A View From The Press Box

Oh man, here we go! I bet you will be compared to Chairman Mao within three posts. :)

* Grabs bowl of popcorn

Unfortunately, America thinks in sound bites and votes accordingly (generally speaking). This leads to the type of apathy that we see here. Most Americans probably do not understand that the situation you describe exists.

The only advantage to Mr. Obama being elected (on this issue) is that Al Gore may wind up with a cabinet post and this legislation could get pushed through now.

At least that is one step forward in this matter. Perhaps he could start calling T-Bills as well.

I read this stuff and just crack up. I fight the urge to write since it appears to be fruitless, but then I just have to.

Yes, let's get Al Gore on the case. The same Al Gore who did NOTHING about this when he was actually in the White House as V.P.

No, Al's "lockbox" was not some cynical ploy to scare people about Social Security--it was all very legitimate and he had every intention of getting this done.

As for your larger point--you are correct that this is a huge issue and I cannot see it being solved. This kind of stuff has also been going on in the states--N.Y. and N.J. are perfect examples--where there are phantom funds backing up pension obligations.

SAM RESPONDS:
I did not mean to suggest Al Gore would have been the savior, and the collusion between Republicans and Democrats to "borrow" our retirement funds has been disgraceful.

But at least Gore raised the issue and pledged to no longer use SS surplus funds to pay for non-SS expenses--a campaign promise that could easily be monitored, so that "President" Gore could be held accountable come reelection time.

Today, no presidential candidate (or any in Congress, for that matter) is even raising the issue. The starting point for discussion is that we need to raise taxes becasue SS is "going broke," when no such fate is near. There is plenty of money to pay benefits--it's just that it is in the form of IOUs from Uncle Sam.

Pay up!!!

Sam, as you may recall, President Bush decided to take on this issue after he was re-elected by a 3-million vote margin. The loyal opposition got a case of the vapors, which is what they do when folks--like you in this instance--have the timerity to point out the obvious, that SS is toes-up.

The current budget tops $3 trillion--and for the first time ever, non-defense/non-entitlement spending will exceed $1 trillion. Does it sound to you like the nitwits in D.C. would be interested in taking a realistic look at SS now--or ever?

And it's not going to get better. All you need to do is have a look at the $300 billion bank bailout Barney Frank and Chris Dodd just cooked up for their freinds at Countrywide--with the apparent blessing of the loyal opposition.

If this were a private enterprise, these people would be on the street, if not in jail.

SAM RESPONDS:
When you say President Bush decided to take on this issue, Charlie, all he did was push to "privatize" the Social Security system, not own up to Uncle Sam's debts to beneficiaries.

I'm not a fan of turning SS into a glorified 401k. That's not its purpose. SS is meant to be a defined benefit fund, not a defined contribution fund, with beneficiaries left on their own to invest the money, and suffer the consequences if those decisions are reckless, or don't pan out--either because of bad luck, unforeseen circumstances or fraud.

Social Security is supposed to provide a floor to make sure the elderly don't become impoverished, and to allow them to retire with dignity, rather than having to work their entire lives just to pay the bills.

Given the demise of private, corporate, defined benefit pension plans in this society, Social Security is more vital than ever.

However, even if you disagree with my objections to privatization, that is beside the point. Uncle Sam still owes beneficiaries this money. It must be paid back or the government loses all financial integrity and credibility.

Actually, as I recall it, President Bush was making light of the Treasury's obligations to make good on all those T-bills dumped into the SS Trust Fund. He was part of the problem, not the solution.

Too right, as usual Sam!

Grrr. Just the mention of Bush's great idea for privatization of SS makes my blood boil. (Oh, and please God, let Halliburton find a way to make some money, too).

I'm sure that would work just as well as the Medicare Prescription Drug plan (all privatized)!

We ALL (Republican and Democrat) need to be in the candidates' faces, demanding a real answer.

I believe it's been since the last presidential election that several huge companies have bailed on their pension funds. WHATEVER your opinion is, there needs to be some bi-partisan, probably unpleasant discussion.

