Submitted by Lawrence Rafferty-Guest Blogger
It is probably just me, but it seems that every time we hear about a proposed deal to extend the debt limit and avert a government shutdown and a debt default, the plan does nothing more than cut the taxes on the wealthiest Americans and Corporations. The latest proposal by the so-called Gang of Six is just one more example of Congress attacking the Middle Class.
“The cuts in the Gang of Six plan aren’t minor, either. It proposes a chained CPI adjustment to Social Security, which may not be a bad idea when combined with other measures to boost benefits and strengthen the program, but on its own is tantamount to a $1,300 cut each year for recipients over their lifetimes. Strengthen Social Security co-chair and former Obama adviser Nancy Altman has denounced the idea as an overly harsh cut. “The chained-CPI is poor policy, and given that seniors vote in disproportionately high numbers, it is equally poor politics,” she said.” Think Progress This latest attempt by both sides of Congress to claim victory over the imaginary debt crisis just seems to be another attempt to please their corporate masters.
Does it bother anyone else that a group of Senators from both sides of the aisle would call themselves the “Gang of Six”? These Senators are doing their best to terrorize the Middle Class so maybe the moniker is appropriate. While some of the details of this proposed plan have not been agreed upon, what we do know troubles someone like myself who may be utilizing Medicare and Social Security in the next few years. “These tentative changes include repealing the Alternative Minimum Tax and establishing three simple tax brackets for individuals, while cutting “tax expenditures” and adjusting the corporate tax rate to between 23 percent and 29 percent.” Business Insider How can a tax rate be lowered for major corporations who pay no taxes now?
The proposed cuts to Social Security retirees is especially disturbing. “Lawmakers and the Obama administration are reportedly considering switching to a “chained” Consumer Price Index. According to the advocacy group Strengthen Social Security, the chained-CPI could lead to annual Social Security benefit cuts of $560 for those aged 75, $984 for those aged 85 and $1,392 for those aged 95. “The proposal to shift to the chained-CPI is actually a stealth attack on Social Security,” said Joan Entmacher, director of family economic security at the National Women’s Law Center, during a Friday conference call with reporters.” Huffington Post Is anyone surprised that the Congressional terrorists would be considering reducing payments to Seniors and reducing corporate tax rates? Just why is Social Security being discussed when it has no impact on the Deficit?
I have a novel, Gang of America idea to suggest that would actually reduce the deficit and protect Social Security. Actually, it is not my idea, but the idea of the vast majority of Americans who are repeatedly telling Congress to tax the wealthy and Corporations and to leave Social Security alone. I realize my Gang does not have much lobbying power, but we have millions of votes. Congress, it is time to get on board with the Gang of America’s ideas and you just might save the economy and your jobs. Let’s hear your ideas to “fix” the imaginary debt crisis.
Respectfully submitted by Lawrence Rafferty-Guest Blogger
AY,
Playing in the mud … again!
Kdpanzee,
Do you really believe what you are say? I bet you are receiving something that started with government assistance and intervention at this very moment. Please respond and I’ll tell you how.
@Elaine, I’m glad you found yourself a typo to point out. It’s the little victories that are the most satisfying.
Medicare merely displaces the private insurance market which would otherwise exist. Tying insurance to employment is a bad idea. The only reason why that happened was to evade government wage restrictions during WWII and then it got enshrined in the tax code. I also like the way your last sentence attempts to deflect responsibility away from the sick people who failed to purchase medical insurance like a responsible person would and then found themselves facing substantial medical bills.
kderosa,
“This is the latest report I found, maybe you can use your librarian skills and locate us a latter one and prove your theory with it.”
I’ll leave it up to you to find a “later” report.
We have Medicare to help pay for medical coverage for the elderly–most of whom no longer have health insurance benefits provided by employers. Many of those elderly/retired people might find themselves bankrupt after a major illness or accident.
@Elaine, do you think that the financial crisis only affected old people? Or did it only depress their home values or stocks and no one else’s? In all likelihood the relative wealth of each group stayed the same.
