Posted on 02/18/2005 11:30:14 AM PST by RSmithOpt
Here is an easy summation of how you are getting screwed:
Right now, for every three people that pay into the system, one person gets benefits. The system has been set to this 3:1 ratio since about 1950.
For the past 55 years, the system should have been gaining in revenue since the money contributed by the other two people was not going out to beneficiaries. Instead of this money going into the so-called lockbox, the money was spent. There's no money! The system stays solvent because there are more people paying into the system than beneficiaries.
At some point, because of the Baby Boom, the number of beneficiaries will surpass the number of contributors. At that point, the government will have to make up the difference.
And add to our SS problem along with other problems associated with aging populations. There is no cure all or magic bullet to fix the problem. Medicare will a problem several multiples greater than SS and the crisis point will come even sooner than SS.
Medicare
As we reported last year, Medicare's financial difficulties come sooner--and are much more severe--than those confronting Social Security. While both programs face essentially the same demographic challenge, health care costs per enrollee are projected to rise faster than the wages per worker on which the payroll tax is paid and on which Social Security benefits are based. As a result, while Medicare's annual costs are currently 2.7 percent of GDP, or about 60 percent of Social Security's, they are now projected to surpass Social Security expenditures in 2024 and reach almost 14 percent of GDP in 2078, more than twice the percent for Social Security in that year.
The projected 75-year actuarial deficit in the Hospital Insurance (HI) Trust Fund is now 3.12 percent of taxable payroll, up significantly from 2.40 percent in last year's report mainly due to higher actual and projected hospital expenditures, as well as lower actual and projected taxable payroll, and new Medicare legislation. The fund now fails our test of short-range financial adequacy, as assets drop below the level of the next year's projected expenditures within 10 years--in 2012. The fund also continues to fail our long-range test of close actuarial balance by a wide margin. The projected date of HI Trust Fund exhaustion has moved forward significantly to 2019, from 2026 in last year's report, and projected HI tax income falls short of outlays beginning this year, as compared to 2013 in last year's report. HI could be brought into actuarial balance over the next 75 years by an immediate 108 percent increase in program income or an immediate 48 percent reduction in program outlays (or some combination of the two). However, as with Social Security, adjustments of far greater magnitude would be necessary to the extent changes are delayed or phased in gradually, and continuation of the program after 2078 would require substantial changes.
Part B of the Supplementary Medical Insurance (SMI) Trust Fund, which pays doctors' bills and other outpatient expenses, and the new Part D, which pays for access to prescription drug coverage, are both projected to remain adequately financed into the indefinite future because current law automatically sets financing each year to meet next year's expected costs. However, this automatic provision will result in a rapidly growing amount of general revenue financing--projected to rise from 0.9 percent of GDP today to 6.2 percent in 2078--as well as substantial increases over time in beneficiary premium charges.
Actually, in 1950 there were 16 workers paying taxes into the system for every retiree who was taking benefits out of it. Today, there are a little more than three. By the time the baby boomers retire, there will be just two workers who will have to pay all the taxes to support every one retiree.
Fewer workers for more retirees mean each worker bears an increasing financial burden to pay the benefits that Social Security has promised. The original Social Security tax was just 2 percent on the first $3,000 that a worker earned, a maximum tax of $60 per year. By 1960, payroll taxes had risen to 6 percent. Today's workers pay a payroll tax of 12.4 percent.
It is going to get much worse. In order to continuing funding retiree benefits, the payroll tax will have to be raised to more than 18 percent. That's nearly a 50 percent increase.
Let's look at that financial burden another way. The Social Security payroll tax is already 12.4 percent of wages, or one eighth of a worker's total annual wages. It is the biggest tax the average household must pay. Roughly 80 percent of American families pay more in Social Security taxes than they do in federal income taxes.
Despite that already huge tax burden, the payroll tax will have to be increased by nearly half in order to continue paying Social Security benefits. That's a terrible burden to impose on our children and grandchildren.
That point is 2018, i.e., when payments exceed contributions. We don't have to wait until the number of beneficiaries exceeds contributors. In fact, the USG will have to start finding additional revenue beginning in 2008 when the SS surplus starts declining.
Section 1104 of FICA gives the Congress carte blanche.
That was my point.
"our economy would be a disaster "
There is an old adage attributed to J.P.Morgan that says, "No one ever got rich betting against the United States"
"we are currently retiring debt with borrowed money. We do it today!"
