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JustLis Profile
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Re: Economics 101: Trump-Style


Well...the article isn't exactly accurate in highlighting how this is all paid for.

Trust funds were developed for both Social Security and Medicare decades ago, planning for the retirement of the baby boomers and smaller population cohorts that followed. They were specifically dedicated to the baby boomers, with a recognition that they would draw from the system in out-of-proportion amounts due to the population bump. So while out-of-proportion amounts have been paid into the system during their working years, of COURSE they'll now draw out more than is contributed, at some tipping point.

This is the actual Social Security Administration Trustees' Report for 2017. Excerpts below:

The Trustees project that the combined [Social Security Old Age and Survivors, and Disability] trust funds will be depleted in 2034, the same year projected in last year's report.... Social Security's total income is projected to exceed its total cost through 2021, as it has since 1982.

So according to this report, we have not yet reached the tipping point. And the trust funds -- the EXCESS money dedicated to the baby boomers -- won't be depleted for another 17 years. And not to be too indelicate, but a lot of the early boomers will be gone by that point. But at that point, Social Security won't disappear; it will still bring in enough income from the current workforce at that time to pay about 3/4 of all Social Security costs.

Where this DOES impact the budget is that the Social Security Trust Fund is being held in the safest possible investment -- Treasury instruments. So the Social Security Administration will have to redeem or sell those instruments to get the funds to pay Social Security benefits. That means the Treasury will have to either find additional revenue (higher taxes) or a whole lot of new bond/bill/note buyers to finance those transactions.

Social Security analysts do have a very simple, adequate fix for this situation: remove the cap on income subject to the Social Security tax. The current cap is $127,200. Any income earned beyond that is exempt from Social Security tax. Why? Certainly a person earning $500,000 can afford the additional tax, when a person earning $20,000 is fully subject to it. One more regressive tax could be easily eliminated, and experts insist that this action alone would fully fund Social Security into the forseeable future.

As for Medicare....

The Trustees project that the HI [Medicare Part A - hospitalization] Trust Fund will be depleted in 2029, one year later than projected in last year's report. At that time dedicated revenues will be sufficient to pay 88 percent of HI costs....

For SMI, the Trustees project that both Part B [Supplemental Insurance] and Part D [Prescriptions] will remain adequately financed into the indefinite future because current law provides financing from general revenues and beneficiary premiums each year to meet the next year's expected costs.... General revenues will finance roughly three-quarters of SMI costs, and premiums paid by beneficiaries almost all of the remaining quarter.


The answers here lie in reducing health care costs -- and the root causes have been discussed at length. But the likelihood of Congress to take the reasonable steps of cutting the profits of pharmaceutical companies, insurance companies, and hospitals with health care reform is pretty low.

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10/22/2017, 12:55 pm Link to this post PM JustLis
 
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Re: Economics 101: Trump-Style


The Wharton article is correct - the difference between that and the SS Trustees' report is because of differing methodologies, most notably the use of different time horizons.

First, focusing on the Trustees' report:

http://www.crfb.org/papers/analysis-2017-social-security-trustees-report

Analysis of the 2017 Social Security Trustees Report

The Social Security and Medicare Trustees today released their annual reports on the financial status of the two programs. The projections show that both programs continue to face large funding gaps that will only grow over time. This year’s report on Social Security shows that:

Social Security is Heading Toward Insolvency.

On a theoretical combined basis, the Old-Age, Survivors, and Disability Insurance (OASDI) trust funds face a 75-year shortfall of 2.83 percent of taxable payroll (1.01 percent of Gross Domestic Product) and are projected to be insolvent by 2034 (2028 for Disability Insurance; 2035 for Old-Age and Survivors Insurance).

Social Security’s Deficits are Large and Growing. Social Security will pay out $27 billion more in benefits than it will generate in tax revenue this year, and cash-flow deficits over the next decade will total $1.4 trillion. Annual deficits will grow to 3.77 percent of payroll (1.36 percent of GDP) by 2037 and 4.48 percent of payroll (1.54 percent of GDP) by 2091.

Action is Still Needed on SSDI. Despite a temporary “reallocation” of payroll tax revenue, the Trustees project the Disability Insurance (SSDI) trust fund will run out of reserves by 2028. A number of smart reform options are available to both avert SSDI insolvency and improve the program for current and potential beneficiaries.

