the only remedy appears to be collapse followed by revolution. Likely our last best chance to stabilize social security disappeared in 2010. Now we are being engulfed with entitlements of all sorts and kinds that infect all parts of our society and body politic until its fatal.

    • re: ” To date the only remedy appears to be collapse followed by revolution. ”

      There are 35 countries that have such entitlements including Social Security.

      Show me the ones that have had said revolutions.. especially compared to the countries that don’t have SS and did have revolutions?

    • Start with Greece in the 4th century BC and, coming forward in time, ask which such countries have not collapsed, or are not on the way to collapse currently?

      I cannot think of any. Can you?

      • There are many fine books on this subject.

        One of the finest recent books, and highly topical for what is going on today as regards the failing democracies in Europe was published in April of 2016. Its author, Ryszard Legutko, grew up and lived under the communist regimes of Poland for decades. A professor of philosophy at Jagellonian University in Krakow, Poland, he has served as Poland’s Minister of Education and its Secretary of State. He’s now a Member of the European Parliament, and serves on its Foreign Affair Committee.

        His book is titled: The Demon in Democracy: Totalitarian Temptations in Free Societies.

        A recent review by S. Adam Seagrave, Kinder Institute Associate Professor of Constitutional Democracy and Political Science at the University of Missouri, characterized the book by saying:

        “Echoing and elaborating Aleksandr Solzhenitsyn’s diagnosis of Western Liberal democracy’s faults and vulnerabilities in his famous 1978 Harvard commencement address, Legutko gives a philosophically profound, elegantly written, persuasively argued account of the affinities between modern Western liberal-democratic regimes and the Soviet Communists Regime.”

        In addition, when commenting generally on this subject beneath Jim Bacon’s recent posted article “How Long Must Parents Wait,” I spoke at length on the writings of Solzhenitsyn’s relevance to this subject. In those comments I posted this extract from his Harvard speech:

        Excerpts from Solzhenitsyn’s 1978 speech at Harvard:

        “To an outside observer the most striking feature is that the West has lost its courage, both as a whole and separately, in each country, each government, each political party, and (each institution but) … the decline is particularly noticeable among the ruling groups and the intellectual elites, causing an impression of a loss of courage by the entire society … there are many courageous individuals but they have no determining influence on public life.

        Political and intellectual bureaucrats (in America) show depression, passivity, and perplexity in their actions and in their statements, and even more so in their theoretical reflections to explain how realistic, reasonable, as well as intellectually and even morally warranted it is, to base state policies on weakness and cowardice.

        And the decline in courage is ironically emphasized by occasional explosions of anger and inflexibility on the part of those same (cowardly) bureaucrats when dealing with (others who are weak), or with currents that cannot offer any resistance. But they get tongue tied and paralyzed when they deal with (others) who are powerful and threatening forces, with aggressors and international terrorists. (Here) one should point out the from ancient times decline in courage is () the beginning of the end.

        (While) the majority of the people have been granted well being (beyond) their fathers and grandfathers (wildest) dreams … (there is) the constant desire to have still more things and a still better life, a struggle that imprints many western faces with worry and even depression … (and leaves) an active and intense competition that permeates thought without opening space for free spiritual development.

        American statesmen who want to achieve something highly important and constructive has to move with caution and timidly as there are thousands of hasty and irresponsible critics around him … from the beginning laying dozens of traps. So mediocrity triumphs.

        (Meanwhile) destructive and irresponsible freedom (enjoys) boundless space. Society has little defense against the abyss of human decadence, for example the misuse of violence against young people, and (entertainments) full of pornography, crime, and horror. Life so organized () cannot defend itself against the corrosion of evil. So evil has come about gradually (as if) born from a humanistic and benevolent concept that there is no inherent evil in human nature, as if the world belongs to mankind and all defects of life are caused by wrong social systems, which must be corrected.

        (In the American press) there is no moral responsibility for deformation or disproportion (nor is there any responsibility) to readers or history. There are few examples of any obligation to correct mistakes … it would damage sales. (And) because instant and credible information has to be given, it becomes necessary to resort to guesswork, rumors, and suppositions to fill the voids, and none of them will ever be rectified; they will stay in the readers’ memory.

        (So) the press can stimulate public opinion and miseducate it. (In America) the slogan is that everyone is entitled to know everything. But this is a false slogan, the characteristic of a false era (as the people should have) the right not to have their divine souls stuffed with gossip, nonsense, and vain talk. (Instead) hastiness and superficiality are the psychic disease of the 20th century, (particularly in the (media), and surprisingly given the alleged freedom, the western press mostly gives emphasis to their own opinions (and prevalent group think).

        The west does not admit the intrinsic evil or man nor does it see any higher task that getting happiness on earth (so) worships man and his material needs, (at expense of spiritual needs) as if man has no superior sense, … (thus) providing access for evil (as) mere freedom does not in the least solve all problems of human life and it even hides a number of new ones. So man’s sense of responsibility to God and society grew dimmer and dimmer. And as humanism in its development became more and more materialistic, it made itself increasingly accessible to speculation and manipulation, first by socialism then communism.

