Quote:
Originally Posted by pie_row
The tax that funds the SS program was been running a surplus for quite some time.
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That is incorrect. That is what you are told, and that is how it appears on paper, but technically it is wrong.
Government accounting does not include future payments. In the world of actuarial science, economics, finance and accounting, future payments are what people call "unfunded liabilities." I thought someone had recently introduced a bill to force the government to include unfunded liabilities in the budget, so that people have a true picture.
Quote:
Originally Posted by pie_row
That surplus was used to buy T-bills.
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No, the 1935 Social Security Act quite clearly states that any excess funds shall be converted to special treasury notes. In 1935, that was literally the 2nd [Series] Liberty Bonds. In other words the excess cash was handed over to the Treasury Secretary who issued special treasury securities in the name of the Social Security Administration and then put the cash in the General Fund. You can read that here...
Social Security Act of 1935
TITLE II-FEDERAL OLD-AGE BENEFITS
OLD-AGE RESERVE ACCOUNT
Section 201. (a) There is hereby created an account in the Treasury of the United States to be known as the Old-Age Reserve Account hereinafter in this title called the Account. There is hereby authorized to be appropriated to the Account for each fiscal year, beginning with the fiscal year ending June 30, 1937, an amount sufficient as an annual premium to provide for the payments required under this title, such amount to be determined on a reserve basis in accordance with accepted actuarial principles, and based upon such tables of mortality as the Secretary of the Treasury shall from time to time adopt, and upon an interest rate of 3 per centum per annum compounded annually. The Secretary of the Treasury shall submit annually to the Bureau of the Budget an estimate of the appropriations to be made to the Account.
(b) It shall be the duty of the Secretary of the Treasury to invest such portion of the amounts credited to the Account as is not, in his judgment, required to meet current withdrawals. Such investment may be made only in interest-bearing obligations of the United States or in obligations guaranteed as to both principal and interest by the United States. For such purpose such obligations may be acquired
(1) on original issue at par, or
(2) by purchase of outstanding obligations at the market price. The purposes for which obligations of the United States may be issued under the Second Liberty Bond Act, as amended, are hereby extended to authorize the issuance at par of special obligations exclusively to the Account. Such special obligations shall bear interest at the rate of 3 per centum per annum. Obligations other than such special obligations may be acquired for the Account only on such terms as to provide an investment yield of not less than 3 per centum per annum.
(c) Any obligations acquired by the Account (except special obligations issued exclusively to the Account) may be sold at the market price, and such special obligations may be redeemed at par plus accrued interest.
(d) The interest on, and the proceeds from the sale or redemption of, any obligations held in the Account shall be credited to and form a part of the Account.
(e) All amounts credited to the Account shall be available for making payments required under this title.
(f) The Secretary of the Treasury shall include in his annual report the actuarial status of the Account.
Social Security History
I mention that because a lot of liars are running around saying Reagan did that to steal Social Security. Matt Taibali or something at HuffyPuffyPost (I think).
The treasury securities show up as an asset on the books of the Social Security Administration, and as a liability to the General Fund for the government --- they cancel each other out so to speak.
Quote:
Originally Posted by pie_row
The plan had been to sell those T-bills to pay for the baby boomers retirement.
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That was never the plan.
The plan, since 1935, has been to convert the special treasury securities to cash on an as-needed basis.
"When the OASI and DI Trust Funds require redemption of these securities to make expenditures, the Government finances those expenditures out of accumulated cash balances, by raising taxes or other receipts, by borrowing from the public or repaying less debt, or by curtailing other expenditures. This is the same way that the Government finances all other expenditures."
An "accumulated cash balance" is fancy-speak for budget surplus. Treasury would pull the surplus money from the General Fund, convert the securities into cash to paid out. The US will not see a budget surplus for at least 30 years --- if ever in your lifetimes.
"Raising taxes or other receipts" theoretically would assume you're already running a balanced budget and you raised fees or taxes or what not to cover the cost of conversion. In theory, I suppose the government could levy a republic-wide VAT earmarked for conversion.
"Borrowing from the public" is what the government has always done with Social Security. The government simply adds the cost of conversion to the current budget deficit, and then that gets sold on the open as treasury bills, notes or bonds, just like all other government debt.
"Repaying less debt" is nice way of saying "default." At current rates, by about 2040, the US National Debt will equal World GDP. You can figure it out.
"Curtailing other expenditures" is an intra-government transfer of funds. That happens quite often. You budgeted $96 Billion for the Department of Education to throw away. Before DumbEd throws away all $96 Billion, you take $24 Billion from their budget reducing it to $70 Billion and use that $24 Million as cash for your Social Security notes. But that's problematic if you're already deficit spending.