Failure to Act Will Lead to Large, Abrupt Benefit Cuts. Assuming continued reallocations, all Social Security beneficiaries – regardless of age or income – are projected to face a 23 percent benefit cut in 2034, when today’s 50-year-olds reach the normal retirement age and today’s youngest retirees turn 79. Cuts would grow over time, reaching 27 percent by 2091.

The Trustees Project a Larger Shortfall. Overall, this year’s report represents a slight deterioration over last year’s, which showed the same combined trust fund exhaustion date of 2034 but a 75-year actuarial imbalance of 2.66 percent of payroll (0.17 percentage points lower than this year). The current shortfall is now roughly 47 percent larger than the 1.92 percent shortfall estimated in 2010.

With many baby boomers already in retirement and only 17 years until insolvency, time is running out to make thoughtful reforms to the program. Policymakers should act soon and put all options on the table to make Social Security solvent.

.....

The Cost of Waiting

When the OASDI trust fund is exhausted, beneficiaries will face an across-the-board 23 percent benefit cut, the equivalent of about $5,800 per year in today’s dollars for a typical beneficiary reaching the full retirement age in 2033. This cut would be immediate and would affect all beneficiaries regardless of age, income, health or wellbeing. The size of the cut would also grow over time, reaching 27 percent by 2091.

http://www.crfb.org/sites/default/files/fig%203%20trustees.JPG

Avoiding these abrupt cuts and making Social Security solvent would require the equivalent of immediately raising the Social Security payroll taxes by 22 percent, from 12.4 to about 15.2 percent of payroll; reducing benefits for all current and future beneficiaries by about 17 percent; reducing benefits for all new beneficiaries by 20 percent; or some combination of the three.

The necessary benefit cuts or tax increases only become larger the longer that policymakers delay action. If policymakers wait until 2034 to make any changes, they will have to increase the payroll tax by 32 percent (to 16.4 percent) or cut benefits for all new and existing beneficiaries by 23 percent to attain solvency, and even eliminating benefits for new beneficiaries would not be enough to avoid insolvency. A much smarter course of action would begin changes much earlier so they can be spread among more generations and phased in more gradually with more warning to affected beneficiaries.

Importantly, even with an immediate payroll tax increase large enough to make the program solvent, cash-flow deficits would return by 2029 – meaning further changes would be necessary to make the program sustainable over the long term. That is why policymakers should look beyond simply keeping the program solvent for 75 years and pursue “sustainable solvency,” which ensures the program raises about as much as it pays out over the long run.

=====================================

Now to address the rest of your comments - you are correct when you say that the idea was to have Americans contribute enough to the trust funds to ensure that money would be available to pay benefits when the contributors retired. Unfortunately contributions were never adequate. That's the way it works in a "normal" defined benefit plan in the private sector. But SS has never worked that way. Benefits were not based on the amounts contributed by the individual beneficiary (the first SS beneficiary to receive a check was a lady named Ida May Fuller - her total contributions were $22.54 and she received over $22,000 in benefits by the time of her death).

Social Security (and Medicare) are both what actuaries call "PAYGO's" (Pay As You Go) in which current contributions pay the of current recipients. And the benefits of those contributors will be paid by future generations of workers. If that sounds familiar it's because what I just described is a classic Ponzi scheme. SS has been described as the largest Ponzi scheme in history - makes Bernie Madoff look like a piker.

Problem is that when SS was introduced there were roughly 16 active workers per retiree while today there are about three and that number is expected to drop to two in the relatively near future.

That means that while current workers are paying the benefits of current retirees and those workers' benefits will be paid by their children, grandchildren, and great-grandchildren (and perhaps even their great-great-grandchildren).

On that italicized point - programs like SS and Medicare are incredibly long lived. The last widow of a US Civil War Veteran only died a few years back and she was receiving a pension from Veterans' Affairs until the day she died. And, if memory serves correctly, there are still a couple of orphans of civil war vets receiving pensions. To make matters worse, life expectancies are increasing (or, if you prefer, mortality rates are decreasing) so not only is the number of active workers per retiree decreasing but those retirees are actually living longer.

That's why the Wharton article doesn't restrict itself to a 75 year time horizon.

