...the GAO analysis of the net present value of the Social Security and Medicare promises Washington has made to Americans. “Net present value” means the total that would have to be set aside today to pay the costs of these programs in the future. The government puts these numbers in appendices, rather than in headlines. But the costs are real.
By the way, it's worse than that: the GAO analysis assumes that the "doc fix" will NOT be applied, meaning that Medicare assumptions are artificially low.
28 comments:
This is meaningless. Social Security and Medicare payments in 2050 are NOT funded by the present value of what is in reserve today. The only reserve for Social Security is that set up during the Reagan era to account for the Baby Boomers and the Baby Boomers will be pretty much gone by 2050.
This is the same as saying that I should have in reserve the net present value of my 30-year mortgage in a savings account somewhere as if I weren't earning money and paying my mortgage every month.
Social Security needs small adjustments. Medicare needs very large adjustments and this should be addressed immediately. But comparing the net present value of something over an undefined and arbitrary period to the value of the stock market is meaningless.
You do understand that there is no "Reserve" right? What came out of my check this year got paid out this year...
Mom:
It is true what came out of your check got paid out this year. That's because the Trust Fund hasn't been needed up to now since SSA contributions plus interest on assets including the Trust Fund are meeting payouts. The Trust Fund will be needed to make payouts in the next year or two.
If you read the Trustees Report for the calendar year 2010 you will find that there IS a reserve of over $2.4 Trillion. This reserve has been building up since Reagan set it up in 1983 specifically to be available when we Baby Boomers began to retire.
Just so YOU can understand that there IS a reserve, Mom, OK? Read up. Learn.
Oh, yah.
That "reserve" is T-bills and T-bonds.
So when the reserve cashes them in, either taxes go up to pay the notes, OR more float-a-note from TurboTim.
Sure, there's a reserve, Jimbo.
That "reserve" is T-bills and T-bonds.
What else would it be, Dadio? Cash under Geithner's mattress? Do you know any pension plan, investment house, 401(k) plan, financial institution that doesn't have T-bills and T-bonds in their portfolio?
Billions of dollars in Treasuries mature each year. Assuming the current reserve is used over the next 25 years as planned, that's $100 billion a year or about 2.7% of the current budget.
So yeah, these bonds will have to turn over or we may have to raise taxes to pay for the money that the last 4 presidents spent.
Or what? Default on US Treasuries?
I don't get why this is so hard to understand. There is no actual "Reserve", no actual "Trust Fund", no freaking "Lock Box". T-Bills and T-Bonds are an IOU that the government has written to itself. Like taking cash out of your left pocket, puting it into the right pocket, putting an IOU to pay yourself back into your left pocket and calling it a Reserve.
No, its called an unfunded liability. And we started getting hit with it this year.
You have a mortgage, Mom? A car loan? Those are unfunded liabilities, too. Do they scare the crap out of you? How about the municipal bonds paying for your schools and public works?
"Unfunded liability" is a term used in your emails and newsletters to scare the crap out of you.
It's not hard to understand, Mom. Ask your broker, your financial planner, your city comptroller, your local bank manager, or your father if T-bills are any good? Ask your financial planner what she would invest in for "capital preservation".
You know all that US debt that China holds? What do you think that debt consists of? Liens on the Smithsonian Institute?
I'll say this again, Mom, because you apparently DO find it hard to understand. The Federal debt is some $15 Trillion. That debt is comprised of Treasury Bills, Bonds, and Notes. $2.5 Trillion of that debt is held by the Social Security Trust Fund. The US must pay back that $2.5 T just like it must pay back the rest of the debt.
And that's a big problem. But the problem is not caused by paying people Social Security benefits, and it's not solved by paying them less.
Actually, I'm one of those crazy people that bought within my means and while I do have a mortgage, I'm liquid.
The US Government, is not. See, we aren't paying back that debt. We are only paying the interest on it and doing that by borrowing and printing.
So, unless we start putting liens on the Smithsonian, there is no "there" there - hence the "unfunded" part of the liability - as in expense that needs to be paid. The only way out is to raise taxes, cut spending, or keep borrowing/printing. 100+% debt to GDP isn't enough for you I guess. You'd prefer the 150% of Greece? Won't take us long on this trajectory.
