Observations on life

“Social Security is not in immediate crisis”- Barack Obama

English: Barack Obama delivers a speech at the...

Tweak, yeah, I said it!

Sometimes it’s hard to tell if politicians are stupid, uninformed, or just devious intentionally. Consider the following response to a Social Security question by the President.“Social Security is not in an immediate crisis,” really? I guess that depends on how you define immediate; actually no it doesn’t. Social Security is in crisis today because today it is already using interest on its Treasury bonds to pay benefits as opposed to being able to use only incoming taxes and to invest the surplus. This is like a company doing just fine while it draws down its cash reserve each day. When is the time to fix things, when the last dollar of the reserve is used? Does it sound like all that is required is “very modest adjustments?”

If you don’t believe me, look at this from Bloomberg.com Social Security woes are worse than you think.

Somebody should ask the President if he knows where the interest on bonds comes from to pay current benefits or where the money comes from when the Trust must cash in bonds to pay benefits. Oh I forgot, none of this is the driver of our deficits. Look at the alternatives suggested by the Trustees, do you see “slightly raising the [payroll] cap?”

Read the conclusion contained in the Trustee Report. Does this sound like all we need is an easy “tweak?” If all it takes is an easy tweak, why hasn’t the President proposed this, why has he ignored the Simpson-Bowles report?

Why does all this make me so mad? Because this President is setting the stage for a disaster for our children and grandchildren. While he spends his time spewing his ideology he is hurting the folks he says he feels so sorry for; the middle class. It’s not the 1% who will be hurt by the failure of Social Security. His lack of leadership is an abomination. Even given that many Republicans are no better, it is still the President’s job to work with Congress, to compromise, to lead and to tell Americans the truth. He didn’t do that with health care, or Medicare and now Social Security.

From an AARP interview with the President:

Q: You talked to us about Medicare a year ago, so I want to ask about Social Security. Are there any benefit adjustments you would support to put it on more stable footing into the future?

A: Social Security is not in an immediate crisis. It’s not the driver of our deficits, the way Medicare and our health care programs are. We can easily tweak the Social Security program while protecting current beneficiaries, ensuring that it’s there for future generations. There are ways that involve, for example, slightly raising the [payroll] cap. I think it’s a pretty sensible thing to do. What I’ve said to [Republicans] is, “I am prepared to sit down with you, the way Ronald Reagan and Tip O’Neill sat down together. And make very modest adjustments that extend the life of Social Security for 75 years.” We can do that again. But it’s going to require us not playing politics with Social Security. Understanding that millions of Americans have been lifted out of poverty because of Social Security. It is the linchpin of our social safety net. We can’t privatize it. We don’t want it to be subject to the winds in the stock market. We want it there for people over the long run.

From the 2012 Social Security Trustees Report:

Conclusion

Under the long-range intermediate assumptions, the Trustees project that annual cost for the OASDI program will exceed non-interest income in 2012 and remain higher throughout the remainder of the long-range period. The projected combined OASI and DI Trust Fund assets increase through 2020, begin to decline in 2021, and become exhausted and unable to pay scheduled benefits in full on a timely basis in 2033. However, the DI Trust Fund becomes exhausted in 2016, so legislative action is needed as soon as possible. In the absence of a long-term solution, lawmakers could reallocate the payroll tax rate between OASI and DI, as they did in 1994.

For the combined OASI and DI Trust Funds to remain solvent throughout the 75-year projection period, lawmakers could: (1) increase the combined payroll tax rate for the period in a manner equivalent to an immediate and permanent increase of 2.61 percentage points (from its current level of 12.40 percent to 15.01 percent);1 (2) reduce scheduled benefits for the period in a manner equivalent to an immediate and permanent reduction of 16.2 percent; (3) draw on alternative sources of revenue; or (4) adopt some combination of these approaches. Lawmakers would have to make significantly larger changes for future beneficiaries if they decide to avoid changes for current beneficiaries and those close to retirement age.

The Trustees recommend that lawmakers address the projected trust fund shortfalls in a timely way in order to phase in necessary changes and give workers and beneficiaries time to adjust to them. Implementing changes soon would allow more generations to share in the needed revenue increases or reductions in scheduled benefits. Social Security will play a critical role in the lives of 56 million beneficiaries and 159 million covered workers and their families in 2012. With informed discussion, creative thinking, and timely legislative action, Social Security can continue to protect future generations.

1 The necessary tax rate increase of 2.61 percent differs from the 2.67 percent actuarial deficit for two reasons. First, the necessary tax rate is the rate required to maintain solvency throughout the period that does not result in any trust fund reserve at the end of the period, whereas the actuarial deficit incorporates an ending trust fund balance equal to 1 year’s cost. Second, the necessary tax rate reflects a behavioral response to tax rate changes, whereas the actuarial deficit does not. In particular, the calculation of the necessary tax rate assumes that an increase in payroll taxes results in a small shift of wages and salaries to forms of employee compensation that are not subject to the payroll tax.

3 replies »

  1. Social security is by definition a PAY as you GO plan.(defined by the government).
    Social security is by outcome a Ponzi scheme.
    Bernie Madoff could enlighten Mr. Obama on what is required to keep the ball rolling.
    The endless supply of new investors is not in the cards for social security simply based on demographics, therefore revenues must be increased from those on the PAY side or benefits must be decreased for those on the GO side, or some combination of both.
    As long as we have bad actors such as AARP able to convince the GO side that a government promise carries the weight of a legal contract, I don’t think the future looks promising. At least until the PAY side says enough is enough.

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