Quote:
Originally Posted by pie_row
The problem with that plan now is it looks like the only buyer for those T-bills will be the Fed.
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$6 TRILLION of the $11 TRILLION in public debt is held by America/Americans....meaning US States, counties, cities, townships, banks, corporations, other businesses, unions, philanthropic groups, money market accounts, insurance companies and what not.
Quote:
Originally Posted by pie_row
The reasoning behind me saying this is, The Fed is buying 2/3 of the budget shortfall, this is not likely to change, we may get another bubble but we aren't going to get a healthy economy very soon 2 decades out it should still suck unless something unexpected changes take a look at Japan as a model, and we are looking at loosing our status as the world's reserve currency, with that will come a run on USD.
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I've been saying that since 2007. What of it? Stupid is as stupid does, right?
Quote:
Originally Posted by pie_row
It looks to me like we need a plan to balance the budget and start buying back those T-bills. The alternative is to monetize those T-bills. With the loss of our status as world's reserve currency, that monetization should result in hyper inflation. (We aren't getting hyper inflation now because every one still wants USD for international trade. When that changes our debts will start to be no longer valued in USD, they will start to be valued in something else.)
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As best as I can tell, you'll have
bona fide hyper-Real Inflation about 2025 or so. It will be worse than the post-WW I Ear (which was worse than the Nixon-Carter Era), but not nearly as bad as the post-[1st] Great Depression [of the 19th Century] -- which coincided with the start of the Civil War.
You should expect Real Inflation to average 35%-45% annually over a period of about 12-15 years, before you get slammed with Real Deflation.
Quote:
Originally Posted by pie_row
Simultaneously get very low unemployment and a $30 an hour minimum wage.
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Congratulations...you just destroyed your economy.
Yeah, the morons who keep screaming "Aggregate Demand" got it half right...global demand, not domestic demand.
Your workers are grotesquely over-paid. And the reason is because of very bad US foreign policy. Greece is a good example. After Truman and his Democrat-controlled House & Senate illegally over-threw the Greek government and set up a puppet dictatorship, that dictatorship became less right-wing over time, so LBJ and his Democrat-controlled House & Senate had to illegally over-throw the Greek government in 1967.
8,000 Greeks died in the first month of fighting...mostly killed by government troops.
And then the US dumped $Billions in military hardware on the Greek people that they neither wanted nor needed. How do you suppose the Greek people paid for the $Billions in military hardware they neither needed nor wanted? The Greek government got loans from the US, and loans from the IMF and loans from elsewhere....except the Greek economy isn't any better today than it was in the late 1960s-early 1970s...so the Greek government taxed the holy hell out of Greeks.....took all of their money....didn't spend any money on infrastructure, schools, hospitals or anything else, in order to pay off the debts it owed for buying US military hardware that it neither needed nor wanted.
Lather, Rinse, Repeat for 60-odd countries. You dumped your goods on those countries and forced them to get loans from the IMF which they could never repay, since the US was also simultaneously stealing the wealth and natural resources from those countries.
Now those States have a choice....they don't have to buy US goods. They can buy cheaper goods from BRIC and from the States that BRIC is developing. And even then they don't have to buy....they can trade...and end up with a small surplus/deficit which is better than borrowing from the IMF and World Bank.
Raise the minimum wage to $30/hour and you just killed what remaining export jobs you have left.
Raise the minimum wage to $9/hour and you will lose many of your export jobs. You have companies in business right now on a shoe-string only because they're competitive with wages starting at minimum to $10/hour.
Quote:
Originally Posted by pie_row
Do you know of anyone else talking about the lack of buyers for T-bills and what it means for those that are retiring?
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It means rampant Real Inflation...starting about 2025 or so....just like I've been saying for years now.
The global economy can handle an extra $9 TRILLION to $13 TRILLION in US Dollars. I'd recalculate, but it'd be a waste of time....you'd get skewed results due to the economic turmoil going on in Europe.
In case people don't get it, the difference between the US and Zimbabwe is that the US Dollar is traded internationally; the Zimbabwean Dollar is not.
And for the really stupid, the difference between the US and the Wiemar Republic is that the US Dollar is [for the time being] the
de facto international reserve currency and one of the
de facto currencies of international trade --- the other two being the Euro and to a lesser extent....on a regional basis...the Russian Ruble.
Had there been global demand for German Marks, the Wiemar Republic would not have suffered so badly.
Quote:
Originally Posted by pie_row
Do you have any suggestions ideas about how to balance the governments books?
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For starters, try the US Constitution.
