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Beware of the looming cash deficit
Old 08-03-2011, 08:25 AM   #1
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Beware of the looming cash deficit

Scott Burns: Beware of the looming cash deficit | Business | Chron.com - Houston Chronicle
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Old 08-03-2011, 08:36 AM   #2
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I really don't know what Scott is saying. At first he argues . . .

Quote:
The formal budget deficits we face have relatively little to do with Social Security and Medicare, so putting them into the budget-deal brouhaha is misleading misbehavior from the usual miscreants, our elected representatives of both parties.
But then ends with this . . .

Quote:
They know that their current overspending has begun its long-deferred but seldom discussed collision with the rising cash deficit in Social Security and Medicare. Call it the Big Double Whammy. That cash deficit is going to grow like mad over the next 10 years as the boomers sign up for Social Security and Medicare.
So in the same article SS and Medicare have 'relatively little to do' with deficits and at the same time those program's 'rising cash deficits will grow like mad over the next 10 years.'

So which is it?

The truth is Medicare is pretty much the alpha and the omega, the beginning and the end, of our long-term fiscal problems. If we could somehow figure out how to limit the growth of that one program to the same rate as GDP we'd have no fiscal problem at all.
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Old 08-03-2011, 08:58 AM   #3
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I think he is just saying that right now SS and Medicare are not the major problem with the general fund deficit which is caused by spending more than is coming into the general fund for non-SS (and maybe non-Medicare) spending. That is the short term problem people need to wake up to outside of the SS and Medicare problems. He then goes on to say something about the long term revenue problem when the SS and Medicare inflows are less than the outflows. At that point they need serious funds from the general fund and become a major part of the revenue needs.

All of us lived through the failed Clinton attempt to retire as much non-SS debt as possible before we reached this point. That policy failed since 1) one administration cannot commit a future administration to a policy and 2) Clinton had a booming economy and the policy didn't take into account the subsequent recessions and the deficits caused by abnormally low revenue inflows.
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Old 08-03-2011, 09:01 AM   #4
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Tadpole, my take is same as you.

I think we are missing the forest for trees
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Old 08-03-2011, 09:08 AM   #5
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I think he is just saying that right now SS and Medicare are not the major problem with the general fund deficit which is caused by spending more than is coming into the general fund for non-SS (and maybe non-Medicare) spending. That is the short term problem people need to wake up to outside of the SS and Medicare problems. He then goes on to say something about the long term revenue problem when the SS and Medicare inflows are less than the outflows. At that point they need serious funds from the general fund and become a major part of the revenue needs.

All of us lived through the failed Clinton attempt to retire as much non-SS debt as possible before we reached this point. That policy failed since 1) one administration cannot commit a future administration to a policy and 2) Clinton had a booming economy and the policy didn't take into account the subsequent recessions and the deficits caused by abnormally low revenue inflows.

+1 on this....


SS has been paying for itself and more for many years now... but we have still run up a big debt... so the overspending on everthing else was MUCH WORSE than what it should have been... if the gvmt was run properly then the cash would not have been spent and we would have a big pile of cash sitting on the sides ready to pay the SS fund over the next few decades when it needs the cash it supposedly saved...


So, 20 years from now we will still be spending a lot more on everything else PLUS need a lot of cash to pay the SS benefits that people expect... we just can not do that...


I will give an example from my household... my wife runs a big deficit on our vacation budget... we are in the hole by a full year... but our car budget is supposed to have funds in there to buy our next car.... but guess what.... NO CASH to buy that car when we need it... which means if we had to buy it we have to borrow the money.... this might look like we are borrowing the money to buy a car, but in reality we would have borrowed the money to go on vacation since we did have the car budgeted and it shows a surplus in the column......
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Old 08-03-2011, 09:49 AM   #6
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Two things I noticed:

  1. Comparison to WWII - We are in a World War on Terror which has us involved in a world-wide campaign against middle eastern foes with several initiatives and active conflicts: Iraq, Afghanistan, Increase in Intelligence spending to support our defense against terror, Increase spending for airport and other Homeland security, then the secondary offensive for Libya and other countries (all of which are somewhat related to defending Israel).
  2. The SS and Medicare Trust Fund and Interest - Which is part of the $2.5T wealth transfer from the Middle class to the most wealthy in the US (as they maneuvered for tax cuts that were not matched with spending cuts over the last 30 years).