As I am sure you were aware, President Bush was not advocating the conversion of the SS system into a 401k--although I think that makes more sense than pretending there is no problem at all, which is the Democratic approach.

He proposed permitting individuals to invest on their own up to 25%--I believe.

I'm an old guy, and I can tell you I would prefer to take my chances with the glorified 401k approach--similar to the one in place in Australia. The key element being, of course, that the Feds don't get their mitts on the funds.

Uncle Sam's obligations, when it comes to SS, are really our children's--they are going to be picking up the tab for this unfunded liability.

Charlie's is a voice of reason on the Social Security mess.

Sam, when you say that "Uncle Sam" must pay his debts to beneficiaries, all you're really saying is that the government must coerce one group of people to pay another group of people.

"Uncle Sam" doesn't have anything of his own to hand out, (except maybe the national parks and military bases). All he has done is made promises that one group will pay another group.

Who are in these groups? Old people with votes have decided to impose their desire to live well after 65 on the children and grandchildren and greatgrandchildren of their countrymen, who haven't even been consulted--indeed, many of whom haven't even been born.

That's just shameful. Uncle Sam should get out of the old-age pension business in an orderly way and clear the way for people to save and invest for their own old age--even encourage it with tax policy.

SAM RESPONDS:
Mikk, where we part company is over the part of what Uncle Sam promised us. The feds collected a dedicated SS payroll tax from me and my employers in return for a guaranteed benefit. The amount of money Washington has collected for decades has been more than has been needed for benefits.

That surplus was then "borrowed" by the feds for general budget purposes. Thus, our trust fund has been spent, and now Uncle Sam (and those running for president) say the system is in "crisis" because in another 10 years, more will be going out in benefits than is coming in via payroll taxes.

Nonsense! We beneficiaries are owed that money! If Uncle Sam did not intend to pay us, the feds should never have collected the payroll taxes--or certainly not enough to build up such a surplus. The surplus was meant to build a rainy day fund for the inevitable day when benefits would outstrip the payroll tax. That day is coming. Pay up!

MIKK RESPONDS:
Sure, Uncle Sam promised us the money. But Uncle Sam doesn't have it. Now what?

There are only two choices, (or a combination of the two): renege on the promise (in whole or in part) or forcibly take the money from one group of residents (legal or illegal) to hand it over to another group.

Our Uncle Sam should start beating an orderly exit out of the "rob Peter to pay Paul" business, not just keep getting into it deeper and deeper.

SAM RESPONDS:
This is really a scandal, and no one seems to know about it!!!

MIKK:
No one seems to know about it?? I thought it was common knowledge!

The so-called "SS Trust Fund" is just a conveyor belt and always has been. The money goes out as fast as it comes in. Having the Treasury give the SS Administration an IOU is like my left pocket giving my right pocket an IOU.

The money that you and your employers have put in over the years has not been invested in anything that can be liquidated to pay you cash, and it never has been!

But say it had been invested. The result would be federal ownership of most of the assets of the country. The politicians would be running the economy.

We'd all be like the Russians under Communism, when economic decisions were being made on political grounds. That is, we'd be impoverished and living under a dictatorship.

SAM:
SS could have been handled like a public pension fund....Or, if the feds had no intention of paying the money back, payroll taxes should have been lowered to reflect that reality. (Fat chance, right?)

Really, Mikk, talk to people on the street, and most have no clue how SS is [mis]handled. My wife, after two decades on Wall Street, is semi-retired now, and does taxes to keep things interesting. Most people ask her why they are not getting a "refund" on their SS payroll tax. She has to explain to them they'll get their "refund" when they turn 65, 66, 67, whenever they are eligible.......

MIKK GETS THE LAST WORD:
No, it couldn't. The pension funds of government employees (other then the federal government) and union members (to the extent not looted by their
insiders) are invested in corporate stocks and bonds.

But there are a lot of those small pension funds, so no one of them has too much power over the management of the companies that they are invested in.

