Social Insecurity
Posted September 25th, 2007 by Da King
Some of the presidential candidates are beginning to come out with their plans to fix Social Security. A common idea among many Democratic contenders is that the way to close the coming SS gap (the shortage of SS revenue relative to retiree payouts that will occur after the baby boomers retire) is to simply remove the SS payroll tax ceiling, thus subjecting all of a wealthier person's wages to the 12.2% SS payroll tax. Currently, only the first $97,000 of a person's wages is subject to the tax. Barack Obama has recently come out with this proposal..
Sounds like a pretty simple solution, doesn't it ? No raises in the retirement age, no increases in the SS tax rate, no reductions in benefits. Cool. Plus, we'll get the wealthy people to pay for it all, making it a liberal Democrat's dream scenario. Tax the rich. Beautiful. Elect Obama. Sure, it turns SS into almost a full blown welfare program, but hey, it solves the Social Security problem. Done deal. Bring on the next problem, so we can increase taxes and spending to fix that one too…..
But, on second thought, maybe there's more we need to consider. There might be a fly in that SS ointment. I think Barack is forgetting about how SS operates (it's a scam). I think maybe he is assuming that there actually IS a Social Security trust fund, when there actually ISN'T one. Every dollar of SS revenue that is collected beyond what is paid out to retirees goes into the general fund and is immediately spent. All of it. Then IOU's are written back to the SS 'trust fund'. So, the 'trust fund' doesn't contain any, you know, FUNDS, just pieces of paper that claim "I'll gladly pay you on tuesday for a hamburger today", like Wimpy did on the old Popeye cartoons. Keeping that in mind, what then happens to all that extra SS revenue that Obama is generating by eliminating the SS payroll tax ceiling ? IT IS ALL SPENT, and that results in A WHOLE BUNCH MORE IOU's BEING WRITTEN BACK TO THE (LOL) 'TRUST FUND'. The end result is that the SS gap only gets bigger, and future taxpayers are on the hook for redeeming even more IOU's than they were before. The central fallacy of the SS ponzi scheme is thus exposed. Economist Thomas Sowell stated it simply: You can't spend money and save money at the same time. Hard to make it any clearer than that.
What eliminating the SS payroll tax ceiling WILL do is to fill the federal big government coffers with cash for all the federal big government politicians to spend on federal big government programs. And wouldn't you know, Barack Obama just happens to be one of those politicians. What a coincidence. That SS cash influx might even lessen the deficit (just as it masks the true size of the deficit today) if the pols don't spend it ALL, but it won't do anything to fix Social Security. There's an old saying that perfectly describes how the politicians have 'invested' in our retirements via SS: It's known as 'getting ripped off'.
To fix Social Security, first congress must stop spending all the money, so that a real trust fund actually exists (DUH !). That step will at least stop Congress from being criminally complicit to extortion and fraud. However, don't expect any Democratic presidential contenders to jump on board that train, because that will give them LESS taxpayer money to play with, so it gets an automatic 'HATE IT !' from the big government types. It's anathema to them. It's like asking a junkie to voluntarily shoot less heroin. Not gonna happen. They'll have to be dragged kicking and screaming to honesty. Remember the fit they threw when Bush proposed partial personal accounts, which would have taken Congress' grubby mitts off only a small part of our SS money ? The congressional crime bosses went into full hissy fit mode over that one, so you know fixing Social Security isn't something they are interested in at all. What they are interested in is using SS as a scare tactic, and as a tool to keep you dependent on your benevolent big government overlords.
September 25th, 2007 at 12:03 pm
You have done what we have talked about all these years, exposed the Congress for the thieves they are. For some reason, many more people believe that there is a SS fund somewhere down there in DC. Some very well informed people think that somehow money can be pulled from that fund. I wonder how many earmarks for what kinds of things Congress could attach to a bill to raise money for SS. It boggles the mind to think about what they could do with something like that.
September 26th, 2007 at 11:43 am
Sir:
Twenty five years ago, SS witholding from our paychecks was doubled. This was to fix SS and insure that there would be a surplus for many years. Wasn't the surplus then invested in government bonds? If so, then isn't it as safe as the government bonds other investors buy? One way or the other, the government owes SS this surplus. Are we to believe that it will default on its debts?
September 26th, 2007 at 3:48 pm
Frank,
I don't know of any recent increases that weren't mandated in the original SS bill. I may be wrong but I think your figure of doubled is a bit large.
Now as to where all SS tax money goes, it goes into the General Fund along with all other taxes and is spent just as all other moneys are. They supposedly keep track of what is taken in but at the end of each fiscal year all left over SS money is considered to be surplus and if it hasn't been paid out to we old people it will get spent quickly. There is no SS fund. There is no lock box with government bonds in it. There is, however, a box full of IOUs from the Congress. They owe all of us in excess of $5 trillion but where can they come up with that amount. They have spent all our money and now must raise taxes much more than they can in order to come up with this money. The press on SS will come very soon when all those boomers (are you one of them?) retire. Where does the money come from? Somebody in the present Congress has to know this answer but they aren't telling us. They have said they would take away the tax cut to those who make over $250,000 per year. They haven't told us yet how many years this might take to pay back the debt and to keep the SS system going. I say we also get a cut in SS payments to go along with the drastic raises in prices of things we must buy.