If people would follow the Conservative view and operate the US as a federal republic --- as the founders intended and with good reason --- instead of blindly following the Liberals and trying to crow-bar the US into a unitary-State with a national government, then 90% of your problems would be solved.
Quote:
Originally Posted by pie_row
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Real GDP per capita is meaningless.
There is no relationship between wages and GDP, jobs and GDP, or anything else.
Quote:
Originally Posted by pie_row
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That is not the cause of your current economic problems.
Your current economic problems are caused by a surplus of labor. You have a surplus of labor due to the fact that technology is being used as labor Capital; because Americans are overpaid and cannot compete globally; because wages have been flat or declining for the last 15 years -- in part because you are overpaid; and because of the introduction of the Russian Ruble and Euro as competing currencies.
Short of starting WW III and drafting 6 Million people, there is no possible way to absorb this surplus labor.
You're just going to have to deal with it.....so suck it up and ride it out --- that'll take about 30-40 years, sorry about your luck.
Quote:
Originally Posted by pie_row
Balancing the budget by raising the taxes does not appear to be functional.
Part of the problem with unfunded obligations and a fiat currency is that they get funded with printed money.
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(Sigh)....fiat currency is not the issue.
I don't care if your Social Security Trust Fund had $2.7 TRILLION in cold hard US Dollars, Euros, Rubles, Forints, gold, silver, platinum, oil, natural gas, urine, alpaca fur or chocolate......it is going to be exhausted by 2023-2024 under current laws.
Fiat currency plays no role, and neither does the Federal Reserve.
Certain Social Welfare Programs, like Social Security, like Medicare/Single-Payer Health Care etc are Ponzi-Schemes.
It is so damn simple it's not even funny.....
E * W * T = Social Welfare Revenues where:
E = the number of workers
W = the wage rates
T = the tax rates
10 Workers * $15/hour (Avg Wage) * 6% = Revenues = $18,720
See that? How much more freaking simple can it be?
Grandma gets $14,100/year in Social Security benefits, plus she uses $3,000/year in Medicare expenditures.
$18,720
$17,100
--------
$1,620 goes into the "kitty" --- put that $1,620 in interest bearing bonds.
Everything is peachy, right?
8 Workers * $15/hour (Avg Wage) * 6% = Revenues = $14,976
$14,976
$17,100
--------
-$2,124.............ooops....
."Houston, we have a problem."
^^^This^^^ is what is happening right now in your world.
What does that have to do with fiat currency?
Not a goddam thing.
To resolve this problem, you have 3 choices:
1] Increase the number of workers; and/or
2] Increase the wages; and/or
3] Increase the tax rate.
As I have repeatedly said
ad nauseum since 2007 when I correctly predicted a recession for 4th Quarter 2008, your economy will be recessionary through the 2020s. And you will have another recession. The data presently points to 2nd Quarter 2014 (possibly late 1st Quarter 2014).
You cannot increase the number of workers. That is an impossibility. As it stands, if you want to keep the FICA tax rate at 6.2%, then you need to take a squat and **** 13.7 Million jobs within the next 30 seconds.
Since you will never be able to increase the number of workers, one of the two options left is increasing wages.
High wages is one of the primary causes of job losses, thus raising wages is out of the question.
Your only option is to increase the FICA tax rate.
A lot.
Quote:
Originally Posted by pie_row
The end game of going on the way we are is hyper inflation. We have some time before it gets here.
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About 11 years. You'll see a spike right around 2022-2023, then everything will appear to be okay, and then a couple of years later it will start jumping.
Quote:
Originally Posted by NorthStarDelight
Well, for one thing, we can do the obvious - reduce the number of people drawing Social Security by raising the retirement age, including the early option - I think 65/70 would be a good start, perhaps rising to 75/80 two or three generations hence.
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That will not solve the problem, and in fact, it will only create more problems.
It's chump change. You're talking about a few $Billion per year in alleged but unproven savings....your deficits will be $1+ TRILLION per year.
When $12 Billion becomes more than $1 TRILLION, let me know....you'd probably want to run your theorem by someone at MIT first.
Maybe one day, it will don on you to go to the Social Security web-site on a quest to discover why the age of 65 was chosen for full-retirement.
There is a reason why age 65 was chosen. The number was not randomly pulled out of an hat. It has absolutely nothing to do with life-expectancy from birth....
...but it does have everything to do with life-expectancy from Age 65 from an actuarial standpoint.
Quote:
Originally Posted by NorthStarDelight
It's only fair we do this, as people are living longer,..
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Not relevant.
That was factored into the original actuarial assessments (which you have not read).
Then how did they err?