And not everyone should get SSI. It was never meant to be a personal retirement plan, and it certainly wasn't meant to be welfare. There are people that should NOT be receiving benefits at all - regardless of them paying into it. Means testing should be the first step and a no-brainer.
So you have enough liquidity to pay off your mortgage next Tuesday? If so, I hope you are getting a better return on your liquid assets than the rate on your mortgage. If you don't have the cash, you have an unfunded liability.
I'm totally with you that the US is NOT paying its debt. We are in a heap of bad with the debt. Just don't sit there and blame only Obama and/or Democrats because more of the current debt was racked up by Reagan and the Bushes than Clinton and Obama.
I'm all for raising taxes and cutting expenses to address the debt, though not so much while the economy is just getting back in the right direction. Just because I refute some of your claims about the cause or ramifications of the debt doesn't mean I want the US to be like Greece.
I don't know what you are getting at with "it certainly wasn't meant to be welfare". Who thinks it is?
Social Security is already in effect "means tested". SSI is taxable above certain income levels. I'm not sure you can say that SSI was never meant to be a personal retirement plan. It was originally meant to make sure that older, retired people did not live in poverty. As far as a retirement plan, I can't imagine ANY personal retirement plan put together in the last 60 years that didn't include Social Security income as part of the package. So yeah, anybody retired today or planning to retire in the near future would tell you that SSI is indeed part of a personal retirement plan.
Social Security is not the problem. Social Security will be solvent for 75 years or more by increasing the cap from $106,000. It will be able to pay all expected benefits through 2037 with no changes and 77% of expected benefits beyond 2037 with no changes.
Cutting future benefits will have no impact on the deficit. Social Security funds itself.
Never said it ws only the Dems. When it comes to profligate spending and expansion of government, it was a bipartisan affair. I will note however that Obama has added more to the debt in 3 years than GWB did in 8. That should count.
I actually agree that capping the payroll tax is stupid. It's the only tax that I agree should be raised.
However, when SSI was started the average life expectancy Was like 62 with a benefit start at 65. So the population of payees was... limited. Since then, life expectancy is closer to 80, and we added survivor benefits. Also, many of those on welfare were shiftd to SSI during Clinton's welfare reforms. Now ADHD counts as a "disability" to receive a check. Also, taxing some of the money back is far smaller than not paying it out in the first place. I want true means testing.
Have a Safe and Happy New Year.
Obama has added more to the debt in 3 years than GWB did in 8.
Where did you get that "information"? One of your emails? It is factually and demonstrably FALSE. Not only that, it's WRONG. Erroneous,too.
From end of Clinton's last fiscal year to end of Bush's last fiscal year, the debt went from $5.8T to $11.9T or an increase of $6.1T. Now it is about $15.7T. That's an increase of $3.8T. Source
Now unless I'm mistaken, $3.8T is quite a bit less than $6.1T. Furthermore, other than the Stimulus, most of the increase in the last 3 years is a result of Bush policies and the recession.
Ah, the old "life expectancy" game. There is a BIG difference between life expectancy at birth and life expectancy at age 62. The major reason that life expectancy has increased is that the infant mortality rate has significantly decreased since the 30s. So it's not so much that people are living longer, though some are. It's that fewer die as infants. Doesn't matter either way. The SSA and Ronald Reagan accounted for all that in 1983.
All that aside, since you agree that the salary cap should be raised, we have now SOLVED the issue of Social Security solvency to the end of this century. That's ALL that is needed to pay full benefits for at least the next 75 years. That's it!
It isn't quite that clean and you know it Jim if you dig into the numbers from that same Treasury Site. Nancy Pelosi refused to pass an actual Budget for FY 2009 that would have began in Oct of '08 because she was betting on an Obama win, instead only doing mini-buses until the omnibus in Jan and then the stimulus in Feb both to be signed into law by Obama.
If you look at public debt holdings on Sep 30, 2001, it stood at $3.339T plus $2.468T of intergovernmental for at total of $5.807T. On Sep 30, 2007 - the last FY year of total Rebublican budgeting before the Dems took Congress - it stood at $5.049T public plus $3.958T intragov for total of $9.007T. An increase of $3.2T in 6 years. Yep, "Compassionate" conservatism is a lot like big-spending statism. If I recall, that is why the Reps lost Congress. But let's see how things worked out once Nancy got the purse strings ....