I think it is past time, by about 25 years or more that more people got excited about this and looked into the scandal of the Congress spending that money and leaving retirees sitting high and dry. We must suffer soon because earlier Congresses chose to spend all that (mistreated) surplus and they are still doing that. No promise to repay can be fulfilled without raising taxes. How can they do that and pay for socialized medicine at the same time.
September 26th, 2007 at 9:50 pm
Mr. Roysoldboy,
I agree that the SS surplus should have never been counted with the general revenues of the government. By doing this, the past four administrations and Congress have masked the true size of the debt. However, it is only part of the debt. The question is who gets paid back first, the American people or the foreign holders of our debt.
I am a boomer and when I started working, the top income tax rate was usurious, but we did not lack for the wealthy. throughout my entire life, the burden of taxes have been shifted from the wealthy to the middle class. Now, if you are fortunate to have your income from dividends, you pay at a lesser rate than the middle class.
We never seem to consider how we are going to pay it back when we borrow to invade another country or merely to maintain a military budget that exceeds the rest of the world combined. The day of reckoning will indded come someday, but I hope that we will not put the burden upon people who are no longer physically able to bear it.
September 27th, 2007 at 1:57 pm
Frank,
The SS surplus monies for all these years has been spent by congress. It's gone. The IOU's for that spent money back to the 'trust fund' are in the form of government bonds, which earn a 2% interest rate. The bonds are backed by 'the full faith and credit of the United States government', but who is that ? That's us, the taxpayers. The government doesn't have any money without us. The government is broke and in debt. By spending that SS surplus, the government has only succeeded in putting future taxpayers on the hook for the SS money down the road.
September 28th, 2007 at 1:51 am
Frank, the spending of the SS surplus goes back to the early 50s when the Eisenhower administration and his Democrat Congress decided to spend that "surplus" for foreign aid to keep "buying" the friendship of other countries. From that time to today the Congress has considered the SS fund to be a part of the general fund and has kept on spending it.
I have always been against this practice since it was started in order to keep from raising the necessary money through increased taxes. Borrowing from that fund only proves to me that if a politician sees any money lying around unspent he goes stark raving mad. They just can't stand to see money being unspent. This is one of the sickest methods of deficit spending I can think of.
I wonder what would happen if you "boomers" would stand up and say "Enough , enough, enough" Tell them to begin leaving that money where it should be.
Try some of my figures out. I say that the Congress owes the SS system about $5 trillion. Is there any chance that they will ever be able to pay any of that back? Would the system go broke if they started paying it back a bit at a time? If they took their hands out of the till right now we would find a fund with very close to $3 trillion in it without any of that owed coming back. It is getting their hands out of the fund that will make the SS system solvent for years to come. Nothing else need be done but who is going to force the politicians to stop spending that money that they call surplus? Only the people can do that and so few of them know what has been done to them or ever will know.
September 28th, 2007 at 11:53 am
My point is that SS is just one of the debts that the government owes. I am just as appalled as anyone that we are in such a state and keep spending like we do. But I dislike when it the money owed to SS is treated as a "crisis" separate from what I see as the real problem. Why isn't there a "crisis" for bond holders and buyers? Why do we assume that they will be reimbursed and not SS?
September 28th, 2007 at 12:33 pm
Frank, you're right. A debt is a debt is a debt, and the larger point is that our government constantly spends beyond it's means, leaving future generations holding the bag. SS is just one example, but it's a particularly egregious example, due to the deceptive nature of the SS scheme. Then, to add insult to injury, the same politicians who spend all the SS money turn around and either reduce benefits or raise taxes to cover up for their own SS sins. It would be incredibly illegal for the private sector to operate in such a fashion, yet we the people continue to let them get away with it.
September 28th, 2007 at 7:28 pm
Frank, I agree, too. ROB's thing is that the cash money is not there, and he's right. I don't know what the SocSec bond interest rate is; it may be 2% but I think it's higher.
IMHO, the "trust fund" controversy is somewhat of a red herring in the search for a solution to the Social Security dilemma. It relates much more closely to the overall national debt problem. The problem with Social Security is its STRUCTURE. It is indeed a Ponzi scheme, which means it's IMPOSSIBLE to make it work as it's now structured. It can't work whether there is a SocSec Trust Fund or not, because the Fund can't pay interest at a high enough rate to match the growth of the promised benefits.
That's why the President's former proposal is the ONLY way to go that will not increase SS taxes or reduce benefits one way or another. It changes the STRUCTURE. It would work because the mechanism it uses allows some of the EXCESS of receipts over disbursements (the excess which now goes entirely into the red herring) to be invested in the stock market, which has OVER TIME averaged about 7%. Even that small difference (small simply because it's based on only a part of the SS withholding tax) is enough to change Social Security from a Ponzi scheme to an investment plan.
For those who are at this very moment screaming at their monitor that "IT'S SOCIAL SECURITY, NOT SOCIAL INSECURITY! WHAT IF THE MARKET GOES BROKE?" I must point out that what we have NOW is GUARANTEED TO GO BROKE. It's guaranteed because it is a Ponzi scheme.
It's too bad that most discussions of Social Security get sidetracked by the red herring.
September 30th, 2007 at 12:13 am
Mr. Staff:
Compare the overhead in SS to broker's fees. Then recalculate. Then think about the bubble that it would create in the market.