      • Here’s quote from The Demon in Democracy: Totalitarian Temptations in Free Societies, speaking of developments after the fall of the Berlin Wall in Europe, including among eastern block former communist nations:

        “Communism and liberal democracy proved to be all-unifying entities compelling their followers how to think, what to do, how to evaluate events, what to dream, and what language to use. They both had their orthodoxies and their models of an ideal citizen.”

  13. Let’s not forget the role of the bureaucracy in sustaining programs. Back when Al Gore was reinventing government, his group came up with a idea to stagger payment of Social Security checks throughout the month. The analysts found the change would produce significant savings. But then the government worker labor union came to the Vice President and said “jobs.” Taxpayer-funded jobs! And Mr. Gore decided to reinvent something else.

    Or like the time I wrote then Fairfax County School Superintendent David Domenench and urged him to reduce school secretary support to a national average. He wrote back and said Fairfax County does not reduce jobs absent a financial crisis.

    Eliminating Social Security would have a devastating impact on people and the economy. But that doesn’t mean it’s immune from needing fixes.

    • re: ” Eliminating Social Security would have a devastating impact on people and the economy. But that doesn’t mean it’s immune from needing fixes.”

      I totally agree and that’s what is contemplated… the “fixes” are known and have been for 2 decades and yet we don’t do the fixes and instead talk about it “failing”. Why?

  14. Larry, not everyone does “Social Security” the same way. Singapore does what is effectively defined contribution. The U.S. does defined benefit on a pay-as-you-go basis. Unfortunately, the defined benefit/pay-as-you-go systems tend to run into problems over time because of demographic changes (to many retirees and not enough workers paying in) and because the government uses the early surpluses as a grab and go funding.

    Take a look at: https://www.washingtonpost.com/opinions/to-fix-medicare-and-social-security-look-to-singapore/2012/08/16/e39e0ff8-e70f-11e1-8f62-58260e3940a0_story.html?utm_term=.52d580f77a4c

    • Izzo – yes they are done in different ways.. but I’m not understanding the “defined” contribution verses benefit.

      You do not get any amount of Social Security independent on what you paid into it – … what you get back is very much dependent on what you put into it.

      It’s very definitely NOT defined benefit.

      People who did not pay into SS – do not get it. People who paid into it a lot less than others who paid more – get a lot less when they retire.

      I’ve seen , as a volunteer tax prep – a wide range of what people get as benefits.

      But you’re evading the essential difference between Social Security and other entitlements.

      Social Security was explicitly designed to NOT need general revenues to pay benefits. In addition to that they look ahead 75 years actuarially. Tell me what other govt program looks ahead 75 years and can tell you how much benefits will be reduced unless change are made?

      The “surpluses” work the very same way for other Trust Funds – for instance Military and Civilian pensions. Workers pay into these pensions – and that money is immediately grabbed and spent and IOUs issue so the govt does not have to borrow more money via other methods?

      This is not something unique to SS… it’s the way the govt works for ALL trust funds …

      When SS was created – they KNEW it would have to be altered from time to time to stay abreast of demographics and inflation. If you think this is something unique to SS – you should check into things like private sector annuities and Long Term Care insurance , and other kinds of insurance annuities as well as IRA and 401Ks… All of these are subjected to the same forces of demographics and inflation and other economic dynamics.

      I’m not opposed to doing SS the way other countries do – including Singapore but the fundamental thing that is common to all of them is the fact that the govt mandates that you save towards your retirement.

      And they do this for a super simple reason… it’s much more fiscally responsible than not mandating and then have the elderly unable to afford shelter and food and dependent on charity – and the govt.

      There is a clear difference between countries that mandate saving for retirement – and those that don’t.

      Some folks in the political realm say that this is not the role of govt. That if people don’t save then it’s their problem not the govt – and on that basis they oppose the CONCEPT of SS.

      I accept as legitimate that view – it’s a valid view that I disagree with and I’m not alone. If a majority of people in this country want to do away with SS, I support it as the very basis of our form of government. But I’m not going to support a minority of people who have this view then lie and propagandize and spread disinformation and misinformation about how it works.

      We should want the truth here – then from that develop our opinions.

      The simple truth is that SS properly designed and implemented – to include periodic changes – – does work and will not go “broke” and will not contribute to the deficit and debt.

      No other entitlement program works that way. Medicare Part B is a totally open-ended entitlement that grows bigger each year and in doing so – adds more to the deficit every year.

      Medicare Part B should be converted to a SS type concept so that it controls it’s own costs and does not adversely impact the budget. Instead – it’s concept is that seniors pay 25% of the total costs and taxpayers pay 75% and every year that more people qualify for Medicare Part B and/or medical costs go up – that cost is given to taxpayers.

      Anyone who is serious about these issues KNOWs that SS is a gnat on a dogs butt compared to Medicare Part B and MedicAid – but you’d never know that from a lot of the dialogue that treats SS as if it were the same as Medicare Part B and MedicAid and it’s simply not.

      Why is this important? Because the “fix’ to SS is not the same “fix” to Medicare Part B .. and yet we continue to talk as if they are the same.

      Please note that I differentiate between Medicare Part B (and C0 versus Medicare Part A which IS part of FICA/SS.