Further (this from a WSJ article about the 2010 Trustees' Report)

"But then comes the report's final appendix, where Mr. Foster disowns the previous 280-odd pages. Mr. Foster has been Medicare's chief actuary for 15 years, and as such he is required to evaluate the law as written. But as he notes in his appendix, the law as written bears little if any relation to the real world—and thus, he says, the trustee estimates "do not represent a reasonable expectation for actual program operations in either the short range . . . or the long range." In an unprecedented move, he directs readers to a separate "alternative scenario" that his office drew up using more realistic assumptions."

And this isn't the only time the Social Security actuaries have objected to the Trustees' Report - Bob Myers actually resigned in protest as long ago as 1970.

And there are other issues with both programs - Medicare part D - The head of CMS forbade the Medicare actuary from sharing his Part D cost estimates, which exceeded the Bush Administration's promises to Congress. Only after Part D was enacted into law did the chief actuary's numbers come out, because they were leaked to a congressional committee. But by then, it was too late. The American people are saddled with that albatross forever.

Need I go on?

Last edited by shiftless2, 10/22/2017, 4:03 pm
10/22/2017, 4:00 pm Link to this post PM shiftless2
 
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Re: Economics 101: Trump-Style


Shiftless, I don't dispute the fact that Social Security needs a policy change to keep it solvent indefinitely. Economists have said repeatedly that lifting the cap on income subject to the Social Security payroll tax would solve that problem. Again, that doesn't require an increase in the payroll tax rate or cuts in benefits; it only requires that the wealthy pay the same fair share they expect of the middle class and poor.

As for using 75-year time horizons, I don't put much stock in projections that far into the future, and Wharton goes even further. Far too many factors enter into any kind of analysis that extreme -- wars, pandemics, health care innovations, technological change, policy developments.... A 75-year time horizon tries to project the retirements of children whose PARENTS are only ten years old right now. And Wharton wants to go further? Actuaries are good, but they're not THAT good.

As for Ida Mae Fuller, yes, she pulled far more from the system than she paid in benefits. Then again, my family members pay into the system their entire lives and rarely live long enough to receive their first Social Security check. It's a crap shoot. Some people pay in more than they receive; some people receive more than they pay in. Normal inflation leads to part of that (though the interest earned on the trust fund instruments helps to offset that), but the larger issue is longer lifespans.

I remember the Bush Administration trying to push through the Medicare Part D legislation with numbers they knew to be low-balled. Didn't someone resign or get removed for refusing to use the Administration numbers? I want to remember it was the CBO that was fighting it, but I'm too tired to look it up. Turns out the agency that came up with the numbers the Bush Administration opposed was pretty much right.

Bottom line, I agree with you that this is a serious issue that needs to be addressed. But tax increases and benefit cuts are not the answer. Requiring EVERYONE to pay his/her fair share at the current tax rate would effectively solve the Social Security problem.

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10/23/2017, 3:58 am Link to this post PM JustLis
 
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Re: Economics 101: Trump-Style


Define "fair share" - if you remove the cap on taxable payroll it's hardly fair if you don't increase benefit payments accordingly.

As for the time-horizon, if you use 75 years the funding shortfall drops to something like $80 Trillion (forget the exact number - been a long time since I looked at that). And, as my Civil War veteran example shows, you have to look at least that far into the future - you can't just pretend that everything stops twenty or thirty years down the road.

Turning to the "my family paid into it .." argument you use (and I regularly see), do you know why there is an employee paid tax? The reason that part of SS is paid by the employee rather than being entirely paid by the employer is simple (and has nothing to do with economics). Roosevelt said that if people had to pay into the system personally they'd feel that they deserved those benefits so no politician would dare mess with his Social Security plan.

But the fact is, nowhere near enough has been contributed to the Trust Funds and something has to be done - and the longer the pols wait the more drastic that something will have to be.
10/23/2017, 5:49 am Link to this post PM shiftless2
 
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"Fair share" is for everyone to pay in the same percentage of income into the system, period. An increase in benefit payments is not necessary to be "fair," because while some benefits are loosely related to the tax paid over a lifetime, inputs and outputs are not strictly related.

You're right that we can't pretend that everything stops 20-30 years down the road. But we also can't pretend we have any idea of what revenues and expenses will be 75 years into the future. We simply cannot know. Too many variables enter into a time horizon that far out.

Yes, I'm fully aware that employers pay into the Social Security fund, too. That makes the elimination of the income cap on Social Security tax twice as effective.