She reluctantly agreed to "compromise" with GWB on a FY08 budget that increased spending a tidge. On Sep 30, 2008 - before the effects of the meltdown - the debt had increased by $1.017T in just that one year and stood at $5.808T public plus $4.216T to total $10.024T. Yikes! That's a pretty big jump for one year. Maybe Dems like to spend even bigger?
Let's keep looking, but it does get trickier since the Dems only passed 1 actual budget since then. Just lots of buses and resolutions...
By Sep 30, 2010, where except for 3 months of a lame duck GWB, was 100% Democrats in charge of the money, the debt was now $9.022 public plus $4.538 Intragov to total $13.561T. Holy Frijolies Batman! That's over $3.5T in just 2 years!
The Reps took the House back in 2010 because the country was obviously alarmed by this. Despite being reviled and demonized by the left, the press, and the President (and more than a few on the right for not standing more firm), since being sworn in a year ago, they seemed to be able to slow things down a smidge, but only a smidge. As on Sep 30, 2011 the debt stood at $10.127 public plus $4.663 to total $14.790T - an increase of $1.229T.
So looking back - total Republican control of Gov overspending increased the debt by $3.2T in 6 years. Total Democrat control of the government increased it by more than $3.5 T in just 2.
My apologies, I will be more clear from now on... Democrat spending in the past decade has made the Republicans look like pikers. But they both suck.
Better?
Regarding SSI, your explanation only sort of works, regardless of the averages, if Infant mortality is factored in, there were still a lot less getting payouts and they didn't live as long in the mid 20th century as medical advances allow us to do today with improvements in treatments for infections and cancer. LBJ didn't consider any of that when bringing in Medicare either.
Also lifting the payroll tax cap alone will not raise the trillions needed. The demographics are wrong as the baby boomers dwarf the working population that is supposed to sustain them. Nope, we need to look at means testing (Warren Buffet shouldn't get anything), what an allowable disability is (it ain't ADHD), and we need to look at survivor benefits for kids with a living parent.
The demographics are wrong as the baby boomers dwarf the working population that is supposed to sustain them.
Those "demographics" don't matter, and size of the "working population" doesn't matter.
Why?
Those trillions have already been raised. The baby boomer problem was recognized decades ago and accounted for back in the 80s under Saint Reagan. That's why he and Tip O'Neal got together and increased the payroll tax rates and caps in order to build up the SS Trust Fund to account for the larger number of retirees. That's why we have $2.5T waiting for people like me. The Trust Fund, along with annual payroll taxes, will cover ALL current level and expected benefits through 2037. Beyond that, if NOTHING is done, SSA can pay out 77% of expected benefits forever. An increase in the payroll tax cap will bring that up to 100%. This information can be found at ssa.gov and by CBO analyses.
There.Is.No.Money.In.The."Trust Fund".
There are, perhaps, pieces of paper that say that the government Is obliged to pay itself back by borrowing or printing or taxing more to pay out the liability, but there is no asset.
There is no There, there.
If a corporation pulled the same accounting gymnastics that the government is pulling on you to get you to believe that there is something of value available... It would be called fraud, and there would be people heading to jail.
Just like There.Is.No.Money.In.Your.Bank.Account. Your bank has lent it all out to it's corporate, small business, and personal customers.
If you want to claim that there is no money in the Trust Fund, then you have to also say that there is no National Debt, because US Treasuries are what the world, the banks, corporations, private trusts and everybody else holds when they want they have extra money to invest. And that's what the National Debt is: Countries, companies, people and trusts holding Treasuries.
there is no asset.
You can look at the balance sheet of any bank and most large corporations and you will find US Treasuries listed under assets
The Trust Fund is US Treasuries. The US National Debt is US Treasuries. If there is no Trust Fund, there is no National Debt.
There, problem solved! We just say that as far as the debt is concerned, there is no there there.
Again, not quite. Banks and Corporations all are required to keep a ratio of assets to liabilities on hand to ensure that what they state is availble, is actually available. The Feds have no such requirement.
The increase in those ratios for mortgages is why we had a liquidity crisis when everything collapsed. There were not enough actual assets to back everything up.
