Sources: McConnell floats entitlement changes in high-stakes fiscal talks

CNN politics ^ | 10/13/2015 | Manu Raju

[Fhios]

(CNN) Mitch McConnell privately wants the White House to pay this price to enact a major budget deal: Significant changes to Social Security and Medicare in exchange for raising the debt ceiling and funding the government.

[Brian Griffin]

“The reason OASI is in trouble is simple demographics and economics”

A major economic reason is interest rate cuts by Obama Federal Reserve appointees. When the Federal Reserve cuts interest rates, the Social Security trust funds eventually earn less interest income.

It’s too late to save the Disability Trust Fund.

[Fhios]

"They can end it if they pay us back the money they took from us plus the interest we would have earned with that money."

If they could do that, Social Security wouldn't be insolvent.

[Fhios]

"the Social Security trust funds eventually earn less interest income.

The "social security" trust fund? You mean that little bag Santa Clause carries around on his back? There's no money there earning interest. There is an IOU with another IOU on the interest in the "Social Security" trust fund.

[justlurking]

As for Social Security, there is a relatively minor problem that needs about a 6% correction. This will have to be dealt with, but we shouldn’t lose an election over an eventually unavoidable issue.

No, Social Security has a much bigger problem than that.

The only alternative evaluated by the SSA that actually solves the problem is an eventual 50% increase in payroll taxes.

Increase the payroll tax rate (currently 12.4 percent) to 15.2 percent in 2028-2057, and to 18.0 percent in years 2058 and later.

There are lesser alternatives that post the problem for a few years, but they will fail within a couple of generations -- and probably sooner because the SSA's "intermediate" assumptions have historically been too optimistic.

[Brian Griffin]

McConnell wants EPA regulation changes too.

Kentucky is a coal state.

He might actually fight over EPA regulations.

[justlurking]

A major economic reason is interest rate cuts by Obama Federal Reserve appointees. When the Federal Reserve cuts interest rates, the Social Security trust funds eventually earn less interest income.

The OASI Trust Fund was in trouble long before the prevailing dividend rates were reduced.

[justlurking]

The "social security" trust fund? You mean that little bag Santa Clause carries around on his back?

The trust fund is effectively long-term US Treasury Bonds. They are non-marketable bonds, but they are probably even more secure than US Treasury Bonds.

And, they are being redeemed now. It started a couple of years ago (about 5 years earlier than expected). But, it's expected to be exhausted about 2033.

The redemption of the bonds are paid out of general revenue. Since we are still running about a $400B deficit, the net effect is the trust fund is being converted to US Treasury Bonds that are sold to private investors.

[Brian Griffin]

“The only alternative evaluated by the SSA that actually solves the problem is an eventual 50% increase in payroll taxes.”

We will have to restore manufacturing in the USA, which will create jobs. The Chinese won’t keep sending us goodies in exchange for green and black paper.

We will have to break the zoning and other impediments to more housing industry jobs. Housing has become crushingly expensive for millions. Land should be residential by default (unless used commercially or industrially or owned by an adjacent industrial or commercial landowner), with 8,000 feet of residential space per acre as a minimum (under federal economic growth law).

We will have to get millions of deadbeats off the federal teat and into the work force.

My 6% estimate assumes prompt action such as 1% less increase annually for six years.

[Fhios]

However you explain it, it’s commingling of funds, and the trust fund is in name only. It’s still a piggy bank.

[woodenickel]

I’m tired of this entitlement crap. Anytime the government wants to give me my ss payments back (with compound interest), I’ll take it and be out of your hair. I paid in more ss money at the age of 14 then half our citizens pay now!!!!!!!!!!!!!!!

[TexasCajun]

Hey!

Let's propose entitlement cuts in an election year.

Worst Timing Ping.

[Georgia Girl 2]

News flash for you. The reason SS and Medicare are called entitlements is because they are a mandatory lifetime contribution by every worker. At age 62-65 you are “entitled” to receive benefits. Its not welfare.

Before “attacking” SS and Medicare as you so euphemistically opine maybe defund Planned Parenthood to the tune of $500 million, cut off welfare to everyone except the totally destitute natural born citizens and shut down 4-5 unnecessary and/or rogue govt agencies. All that savings could go to help fund SS and Medicare. The illegals alone cost $130 billion per year.

The GOPe want to cut SS and Medicare because they don’t have to face the blowback from the Dems that they would get if they cut welfare or big govt.

[Brian Griffin]

“Primary Insurance Amount (PIA)”

“Increase the first PIA factor from 90 percent to 93 percent for all beneficiaries eligible as of January 2016 and for those newly eligible for benefits after 2016”

[Is that a 7% to 10% benefit cut?”]

http://www.ssa.gov/OACT/solvency/provisions_tr2014/benefitlevel.html

Most massive tax increases are assuming benefit cuts are only applied for newly eligible people. Almost all SS trustee assumptions assume existing recipients will be spared any cuts - nice thinking, but too much of a burden on others.