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10/23/2017, 7:19 am Link to this post PM JustLis
 
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Re: Economics 101: Trump-Style


I assume it's capped in the first place to benefit employers. Am I wrong about that?
10/23/2017, 7:40 am Link to this post PM Bellelettres
 
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Re: Economics 101: Trump-Style


quote:

JustLis wrote:

"Fair share" is for everyone to pay in the same percentage of income into the system, period. An increase in benefit payments is not necessary to be "fair," because while some benefits are loosely related to the tax paid over a lifetime, inputs and outputs are not strictly related.



Your idea of "fair" and mine are quite different.

quote:

You're right that we can't pretend that everything stops 20-30 years down the road. But we also can't pretend we have any idea of what revenues and expenses will be 75 years into the future. We simply cannot know. Too many variables enter into a time horizon that far out.



Fact is you have to model what will happen 75 or more years in the future - that's a given for any pension scheme. Saying "we don't know" and not taking what will happen into account is a recipe for disaster.

quote:

Yes, I'm fully aware that employers pay into the Social Security fund, too. That makes the elimination of the income cap on Social Security tax twice as effective.



That wasn't my point - my point was that the only reason that there is any sort of employee contribution is so that people will think they've earned these benefits which means that no politician will dare touch them.
10/23/2017, 7:53 am Link to this post PM shiftless2
 
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Re: Economics 101: Trump-Style


People a lot smarter than I am can figure out what needs to be done. I can figure out a few things, such as raising the cap on paying in and maybe the age on when you can start collecting. The major thing that has always frosted me and that is the biggest problem is the Congress stealing from the fund every year.
10/23/2017, 9:56 am Link to this post PM CooterBrown44
 
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Re: Economics 101: Trump-Style


That's a common misconception - the monies in the fund are invested in interest bearing special issue Treasury bonds - So Congress is borrowing from it, not stealing from it. When the time comes the gov't will redeem the bonds (with interest).

But where else would you have the funds invested if not with the US government? You can't count on many companies surviving long enough to match the liabilities of SS.

10/23/2017, 10:19 am Link to this post PM shiftless2
 
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Re: Economics 101: Trump-Style


quote:

shiftless2 wrote:

That's a common misconception - the monies in the fund are invested in interest bearing special issue Treasury bonds - So Congress is borrowing from it, not stealing from it. When the time comes the gov't will redeem the bonds (with interest).

But where else would you have the funds invested if not with the US government? You can't count on many companies surviving long enough to match the liabilities of SS.




Tell me how they can pay it back without raising taxes? They can't. There is no Trust either, although the government seldom applies laws that the rest of us have to go by to itself.

10/23/2017, 12:32 pm Link to this post PM CooterBrown44
 
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Re: Economics 101: Trump-Style


quote:

Bellelettres wrote:

I assume it's capped in the first place to benefit employers. Am I wrong about that?



It benefits employers AND the wealthy -- two groups who have a firm enough hold on the anatomy of Congressmen to ensure the cap won't be removed.

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10/23/2017, 12:36 pm Link to this post PM JustLis
 
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Re: Economics 101: Trump-Style


quote:

shiftless2 wrote:

quote:

JustLis wrote:

"Fair share" is for everyone to pay in the same percentage of income into the system, period. An increase in benefit payments is not necessary to be "fair," because while some benefits are loosely related to the tax paid over a lifetime, inputs and outputs are not strictly related.



Your idea of "fair" and mine are quite different.


And that's fine. emoticon There just reaches a point where you have to ask the wealthy exactly how much more they really need, especially when we're considering higher taxes for poor workers or benefit cuts to our most vulnerable seniors who are choosing between food and medicine.

quote:

quote:

You're right that we can't pretend that everything stops 20-30 years down the road. But we also can't pretend we have any idea of what revenues and expenses will be 75 years into the future. We simply cannot know. Too many variables enter into a time horizon that far out.



Fact is you have to model what will happen 75 or more years in the future - that's a given for any pension scheme. Saying "we don't know" and not taking what will happen into account is a recipe for disaster.


I think it's just as dangerous to pretend we DO know what will happen as to IGNORE what can happen. The problem is that agendas drive those scenarios when you get that far out. And agendas shouldn't drive policy decisions that far into the unknown.

quote:

quote:

Yes, I'm fully aware that employers pay into the Social Security fund, too. That makes the elimination of the income cap on Social Security tax twice as effective.