Unless the Feds want to start putting up property as collateral or sell some buildings or stop spending so damned much, they have nothing but smoke and mirrors. An IOU written to oneself isn't worth the paper its written on, and neither are those in the trust fund. The only thing that has been keeping it going thus far is positive cash flow. They went in the red in 2011.
Well. Quite some discussion!
What this really boils down to is 'whether or not to trust the US Government to perform on its promises'--whether IOU's (Bills and Bonds) or SocSec payouts.
And--no matter the current viability of the SS funds--at some point in time, not far off, the obligations for SS and Medicare will demand a payroll tax near 20%, if all the promises are kept.
That will not happen, given the necessity of ~18% in INCOME taxes (not payroll taxes) just to maintain other Federal programs.
This underlines the urgency of modifying SS payouts (ADHD?? Really?? Means-tests, YES) and revenues (no cap on SS tax base.)
It's a start; the more difficult problem will be Medicare.
Yup, ADHD. http://www.disabilitysecrets.com/adhd-attention-deficit-social-security-disability.html
There are helpful lawyers to help get it: http://www.socialsecuritylawfirms.com/resources/social-security/social-security-disability-coverage/adhd.htm
A couple years ago in MKE, there was a huge bust of folks that would claim that their check never came so that SSI would send a duplicate and then they would cash both of them. One of the women was on disabilty and all three of her children were also on disabilty - all for ADHD. I thought at the time what a bunch of horse hockey that was. As the parent of a child who is autistic, the entire racket pisses me off more than one can imagine. And people wonder why I stopped being a liberal...
What this really boils down to is 'whether or not to trust the US Government to perform on its promises'--whether IOU's (Bills and Bonds) or SocSec payouts.
Bingo! Thank you Dad. And if the US Government defaults on one IOU it defaults on all of them. Otherwise it has to say that it will honor the Treasuries in the Trust Fund, but then use the funds for something else instead of paying benefits to baby boomers. I don't think that is going to go over very well with retired people, soon-to-retire people, and the children of those people.
Please don't lump Social Security and Medicare together. They are completely different animals. Social Security is self funding (or nearly so with minor tweaks). Medicare is a larger issue and must be approached with a completely new structure for the way health care is delivered and paid for. PPACA is a start. Not perfect, but at least it gets people working on better solutions. That can has stopped being kicked down the road.
This underlines the urgency of modifying SS payouts
This I would disagree with, at least not in terms of Social Security itself. Current and projected contributions along with the Trust Fund will cover all expected payouts through 2037. 25 years does not make modifications to benefits urgent.
Reducing SS payouts is only "urgent" now if you are going to use the Trust Fund for something else, like tax cuts for millionaires, subsidies for oil companies, or wars in the Middle East.
Mom said: neither are those in the trust fund.
So what do you think is going to happen in 2012, Mom? SSA will need, say $100 billion, to make up the shortfall from contributions and will tell the Treasury, "Here's a hundred billion worth of Treasury Notes we are redeeming to pay out to our beneficiaries." And Tim is going to say, "Sorry, we need that money for Afghanistan and tax cuts so we are not going to give you the funds." So SSA says, "OK, but I'm going to tell China you are not honoring Treasury Notes any more. See if they are going to lend you any more money. And when I do that, all the US holders of Treasuries are going to bail so fast, those investments are going to be as worthless as Mom thinks they are. And the entire US and most of the world economy will tank. So think again, Tim."
The debt is bad. The deficit is bad. But it won't be solved in one or two years of spending cuts or one or two years of tax increases. The economy must grow, some cuts to EVERYTHING, and some tax increases must be put in place in a year or two out. Cutting expenses significantly now will KILL the recovery.
Everyone agrees that we can't keep going (except maybe Cheney, who said "deficits don't matter") with these deficits and debt. It will take some time. But the debt is going to go up before it goes down.
SS is paying ADHD? That's crazy. I shoulda gone after it for one of my kids--who was cured, by the way, by simply maturing from a typical 9-year-old into a 12-year-old.
THAT could be a cut.
As to whether 'spending' can be cut: absolutely. First thing: dump Education. NeoMom has a very good list. Cut one outfit every 2 years, so it's not 'sudden.'