      Medicare Part A is for hospitalization and by law – it cannot pay out more than it’s portion of the FICA tax generated. Medicare Part B is different. There is no such control on it. Beneficiaries pay 25% and taxpayer pay 75% no matter how high costs go… it’s totally open-ended.

      So how many newspaper articles and other literature have you read that actually differentiates and distinguishes the difference between how Medicare Part A and Medicare Part B are actually funded?

      Not too many I bet…

  15. This really comes down to a really simple proposition.

    Do you want people to save for their own retirement and health care

    or …

    Do you want the govt to collect from all taxpayers to pay for those who need retirement income and health care?

    The third option – don’t mandate savings and don’t pay for the elderly who did not save – is the quintessential 3rd world approach.

    Every major industrialized country on the planet earth – has rejected the 3rd world approach.

    As a result – life expectancy in the industrialized nations is quite a big longer than the 3rd world nations.

    I don’t know of any non-industrialized / 3rd world nation where people live as long … and surely the free market is much more in play in the 3rd world than in the “regulated” world.. right?

    So.. the simple question is – do we support the govt mandating saving for retirement – to protect taxpayers and to help all people live longer?

    Do you know any other way to accomplish this? Are there any real world alternatives that we can look to – to do this?

    At the end of the day – do you – so much hate the idea that the GOvt mandates the savings that you’d prefer no govt mandate and either have the taxpayers pay or let those that do not save – die of starvation or easily treatment disease?

    It’s a pretty simple proposition once you strip away all the ideological and political “noise” about the sins of government.. and all that rot.

  16. Larry, you are tilting at windmills. And you are conflating things.

    You call Social Security mandated savings. It isn’t in the economic sense. It is a pay-as-you go transfer system, with current taxpayers funding retirees. This type of system is problematic due to demographic shifts (too many retirees and not enough workers) and governments spending the early trust fund surpluses, which the U.S. has done. When the government has to pay back the interest and ultimately principal to the trust fund, it has to do so out of the general fund. You can see this on the summary of the report from the SSA itself, so I have no idea why you keep saying otherwise. (“After 2021, interest income and redemption of trust fund asset reserves from the General Fund of the Treasury will provide the resources needed to offset Social Security’s annual deficits until 2034, when the OASDI reserves will be depleted.”) https://www.ssa.gov/oact/trsum/

    You question my depiction of Social Security as defined benefit plan. Defined benefit plans have a specified payment based on formulas (earnings history) rather than on individual investment returns. I would favor a system more like Singapore’s Central Provident Fund, which is defined contribution. This encourages actual savings in the economic sense, and in the case of Singapore this has fueled investment in infrastructure and economic growth.

    Most western government social security schemes are pay-as-you-go defined benefit, and they are going to be increasingly under strain as the number of workers per retiree declines. http://www.econdataus.com/workers.html

    Lastly, I have no idea why you chide me about Medicare Part A and Part B. It was not something I even referenced.

  17. re: ” You call Social Security mandated savings. It isn’t in the economic sense. It is a pay-as-you go transfer system, with current taxpayers funding retirees. ”

    The govt mandates that you participate. You call it paygo but it works EXACTLY like any other private sector annuities and insurance except those are voluntary and FICA is not.

    “This type of system is problematic due to demographic shifts (too many retirees and not enough workers)”

    No more than private sector things – ALL of these things from annuities to IRAs to 401K are also influenced and affected by demographics. Last year, Bacon was complaining because the premiums on his Long Term Care insurance WENT UP. They went up because of the very same demographics – not government.

    ” and governments spending the early trust fund surpluses, which the U.S. has done. When the government has to pay back the interest and ultimately principal to the trust fund, it has to do so out of the general fund. ”

    The original money came from FICA – it’s repayment not sourced money from the General Fund .. AND it works like that for ALL Trust Funds in the govt.. it’s not specific nor unique to FICA/SS. It’s not something inherent to the CONCEPT of SS.. it’s something that is inherent to GOVT trust funds – all of them.

    “You can see this on the summary of the report from the SSA itself, so I have no idea why you keep saying otherwise. ”

    I’m not saying otherwise. I’m pointing out that this is something that is inherent to ALL trust funds in the govt and not something specific to SS. It’s NOT something that is a flaw in the SS concept.

    It “works” the SAME exact way it does for Military Pensions – for instance:

    They too collect contributions and those contributions get spent immediately for other things and then when benefits have to be paid – they redeem the money that was spent earlier. The whole exercise is how the govt basically delays borrowing more money externally by borrowing money internally.

    By thinking this is a SS thing, you are not understanding how the govt works in general and believing it’s inherent to SS and it’s simply not. This is an example of how ignorance affects things.. people do not understand and won’t spend the time to really understand so they form opinions that are based not on facts.

    “You question my depiction of Social Security as defined benefit plan. Defined benefit plans have a specified payment based on formulas (earnings history) rather than on individual investment returns.”

    I basically said it works like any other annuity – private sector annuities where what you pay into it affects what you get back.

    Where I would AGREE with you is in you live longer than expected and get more back than if you had expired sooner – but again – private annuities work the same way because they are hybrids – they are annuities plus insurance. Your premiums are determined by predicting your death and if you die early – you got back less than you paid in but if you die later -you get back more than you paid in.