A ~50% FICA tax hike won’t fly politically. Existing recipients probably will have to take a benefit cut of at least 6%, at no more than 1% a year.

Pain in my opinion has to be shared between existing recipients, new recipients and FICA payers.

Public pension recipients might be taxed to help out Social Security too. My otherwise lovely Democratic neighbors with about $60,000 in federal retirement income annually often complain about people who don’t want to share. After all, a very large part of Social Security payouts are used to pay property taxes to fund public employee pensions.

[justlurking]

However you explain it, it’s commingling of funds, and the trust fund is in name only. It’s still a piggy bank.

The funds are only "co-mingled" if you consider all taxes to be deposited into the same account. They aren't.

The equivalent is revenue paid into a business (yours or someone else) was borrowed by you personally, and transferred into your personal checking account. As long as the business tracks that loan as an asset, and you track the balance as a liability, there's no co-mingling of funds.

As you pay off the loan, the business gets the cash, and they reduce the value of the asset. This is basic accounting. It's not rocket science.

The problem with Social Security is the promise (i.e. legislated benefits) is larger than it can deliver. In accounting terms, it's actuarily unsound.

[justlurking]

The reason SS and Medicare are called entitlements is because they are a mandatory lifetime contribution by every worker.

Again, I hate to burst this bubble, but it's not true.

In this context, "entitlement" means "benefit provided by law". The law can be changed, and you have no recourse -- because you have no contractual right to a benefit.

See my post #25 for an explanation.

[justlurking]

“Increase the first PIA factor from 90 percent to 93 percent for all beneficiaries eligible as of January 2016 and for those newly eligible for benefits after 2016”

It would help if you cited the actual URL:

Increase the first PIA factor from 90 percent to 93 percent for all beneficiaries eligible as of January 2016 and for those newly eligible for benefits after 2016.

In order to "fix" Social Security, the cost rate line must be less than or equal to the income rate line on the first graph. And, it must occur before the trust fund ratio line hits 0% on the second graph.

As you can see, the proposal you cited only puts off the inevitable for about 2 years. Go ahead and look at the others, and try to find one where the trust fund ratio doesn't drop to zero and isn't declining in 2090. The only one I found is the eventual 50% tax increase.

Most massive tax increases are assuming benefit cuts are only applied for newly eligible people.

No, the individual scenarios are run separately. But, you can look at them and get an idea of how much each one actually help. However, I'll caution that you can't just add up the effects -- the SSA explicitly warns against it: Understanding Interaction among Individual Provisions that Would Change the Social Security Program.

A ~50% FICA tax hike won’t fly politically. Existing recipients probably will have to take a benefit cut of at least 6%, at no more than 1% a year.

I didn't say it would fly. I said that's what would be necessary, without a benefit cut. And, 1% a year, even indefinitely, barely makes a dent:

Starting December 2015, reduce the annual COLA by 1 percentage point.

Public pension recipients might be taxed to help out Social Security too.

Public pension recipients are already taxed. My wife pays federal income tax. There's no payroll tax on pension benefits, because it isn't payroll. Her pension contribution was exactly the same percentage as the FICA contribution would have been if she had been contributing to Social Security.

[itsahoot]

The big problem is with Social Security disability.

You do realize that many chronically unemployed were declared disable and moved to SS disability during the last 7 years. Logic was if you could not garner employment you must be disabled, this was actively encouraged as people used up their two year unemployment benefit.

[itsahoot]

Benefits are only connected to payments by the law.

Not even the law matters it only matters who controls the government. We have long ago abandoned the Constitution and basic Law.

[justlurking]

My 6% estimate assumes prompt action such as 1% less increase annually for six years.

I posted an example of a 1% reduction per year, indefinitely, in my previous example. Doing it for only 6 years would be much less than that.

It's actually not hard to figure that out: a 6% reduction wouldn't make up the estimated 23% difference between revenue and expenses in 2033.

But, I also wanted to point out: that earlier one was a 1% reduction in the COLA, and it could result in a negative COLA. This alternative puts a floor of 0% on the COLA:

Starting December 2015, reduce the annual COLA by 1 percentage point, but not to less than zero. In cases where the unreduced COLA is less than 1 percentage point, do not carry over the unused reduction into future years.

I'll also toss this one in:

Reduce individual Social Security benefits if modified adjusted gross income, or MAGI (AGI less taxable Social Security benefits plus nontaxable interest income) is above $60,000 for single taxpayers or $120,000 for taxpayers filing jointly. This provision is effective for individuals newly eligible for benefits in 2020 or later. The percentage reduction increases linearly up to 50 percent for single/joint filers with MAGI of $180,000/$360,000 or above. Index the MAGI thresholds for years after 2020, based on changes in the SSA average wage index.

This is effectively what Christie has proposed: gradually reducing benefits for people that have income from other sources (i.e. that actually planned for their retirement). As you can see, it has almost no effect. It's a political sound bite, but not much else.

[itsahoot]

We have organizations that take government money then hands it back to political donations to perpetuate the circle.

Planned Parenthood being only one of them.