Posted on 05/12/2015 9:06:03 AM PDT by Kaslin
America has a giant long-run problem largely caused by poorly designed entitlement programs such as Social Security, Medicare, and Medicaid.
So when I wrote last month about proposals by some Democrats to expand Social Security, I was less than enthusiastic.
…demographic changes and ill-designed programs will combine to dramatically expand the size of the public sector over the next few decades. So it’s really amazing that some politicians, led by the clownish Elizabeth Warren, want to dig the hole deeper. …I’m surprised demagogues such as Elizabeth Warren haven’t rallied behind a plan to simply add a bunch of zeroes to the IOUs already sitting in the so-called Social Security Trust Fund. …If Hillary winds up endorsing Warren’s reckless plan, it will give us another data point for our I-can’t-believe-she-said-that collection.
But it turns out I may have been too nice in my analysis.
As reported by USA Today, independent researchers have discovered that Social Security is even more bankrupt than suggested by official estimates.
New studies from Harvard and Dartmouth researchers find that the SSA’s actuarial forecasts have been consistently overstating the financial health of the program’s trust funds since 2000. “These biases are getting bigger and they are substantial,” said Gary King, co-author of the studies and director of Harvard’s Institute for Quantitative Social Science. “[Social Security] is going to be insolvent before everyone thinks.” …Once the trust funds are drained, annual revenues from payroll tax would be projected to cover only three-quarters of scheduled Social Security benefits through 2088.
By the way, I’m not overly enamored with this analysis since it is based on the assumption that the Social Security Trust Fund is real when it’s really nothing but a collection of IOUs.
But if you don’t believe me, perhaps you’ll believe the Clinton Administration, which admitted back in 1999 (see page 337) that the Trust Fund is just a bookkeeping gimmick.
These balances are available to finance future benefit payments and other trust fund expenditures–but only in a bookkeeping sense. …They do not consist of real economic assets that can be drawn down in the future to fund benefits. Instead, they are claims on the Treasury, that, when redeemed, will have to be financed by raising taxes, borrowing from the public, or reducing benefits or other expenditures.
In other words, what really matters is that Social Security spending is climbing too fast and consuming an ever-larger share of economic output.
That means – in the absence of reform – that more and more money will be diverted from the economy’s productive sector, in the form of taxes or borrowing, to finance benefits.
And when I write “more and more money,” that’s not a throwaway statement.
Returning to the USA Today report, academic experts warn that the long-term shortfall in the program is understated because it is based on 75-year estimates even though the program doesn’t have an expiration date.
The bigger problem with the Social Security Administration is not disclosure, it’s accounting, said Laurence Kotlikoff, a Boston University professor of economics… Kotlikoff…wants the agency to calculate its liabilities using fiscal gap accounting, which considers the difference between the government’s projected financial obligations and the present value of all projected future tax and other revenue. …Under this accounting system, SSA’s projected unfunded liabilities would be $24.9 trillion (instead of the $10.6 trillion projected in 2088). …17 Nobel Prize-winning economists have endorsed Kotlikoff’s push for the SSA and other government agencies to use the fiscal gap accounting method more broadly. “We have a situation that is like Enron accounting,” Kotlikoff said. “And the public doesn’t want to hear about it.”
At the risk of being pedantic, I’m also not enamored with either approach mentioned in the above passage.
Sure, we should acknowledge all expenses and not arbitrarily assume the program disappears after 75 years, but the approach used to calculate “unfunded liabilities” is artificial since it is based on how much money would need to be invested today to finance future promised benefits (whether for 75 years or forever).
Needless to say, governments don’t budget by setting aside trillions of dollars to meet future expenses. Social Security, like other programs, is funded on a pay-as-you-go basis.
That’s why the most appropriate way to measure the shortfall is to take all projected future deficits, adjust them for inflation, and calculate the total. When you do that, the Social Security shortfall is a staggering $40 trillion.