    This is totally different from IRA/401Ks where what you get back is what you had saved.

    “I would favor a system more like Singapore’s Central Provident Fund, which is defined contribution. This encourages actual savings in the economic sense, and in the case of Singapore this has fueled investment in infrastructure and economic growth.”

    Izzo – the 15.3% FICA tax IS a DEFINED contribution AND it is, like Singapore’s – MANDATED ..it’s NOT voluntary and it’s NOT whatever you want to put aside. Both the saving and how much is DEFINED and mandated.

    “Most western government social security schemes are pay-as-you-go defined benefit, and they are going to be increasingly under strain as the number of workers per retiree declines. http://www.econdataus.com/workers.html

    ALL annuities and insurance work this way Izzo. When you buy auto insurance -they’re using YOUR money to pay for others accidents. When you buy Life Insurance, they’re using YOUR premiums to pay for others deaths. When you pay for health insurance – that money is used to pay for others health care needs. ALL insurance and ALL annuities work like this – not just SS.

    “Lastly, I have no idea why you chide me about Medicare Part A and Part B. It was not something I even referenced.”

    Well.. I did not intend to chide you but I did want to make clear the difference between Part A and Part B which is another thing a lot of people do not understand because they often speak of Social Security and Medicare as if they are the same and that’s not entirely true and it leads to misconceptions about how they are funded and what impact they have on the general budget.

    If you go back to the trustee report you referenced and go down to where the heading says:

    TRUST FUND OPERATIONS, 2016
    (in billions)
    OASI DI HI SMI

    you’ll see that the first 3 are funded from FICA but the SMI which is Medicare Part B is not. It has nothing to do with FICA and it’s funded 75% from general fund revenues… and 25% from premiums.

    SMI – Medicare Part B – is totally voluntary. You pay nothing into it ahead of time like you do for the other 3. You CAN opt out of Medicare Part B and pay nothing and go find your own insurance if you want. Part A that you DID pay into and were mandated to do so – still will cover your Hospital costs but you’re on your own if you don’t have Part b – to pay for your other care outside of hospitals – i.e. your doctors and other providers.

    But again – you need to realize that Social Security is an insurance annuity – run by the govt , mandated by the govt but the same type of insurance annuity is sold by the private sector also.

    Any annuity works like this – you buy the annuity – and if you die early you get nothing back and if you live longer – they pay you beyond what you initially paid into.

    it’s basically insurance and the payouts are actuarial “bets”.. just like any other insurance where the company is betting you’ll pay more in premiums than you’ll cost them in pay outs. If they guess wrong – they increase the premiums… otherwise -they make a profit.

    All insurance and annuities work this way – private or public. It has nothing to do with a flaw in govt.

  18. Larry, you almost always pick the wrong point (one that is not contended), and argue it. This gets tiresome.

    I am not arguing anything about MANDATED (both Singapore and Social Security have mandated contributions. I am saying I would favor the Singapore approach. Your time would have been better spent looking at the Singapore plan and how it differs.

    You say you are not arguing that Social Security is funded in part by general fund revenue (which is the crucial point because it means is can and will impact the deficit going forward at least until 2034). BUT YOU DID. You attempted to lecture DJ this way:

    “You’re still not getting it DJ. Social Security is funded from FICA taxes not income or other taxes. It has nothing to do with the deficit and debt even though it’s often mentioned in discussions about the deficit and debt.”

    DEFINED BENEFIT and DEFINED CONTRIBUTION. Go look up Wikipedia definitions and then come back on that one. You are just fixed on the mandated aspects of what is paid in. Then tell me where you think Social Security and Singapore Provident fall.

    MEDICARE PART A AND PART B. I never reference them so stop bringing them up if you are responding to me. And particularly don’t insult me with tripe like this from your post above:

    “So how many newspaper articles and other literature have you read that actually differentiates and distinguishes the difference between how Medicare Part A and Medicare Part B are actually funded? Not too many I bet…”

    And this insult:

    “By thinking this is a SS thing, you are not understanding how the govt works in general and believing it’s inherent to SS and it’s simply not. This is an example of how ignorance affects things.. people do not understand and won’t spend the time to really understand so they form opinions that are based not on facts.”

    There are so many things wrong here it is hard to know where to start. First, it is an unnecessary insult. Second, you are going off topic as my post was about Social Security. Everyone realizes there is more to government. You chide me for not getting my facts right, but my facts are right.

    I can have a good-natured exchange with others on this blog and elsewhere even when we disagree. You have a way of engaging that degrades the conversation. You put out Red Herrings. You go ad hominen rather than stick to the points and facts You project your view of what a person is like in your response rather than sticking to the points and facts. You never concede points if wrong, you just change the definition or topic.

  19. @Izzo – re: ” I am saying I would favor the Singapore approach. Your time would have been better spent looking at the Singapore plan and how it differs.”

    Then make YOUR POINT guy! I am familiar with it but you should make the specific points as to why you favor it .. not me.

    re: ” “By thinking this is a SS thing, you are not understanding how the govt works in general and believing it’s inherent to SS and it’s simply not. This is an example of how ignorance affects things.. people do not understand and won’t spend the time to really understand so they form opinions that are based not on facts.”