Birth rates.
No one foresaw the possibility that birth rates would decline to today's rates. There was nothing in the data ---for the whole of Earth -- that suggested birth rates would ever decline. Birth rates were believed to be relatively stable. Birth control in the 1960s was quite a shock. Even so, no one knew the effects it would have until the late 1970s.
In looking at the world, what we know now is that affluence results in lower birth rates. That's why people like myself are not concerned with over-population, because the stark reality is that world population will ultimately plateau and then start declining.
The Social Security Trust Fund was just months from hitting $0 when the government enacted an emergency appropriations bill to ensure Social Security would be funded for the remainder of 1983 and also raised the FICA tax rate.
The Ford Commission had already studied the problem and made recommendations, but for political reasons, the Democrat-controlled House & Senate refused to act. The Carter Administration followed through on some parts of the Ford Commission rather reluctantly, due to the stagnant economy.
The Reagan Commission made recommendations which were implemented by Reagan and Bush, but Clinton, Bush and Obama have failed to follow through.
Quote:
Originally Posted by NorthStarDelight
Another obvious way to cost costs is to reduce benefits, which we can do via inflation and reduced COLAs or just an outright benefit cut across the board, say 20% or so.
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Again, penny ante chump change. You're talking about $Billions when the actual damages are in the $TRILLIONS.
Gosh, wow, you're such a genius you have managed to save a whopping $22 Billion....on a great day when everything just happens to be going your way ---- what about the other $978 Billion you owe? Where's that money going to come from?
Uh, every year...that's $978 Billion every year....starting in about 7 years....rising to $1.478 TRILLION annually by 2035, before declining to $1.278 TRILLION annually around 2045.
Where's that money going to come from?
Quote:
Originally Posted by NorthStarDelight
The third method, and the one that has the greatest public support, is to lift the cap on Social Security earnings to unlimited instead of the $106k or so we have now - this would bring in additional revenue without raising the FICA rate.
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Talk, talk, talk........talk is cheap.
For this exercise, we will use....
Individual Income Tax Returns, Preliminary Data, 2010 by Adrian Dungan and Michael Parisi, from
Statistics of Income Bulletin | Winter 2012
Adrian Dungan and Michael Parisi are economists with the Individual Returns Analysis Section. This article was prepared under the direction of Michael Strudler, Chief, Individual Returns Research Section, Internal Revenue Service.
Referring to Page 12
Table 1. Individual Income Tax Returns, Tax Year 2010 Preliminary Data: Selected Income and Tax Items, by Size of Adjusted Gross Income
We are examining
Column 1 Items, specifically lines
#7 Salaries and wages: Number of returns
#8 Amount
For AGI (Adjusted Gross Income) Number of Returns Filed
$100,000 under $200,000 = 2,793,003
$200,000 under $250,000 = 1,401,593
$250,000 or more = 2,435,348
The total number of returns filed for those groups is 16,629,944 returns.
For AGI (Adjusted Gross Income) Salaries and Wages
$100,000 under $200,000 = $1,454,682,235,000
$200,000 under $250,000 = $251,279,279,000
$250,000 or more = $982,361,511,000
The total salaries and wages are $2,688,323,025,000 ($2.688 TRILLION)
Eliminating the cap and taxing 100% of all wages/salaries would yield....
$2,688,323,025,000 * 6.2% = $166,676,027,550 ($166 Billion)
However, a portion of those wages/salaries are already taxed. For simple math, and to give you every possible benefit of doubt, we'll use $100,000 as the "cap." The total amount under the "cap" is....
16,629,944 * $100,000 = $1,662,994,400,000
The amount FICA payroll taxes already collected is...
$1,662,994,400,000 * 6.2% = $103,105,652,800 ($103 Billion)
$166,676,027,550 ($166 Billion)
$103,105,652,800 ($103 Billion) less
-----------------------
$63,570,374,750
So $63.5 Billion is the amount of additional FICA tax revenues raised by eliminating the cap.....
in theory, because....
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.
...so say the Social Security Trustees (and they are correct).
I just totally demolished your argument.
That's why we Show and why we don't Tell.
So you in the best case possible scenario.....giving you every single benefit of the doubt......the best you can do with your hair-brained schemes is generate about $85 Billion annually in cost-savings/revenues.
What about the $915 Billion you owe? Where will that come from?
And then when it rises to $1.415 TRILLION, where will that money come from?
Quote:
Originally Posted by NorthStarDelight
What I DON'T want to see is an increase in the payroll levy,...
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What you want is irrelevant, not to mention contrary to economic principles.
As I showed in my little equation.....