But if SS funds had been invested that way, the federal government would own everything. And mismanage it.

The feds have no "intent," except to get re-elected in the next election. Just push the problem down the road, let some future generation deal with it.

The federal government should get out of the pension business. And stay out of the health insurance business. Politicians can't help making promises for other people to keep.

I hope to correct one error in your blog.

There are no T-bills (or any other assets) in the trust fund. The notion of an IOU is, instead, highly accurate.

When the outlay for Social Security benefits exceeds income, the U.S. Treasury must come up with the shortfall--either by raising taxes, borrowing money, or some combination. It cannot begin to liquidate a fund, because the fund is empty.

In my view, the problem goes back to the Johnson administration, when the concept of the unified budget was introduced.

Before then, the income and expenses of Social Security were kept separate from the general U.S. budget. The unified budget ended this and combined the two into one.

This wasn’t a big deal because at that time income and outgo were very close.

But in 1983, the Greenspan commission proposed to fix the problems that were anticipated to be caused by the retirement of the baby boom generation, and its solution was to raise taxes (and forestall benefits) so that, in effect, the shortfall would be “pre-funded.”

This would have worked well if we had no unified budget, but the extra money for Social Security simply went into the U.S. Treasury and was spent like any other revenue.

Accounting records were kept (including “interest credited”) on what the trust fund would have contained if it really had invested assets.

We can see how this works today without waiting until 2018, because the outgo from Medicare Part A currently exceeds the income to that program.

I take comfort in the scientific maxim that "if this can't go on forever, it won't."

If the SS administration really tries to keep the promises to the Baby Boom generation that the politicians have made on its behalf, the only place to get the money is from other Americans not on SS yet.

As Steven Weisbart says, that can be done by increased taxation (which will damage economic growth and output, making us all poorer than we'd otherwise be, on average), or by borrowing (mostly from overseas, like the Chinese, to whom we'll then have to pay interest and who'll thereby gain greater leverage, over time, over us).

Or (what Steven does not add) by printing money and in effect taxing everyone through inflation.

I'm actually more afraid of the last option than the first two--but even the first two have their limits...Unless, maybe, we begin to encourage a vast flow of immigration by the young and the productive instead of threatening to round up and expel our saviors who are already here.

Or start cutting back on the promises made.

Does this surprise anyone? We've been told this was coming, yet the bureaucrats in Washington sat on their partisan hands and did nothing to solve the problem, but yap about it, and blame the other party for the problems, as they always do.

I say tax full income no matter what it is, with no gaps at all. If you make $175K, apply the tax. What's the logic of having a tax gap between $102K to $250K? That doesn't help the "true" middle class or lower-class family with multiple income earners. Sounds more like pandering to some "phantom" class to me, than any sense of fairness.

If you want to balance the system, stop all the giveaways. Stop the Section 1011 free medical for illegals that is part of the Medicare Fund. Don't you think that drains your tax dollar and your future ability to get medical care through Medicare?

Check out the pdf below and look at the address...Direct to good ol' Social Security to pay for those illegals we can't stop at the border. It cost California $10.4 billion dollars in unreimbursed costs last year alone, so imagine the federal bill.

http://www.scha.org/documents/cms-10130A_aliens_determination_of_pmt_form_1.pdf

SAM RESPONDS:
Good points, BJ. Personally, I would have no problem raising the income tax cap for SS if the benefit levels rose as well. Fair is fair. Otherwise it becomes purely a welfare program, which SS was never meant to be.

Sam:

I completely agree with that--if you pay more, the benefit levels should coincide with the additional SS taxes you have paid.

As far as a welfare system, unfortunately for many, it has already become just that. In addition to the Section 1011 already mentioned, people presenting Medicare cards with the letter "M" following the number are usually alien residents who are collecting benefits under another family member, and frequently the recipient of an organ transplant or other costly medical procedure.

Since Medicare will ostensbly go broke before Social Security, this is even a bigger issue in my mind, as we attempt to salvage our old age safety net.