    There are so many things wrong here it is hard to know where to start. First, it is an unnecessary insult.”

    was not intended as an insult but a simple fact – we ALL are ignorant .. guy and there is MUCH ignorance on this issue.

    ” Second, you are going off topic as my post was about Social Security. Everyone realizes there is more to government. You chide me for not getting my facts right, but my facts are right.”

    nope. some of your facts were not right – and I showed how. If that insulted you – then I have no problem apologizing but be specific here about what if you don’t mind.

    re: ” I can have a good-natured exchange with others on this blog and elsewhere even when we disagree. You have a way of engaging that degrades the conversation. You put out Red Herrings. You go ad hominen rather than stick to the points and facts You project your view of what a person is like in your response rather than sticking to the points and facts. You never concede points if wrong, you just change the definition or topic.”

    I’m sorry you feel that way but if you want I CAN GO BACK to the exact passages that I did disagree with you on and I think you do have the facts wrong and I point it out.

    Many folks cite the “paygo” as it it is unique to SS. It’s simply not. It’s common with most all annuities and insurance but most folks don’t recognize it.

    What Ad Hominem? geeze? I said there is ignorance on facts of SS and your point about whether it is, in fact, “funded” by general revenues and HOW misconstruing these things leads to people forming opinions that are just plain wrong about the basic premise of Social Security and it’s sustainability.

    I’m aware of the Singaporean Social Security system but in the end it works like SS does here on what you say is “paygo”. That plan is also a basic social insurance plan in which there are people paying into it at the same time others who paid into it previously are now receiving payments. It, like any other insurance, depends on younger workers paying into it to fund the folks who paid into it previously. All insurance basically works this way if you think about it. It’s not some untoward “scheme” …. unless one thinks how all insurance and annuities basically work.

    Trust Fund “surpluses” – work the same way and the same with the Military pension system as well as the gas tax (and other trust funds) . contributions/revenues are collected – then immediately spent by the govt for other things and IOUs issued – which are then redeemed to pay out pensions or build roads…etc.

    We likely agree on some or most of the aspects of the Singapore system especially where they integrate it with health care – such that, unlike our system people there have to pay not only for their retirement but also their health care – with a side benefit of being able to borrow some of it for homes.

    What I don’t know about their system is if it is walled off from their general fund which I consider absolutely necessary so that any such system like that is truly self-sufficient and will not need more and more general fund money to pay benefits – which is exactly what is wrong with Medicare Part B in our system.

    To me SS is an example of how something has been politicized and basically propagandized with misinformation – successfully – because most folks simply don’t understand the basic facts about it’s operation and won’t spent the time to find out even though today it can be done with a little time on task.

    . When I see statements that it is “paygo” and an implication that it is not sustainable – I have to offer the facts that social security is basically an insurance annuity of which there are similar variants offered by the private sector. There is nothing exotic about it nor untoward because the govt does it or that there is a surplus that is invested and then redeemed back. The private sector does the same thing. They take premiums, invest them, then redeem them to pay benefits. Benefits paid come from new people paying premiums and investment proceeds and the whole thing is based on actuarial principles..

    The primary difference is that the private sector is voluntary and the soundness of their insurance and annuities to be able to pay benefits is an issue , a risk, and one in which the Govt steps in and requires fiscal standards so that people are not scammed out of their insurance and pensions…

    But I’ll finish with an apology… if you felt insulted..

  20. Trying to winnow out some useful learning from the comments here.

    SS in some form is an ineluctable components of every industrialized society.
    SS is a trust fund which is swept and replaced with IOUs.
    SS is funded by FICA and was intended to be or by law must be wholly funded by FICA.
    SS is facing the prospect of it’s FICA revenues being insufficient to pay its obligations because the recipient pool will be larger than the contributing pool, if it is not there already, unless and until FICA taxes are one way or another increased for some or all payers.
    SS should not be criticized or blamed for this deficiency because the shortfall gap funded from the General fund would not exist if the surplus funds had not been diverted to the general fund.
    SS should not be said to be contributing to debt from any deficits created as a result of the General Funds “replenishment’ or “repayment’ to the SS Surplus Fund.

    It has been argued that the handling of SS payments is identical to private insurers except that private insurance has government mandated fiscal standards to protect consumers.

    That is a very large “but”. Insurers must maintain a regulated level of liquidity to offset the risks of outflows exceeding income. There is also a second safety net in most states if not all in that the entire industry is liable to the failure of any one company which miscalculates the ratio of income to outflow. The government accomplishes this from the General Fund.

    For retirement funds for defined benefit plans, the mandate is that there be an investment base–actual invested monies — sufficient to pay out actuarially determined benefits for the lifetime of all potential recipients. When the market value of those funds does not meet those standards the funds must be increased. These are the rules which have virtually wiped out all defined plans in corporate America to be replaced with self-directed IRAs and 401ks.

    The government has no invested funds or pool and does exactly what private organizations are forbidden to do with retirement or pension obligations.

    How am I doing?

  21. let me respond to each because in the first half you were sorta okay and the second half – not so sure:

    ” SS in some form is an ineluctable components of every industrialized society.
    SS is a trust fund which is swept and replaced with IOUs.”