That wasn't my point - my point was that the only reason that there is any sort of employee contribution is so that people will think they've earned these benefits which means that no politician will dare touch them.



Politicians have "touched" them repeatedly, changing the percentages of tax, adding an option to begin reduced benefits at 62, changing the full retirement age from 65 to 67. So it CAN be done. People just have to buy into the necessity for the changes and the fairness with which they are implemented.

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10/23/2017, 12:55 pm Link to this post PM JustLis
 
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quote:

CooterBrown44 wrote:

People a lot smarter than I am can figure out what needs to be done. I can figure out a few things, such as raising the cap on paying in and maybe the age on when you can start collecting. The major thing that has always frosted me and that is the biggest problem is the Congress stealing from the fund every year.



Shiftless is right, Cooter. Congress isn't stealing from the fund. They're borrowing, and it can be repaid with the sale of new bonds, not necessarily tax increases or program cuts.

The problem with raising the retirement age is that there are all kinds of workers in the economy, and we tend to think of the guy sitting in an office chair. But do we REALLY want to tell the 68-year-old roofer to get back up there? Do we really want to tell the 69-year-old long-haul trucker that he's going to have to continue on the road? What about the 70-year-old airline pilot? Some workers seriously need to retire for safety reasons -- for themselves and others. And some simply don't have the physical or mental ability to remain in their jobs until age 70. That's really a tough call, because a lot of people CAN keep working longer.

And...this is one more place where immigration comes into the mix. Young immigrants bring a strong work ethic and many, many years of paying into the system ahead of them -- if we're not busy pushing them out of the country or keeping some illegal, where they're paid in cash so employers don't have to contribute THEIR fair share into the system.

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10/23/2017, 1:01 pm Link to this post PM JustLis
 
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quote:

JustLis wrote:

Politicians have "touched" them repeatedly, changing the percentages of tax, adding an option to begin reduced benefits at 62, changing the full retirement age from 65 to 67. So it CAN be done. People just have to buy into the necessity for the changes and the fairness with which they are implemented.



Fact is, those promises are just that - promises, not laws, so things can be changed - but that means that politicians have to stop kicking the can down the road. Unfortunately they're going to keep doing that until the programs hit the wall. And by then it will be too late.

Remember - a politician's first duty is to be re-elected and messing with SS is one way to guarantee that will not happen.

quote:

Shiftless is right, Cooter. Congress isn't stealing from the fund. They're borrowing...



That's correct.

quote:

... and it can be repaid with the sale of new bonds, not necessarily tax increases or program cuts.



Not quite - Congress is selling those bonds to the fund, not to the public.

But the important thing to note is that when it comes time to redeem those bonds, government has only one way to obtain the funds to do so - taxes.

So people were taxed to obtain the monies contributed to the funds which are then loaned to the Fed who will tax people to repay that loan.
10/23/2017, 2:44 pm Link to this post PM shiftless2
 
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quote:

shiftless2 wrote:
Fact is, those promises are just that - promises, not laws, so things can be changed - but that means that politicians have to stop kicking the can down the road. Unfortunately they're going to keep doing that until the programs hit the wall. And by then it will be too late.


I agree that the issue needs to be addressed, and I agree that it is better to address it sooner than later. I just disagree that it's a screaming "hair on fire" issue based on projections more than 75 years down the road. We substantially agree. emoticon

quote:

Remember - a politician's first duty is to be re-elected and messing with SS is one way to guarantee that will not happen.


I also agree that it is very, very difficult to make changes to Social Security without an outcry. But it's not impossible; it's been done multiple times before. But it takes political courage, and I'm not seeing much of that from the current Congress.

quote:

quote:

Shiftless is right, Cooter. Congress isn't stealing from the fund. They're borrowing...



That's correct.

quote:

... and it can be repaid with the sale of new bonds, not necessarily tax increases or program cuts.



Not quite - Congress is selling those bonds to the fund, not to the public.


Actually, it's the Treasury Department selling the bonds to the Social Security trust fund to obtain the money for Congress to spend.

quote:

But the important thing to note is that when it comes time to redeem those bonds, government has only one way to obtain the funds to do so - taxes.


