Two SNEP Goals Connected

Jed Graham writes,

The $2.8 trillion Social Security Trust Fund is on track to be totally spent by 2030, the Congressional Budget Office said Tuesday. That’s one year earlier than projected in 2013 and a decade earlier than the CBO estimated as recently as 2011.

Graham points out that lower estimates for employment are contributing to the more adverse outlook for Social Security. I would say that this links two of the three main goals for SNEP, one of which is to increase employment and another of which is to work toward a sustainable Federal budget.

In fact, the third goal, to get the FCC and the FDA out of the way of progress, also links to the other two.

8 thoughts on “Two SNEP Goals Connected

  1. Professor:

    Have you made a SNEP proposal for pensions?

    My preference would be converting eliminating the employer side of the social security tax, increasing the employee withholding by an equal percent, and having employees under some age on the initial implementation date direct the withheld amounts to private pension accounts that would operate much like private IRA’s. The two tweaks I would make would be to actually prohibit withdrawals before age 65 (rising over time) and to encourage a cash-out for a lifetime, inflation-protected annuity. Progressive rates of taxation would do some of this, but some other tweak might work better. Another feature of the cash-out would be that, for someone who has less than the amount required to buy some minimum annuity, the government would top up the amount in their account to buy the minimum annuity. The opportunity for last minute gamesmanship (“I’ll put it all on highly risky derivatives”) counsels that the “minimum annuity” actually be adjusted within a range to penalize large investment losses in the five years before cashing out.

    The biggest issue is obviously that taking out all tax-paying employees younger than some age means a bigger and bigger mismatch between revenues and spending, until the peak so spending passes. So, my proposal would require (a) an enormous and maintained fiscal surplus or (b) enormous and sustained borrowing. It would be a one-time event, so each path would be problematic in different ways. At the end of the huge surplus, Congress would suddenly find itself in possession of an unneeded surplus. On past practice, it would spend it, so I’d want to put tax rate decreases for that time frame into the same law as sets up the private pensions approach. At the end of a huge borrowing binge, we’d be even more enormously in debt. Either way, you would need some combination of spending cuts and tax raises at some point in time. That is the hard part about moving from defined benefit to defined contribution.

    Max L.

    • Professor:

      I should also add that, in the context of your SNEP proposals, people past the normal retirement age are an important part of the labor force, with all the normal poverty-preventing aspects of working. In addition, their labor participation tends to reduce public health care expenditures and moderates the effect of an inflationary economy by providing an additional labor pool from which to draw.

      Max L.

  2. The Disability Insurance Fund is doing much worse.

    If you go to the Time Series Report portion of this Social Security website and select DI fund Monthly for All Years, you will see the fund is now down to $80 Billion and is burning $31 Billion more a year than it takes in, and so will probably be nearly busted and a live issue by the 2016 election. It peaked at $220 Billion in June of 2008.

    $30 Billion (and rising) a year is a lot to bail out from general taxation revenues. What is that – about an extra thousand dollars a year per net-taxpaying household? And it’s just one busted fund. The PBGC fund is said to be as close to being busted too, and of course it bails out other private busted funds which were underfunded.

    From a GAO report

    PBGC expects plan insolvencies to more than double by 2017, placing greater demands on the multiemployer insurance fund and further weakening PBGC’s overall financial position

    It seems a lot of these ‘compartmentalized’ programs with their own funding sources and trust funds are about to turn into general obligations. It’s going to be hard to keep all those promises.

    • And I neglected to mention that the Post Office is losing so much money that it is not longer making contributions to its health and pension funds to ensure a fully-funded status.

      Someone should write a paper estimating the total amount of compartmentalized liabilities which will likely be bailed out and paid out of general revenues.

  3. When Bush 43 tried to introduce similar privatization as a factor in potential reform of SS, Democrats refused to give it any consideration whatsoever. The rhetoric about starving grandmas, etc., was over-the-top (though, as with the later Ryan plan, it wouldn’t have affected anyone on SS or within 10 years of SS-eligibility. I dropped my membership in AARP when it loudly campaigned against SS reform. How short sighted of AARP to ignore the inapplicability of the plan to its current members at the expense of its future members. Typical, though.

    http://en.wikipedia.org/wiki/Social_Security_debate_in_the_United_States#George_W._Bush.27s_privatization_proposal

  4. ( politico.com/news/stories/0412/75603.html )
    Social Security trustees: We’re going broke
    04/25/12 – Politico by John C. Goodman
    What the current value of the unfunded liability means:
    === ===
    The latest report of the Social Security and Medicare trustees shows an unfunded liability for both programs of $63 trillion, about 4.5 times the U.S. gross domestic product GDP. [$20.5 trillion of that is from Social Security.]

    The unfunded liability is the amount we have promised in benefits, looking indefinitely into the future, minus the payroll taxes and premiums we expect to collect. It’s the amount we must have in the bank today, earning [3%] interest, for these entitlement programs to be solvent [fully funded].
    === ===

    ( cato.org/publications/commentary/social-securitys-sham-guarantee )
    Social Security’s Sham Guarantee
    05/29/05 – Cato by Michael D. Tanner [edited extract]
    === ===
    Social Security [and Medicare] benefits are not guaranteed legally because workers have no contractual or property rights to any benefits whatsoever. In two landmark cases, Flemming v. Nestor and Helvering v. Davis, the U.S. Supreme Court ruled that Social Security taxes are not contributions or savings, but simply taxes, and that Social Security benefits are simply a government spending program, no different than, say, farm price supports. Congress and the president may change, reduce, or even eliminate benefits at any time.