I think you are right about why old people have more assets than younger groups. Rafflaw is the one who apparently couldn’t connect those logical dots when he challenged my statement. The question remains why are we transferring wealthy from young people with less assets to pay the medical care and retirement of old people with more assets. Let them use their own assets to pay for these things.
This is the latest report I found, maybe you can use your librarian skills and locate us a latter one and prove your theory with it.
Also, do you think that the propensity of government to bail out big businesses in distress might have affected their willingness to take foolish risks? It’s called called moral hazard; you should look into it sometime.
@Henman, I’m sure if we compared your views and my views to the views of fascists like the nazis, we’d see your views are more fascist than mine. The nazis weren’t socialists for nothing.
Kderosa-
Take your monomania pill and go to bed. The result of your efforts on behalf of the Koch Brothers today on the Turley Blog = 0 converts to fascism. Tomorrow is another day.
kderosa,
I see that the table you provided a link to is for the year 2004–before our country’s near financial meltdown, which was the reason we taxpayers had to bail out Wall Street. I wonder if the financial crisis had any effect on people’s personal wealth. Can you find a U.S. Census Wealth and Asset Ownership for a post financial crisis year?
One would have to assume that older people worked longer, have paid off their mortgages, and own their homes outright. Most of them are likely retired and will not be earning a salary/money at work. The money they put aside and saved is what will help support them in their retirement.
U.S. Census Wealth and Asset Ownership. Table 5
The over 65 crowd is wealthier than all other age groups but the 55-64 group which has slightly more assets. The 70-75 group is by far the wealthiest group.
There is no “investment” in SS, it is all paid out now as soon as it is collected. Real estate taxes are not a ponzi scheme as I’ve already indicated.
kderosa,
SS is not a welfare program. The recipients pay into the program and when they reach retirement age they share in that investment. Show the class your facts that seniors are the wealthiest demographic. Are real estate taxes a ponzi scheme too?
@rafflaw, so what’s the point of that? You’re just kicking the can down the road for 30 years when you’ll have to pay back these large benefits to all these rich people.
Seniors are the richest demographic group. Why should poor young people be paying for rich geezers? And why are you stressing the welfare nature Of the program after insisting it’s not a giant welfare program?
It is a ponzi scheme by definition. Your retirement money is going straight to some geezer;s pocket, not to your own retirement fund. Public education in contrast is not. Your money is going to run schools and you will fund schools for as long as you pay taxes.
Whoops,
I apologize for that double post, although I did add some additional thoughts to it!
kderosa,
the rich will pay the same percentage of their income into Social Security that I will and will be eligible for the same benefits. Nothing could be more American than that. Are you suggesting that they should get more benefits than any other citizen paying into the fund? With all due respect, that is ludicrous.
Social Security is not a giant Welfare program. it is a retirement program designed to help Seniors live out their lives with dignity. It is not a ponzi scheme. It is similar to real estate taxes. My parents paid for the schools that my kids went to and I am paying for the schools that my grandchildren will go to.
@Mike Spindell, the retirement planning part should have come long before the illness part. It also sounds like you didn;t have supplemental longterm disability insurance which would have been another wise planning decision.
@rafflaw, social security was not intended or designed to be a giant welfare program. Even though it is technically a giant ponzi scheme, the idea is that you are paying for your own retirement benefits with lower income people getting a far better ROI than high income people.
I don’t understand why you are suggesting this scheme is somehow unAmerican.
Also, I was suggesting that if the payroll tax is uncapped and the rich start paying more in taxes that they should get a commensurate increase in their retirement benefits. Of course, such a scheme would also drain money out of the private equity market and depress stock prices, so you’re basically just screwing the middle class.
“Or are you that much of a financial jellyfish that you needed the government to force you to save for your own retirement?”