Not so.... The Treasury can sell new bonds to obtain the funds to pay off the old bonds. Consider it paying your Visa with your Master Card. They've done it for years. Decades.

quote:

So people were taxed to obtain the monies contributed to the funds which are then loaned to the Fed who will tax people to repay that loan.


Fed? The Fed isn't involved at all....

Yes, people were taxed to obtain the money for the Social Security Trust Fund. But what would you have the Trust Fund do with that money? Put it in a lockbox? No, better to invest it in the very safest available investments, to help the fund grow with interest. And those are Treasury instruments. So the fund invested in the bonds, which simultaneously allowed the federal government to increase spending without having to raise taxes at the time. So we could have had billions of dollars sitting in a lockbox, not circulating in the economy, stifling economic growth, while the government would have had to increase taxes, which would also have stifled growth. Or we could have safely invested the money, increasing interest income to help subsidize the increase in Social Security costs over time, and allowing the government to increase spending for vital programs while allowing taxpayers to keep more of their income. It is a logical choice.

I understand that some pain will be involved with redeeming the funds to pay baby boomers' benefits. I just think the ability to sell new bonds to finance the redemption of old bonds will soften the blow.

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10/23/2017, 4:50 pm Link to this post PM JustLis
 
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If you take $10 from one pocket, transfer to to another pocket and sign an IOU for it, then go out and spend the $10. How are you going to pay it back? You'll have to earn money. How can the government "earn" money? Taxes. This SS stuff is bullshit. They're stealing the damn money. There is no SS Trust. The Bonds are backed by the ability of the feds to raise our !@#$ taxes.

If you went out and bought a blue chip stocks that are on the "safe list"......can't remember what it's actually called.......and collected the dividends, then you'd make money to pay the interest on the bonds. All that happens with what the feds do with SS is move money......if they have it....from one pocket to another. They call the excess SS payments that they collect income, and the Treasury Notes that they issue for them an asset. Give me a break. If a corporation tried that scam, the government would be all over it, and with good reason.
10/23/2017, 6:48 pm Link to this post PM CooterBrown44
 
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Yes, government accounting is different from corporate accounting, because it's not as though government is selling a product to customers and can control costs and prices.

But no, they're not stealing the money.

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10/23/2017, 8:43 pm Link to this post PM JustLis
 
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Re: Economics 101: Trump-Style


quote:

JustLis wrote:

I just disagree that it's a screaming "hair on fire" issue based on projections more than 75 years down the road.



The problem isn't 75 years down the road. That's just how you measure the total shortfall.

The problem is that the SS trust fund is due to be exhausted in 2034 - that's less than 20 years from now.
10/23/2017, 8:49 pm Link to this post PM shiftless2
 
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Re: Economics 101: Trump-Style


Policy Basics: Understanding the Social Security Trust Funds

Few budgetary concepts generate as much unintended confusion and deliberate misinformation as the Social Security trust funds. Despite being described by some as “funny money,” or “IOUs,” the Social Security trust funds are invested in Treasury securities that are just as sound as the U.S. government securities held by investors around the globe; investors regard those securities as being among the world’s safest investments. Although Social Security has a long-term financial shortfall that must be closed, the program’s combined trust funds will not be depleted until around 2034, which gives policymakers time to develop a carefully crafted solvency plan.

UPDATED
SEPTEMBER 21, 2017

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What Is the Trust Funds’ Financial Status?

Social Security is adequately financed in the short term but faces a modest long-term financial shortfall amounting to 1.0 percent of gross domestic product (GDP) over the next 75 years, the period that the program’s actuaries use in evaluating the program’s long-term finances. Social Security has run a surplus in every year since 1984, as was anticipated when Congress enacted and President Reagan signed the legislation based on the recommendations of the Greenspan Commission in 1983.

Under current projections, the combined Social Security trust funds will continue to run annual surpluses until 2022. The interest income that the trust funds earn on their bonds, as well as the proceeds the trust funds will receive when their bonds are redeemed, will enable Social Security to keep paying full benefits until 2034.

In 2034, the combined trust funds are projected to run out of Treasury bonds to cash in. At that point, if nothing else is done, Social Security could still pay three-quarters of its scheduled benefits using its annual tax income. Contrary to a common misunderstanding, benefits would not stop. Of course, paying three-quarters of promised benefits is not an acceptable way to run the program, and Congress will need to act to restore long-term solvency to this vital program.