    As a result, retirees must depend on the good will of 535 politicians to determine how much they will receive in retirement. And what could be less guaranteed than a politician’s promise? In fact, Congress has voted to reduce Social Security benefits in the past. For example, in 1983, Congress raised the retirement age.
    === ===

    ( insureblog.blogspot.com/2012/09/elephant-in-room.html )
    Social Secrity funding: The elephant in the room
    09/14/12 – InsureBlog by Bob Vineyard [edited]
    === ===
    Well, there is a trust fund, but there isn’t any money in it. Not real money. Only IOU’s [a government promise to find the actual, consumable resources somewhere, somehow.] Those in denial say the federal government has never defaulted on their obligations so the IOU’s are “secure”.

    Here is the truth. The accumulated debt is $16 trillion, roughly 100% of GDP. As if that isn’t bad enough, you need to factor in our unfunded liability, the amount we owe for future obligations. Things like federal pensions, Social Security promises, and Medicare promises. The unfunded liability exceeds $100 trillion.
    === ===

    This must always be added to any discussion of any government “trust fund”.

    There is nothing of value in the Social Security “trust fund” (or in any US government trust fund such as Medicare). There is only a politician’s promise to find the money [real resources] somewhere that was paid in at one time, but has already been spent. The trust fund bonds are only a paper record of what was collected in taxes “in excess” of the immediate cash needs of Social Security. That amount “in excess” was put into the general Treasury and spent, leaving a bond behind to note the borrowing.

    ( easyopinions.blogspot.com/2009/01/ponzi-schemes-like-social-security.html )
    Ponzy Schemes Like Social Security

    Social Security is a direct-pay program. Amounts collected this year are all paid out, either to recipients or to government programs. The Ponzi scheme is ending. From this time on, more will be paid out than collected in cash. Only continued government borrowing can make up the shortfall. Or, the government will reduce benefits or inflate the currency. Seniors may get $100 in distributions, which may buy only what $50 buys today.

    ( xtranormal.com/watch/11226537/?listid=18148621 )
    Here is an XTraNormal video (2:12) which presents the facts about the Social Security Trust Fund bonds. (Don’t be bothered by the name of the video, “Pharmacy tech qualification test”.)

    Summary: The trust fund bonds are obligations of the US government payable to the US government. They have no more value than a check which you write to yourself.

    Amazingly, this is exactly like an insane person saving up for his children’s college education. He puts $100 each Friday into his savings account. Each Monday he takes out that $100 and spends it on entertainment, but he carefully records what he owes to the “college fund”.

    When his kids are 18, he tells them that he saved $50,000 over the years, as shown on his “fund account paper” (the trust fund bonds). He only has to pay back what he took out, or borrow the money in the name of the children. Are they happy at that result?

    This has been justified over the years with the bromide “we owe the money to ourselves, so why not spend it now?” OK. Now, in retirement, someone (the young?) will have to generate the real resources to pay for the seniors, if they can be forced to do this.

    We’re Already Europe
    02/22/12 – National Review by Michael Tanner
    === ===
    [edited] If one adds the unfunded liabilities of Social Security and Medicare to our official national debt, we really owe $72 trillion, by the Obama administration’s projections for future Medicare savings under Obamacare, and as much as $137 trillion under more realistic projections.
    Under the best-case scenario, this is more than 4.8 times GDP, and mpore realistically 9.1 times.
    === ===

    Promises that can’t be paid won’t be paid.

    Inter-agency debt represents cash collected by that agency at some time in the past, withdrawn into the general Treasury, and spent. Government bookkeeping leaves a note in the form of special bonds which the Treasury promises to pay back in the future. All such payback would require funds from taxes, borrowing from the public, or monetary inflation by selling bonds to the Federal Reserve.

    For example, the Social Security Trust Fund is inter-agency debt. The special, non-marketable, Treausury bonds in that fund represent the SSec taxes collected over time in excess of immediately required distributions. These days, about $50 billion more is being paid out than received in SSec taxes. That is, $50 billion in trust fund bonds are being presented to the Treasury for repayment each year. The Treasury repays with cash derived from current taxes and borrowings.

    The SSec trust fund is about 2.7 trillion in these special bonds (political promises). But, this fund is not directly related to the liabilities (promises) of SSec in the future.

    A Payroll Tax Increase would pay for government’s promises on Social Security and Medicar
    05/15/09 – Forbes by Bruce Bartlett [edited]
    === ===
    Social Security’s unfunded liability in perpetuity is $17.5 trillion (the trust fund is meaningless [See the article -AMG]). Social Security would need that much money today, [real resources] in a real fund outside the government, earning a true return [3%] to pay for all the benefits that have been promised over and above future Social Security taxes. We don’t have that fund. Alternatively, the payroll tax rate would have to rise by 4 percentage points [from 15.3% to 19.3% of payroll].
    === ===

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