[Vision2020] Social Security Time Lime

[David M. Budge]

Beyond Donald Luskin's incendiary hyperbole about leftists (as some 
obviously take it), the facts bare that many liberal Democrats have said 
exactly that there is "no crises" in Social Security as was the point of 
Tom Hanson's news link. Secondly, there has been no discussion about 
reducing any current recipient's benefits. Thirdly, it seems the 
dialogue IS addressing the issue by both the left and the right. And 
lastly, I've got no answers in this debate other than I glad that the 
debate is now front and center in our collective political conscienceless.

What is interesting to me, more than anything else, is that so many 
people have called for the defeat of Bush's proposal. I can't seem to 
find "the proposal" beyond a briefing paper that the White House 
released calling for the debate on private accounts. As W. said in the 
SOTU address, "all options are on the table, except the raising of 
payroll taxes." No bill has yet been sent up to the Hill for debate.

As for taxes, my eight year old daughter had an interesting observation.

We were watching the News Hour one evening when the subject of 
redistribution of wealth came up. She looked up from her Game Boy long 
enough to pay a modicum of attention and asked me "what is 
redistribution of wealth?"
To which I replied "It's taking money from people who have a lot of it 
and giving to people who don't." She wrinkled her brow, looked at me 
straight on and asked "They take money from rich people and give it to 
poor people?"
"Yes" I said, trying to pay more attention to the news than her.
"That's stealing!" she quipped.

I'm guessing that being a libertarian may be genetic.

Dave Budge



Donovan Arnold wrote:

> "The leftist opponents of Social Security reform want you to believe 
> there’s no “crisis,” and that whatever problems the system may have 
> won’t materialize for more than 35 years."--First Sentence of Donald 
> Luskin in his article in National Review on 01/11/05.
>
> This is incorrect. Thus, all his arguments after it are strawman. I 
> think most people on the left think that SS is in crisis already and 
> has been since the Reagan and Bush(s) administrations racked up a $ 8 
> trillion deficit requiring 20% of your Federal Tax dollars go to just 
> pay the interest on the debt instead of something useful, like 
> education or a bigger tax cut.
>
> Leftist opponents don't want the Bush plan because it reduces SS 
> payments and steals from the elderly and disabled now and gives it to 
> Wall Street fat cats that make more in a day then most Americans make 
> in a lifetime. Well, geniuses, what do we do when 20 million people 
> are ready to retire in 2025 and we have a down turn in the stock 
> market? Tell them to wait another ten years to retire when it is on 
> the up swing?
>
> Plus, there is no way of even getting the money into the stock market 
> in the first place. The money goes directly (99% of it) from the 
> paychecks of working Americans into the current recipients of SS. So 
> if money is invested it in the stock market, how is it going to get to 
> the SS checks? The same dollar cannot be given twice to both the stock 
> market and the SS recipient at the same time? The only way to do this 
> would be to double the SS Tax (oh God not more taxes!), or cut the 
> checks of SS recipients.
>
> Why do people on the "right" refuse to address this problem? It is not 
> just a matter of politics, it is also a matter of feasibility and 
> practicality. You might as well pass a law making the day 25 hours, 
> cuz you know we all could use an extra hour in the day to sleep, and 
> that would be a popular idea too, just like giving people free money 
> to put in the stock market, which is what this idea is really all about.
>
> Good Day,
>
> Donovan J Arnold
>
>> From: "David M. Budge" <dave at davebudge.com>
>> To: vision2020 at moscow.com
>> Subject: [Vision2020] Social Security Time Lime
>> Date: Tue, 08 Feb 2005 11:07:51 +0000
>>
>> Donald Luskin
>>
>> Natinal Review Online
>> January 11, 2005, 8:42 a.m.
>> The C-Word: Say It
>> The Social Security crisis begins in just 5 years.
>>
>> The leftist opponents of Social Security reform want you to believe 
>> there's no "crisis," and that whatever problems the system may have 
>> won't materialize for more than 35 years. Funny how such equanimity 
>> and patience seem to elude them when the subject is global warming.
>>
>> It's even funnier when you realize the objective fact is this: The 
>> Social Security crisis actually starts a lot sooner than advocates of 
>> reform are saying. The Social Security crisis begins to materialize 
>> in just 5 years.
>>
>> Here are the facts. You decide whether they amount to a "crisis."
>>
>> Right now the Social Security program collects more in taxes -- both 
>> FICA taxes from current workers and income taxes on benefits from 
>> current retirees -- than it pays out in benefits to retirees. That 
>> surplus goes into Social Security trust funds, where it is used to 
>> buy Treasury bonds that are held as an investment toward the payment 
>> of future benefits. The purchase by the trust funds of those Treasury 
>> bonds is no different than if you or I bought them. The Treasury 
>> issues the bonds in exchange for cash, which is used to finance the 
>> current expenditures of the federal government.
>>
>> According to the latest annual report 
>> <http://www.ssa.gov/OACT/TR/TR04/IV_SRest.html#wp207413> of the 
>> Trustees of the Social Security Trust Funds, the surplus in 2004 was 
>> $64.4 billion dollars. It will be higher this year -- at $87.7 
>> billion. The surplus will keep getting bigger and bigger through 
>> 2008, when it will reach $108 billion. Each year, that's more and 
>> more money that the federal government won't have to raise from the 
>> world capital markets. It's a captive audience of bond buyers -- and 
>> a growing one.
>>
>> But in 2009, just 5 years from now, the surplus will start to shrink. 
>> In 2009 it will fall to $103.7 billion, and in that year the federal 
>> government will have to go to the capital markets to raise $4.3 
>> billion that it didn't have to raise the year before. That's not a 
>> lot of money in the grand governmental scheme of things. But it's an 
>> important turning point for Social Security -- it's the year the 
>> crisis begins.
>>
>> Every year after that the crisis will deepen. Each year the 
>> government will get several billion dollars less from the Social 
>> Security surplus than it did the year before, and it will have to 
>> make up that difference by tapping the capital markets, or by raising 
>> taxes or trimming spending.
>>
>> Most observers point to 2018 as the earliest year for the Social 
>> Security crisis to begin. But that's only the year the crisis will 
>> pass an especially attention-grabbing milestone. That's the year, 
>> according to the trustees 
>> <http://www.ssa.gov/OACT/TR/TR04/II_project.html#wp105724>, that the 
>> Social Security surplus will disappear entirely and become a deficit. 
>> In other words, for the first time tax revenues will be less than the 
>> benefits paid out that year. From the standpoint of public finance, 
>> though, it will just be another painful year in which the federal 
>> government had to raise more money from capital markets -- or raise 
>> taxes more or trim more spending -- than it did the year before. By 
>> 2018, the Treasury will have already received $359 billion less cash 
>> each year, cumulatively, than it received in the peak year of 2008.
>>
>> Starting in 2018, as soon as Social Security tax revenues are 
>> insufficient to cover benefit payments, the gap will be made up as 
>> the trust funds redeem the Treasury bills they have been hoarding. 
>> Not only will the Social Security system no longer give cash to the 
>> federal government in exchange for Treasury bonds. Starting in 2018 
>> the situation will be just the opposite: The Social Security system 
>> will give back the Treasury bonds held in the trust funds -- and the 
>> interest on those bonds, which is held in the form of more bonds -- 
>> and demand cash for them.
>>
>> According to the Social Security actuary 
>> <http://www.ssa.gov/OACT/TR/TR04/lr6F9-2.html>, in 2018 the trust 
>> funds will demand $23.4 billion in cash from the federal government. 
>> The trust funds will redeem the last of their bonds in 2041 -- 
>> demanding from the government $1.003 trillion that year. From 2018 
>> through 2041, the trust funds will redeem bonds worth, cumulatively, 
>> $11.9 trillion. Once again, just to be perfectly clear, let me 
>> emphasize that the federal government will have to come up with this 
>> $11.9 trillion somehow -- either by tapping the capital markets, 
>> raising taxes, or trimming spending.
>>
>> This should illuminate the debate on whether the trust funds are 
>> "real" or not. They are perfectly "real" in the sense that the 
>> Treasury bonds they hold are valid legal claims on the government. 
>> But they are not "real" in the sense that they, as a June, 2004, 
>> Congressional Budget Office report 
>> <http://www.cbo.gov/showdoc.cfm?index=5530&sequence=1> put it, 
>> "contain no financial resources" in and of themselves. For their 
>> value to be realized, the Treasury bills they hold must be redeemed 
>> for cash by the government -- and that cash has to come from somewhere.
>>
>> From the standpoint of public finance, the crisis ends in 2042 when 
>> the trust funds' hoard of bonds is completely exhausted. Under 
>> current law, Social Security benefits will then be trimmed such that 
>> they will be payable out of current tax revenues. According to the 
>> trustees <http://www.ssa.gov/OACT/TR/TR04/II_project.html#wp105057>, 
>> benefits will have to be cut 27 percent from their present scheduled 
>> levels, with the situation only getting worse as time goes by. So, 
>> yes, the drain on the Treasury will end in 2042 -- but at that point 
>> the crisis will simply be inherited by retirees in the form of lower 
>> benefits.
>>
>> Those are all simple facts. Yes, they are estimates. They might be 
>> off a little bit one way or the other. But the general pattern is 
>> clear. Social Security will start to become a drag on the budget of 
>> the federal government in 2009. The state of affairs will get 
>> progressively worse through 2042, by which time Social Security will 
>> have consumed $11.9 trillion from the federal budget. And after that, 
>> Social Security benefits will be automatically cut. If that isn't a 
>> "crisis," I don't know what is.
>>
>> The opponents of reform claim that the Social Security crisis is, in 
>> fact, a crisis of general public finance -- not one of the Social 
>> Security system itself. They see Social Security as an entity 
>> separate from the federal government, and maintain that its own 
>> dedicated stream of tax revenues and trust-fund assets will keep it 
>> going for more than a third of a century.
>>
>> That's a fair point of view, as far as it goes. At the same time, it 
>> is dangerously myopic to treat Social Security in isolation from the 
>> overall finances of government. That would be like finding nothing 
>> troubling about a factory that dumps pollutants into a river. That 
>> may be no problem for the factory itself, but it can be a major 
>> problem for everyone downriver. And when it comes to Social Security, 
>> we're all downriver.
>>
>> But the case of Social Security is even worse than that. By 2042 the 
>> pollution will back up into the factory itself. Unless the opponents 
>> of reform don't think it's a problem to automatically cut benefits by 
>> 27 percent all at once in 2042, then Social Security itself has a 
>> "crisis" -- maybe not right now, but surely by then.
>>
>> Don't be too hard on the advocates of reform when they throw the 
>> C-word around. It's fully justified. In fact, I'd even dare to use 
>> that most dangerous of all political words to describe the crisis. 
>> Yes, the I-word: imminent.
>>
>> -- Donald Luskin is chief investment officer of Trend Macrolytics LLC 
>> <http://www.trendmacro.com/default2.asp>, an independent economics 
>> and investment-research firm. He welcomes your comments at 
>> don at trendmacro.com <mailto:%20don at trendmacro.com>.
>>
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