Most analyses of Social Security focus on the combined OASI and DI trust funds, since both are integral parts of Social Security, but the two trust funds are, in fact, separate. The DI trust fund faces exhaustion in 2028, and the much larger OASI fund is projected to last until 2035. Congress must therefore act by 2028 to replenish the DI trust fund. Increasing the share of the payroll tax that is allocated to DI (and reducing the OASI share) would assure that both the OASI and DI programs remained solvent through 2034.

Is It Better to Act Sooner Rather Than Later?

Not necessarily. Some people mistakenly suggest that Social Security’s shortfall gets larger the longer policymakers wait to address it, but that’s only an artifact of the projections. The annual Social Security trustees’ report includes projections that span the next 75 years. For example, the 2016 report included projections for 2016-2090, while the 2017 report includes projections for 2017-2091. Including the relatively large deficit for 2091 in the projection increases the estimated 75-year gap, even if the shortfall in each individual year of the projection remained the same.

That said, acting sooner to address the shortfall, whether by reducing benefits, raising contributions to Social Security, or a combination of the two, would spread the burden over more generations of workers and beneficiaries and allow for smaller future adjustments. For example, if Social Security tax increases were phased in soon, current workers could contribute to restoring solvency. But if payroll tax increases were delayed until the 2030s, they would fall entirely on younger workers still in the labor force after that date, and the required increase would be larger. At the same time, however, future generations will be more prosperous and better able to afford adjustments. Policymakers will need to balance these competing concerns.

Acting sooner to restore Social Security solvency would give workers plenty of notice about changes so that they can plan their work, saving, and retirement. It would also strengthen public confidence in the system by easing worries about its financing. Social Security faces no imminent crisis, however, and policymakers have time to develop a carefully crafted solvency package that minimizes cuts to the program’s modest but critical benefits.

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Is Trust Fund Debt Real?

Yes. Budget experts generally focus on debt held by the public — which reflects what the government must borrow in private credit markets and which excludes trust fund holdings — as the most useful measure of federal debt for economic analysis. Some have argued that it is inconsistent to adopt that focus while simultaneously viewing the debt held by Social Security as real. This argument is incorrect: both measures of debt are important, but they measure different things.

Debt held by the public is a measure of the federal government’s overall fiscal health. It represents money that must be borrowed and periodically refinanced in private credit markets; interest payments on that debt represent a current drain on government resources. If the specter of excessive debt led investors to lose confidence in U.S. government securities, federal interest costs could increase substantially, with potentially troubling implications for U.S. and world economies.

Debt held by Social Security, by contrast, provides information about the adequacy of the program’s dedicated financing. Debt held by trust funds does not have the same broader economic significance as debt held by the public. Since it does not need to be financed in private credit markets, it cannot lead to a refinancing crisis. As legal authority to spend money in the future, it is essentially similar to legal authority to meet spending commitments for other entitlement programs that are not financed through trust funds and are not included in measures of federal debt. In addition, an increase in trust fund balances that provides authority for higher Social Security expenditures in some distant year is not equivalent to issuing more publicly held debt to finance additional spending today. If additional spending authority leads to more federal borrowing at some time in the future, that borrowing will add to debt held by the public when that spending occurs.

As the 1938 Advisory Council on Social Security wrote in the passage quoted above, “The fulfillment of the promises made to the wage earners included in the old age insurance system depends upon, more than anything else, the financial integrity of the Government.” Protecting Social Security therefore requires not only assuring that the program itself is adequately financed but also putting the overall federal budget on a sustainable long-term course.

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10/23/2017, 8:53 pm Link to this post PM shiftless2
 
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Re: Economics 101: Trump-Style


quote:

JustLis wrote:

Yes, government accounting is different from corporate accounting, because it's not as though government is selling a product to customers and can control costs and prices.

But no, they're not stealing the money.



Yes they are, because there are no "real" assets to back it up.

I understand that government accounting is different. It has to be, or they'd all be out of a job. Tell you what. Go down to the bank for a loan. When they want to look at your financial statement, take some money out of your checking account, put it in a savings account, count it as income in addition to what you normally make and then as an additional asset for you financial statement. Those howling sounds will be the loan officers back in the back.
10/23/2017, 10:51 pm Link to this post PM CooterBrown44
 


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