James Pethokoukis

Politics and policy from inside Washington

Uh, yeah, Social Security does have a problem

Jan 28, 2011 19:41 UTC

And it is expertly outlined by IBD’s Jed Graham at the Capital Hill blog:

But the Congressional Budget Office forecast released a day later shows that the coming crisis has drawn one year closer — to 2017.

That year is when Social Security’s disability insurance trust fund is projected to run dry, triggering sharp cuts in disability benefits — reaching about 18% in 2018 — without action from Congress.

A little-discussed reality about Social Security is that it actually has two separate trust funds. The Old Age and Survivors Insurance trust fund is (theoretically) flush, with about $2.4 trillion in interest-bearing IOUs from the Treasury. But the Disability Insurance trust fund is down to about $180 billion and sinking. In fiscal 2010, the Disability Insurance trust fund cashed in about $30 billion in its special-issue Treasury notes, which the Treasury redeemed by floating roughly $30 billion in additional public debt.

The two trust funds are prohibited from transferring resources between them without legal action by Congress, so disability benefits would be slashed starting in 2017 unless something is done.

In theory, a crisis could be averted by transferring some OASI trust fund assets to the DI trust fund. But the longer Washington puts off addressing its long-term budget problem, the more ridiculous such a shift of funny money will appear.

Waste, fraud and abuse at Social Security

Mar 30, 2010 16:57 UTC

The super-insightful Andrew Biggs looks how the Crist-Rubio debate dealt with Social Security — and finds laughable the former’s comments about restoring the system’s long-term solvency by rooting out waste, fraud and abuse:

As a general rule, when a politician mentions “waste, fraud, and abuse” it should be interpreted the same as if the candidate wore a sign saying “I’m not serious.” That’s not to say that we don’t have problems with fraud, but that the real problem is simply that the government spends too much.

This is particularly so in the case of Social Security, which is one of the most efficient federal government programs. Social Security takes money from young workers, calculates a benefit for retirees based on their earnings and their years in the workforce, and cuts them a check. There’s not a lot of discretion involved, which reduces chances for things to go wrong. Sure, there are problems in the disability program and I’m confident there are folks getting disability benefits who actually could work. But that’s the fault of the eligibility criteria passed by Congress in the 1980s more than any problem of vetting applicants by the Social Security Administration. On this issue, at least, Crist was very unimpressive.

What did impress me, though, was the fact that Rubio—who, after all, is running for the Senate from Florida—was willing to be upfront about the hard choices awaiting us on Social Security. In part this may be due to the character of the candidate, who struck me as a principled conservative.

COMMENT

First Older citizens paid along with their employers out of their own monthly earnings into the social security retirement insurance. So those checkks being cutare what we paid into. It is not taken from younger workers. The government stole what older workers paid into for their retirement and illegally took it for war. This was money that did not belong to the government it is not nor has it ever been entitlements not any more than if someone opens a bank account to save for their future and the banker steals it for his own use. Theft is theft and the government had no right to steal social security insurance paid into by workers of years past.

A lot of the waste is done by social security administration workers who do not follow their own rules and demand recipeints follow them and who waste time and paper who work but do not want to work. Pigs at government trough. Go sit in a SS office someday or employment office or DSHS office and watch how many “Breaks
” they take and if you watch close some play computer games and eventually when they feel like it call someone to their desk but they are lazy and NOT earning their wage. Most are like this. They get paid too much money and do NOT want to help. Most also are rude and act we are taking money right out of their pocket. When it is money WE paid into it is NOT their money and they would not have a job but for SS or unemployment paid insurance paid by employees and employers. People get mad at the wrong people and think we are not entitled to it. YES we are we PAID into it out of our hard earned wages and long hours of work.

Posted by celanith | Report as abusive

A Wall Street conspiracy to kill Social Security?

Mar 26, 2010 11:37 UTC

Finally, a Wall Street conspiracy theory without Goldman Sachs at its heart. This one posits that bond rater Moody’s wants to ding the U.S. credit rating so panicky politicos will privatize Social Security. That would sent big bucks to the firm’s big bank clients. If only it were true.

This bit of speculation comes from Dean Baker, a respected Washington think-tank economist, albeit with a liberal bent. Baker suggests that Moody’s increased debt warning of late “could be a reflection of the Wall Street agenda to cut” America’s social insurance safety net. Shifting government pensions into the private sector could entail billions, if not trillions, of retirement dollars flowing into personal portfolios managed by investment firms.

Like most conspiracy theories, this one reveals more about the storyteller than about reality. Baker, like other left-of-center economists such as New York Times columnist Paul Krugman, think Washington too concerned with deficits given the anemic economy. And they lump President Barack Obama into that camp, too. They fret this New Frugality — somewhat laughable give trillion dollar deficits — will be further fed by Obama’s new deficit commission. And they especially worry the panel will recommend trimming back Social Security to preserve its solvency. Add in displeasure that financial reform isn’t tougher on the major players in the financial meltdown, and a juicy tale of corporate collusion emerges.

