Tuesday, April 24, 2012

Clearing the Air On Social Security "Insolvency"

The Wall Street Journal front page story 'Stress Rises on Social Security'  is sure to bring out Tea Party nuts and other assorted deficit hawks and screaming meemies - but all for the wrong reasons. The article reports that the program will now become "insolvent" by 2033 as opposed to 2037, according to the Trustees Report. This Report also states that the funds that pay disability will be exhausted by 2016.  It also claims that the program's worsening outlook "comes from a combination of higher cost of living adjustments - pushing benefits up- and lagging wage growth holding down revenue". Of course, these are straw man arguments as I will show.

Now, let's try and clear the air here and separate the noise from signal. Included among the "noise" I list the following:

- the claim that Social Security is an "entitlement"

- the claim that there aren't "enough workers" to support current benefit recipients.
- The claim that Social Security and Medicare are adding to the deficits.

Let's knock these off in turn. First, Social Security and Medicare are NOT "entitlements" because workers have paid into them over 40 years or more. In many case, the 6.2% payroll taxes are the biggest tax hit most of the working poor suffer. But they do it because down the road, after their backs are nearly broken from toil and their hands can barely grasp a buck from arthritis, they will have some residue of dignity in their old age. Some semblance of financial independence.

Even then, there are no gifts or freebies! The seniors still have to cough up nearly $100 a month for Medicare premiums, which are deducted from their Social Security, making it even less - say if it's the only income they have. Next, we know that Medicare premiums have risen over 136% the past ten years while Social Security cost of living adjustments have increased barely 30% over the same time. In other words, seniors are losing out by having to shell out ever more. The WSJ claim of "higher cost of living benefits" therefore doesn't hold water, since they aren't high enough to assure avoidance of de facto Social Security CUTS! (In a separate Denver Post story it's claimed the Trustees attribute part of the shortfall to "energy prices suppressing workers' wages hence payroll taxes" - but that's also a dodge since it take no account of the $244 billion lost because the payroll taxes were intentionally discontinued for two years. Let's at least be honest if we can't be completely accurate! This also dispenses with the WSJ's canard of "lagging wage growth", again, yielding less payroll tax revenue - while overlooking congress' cessation of payroll taxes!)

Let's also bear in mind Medicare only pays 80% of medical bills, and the senior has to pay the rest - which can be significant if it's a serious operation like hip replacement, or an ongoing chronic illness. In addition, Medicare pays nothing for dental work or treatments or eyeglasses. And since dental health often under girds overall physical health then this can be a mighty bummer.

Next, there is the canard that Social Security is losing money because there aren't enough workers to pay in for payroll taxes. While this is a small element, it is maybe 5% of the whole story, the other 95% is the THIEVERY of  congress in raiding Social Security monies. The following data shows how much has been raided each year, the data from the same Trust Fund sources and GAO:

Year:  ................Amount raided

2011.................$67.0 billion

2010.................$87.0 billion

2009...............$137.0 billion

2008...............$180.2 billion

2007...............$186.0 billion

2006...............$185.5 billion

2005..............$173.5 billion

2004..............$151.1 billion

2003.............$155.6 billion

2002.............$159.0 billion

2001.............$163.0 billion

2000.............$151.8 billion


Now, any person with a single neuron for a brain would realize that it doesn't matter if you fill a one gallon bucket with a cup every day (equal to 6 oz.) if there are massive holes in the bottom that let out 12 oz. in the same time! 

Thus, the worker-to -beneficiary ratio is a red herring meant to deflect attention from the REAL problem which is the yearly raids on monies received from payroll taxes and intended to go to future beneficiaries! So long as these raids continue unabated, NO solution or "re-tooling" of the program will work, not raising payroll taxes, not making cuts, NOTHING!  The raiding has to stop first.

Currently a bill is before the Senate, designated S. 123 which would have the desired effect by protecting Trust Fund money instead of allowing it to be used for military occupations, military toys, tax cuts or other useless PORK. This bill will require all payroll allocations to go explicitly to pay benefits of both retirees and the disabled. It would, had it been enacted in 2000, have made available that $2.63 stolen trillions and we'd not now be hearing about "insolvency". Also, ONE less year's thievery - say from 2009- would easily have covered the $128.9 b allocated for disability payments last year (WSJ, p. A4), with change left over!

Last, let's dispense with the bull that Social Security is adding to the deficits. NO, it is not, because those deficits are tabulating PUBLIC debt not the private debt of the Social security shortfall - which is OWED TO BENEFICIARIES and no one else! No outside bond trader, bond pirate or other form of parasite such as now terrorizing the Eurozone nations.

The truth is that a holder of private debt, like a household, has a very different relationship to debt than a government like the United States, which issues its own currency. For families and businesses, paying back debt means they have to sacrifice current consumption (spending). But the government doesn’t have this same constraint. You’ll rarely hear this stated, but the government’s ability to spend now is actually independent of how much debt it holds and what it spent yesterday.

To put it another way: Technically one can remove the $2.63 trillion the government owes the Social security Trust Fund (because of repeated raids or "borrowings") from the total National Deficit because Social Security has no EXTERNAL  "collectors". It is the gov't that OWES Social security not the other way around. Thus, the alleged $15 trillion deficit is actually more like $12.3 trillion.

Contrary to Tea Party lore and the banter of the austerity hawks, it isn't Social Security that has created the massive deficits as money owed to outside agents, such as the Chinese, but rather the unpaid for Bush tax cuts, and the endless stupid military occupations - both of which have now contributed nearly $6 trillion.

Can Social Security be rendered whole and avoid shortfalls? Yes, but first the drain must be halted. S. 123 must therefore first be passed! After that, the sanest solution to preserve the integrity of the program is simply to increase payroll tax wage thresholds to the $300,000/yr. level. That simple increase will assure the program's solvency until at least 2067. Of course, the tax phobic repukes refuse any increase of revenue via taxes, even payroll taxes on the top 5%. But if they do, then neither Obama or congress must yield to any "cuts".

When more people finally pull their heads from where the sun doesn't shine they might be able to see these issues clearly, as opposed to reporting to hysteria.

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