This called rolling over debt and has been done for decades if not centuries.
"The government would default."
Since the Federal govt has the power to create money, it cannot default by definition.
Yes, it can. To say otherwise is semantics.
It would be forced to renege on agreements by reducing the promised outlays. That is default.
This has been widely discussed, but never called what it is.
Congress hold the power of the purse. Sure, they could get the Fed to crank out additional bucks, flood the market and cause a inflationary spiral.
But our debt is largely foreign held, the inflation would devalue their assets, they would pull their money out.
This situation would be the great fear of everyone who has ever put tinfoil on their head and and claimed the end of the world was coming, because we came off the gold standard, and no longer backed our currency with anything but a promise.
A promise is dependent on fiscal soundness, a soundness lost if this situation were to occur.
Making new money was what caused the Carter disaster when interest rates hit 27%+ in real estate. (I was a Realtor then)
That was just a bump, and a warning.
What I am discussing here is way bigger than a bump. It is a cliff.
"meaning the Treasury/budget will have to make up the difference"
Treasury?
Budget?
Nope, taxpayers.
They are also directly related to medical costs.
So what are to trying to say, that they will go down? That medical costs will stop going up! That the number of aged will normalize and stop going up?
I fail to see how. This is simple math.
You are expecting what can only be called a miracle and are ignoring the demographics, the trends and the reality of a shift in the balance of young and old.
This is something that has been expected since shortly after WWII. It is now here.
The bulk of expense is in testing, and repairs of damages cause by age.
As we get a better handle on aging, these costs can only go one way. And that is UP!
The result is longer life that burdens the programs in ways I cannot calculate because it is related to medical successes, but the direction is UP.UP.UP.
You really need to reassess your central premise and include the obvious.
Proof that there is no trust fund:
In order to have a trust fund, there has to be money in it to draw from, right? Okay, that settled, the first social security recipient - Ida Mae Fuller - contributed $24.75 and withdrew $22,889. (Only the lunatic Federal government could allow something as idiotic as this.) Assuming there were thousands of other Americans who began withdrawing at that same time, how could there have been a "trust fund"? It was - and still is - a "pay as you go" Ponzi scheme.
This is the dirty little secret nobody on the left side of the aisle will admit: in 2018, paying off the IOUs will start becoming a huge "non-discretionary" budget item. Ruination of the treasure will happen well before 2042.
The intent was noble, and I disagree it was a "ponzi" scheme, but congress began to see the benefits of raising SS taxes and having the excess to spend.
This happened fairly recently.(thirty years)
That is where the Ponzi stuff came in to play.
Had they transitioned the program to a largely private insurance program as was originally envisioned, the program would have remained a safety net, with a private emphasis.
It would not be the mess it is today.
Funny thing is, SS is the easy one to fix. The rest are going to sink the ship under a mountain of debt if we cannot address the easy one.
From the SEC website:
"Ponzi schemes are a type of illegal pyramid scheme named for Charles Ponzi, who duped thousands of New England residents into investing in a postage stamp speculation scheme back in the 1920s. Ponzi thought he could take advantage of differences between U.S. and foreign currencies used to buy and sell international mail coupons. Ponzi told investors that he could provide a 40% return in just 90 days compared with 5% for bank savings accounts. Ponzi was deluged with funds from investors, taking in $1 million during one three-hour period—and this was 1921! Though a few early investors were paid off to make the scheme look legitimate, an investigation found that Ponzi had only purchased about $30 worth of the international mail coupons.
Decades later, the Ponzi scheme continues to work on the "rob-Peter-to-pay-Paul" principle, as money from new investors is used to pay off earlier investors until the whole scheme collapses. For more information, please read pyramid schemes in our Fast Answers databank."
Still disagree? :)
It was not meant to be a tax collection mechanism.
Had the government not done what they did when they pretended to save SS with huge increases in contributions(taxes) and spent the excess, the Ponzi decriptionwould not have fit as I said in a earlier post.
yes, Ponzi(democrat congress) did turn it into a scheme, but it happened under our noses during the past 30 years.
They had a chance to repair the mechanism properly, and they chose to do what they did to have more money to spend at a time when the discretionary budget was being cut.
I hope it won't happen again.
If it does,Ponzi would be proud.
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