A better theory: Raters have been intentionally insouciant so as not to incur the wrath of Congress as it fashions new regulations for the firms. U.S. debt-to-GDP may hit 90 percent by 2020, according to the Congressional Budget Office. The CBO also says that Social Security, which accounts for 16 percent of the government’s $46 trillion in long-term liabilities, will in 2010 for the first time pay out more in benefits it takes in from taxes.  That is six year earlier than predicted. The slow economy is the near-term cause. But the event marks a key milestone in the program’s long descent toward insolvency. Benefit cuts and tax hikes seem inevitable. But those will lower an already paltry rate of return, especially for younger workers.

Letting Americans shift at least some of their government-directed savings into the real economy would generate a bigger nest egg.  This is done in Chile and Sweden, for instance. Yes, stocks are risky. But the market ultimately reflect the real economy. If it booms, so will portfolios. And if doesn’t, Social Security is in even deeper trouble. If there isn’t a conspiracy, someone should hatch one.

COMMENT

“are asleep? Oh!” fiddle with the fire of the stick in the hands fling, maple carefully approached the night huddled under the full moon mulberries and Los dance.

America’s banana republic economy

Oct 20, 2009 13:57 UTC

Is the decline in the dollar merely a “return to normalcy” story, as many bulls contend, and not a harbinger of a coming currency crisis?

Short version: The 2008 financial crisis and ensuing collapse in confidence drove investors to dollars and dollar-based instruments. And as the crisis has ebbed, investors are rebalancing back toward riskier assets.

Thus the falling dollar should rightly be interpreted as a sign of “new economic optimism,” argues JPMorgan Chase economist Jim Glassman.

Then again, perhaps future economic historians will look back at this stage of the dollar’s decline as the currency calm before the storm. Because at some point, investors may suddenly realize that America’s already somewhat devalued currency should not be trusted.

As Senator Judd Gregg, a New Hampshire Republican and noted budget hawk, said recently, “We’re basically on the path to a banana-republic type of financial situation in this country … You can’t keep throwing debt on top of debt.”

Indeed, the evidence points to a nation fairly far along that path. Healthcare reform is supposed to be deficit neutral — everything paid for via spending cuts or tax increases — while also helping bring government’s overall long-term budget into balance.

But to keep the 10-year price tag under $900 billion, Democrats have quietly shunted $247 billion in spending for Medicare physician payments into a separate bill. And no effort is being made to pay for it.

Just as egregious, though less expensive, is the Obama administration’s $14 billion plan to send a $250 “stimulus” check to 57 million American Social Security recipients in lieu of an annual cost-of-living increase.

See, a 5.8 percent COLA increase was paid last January to compensate for a 5.8 percent jump in consumer inflation driven by surging oil prices in 2008. Then oil prices and inflation collapsed.

“In effect, a COLA was paid on inflation that no longer existed,” notes Andrew Biggs of the American Enterprise Institute.

So even though none of this makes seniors essentially any worse off, Uncle Sucker is still going to cut them a check.

Two examples — one ridiculously expensive, one just ridiculous. But both reveal a nation completely unwilling to deal with current trillion-dollar deficits or long-term shortfalls many multiples of that number.

What confidence should dollar investors have that America will really cut entitlement spending? Very little. Instead, we are more likely to see huge tax increases that could cripple productivity, or further dollar neglect, or a central bank that turns dovish on inflation. Or perhaps all three.

If Washington doesn’t care to support the dollar, why should investors?

COMMENT

how can i contact banana republic company

Posted by ahmed farnawany | Report as abusive

Stealing from Social Security to pay for healthcare reform

Oct 20, 2009 13:53 UTC

Does BaucusCare raid Social Security to pay for healthcare reform? Sure seems like, according to Andrew Biggs of AEI:

Baucus’s plan purportedly would improve the budget balance by $81 billion from 2010 through 2019, and in 2019 itself would cut the deficit by $12 billion. … CBO breaks down the Baucus plan’s budgetary effects into those occurring “on budget” (where the substantive policy changes are) and those “off budget” (meaning through the Social Security program). The Baucus plan’s on-budget provisions would reduce the ten-year budget deficit by a tiny $1 billion and in 2019 would increase borrowing by $6 billion. …

Meanwhile, the Baucus plan’s fiscal skullduggery takes place off-budget. Social Security revenues would increase by $80 billion over ten years, with an $18 billon increase in 2019 alone. Around 3 million individuals would leave employer-sponsored health coverage — which is exempt from taxes — to purchase insurance through a subsidized “exchange.” Leaving employer-sponsored coverage would raise workers’ taxable wages and thereby boost Social Security revenues. Millions more would trade a portion of their insurance benefits for higher wages to avoid a new tax on high-cost policies. By skimming the new Social Security taxes, the Baucus plan appears to significantly cut the deficit when, in truth, it balances only by the skin of its teeth.

