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 its really amazing that some politicians, led by the clownish Elizabeth Warren, want to dig the hole deeper. …Im surprised demagogues such as Elizabeth Warren havent 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 Warrens reckless plan, it will give us another data point for our I-cant-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 SSAs actuarial forecasts have been consistently overstating the financial health of the programs trust funds since 2000. These biases are getting bigger and they are substantial, said Gary King, co-author of the studies and director of Harvards 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, Im not overly enamored with this analysis since it is based on the assumption that the Social Security Trust Fund is real when its really nothing but a collection of IOUs.
But if you dont believe me, perhaps youll 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 expendituresbut 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 economys productive sector, in the form of taxes or borrowing, to finance benefits.
And when I write more and more money, thats 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 doesnt have an expiration date.
The bigger problem with the Social Security Administration is not disclosure, its 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 governments projected financial obligations and the present value of all projected future tax and other revenue. …Under this accounting system, SSAs projected unfunded liabilities would be $24.9 trillion (instead of the $10.6 trillion projected in 2088). …17 Nobel Prize-winning economists have endorsed Kotlikoffs 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 doesnt want to hear about it.
At the risk of being pedantic, Im 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 dont 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.
Thats 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 thats 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, heres 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 lefts 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 governments legal authority to pay benefits will be constrained when the IOUs are used up. Thats 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 wouldnt 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 dont fall for the false argument that financial markets are too unstable for personal retirement accounts
Yet that would only be a drop in the bucket.
Sure, but I think that to solve the problem by only raising the age, we’d have to raise to a ridiculous amount.
They are going to have to.
You can not work for 30 years, and retire for the same. It doesn’t work that way, and never has.
I used to be in favor of privatization, till I had a conversation with a man who used to manage a pension fund for a major heavy equipment maker.
He told me that a team of highly educated and skilled traders couldn’t find a way to pay for a typical workman’s retirement, why would you expect that same workman to do it by himself? Simply put, a 401K doesn’t change the end game if you out live your money. Most will if they retire in their 60’s.
Besides a lower benefit level, there are tax consequences of “grabbing it at 62” if you’re still working. Not a good plan unless you have enough retirement savings to actually retire at 62. I expect to work until I’m in my late 60’s (if not early 70’s) and plan to “grab it” at 66 1/2.
Did ‘zackly that...wanted to get in the system while there still was one.
So do we start withdrawing as soon as we are able at 62, or try to save it by not withdrawing funds till 67 or 70? I have been paying into it for 46 years, should I start withdrawing as soon as I can, which would be this year for me?
Would some call me selfish since I am still working?
You can draw social security when you are 65 and you can work, but don’t be surprised if your taxes go up when you make more than you should
Isn't this what President Bush 43 wanted? He was slammed by the left and by some in here too
Only if he’s able to, which I doubt. Someone however who sits in an office all day twiddling his thumbs all day no doubt will be able to work until 70 and beyond
No need for that. You can do it all online.
Yes, it’s the third rail. It can be done.
Bottom line, you can’t promise anything unrealistic, like paying someone returns that are impossible.
In additiond to setting up “target funds” investing we can also diversify with other protected strategies.
It can be done, but there is no will until it blows up. Typical government, reaction based rather that proactive.
Do you mean S.S.D.I. or S.S.I.? Big difference.
I was thinking of the ‘Disability’ insurance program. I believe that has been abused in so many different ways.
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