    There are more than a dozen Trust Funds and ALL OF Them work the same way. It’s not a FICA/SS “thing”, it’s a Govt thing for all trust funds. Here’s more info on it: ” Federal Trust Funds and the Budget ” https://www.everycrsreport.com/reports/R41328.html

    “SS is funded by FICA and was intended to be or by law must be wholly funded by FICA.
    SS is facing the prospect of it’s FICA revenues being insufficient to pay its obligations because the recipient pool will be larger than the contributing pool, if it is not there already, unless and until FICA taxes are one way or another increased for some or all payers.”

    other changes.. higher retirement age, chained CPI for computing cost of living increases, more means testing for taxation of benefits… There’s links for the fixes.. I can provide if you want or just GOOGLE ” Proposals to change Social Security” and pick the URL that is SS gov ssa.gov/oact/solvency

    “SS should not be criticized or blamed for this deficiency because the shortfall gap funded from the General fund would not exist if the surplus funds had not been diverted to the general fund.”

    SS should not be singled out as if this was problem with SS rather than a problem with how the govt deals with ALL TRUST FUNDS.

    “SS should not be said to be contributing to debt from any deficits created as a result of the General Funds “replenishment’ or “repayment’ to the SS Surplus Fund.”

    If the FICA tax generated the surplus than it did NOT contribute to the debt – govt spending did – which then had to borrow money to pay. It has two options to do that – borrow externally by issuing T bonds or borrow internally by issuing T-bonds also. It typically borrows internally from ALL the trust funds FIRST before it borrows externally. Read that link I provided.

    “It has been argued that the handling of SS payments is identical to private insurers except that private insurance has government mandated fiscal standards to protect consumers.”

    did not say “identical” said very similar.. Said that private-sector annuities have govt imposed regulations to insure fiscal integrity and protect those who buy non-govt annuities.

    “That is a very large “but”. Insurers must maintain a regulated level of liquidity to offset the risks of outflows exceeding income. There is also a second safety net in most states if not all in that the entire industry is liable to the failure of any one company which miscalculates the ratio of income to outflow. The government accomplishes this from the General Fund.”

    I am myself ignorant of this. Can you provide a link showing that all companies have to rescue those that fail? thanks.

    “For retirement funds for defined benefit plans, the mandate is that there be an investment base–actual invested monies — sufficient to pay out actuarially determined benefits for the lifetime of all potential recipients. When the market value of those funds does not meet those standards the funds must be increased. These are the rules which have virtually wiped out all defined plans in corporate America to be replaced with self-directed IRAs and 401ks.”

    Well first – don’t confuse private sector insurance annuities with IRAs and 401Ks. They are different. What wiped out the IRA/401Ks was the recession guy – not govt rules that after the recession were tightened.

    are you REALLY saying that the cratering of IRA and 401Ks was caused by govt regulation. Got a credible link?

    “The government has no invested funds or pool and does exactly what private organizations are forbidden to do with retirement or pension obligations.”

    Nope. SS DOES invest it’s funds in Treasury Bonds .. you can go look on the SS Trustees Report and verified that one source of revenues IS, in fact, interest earned.

    In terms of fiscal soundness.. the words “full faith and credit” applies to ALL debts of the govt and to this point the govt has never reneged on any debt – unlike the private sector which has and does. The Pension Benefit Guaranty Corporation is an example of the govt having to step in and protect those who were promised pensions by companies.

    Finally – tell me what other fund – public or private has a 75-year look-ahead for actuarial soundness and publishes it so people do know the exact state of SS?

    I had said earlier – and did apologize if Izzo felt insulted but I will say again –

    there is a LOT of ignorance on this issue as well as a LOT of misinformation and disinformation – and my goal here is not to insult but to get to the facts.

    Izzo said he like the Singapore approach. I’d ask – do we know how they maintain their fund – different from us?

    But also – doe folks realize that the Central Provident FUnd tax -the Singapore version of FICA is 35% AND has gone through many “adjustments” and increased to keep it solvent? Fully one third of people’s income is mandated to be saved for retirement AND health care (and housing if needed).


    Employer and employee CPF contribution rates

    In September 2010, the employer’s contribution to the CPF went up by 0.5% to be paid into the Medisave Account.

    In March 2011, the employer’s contribution went up another 0.5% to be paid into the Special Account, bringing the total employer CPF contribution to 15.5%, setting the overall employer and employee CPF contribution rate at 35.5%.” (wiki referenced from original source – “CPF Contribution and Allocation Rates”. Retrieved 2016-01-05.

  22. Larry, where would I go to manage my Social Security investment fund, conveniently indexed under my Social Security account number, and select my investment options as a Singapore CPF member could?
    https://www.cpf.gov.sg/members/schemes/schemes/optimising-my-cpf/cpf-investment-schemes

    It is different from Social Security.

    Here is a description of Singapore CPF from a site that profiles by country:

    In contrast to the majority of other publicly managed pension schemes, the Singaporean system operates on a fully funded basis. The CPF does not include social risk pooling and redistributive elements. Individuals rely exclusively on defined contribution funds accumulating in individual accounts.