I was forced to retire 7 years ago due to a progressively severe disability that almost killed me last year and drained my savings and 401k. I’m on a fixed income and so retirement and health don’t leave me a lot of room to plan for retirement.
kderosa,
they will pay the same percentage into Social Security that I will and will be eligible for the same benefits. Nothing could be more American than that. Are you suggesting that they should get more benefits than any other citizen paying into the fund?
@rafflaw, the U.S. rate is barely at replacement rate, so it is a problem.
Payroll taxes are capped and so are benefits. So Bill Gates will only receive the same benefits as a person whose income is $106k (actually the equivalent max amount over the previous 30 yaers I believe) . What problem do you have with that? If you uncap their income are you going to uncap their benefits or just pick their pockets to fund your retirement?
Actually at the max income level your effective rate of return is slightly negative, so it’s already an awful deal for anyone making over $100k.
kderosa,
the birth rate is not a problem for Social Security. The problem is anyone over $106,000 stops paying into it. Why should I pay 100% of my salary towards SS and the wealthy do not? Are they going to forego using Social Security money when they retire? I think not.
Damn,
A self funded group pension and you steal money from it and then….ok yeah…it is going to go bankrupt…..I like that…Whats that guy Carl doing these days….that purchase companies with over valued pensions, stole the money then…bankrupted them…..I do believe they call that Capitalism….did he ever do any time….
It is indeed shocking that social security and other entitelment programs would start causing budget woes as the money started running out.
Here’s Brink Lindsey ten years ago:
But under the sway of the Industrial Counterrevolution, the government’s role in providing a social safety net went far beyond merely compelling or subsidizing participation in markets. Instead of supplementing markets in a manner consistent with liberal principles, governments often supplanted them altogether with top-down, bureaucratic regimes. Rather than subsidizing participation in private housing and health care markets through voucher schemes, governments established public housing authorities and national health services. Programs to help the unemployed failed to guard against creating perverse incentives, and so ended up subsidizing dependency rather than encouraging a return to gainful work. And with respect to social insurance against the hazards of old age, governments created enormous, monolithic systems that violated basic precepts of actuarial soundness.
A full discussion of the dysfunctions of collectivist social policy is well beyond the scope of this book. Here I focus only on the largest and most fiscally explosive element of the modern welfare state: state-run pensions for retired workers. It is this particular brand of social insurance that is primarily responsible for the welfare state’s mounting financial woes.
The founding father of collectivized social insurance, Bismarck, was brutally candid about the political benefits of centralization. As ambassador to Paris in 1861 he had seen how Napoleon III had used state pensions to buy support for the regime. “I have lived in France long enough to know that the faithftilness of most of the French to their government. . . is largely connected with the fact that most of the French receive a state pension,” he recalled later.” For Bismarck, then, the appeal of social insurance was that it bred dependency on, and consequently allegiance to, the state. “Whoever has a pension for his old age,” he stated, “is far more content and far easier to handle than one who has no such prospect.”
Social insurance was thus born of contemptuous disregard for liberal principles: What mattered was not the well-being of the workers but the well-being of the state. With that animating principle, social insurance necessarily assumed a collectivist character. In particular, it would clearly not do simply to compel workers to provide for their own retirement; funded pensions that actually belonged to the workers would not inspire the proper feelings of dependency and subservience. Far better was the “pay as you go” system in which the government, acting as intermediary and benefactor, would transfer funds directly from current taxpayers to current retirees.
The pay-as-you-go system flies flagrantly in the face of market logic. Indeed, when such ventures are attempted in the private sector, they go by the name of pyramid or Ponzi schemes and constitute criminal fraud. The essence of a pyramid scheme is that investors’ money is never put to productive use; instead, it is simply diverted to pay off earlier investors. As long as new victims can be found, everything seems to work fine; eventually, though, the promoters of the scheme run out of new investors, and the whole house of cards collapses.