E * W * T = Social Welfare Revenues where:
E = the number of workers
W = the wage rates
T = the tax rates
...you have no choice in the matter. You cannot appreciably increase the number of workers to pay for Social Security or Medicare, and you cannot increase wages, so the only thing left is raising the tax rate.
The GI Generation got hammered with a 300% FICA payroll tax increase to ensure Social Security would be there for them.....
it wasn't enough....but we managed to get them through.
The Silent Generation go slammed with a 520% FICA payroll tax increase to ensure Social Security will be there for them....it was enough.
The Boomers and Tweeners got hit with a 71% FICA payroll tax increase. It will be enough to get the first cohort of Boomers through, but not the 2nd Cohort or the Tweeners.
Quote:
Originally Posted by NorthStarDelight
That's why I wanna scream when certain a individual states that FICA needs to rise to 16% (32% total  ) - now, that's insane, and would never fly - thank god. |
I'm a better economist than anyone in your government could ever hope to be.
So you think I'm insane? Yeah, well, people thought I was insane when I said Social Security's day-to-day operations would be insolvent by 2014.
I was wrong, they were insolvent by 2009, but that's due to the fact that at the time I made that prediction (in 2006) I had not yet determined when your recession would start.
And yes, people called me insane right here on C-D just 5 years ago when I said the Social Security Trust Fund would be $0 by 2028.
The funny thing is that in 2012, your government said 2027 -- under the high cost scenario. Now I'm saying 2023-2024. Let's see what your government says when the Trustee's Report comes out this year.
So you can't handle a 16.4% FICA payroll tax.....well....read and weep......
"...the U.S. fiscal imbalance is now 8.2 percent of future GDP. Putting this in perspective, to close its fiscal imbalance:
■ The United States would need to save and invest an amount equal to 8.2 percent of its GDP beginning
now and continuing every year forever to pay expected future benefits without future tax increases.
■ This could be accomplished by more than doubling the current 15.3 percent payroll tax on employers and employees, immediately and forever.
■ Alternatively, the federal government could immediately stop spending nearly four out of every five
dollars on programs other than Social Security and Medicare — eliminating most discretionary spending on such programs as education, national defense, environmental protection and welfare — forever."
ISBN #1-56808-197-9
www.ncpa.org/pub/st/st319/st319.pdf
[emphasis mine]
Yeah, it's insane.....whatever.
I disagree with their assessment, because they failed to factor in job losses due to the increased FICA tax rate, which in turn would necessitate an increase the FICA tax rate, causing more job losses, requiring further increases in the FICA tax rate causing even more job losses and so on until an equilibrium is reached.
My data shows the equilibrium point is somewhere between 16.0%-16.4%.
Quote:
Originally Posted by NorthStarDelight
But even a 1% rise would suck, and should be avoided at all costs - let's do the other 3 alternatives I listed above first and see if that doesn't balance the books.
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1%?
If the FICA tax rate is not 9.0%-9.2% by January 2016, then you're history economically.
You should already be paying 9.0%-9.2% in FICA payroll taxes, and if Clinton, Bush and Obama had done their duties as presidents, you would be paying that much already.
Whether you raise the FICA payroll tax or quit Social Security altogether makes no difference....that money is coming out of your economy one way or another, so get over it already.
What Obama should have said in his State of the Union address is...
I have directed the Secretary of Agriculture to implement a new policy that single households are not permitted to have Food Stamps.....Food Stamps are a privilege specially for multi-generational and multi-family households that have only one automobile.
I have also directed the Secretary of Housing and Urban Development to immediately cease payment of all housing subsidies for single family dwellings, and single family households of any kind. Housing subsidies are a privilege reserved for multi-generational and multi-family households as a way to say thanks for their sacrifice of their standard of living and life-style.
When you have a president or presidential candidate who says that, you know you'll finally be on your way to some sort of economic recovery.
Economically...
Mircea
Quote:
Originally Posted by Red Wolf
As citizens, we have a right to be concerned how that money is handled/mis-managed.
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As best as I can tell, Social Security is a well run program, from an administrative stand-point. My only criticism would be the lack of any form of fraud investigation for Social Security Disability claims.[/quote]
Quote:
Originally Posted by hoooka
We need to have it means tested,...
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Social Security and Medicare
are means-tested right now and have been for more than a decade.
Quote:
Originally Posted by gwynedd1
Sure you can inflate some of the way there but it must be wage inflation.
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Then don't get mad when the UE Rate jumps to 10% and stays there.
Commenting...
Mircea
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You very well could be right concerning your data, and I'll not propose a counter-argument due to the lack of data on this end - and I'm no economist...lol.