    Here is another description from the CPF:

    Singapore’s social security framework is founded on the principles of self-provision and self-reliance. The responsibility to provide for one’s own retirement needs lies primarily with the individual, and with his family. This reduces reliance on the state and ensures fiscal sustainability for the long-term. For vulnerable individuals unable to provide for themselves despite best efforts and who have no other sources of income support, the Government administers financial assistance as well as other non-financial help measures.

    Perhaps you respond to me the way you do because you think I’m opposed to the concept of “Social Security”, but that is not the case. I think it should have been (and still ideally would be) structured differently (e.g. more like Singapore, separating out the retirement savings and redistributive parts.). And when I am pointing out Social Security is going to affect the general fund and the deficit going forward, it is a fact. It isn’t “Social Security’s” fault that it was structured the way it is and is now dependent on the general fund repaying interest and principal on the IOUs (since the government has burned through the surplus). But it is an important and worrisome fiscal fact.

    Jim pointed out in the beginning that the unified budget (including off budget items like Social Security) is terrible, and the proposed Republican tax cuts would make it worse. And the longer we let this run, the worse it gets.

    I don’t dispute what you said that payments can still be made based on FICA payments. But there are going to be political implications when the younger generations see the prior generations got a much better deal and they are getting stuck with the short end of the stick.

  23. Thanks Izzo – you are correct .. the Singapore system IS different and if you look here – you’ll see that some elements of that are actually under consideration for changes to SS including a provision for individual accounts:

    https://www.ssa.gov/oact/solvency/provisions/

    You’ll find in reading through it that there are quite a few options for bringing SS back into 100% solvency…

    I’m not opposed at all to changes to a system like Singapore because I agree completely with your premise:

    ” Singapore’s social security framework is founded on the principles of self-provision and self-reliance. The responsibility to provide for one’s own retirement needs lies primarily with the individual, and with his family. This reduces reliance on the state and ensures fiscal sustainability for the long-term.”

    You may note also this ” For the first time, the new scheme contains a risk-pooling element, as premiums are combined in a common pool.”

    and this: ” The main challenge for pension policy is to make sure that not too much capital is withdrawn before retirement, which is often the case. Recent reforms that have increased the minimum amount to be left in the accounts are a step in the right direction, while the plans for a National Longevity Insurance Scheme intend to prevent retirees from running out of money. ”

    and this: ” Assurance in old age revolves around three key considerations: retirement, housing and healthcare needs. As a compulsory savings scheme, the CPF system is designed to help Singaporeans take care of these needs and support themselves in retirement. At the same time, the government provides targeted assistance to the needy through subsidies and top-ups.”

    which tells me there IS redistribution… SOMEONE has to pay those subsidies!

    So how does this get done? Does the Govt mandate the savings and control the funds such that you cannot just take them and spend them anytime?

    The CPF is a totally government-mandated and govt-operated scheme. It’s not “voluntary” and the total tax is 35% – double what the FICA tax is.

    Again – I’m not opposed to changes in SS including the conversion of voluntary IRAs that can be now taken out and spent to mandated IRAs that cannot be spent until retirement.

    Should the govt essentially mandate: ” principles of self-provision and self-reliance. ” ?

    You seem to want changes so that people “own” their funds. We allow that right now with IRA and there are provisions to allow it in SS… but you do have to ask yourself WHY the CPF … MANDATES 35% set aside and you’d have to admit that since people cannot use those funds until retirement that the govt is basically controlling things – not the people who “own” the funds. It’s primarily an “accounting” to let people know how much is in their “funds” which the Social Security also does when it sends you an accounting of how much you will receive when you retire – based on your current earnings and contributions.

    It appears that we AGREE on the idea of the Govt .. MANDATING the savings… right?

    If that’s the case – then I don’t really care about exactly how they do the “funds” as long as those funds cannot be plundered and will be there for folks when they retire so that other taxpayers do not have to fund the retirements of people who did not save or save enough or squandered what they did save.

    I just don’t think SS is a ponzi scheme. It IS paygo as you said. It works like a lot of insurance annuities work. When you buy a private sector annuity – you give them a lump-sum up front and/or – are committed to some recurring payment structure and what they promise you in return is not a fund you can withdraw but instead – a promise to pay you X dollars per month for as long as you live .. and if you die early, you get nothing.. if you die late – they continue to pay – and lose money on it – but they make it up on the folks who died early .. it’s essentially a kind of insurance.

    And it’s not exotic or untoward at all… many people who retire from say a school system – the school system essentially “buys” an annuity for that retiree… and they get a monthly income until they die .. and nothing else..no residual funds to heirs… it’s an annuity pension…

  24. Singapore does subsidize low income. The bulk of the money is people who are able to paying into their own accounts and providing for their own retirement. This raises the national savings rate, which is quite a bit higher than the U.S. savings rate, and over time this leads to higher investment and infrastructure spending, which improves long-term economic growth.

    I agree with mandated deposits. I would hesitate to call Social Security mandating “savings” in a true economic sense. It all depends on how the trust fund is handled, but studies have shown that countries with systems like Singapore have higher savings rates than those with systems like the U.S., and there are clear economic implications from this.