Pay-as-you-go public pension systems operate in precisely the same way. As long as the contributions of active workers are sufficient to defray payments to current retirees, the system is fiscally healthy. Indeed, in the early decades of such programs, it appears that the market has been outfoxed. Consider economist Paul Samuelson’s smug optimism back in 1967:
Sooner or later, though, such hubris must receive its grim comeuppance Shifting demographics impose the ultimate constraint. As populations age the number of retirees begins to grow faster than the number of new workers; the former become a progressively heavier burden on the latter, until last the burden is unsustainable.
Meanwhile, the perverse incentive structure of collectivized social insurance works to accelerate the system’s ultimate breakdown. “The fundamental problem with pay-as-you-go systems,” according to José Piñera, the world’s foremost advocate of privatizing public pension systems, “is they divorce effort from reward.” Wherever that divorce occurs on a large scale over along enough period of time, disaster is inevitable.” In particular, workers have strong incentives to minimize or evade their contribution to the system, while retirees have an obvious stake in campaigning for high benefits. Such dynamics steadily worsen the relationship between revenue and obligations and thereby hasten the eventual day of reckoning.
… Around the world, the ratio of active workers to retirees is shrinking. Promised benefits have spiraled out of control while either demographic changes or widespread evasion reduce the relative size of the contribution base. Consequently, the hopes for retirement security of hundreds of millions of workers are now in serious jeopardy.
The inevitable Ponzi endgame is now obvious in the rich countries of the industrialized world. In the United States for example average life expectancy at birth was only 61.7 years in 1935 when Social Security was established—in other words lower than the original minimum retirement age. Today U.S. life expectancy stands at 76.5 years and it is expected to climb to around 80 over the next 20 years. For most other industrialized countries current and projected life expectancies are even higher. Meanwhile fertility has dropped sharply With the single exception of Ireland birth rates in all the advanced countries are now below the replacement rate” of 2.1 children per woman. In Japan the fertility rate is only 1.68; in Austria 1.45; in Italy, a mere 1.33. Continued declines in fertility are expected.
The upshot of these demographic trends is a steady erosion in the funding base for social insurance benefits. In 1950 there were 16 workers in the United States for every retiree today the ratio is only three to one and in 20 years it will have fallen to two to one. Elsewhere the outlook is even bleaker. By 2020 worker-to-retiree ratios are expected to fall to 1.8 in France and Germany, and 1.45 in Italy and Japan.
Social insurance in the advanced countries is indeed caught in a … squeeze between rising life expectancy on one flank and falling fertility on the other. In that tightening vise, what once seemed so clever is now a catastrophe in the making “When population growth slows down so that we no longer have the comfortable Ponzi rate of growth or we even begin to register a decline in total numbers a chastened Paul Samuelson wrote in 1985 “then the thorns along the primrose path reveal themselves with a vengeance.”
Already today, public pension spending in the rich member countries of the OECD averages 24 percent of the total government budget, or 8 percent of GDP. To fund these enormous outlays the tax burden imposed on current employees has reached punishing levels. In Italy Germany, and Sweden for example, the combination of employer and employee contributions and personal income taxes now averages around 50 percent of gross labor costs. And while workers put more and more into the system they can expect to receive less and less. In Sweden, the average rate of return for the generation retiring 25 years after the establishment of the public pension system approached 10 percent per year; for the generation retiring 20 years later, the. rate of return had dropped to 3 percent. In the United States, real rates of return for two-earner couples now range from –0.45 percent to 2.13 percent, depending on income.
Even with rising tax rates and declining returns, pay-as-you-go systems throughout the advanced nations are heading toward financial collapse. In the United States, Social Security revenues currently exceed expenses, but the system is expected to begin running deficits in 2016. The annual short fall is projected to be $1.3 trillion by 2030, a figure that represents more than two-thirds of the entire federal budget for 2001. Over the next 7 years, Social Security’s total unfunded liabilities have an estimated presnte value of $9 trillion—as compared to the current national debt of $5.7 trillion. In Germany and Japan, the current unfunded liabilities of the pub pension system are well over 100 percent of GDP; in France and Italy, they exceed 200 percent.