This is perhaps the clearest example of “raiding the trust fund” on record.  …  The plan does not simply rely on existing Social Security surpluses but creates new ones to offset higher spending on health coverage. Without new Social Security revenues the plan would not balance and, if the president is to be believed, would face a presidential veto. It’s that simple: no new Social Security taxes, no new spending.

That $250 check for seniors is a bad idea

Oct 15, 2009 17:56 UTC

The liberal Center on Budget and Policy Priorities comes out against that $250 payment to seniors:

Under current law, there will be no cost-of-living adjustment (COLA) in Social Security in 2010 — the first time that has happened since automatic cost-of-living adjustments began in 1975. Several bills before Congress would grant a special increase in Social Security payments for 2010.

The inflation data, however, do not support an increase: overall consumer prices have fallen significantly in the past year and are not expected to return to their earlier peak until mid-2011. In addition, when no Social Security COLA is provided, Medicare Part B premiums — which are deducted from Social Security checks — are frozen for most beneficiaries so that the Social Security checks do not drop (see the box on page 5).

If policymakers nevertheless choose to act, they should grant a flat, one-time payment as an economic stimulus measure rather than an across-the-board percentage increase that undermines the mechanics and purpose of Social Security’s indexing provisions.

Me: I think that $250 actually depresses me more than the $1.5 trillion spent over the past year to deal with the downturn.  A total lack of willingness to be straight with America about its fiscal situation.

Stan Collender has some thoughts on this:

My recollection is that the automatic cost-of-living adjustment for Social Security was put in place so that members of Congress would not be tempted to adopt legislation that provided a larger-than-inflation increase every year.  That temptation proved to too much for most members so the “look ma no hands” approach was adopted.

Does anyone think that this won’t be the most bipartisan vote of the year in the House and Senate?

I’m guessing 430 to 5 in the House and 96 to 3 in the Senate.

COMMENT

Something is better than nothing right. As pointed out here, http://www.savingtoinvest.com/2009/10/ex tra-250-for-social-security.html , the new benefit would be $250 – or equivalent to a 2 percent increase in benefits for the average Social Security retiree beneficiary

Social Security may be in worse trouble than we think

Sep 22, 2009 18:00 UTC

Over at Hot Air, Ed Morrissey has gotten hold of an internal CBO report distributed to Congress that  predicts Social Security will start running a cash deficit next year as opposed to 2019. And even that, apparently , is based on some pretty rosy revenue projections.  Indeed, over the span of  2017, 2018, 2019, SS will run a $126 billion deficit, according to the CBO. Gee, and you wonder why the Chinese are getting skittish about the dollar?

COMMENT

When people talk about debt and ar aghast at the $1.7 trillion deficit this year and national debt of $11 trillion now, just think how horrified/terrified they would be if they knew the whole picture! If you inlude gov’t pledges and underfunded liabilities – fancy naming gimmickery for what is plain old DEBT – the total is closer to $70 trillion, or roughly 375-400% GDP. When the Social Security ‘situation’ finally really comes to public attention there will be some scared people, and most of them foreign investors. I don’t like to be a doom and gloomer, but I don’t see lots of happy numbers to change my mind…

Posted by the Shah | Report as abusive

Taming the bond market vigilantes

Jun 3, 2009 14:21 UTC

Whatever the politics, fixing Social Security is easy conceptually.  And if Team Obama is starting to get a bit anxious about an adverse reaction from the bond market to its fiscal policies, why not offer a fix as evidence of its seriousness about America’s entitlement woes? Here is Ed Yardeni on this very topic:

The Obama Team needs to negotiate a peace treaty with the Bond Vigilantes. The Administration will agree to slash the structural federal deficit. The Vigilantes will stop pushing bond yields and mortgage rates up to levels that will abort the recovery. This would be a win-win solution in the spirit of doing what is best for the country. The President could do what Nixon did. It took an anti-communist hawk to recognize Red China. It may take a liberal community organizer to address the looming financial crisis in the social welfare state, particularly Social Security and Medicare. Now is a good time to push for means testing of these two programs. Actually, there is already some means testing in both programs, but the testing should be expanded. The programs shouldn’t be entitlements. They should be insurance programs that provide a safety net for those who are truly in need of public assistance. If the Obama Administration seriously addresses this issue, the outlook for the structural deficit will improve dramatically. In this scenario, both Treasury bonds and the US dollar could rally as the Administration actually delivers on its promise to reduce the structural federal deficit.

Me:  I wonder if bond investors are more worried about inflation, default or inflating to avoid default? I would also be concerned that any Obama solution would include higher payroll taxes. Some economists blame FDR’s institution of a payroll tax in the 1930s for extending the Great Depression. Raising the retirement age and linking benefits to inflation rather than wages would actually create huge budget surpluses, by the way.

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