No need to "tax the rich." Reality impinges on that, anyway: the "rich" don't get taxed; they avoid. See, e.g., John Kerry's wife, or any Kennedy.
Why do you mention Kerry and Kennedy and not Michael McCaul, or Darrell Issa?
No, what will happen next year, like what happened this year, is when SSI looks at the balance sheet and says to Tim "Hey, we need another $100B ". Tim will look at the Treasury piggy bank full of bills to pay with no assets and say, well, " I can sell more debt to China.... " Oh goody, better raise that debt ceiling..... again.
The other options are to print enough money to hyperinflate our way out of the debt, or as Dad mentioned earlier, to raise the payroll tax to an astronomical rate. Or we can start adjusting the future obligations....
I think Jim, that you are actually believing that the "Trust Fund" is somehow separated from the "General Fund". They are all the same pot of money. So, in the scenario you describe, it isn't like, say, China cashing in their T-bonds. It is like Tim having a conversation with himself in the mirror, writing himself a check and pretending the account isn't empty just because he has checks left.
No, it's not like that. Tim and his checkbook bears no relevance to this conversation, and it doesn't make sense anyway.
What Tim does is he buys the Trust Fund's Treasuries and transfers the $100 billion into the cash account of the SSA and the SSA cuts the checks to beneficiaries. Some of that $100 billion comes from tax and other current revenues and the rest comes from selling investors Treasuries.
The accounting isn't some sort of mumbo-jumbo. It is normal inter-account transfers. The Defense Department works in the same way except it has a budget, not a trust fund with bonds to redeem. The Treasury transfers funds to the DOD account. Some comes from current tax revenues and some is borrowed by selling Treasuries.
I will try to say this again. The National debt is around $15T. Pretty much all of that debt is in the form of US Treasuries. Some of those Treasuries are owned by China. Some are owned by your bank. Some are owned by me. And $2.5T is owned by the Social Security Trust Fund. The Treasuries owned by the Trust Fund are no less real than the ones owned by your bank or by me or by China.
You are hopelessly, willfully ignorant. But then it is easier than believing you have bought into the largest scam in history.
Your scenario works only if there is money in the pocket that Tim needs to pull from to pay those bonds from the alleged trust fund. There isn't, that pocket is full of IOUs too. So Tim borrows more to pay off a debt. If you didn't like the checkbook analogy, how about this one. Tim needs to pay a credit card that he has maxed out, so he opens another credit card and takes a cash advance on it to "pay" the first one. Either way, Tim (actually the US Citizens here, Tim is doing just fine) is screwed.
Perry was right, it is a Ponzi scheme.
You are hopelessly, willfully ignorant.
Back at you. I won't give you my credentials unless you ask, but I've been in the financial institutions business since grad school, and I'm looking to retire in a couple of years. I've read the SSA web site and the annual report of the Trustees of the SS Trust Fund.
I know what I'm talking about.
Nobody is DENYING that our federal outlays are greater than the income. Nobody denies that. I don't deny that. I don't deny that something must be done about the debt over time.
However, it is not Social Security that is causing this problem. I repeat: it IS NOT Social Security that is causing the problem.
We all know that currently the Treasury needs to borrow 40 cents out of each dollar it pays out. We need more revenue and we need less spending. I think we all agree with that. The Treasury owes $15T for what it has had to borrow over time. It owes some to China, it owes some to a lot of banks, it owes some to my pension fund, it owes some to yours if you have one. It owes some to every state and municipality, every corporation or business, and every private citizen that has cash to invest for capital preservation.
And it owes $2.5T of the $15T to the Social Security Trust Fund.
It doesn't matter how you think the accounting works. Any large company, state, or government has different accounts for different divisions or departments. Some departments are cost centers, some departments are revenue generators, some department do both. Government collects revenues and pays out costs. Money moves every which way. There are reserves, accruals, transfers, all kinds of accounting practices.
It doesn't matter whether the money is in a drawer, under a mattress, still in China or in Ft. Knox. The Treasury will move it from one place to another. It's not smoke and mirrors. It's accounting.
Yes, in order to pay it out, the Treasury will have to use some revenue and borrow some more today until the deficit is ended. That won't be for a few years, most likely.
Regardless, the money is owed to the Trust Fund every bit as much as it is owed to your pension.
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