And that’s based on just a 75-year estimate, so the real number is much higher.
Though keep in mind that this is just an estimate of the fiscal shortfall. What really matters is the total level of spending, not how much is financed with red ink.
Which is why the only real answer is genuine reform.
For further information, here’s the video I narrated for the Center for Freedom and Prosperity on the need to modernize the system with personal retirement accounts.
But if you prefer to trust politicians, you can always support the left’s favored solution.
P.S. You can enjoy some previous Social Security cartoons here, here, and here. And we also have a Social Security joke if you appreciate grim humor. P.P.S. The “Trust Fund” is real only in the sense that the government’s legal authority to pay benefits will be constrained when the IOUs are used up. That’s why the USA Today article says that the government at that point would be able to pay only about 3/4ths of promised benefits (though one imagines that future politicians will simply override that technical provision and require full payments).
P.P.P.S. Many nations have adopted genuine reform based on private retirement savings, including Australia, Sweden, the Faroe Islands, Chile, and The Netherlands.
P.P.P.P.S. Because of lower life expectancies, African-Americans are very disadvantaged by the Social Security system. A system of personal accounts presumably wouldn’t help them live longer, but at least they would have a nest egg to pass on to their kids.
P.P.P.P.P.S. And don’t fall for the false argument that financial markets are too unstable for personal retirement accounts
The only reform the American people will accept is lifting the cap.
Since the ‘EXEMPT ONES’ in D.C. have their own plan, they won’t suffer one iota. Only the sheeple will hurt and lose out when SS goes belly up.
The day will come when the sheeple have to rise up and make the exempt ones, feel the pain. Force every cut to SS have a corresponding cut to their own exempt pensions.
Mark my words.
I PAID IN!!
OPEN UP THE LOCK BOX AND GIMME MY MONEY!!
THE GOVERNMENT PROMISED ME!!
TAX MY KIDS!!
IT'S NOT FAIIRRRRRRRRRR!!!
Grab it at 62, folks...better something than nothing.
There are only two solutions. Raise the SS tax or cut benefits.
There is a third. Raise the retirement age.
Great guys that nail shingles on roofs can work until 70.
While government deadheads continue to retire at 50.
I would consider that a cut in benefits.
There's a fourth, privatize the system moving forward. The increases in returns for younger people will allow for less contributions with the excess going to fund the remaining people in the sytem for the next few decades.
If the government had their way, they’d raise it to 85. That way they wouldn’t have to pay out much ( of course that wouldn’t affect Congressional pensions )
Not without at least one generation taking a hit, or alternatively injecting income tax dollars into the SS system to cushion the blow.
Then sign up all the black gang bangers in Baltimore who aren't counted as ‘disabled’ yet...
That should help destroy the system—
Oh wait - for added cruelty let's blame the people who contributed to the system for years... the ‘marks’ - - and tell ‘em they have to work until they drop to keep the system solvent...
Personally I expect nothing less than the whole program to be cancelled and a ‘new’ one created.
One that screws over a whole bunch of people by raising the age of initial benefit payouts to 80 years of age.
As far as SSDI it needs to go away as an adjunct program of Social Security. If it’s truly needed then it needs it’s own funding path.
Kids? More like govt slaves! When you own another human for profit, even your own offspring, you are a slave owner.
I'm not sure which one is worse LBJ or what's his name.
With all of the illegals that will be soon collecting.That system is going to draw down quick.Just like S.S.I.
With that program drug addicts and alcoholics drinking there lives away.They’re all qualified to collect S.S.I.
I am sitting in a Social Security Office at this very moment. My wife and I are here to get our government goodies as I turn 65 in July. I have a visceral negative reaction when I enter any goverment facility. This place creeps me out. Sullen faces all herded together on hard little chairs waiting for their opportunity to plead their case for a chunk of government cheese. Security guard trying to keep himself busy looking important.
Tell them you just snuck in from Mexico. They will expedite your paperwork.
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