    An issue with all paygo systems is they are susceptible to demographic shifts. If fertility rates go down and life expectancy goes up, you end up with an increased tax burden and debt burden on current workers. This is happening across many economies in the world.

  25. Wel… geeze Izzo – it’s a Mandated savings ! and I AGREE with it but it brings on the spectre of big bad govt telling people what to do with their money and all that stuff… I’d mandate it for Medicare Part B also… like the Singapore plan does.. it covers retirement and health care..

    by the way – a dollar – kept by someone and spent on something like groceries ..is the same dollar that might be saved instead – and then spent on something on the investment side like infrastructure…

    it’s the same dollar – it’s just where and how it gets spent , right?

    we can spend that dollar on a car or we can spend it on a road for the car….but it’s the same dollar or are you suggesting the govt use that money to build roads ? how would they get the money back… tolls?

    Anyhow – higher savings rate = less consumer spending on other stuff..more on investment side

  26. Geezy peezy Larry. You are so right that there is no difference between savings and consumption because it is the same dollar. Let’s all buy cars then and have no roads. Or better yet, let’s all buy cars and not have efficient plants to produce them. I’m sure we’ll still be globally competitive and still have the means to purchase all those cars. It is all the same dollar after all! Those damned economists are all wrong.

    And investing in Enron in 2007 was just as smart as investing in Apple in 2007. It is all the same dollar. . .

    • I’m no advocating one over the other Izzo – I’m pointing out it’s a choice.

      If you want people to save more – then they’ll be buying less of whatever they were buying before.

      I question the idea that savings that are supposedly going into “investments” are going to end up building roads unless someone pays those investments back… and that’s why I asked how you’d do it.

      Normally roads are built from other taxes … or now days some roads built today ARE, in fact, built by the private sector from invested money – AND they DO get the money back from tolls.

  27. Larry, Social Security IS a legal Ponzi scheme; and the possibility of some contributors being defrauded has its basis in this fact. Today’s recipients are paid with the money collected from today’s employed.

    It is so much a Ponzi scheme that the creators knew they could not pass it if they did not hide this fact, such was the public revulsion for “the dole” at the time which is the way most people viewed receiving other’s people’s money for their support. To that effect, the social security number was created for the illusion that people had actual accounts.

    Comparing Social Security to private investment vehicles is silly. Investors in those are backed with a wide range of regulations and laws which while not offering complete protection against a bad investment — particularly an annuity — provide a fair measure of protection against default. Certainly, they will not see their payments reduced because a shareholder meeting decided to change the rules.

    Citizens have no protection against a Congress which can change the rules at any time as to what they will receive, if anything, after a lifetime of contributions.

    The arguments that SS is not a Ponzi scheme are of course prolific, ALL of them comical in their twisted, logical inconsistencies to one way or another say “please, tell me it isn’t so”. For an example, one New York Times pundit argued that it isn’t a Ponzi scheme because it isn’t voluntary, it’s not run for the profit of its creators but runs at a loss, and its Ponzi scheme flaws can be corrected so it isn’t any longer a Ponzi scheme… And so it goes.

  28. most all annuities – public and private take in premiums that are then paid out to retired… Most all countries Social Security works that way also.

    Most insurance works that way. You pay into insurance – and you get nothing back unless you suffer a loss and in the meantime your premiums go to pay for others who did have losses.

    Sounds like a Ponzi scheme eh?

    By the way I’m fine with people paying into IRAs – mandatory and they cannot get the money out until they retire.

    What I support is mandated savings so that when people retire they do not need entitlements from others. As Izzo also pointed out – the point is to be self-reliant and responsible for your own needs – and unfortunately in our society too many will not do that unless mandated whether its retirement, health care, auto insurance, etc.

    The REAL Ponzi scheme is scofflaws who squander their money then come running back to the govt for help when they retire without sufficient funds.

    Some right-leaning conservatives will say ” don’t give these folks any money” usually the same folks who don’t want the govt doing health care either.

    That’s the 3rd world solution and the 35 industrialized countries with the highest literacy rates and best life expectancy don’t do that because at the end of the day- they choose to not have their country become 3rd world.

    The purpose of govt is to do the things necessary to educate, keep healthy-and live longer… it’s a valid function of govt – at least to most of us.

  29. re: if you had a “real” account instead of “promised benefits”.

    when you have a bank statement – you don’t have your money. In fact your money has been loaned to someone else to buy a car or house or finance a business and they “promise” to pay it back to the bank – who in turn promises to give it back to you when you want it.

    That’s exactly the way an IRA and 401(K) works also. The piece of paper you have that reports your “balance” is nothing than a promise to give you your money when you demand it.

    Ditto with a company pension – ditto with a Military pension or a pension from a School system or the Postal Service or VDOT …etc.

    There are no lockboxes that hold and safeguard the money that is “yours”.

    It’s just a piece of paper than “promises” to give you your money.

    And the real irony here is that the critics who say the govt can’t be trusted because it runs a ponzi scheme – they expect that same govt to protect people from unscrupulous companies that would sell ponzi-scheme investments for retirement!

    This is a schitzo mentality where on one hand – critics say the govt is considered to be irresponsible and not to be trusted – until of course those same critics who say they trust the private sector better – want the govt to regulate the private sector so that it does not defraud them…

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