I am not sure we can balance the books without a tax increase... even with spending cuts.

Each party has their sacred cows.... and the two items listed above are two of them.
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Old 08-03-2011, 10:11 AM   #7
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SS and Medicare are not the be all and end all of our problems. The mismatch between revenues and spending is. With modest changes to those two entitlement programs to curb excess growth coupled with tax reform that recaptures revenues lost by the Bush cuts (all, not just the $250K+) the problem gradually goes away (at about debt = 60% GDP). With nothing but cuts and no revenues the problem will get worse until we truly go the way of Greece because no one will have the stomach to cut the entitlement programs and defense to the level needed to sustain the current revenue path (cuts extended, or proposed by some, even deeper cuts). Cuts alone will destroy our social safety net over time but not enough to resolve our debt problem. A lose, lose proposition. I would likely survive all that but a lot of others would not.

The only way out of this mess that I can see is a program that treats "tax neutral" going forward as the level of total revenues projected under current law (cuts expire in 2012) or maybe a small cut from that base with sensible entitlement reform. Every commission that looked at the mess has come to the same conclusion. Both sides will have to embrace tax reform with the fight over fairness, not massive decreases from the base. I am not optimistic.
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Old 08-03-2011, 10:14 AM   #8
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Originally Posted by chinaco View Post
Two things I noticed:

  1. Comparison to WWII - We are in a World War on Terror which has us involved in a world-wide campaign against middle eastern foes with several initiatives and active conflicts: Iraq, Afghanistan, Increase in Intelligence spending to support our defense against terror, Increase spending for airport and other Homeland security, then the secondary offensive for Libya and other countries (all of which are somewhat related to defending Israel).
  2. The SS and Medicare Trust Fund and Interest - Which is part of the $2.5T wealth transfer from the Middle class to the most wealthy in the US (as they maneuvered for tax cuts that were not matched with spending cuts over the last 30 years).
I am not sure we can balance the books without a tax increase... even with spending cuts.

Each party has their sacred cows.... and the two items listed above are two of them.
1) You've got to be kidding ? WWII versus chasing some hole-dwellers around the desert ? I don't think so.

2) I agree with your point. the money is gone. We now have to decide what can we do going forward. And there is no tax level that will support current levels of Medicare/Medicaid/SS that will work. Taxes are inevitable, but the current level of benefits is unsustainable. Therefore plan for cuts in benefits and higher taxes. They are coming, one way or another, after all the loud talk, grandstanding, and demagoguery.
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Old 08-03-2011, 10:32 AM   #9
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I'm still trying to get my head around how SS is an entitlement? I thought you can only take out what you put in

You don't put in, you don't take out. Or, am I missing something?
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Old 08-03-2011, 10:36 AM   #10
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I'm still trying to get my head around how SS is an entitlement? I thought you can only take out what you put in

You don't put in, you don't take out. Or, am I missing something?
They have you believing SS is like a pension. But really it's more like welfare.

besides the money is gone, and like vacation and car budgets, one fund gets raided to pay others that are in even worse shape.
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Old 08-03-2011, 11:11 AM   #11
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I agree with your point. the money is gone. We now have to decide what can we do going forward. And there is no tax level that will support current levels of Medicare/Medicaid/SS that will work. Taxes are inevitable, but the current level of benefits is unsustainable. Therefore plan for cuts in benefits and higher taxes. They are coming, one way or another, after all the loud talk, grandstanding, and demagoguery.
As depressing as this sounds I hope you are right. I fear that we will continue to cut but not balance with revenues on the resurgent promise/premise that we can grow our way out. That discredited formula can garner bipartisan support from fuzzy minds on both sides of the aisle. After a couple of more decades demonstrating that the past 30 years was prologue, we will be in a much deeper pit with a much more tattered set of national benefits.
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Old 08-03-2011, 11:17 AM   #12
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1) You've got to be kidding ? WWII versus chasing some hole-dwellers around the desert ? I don't think so.

2) I agree with your point. the money is gone. We now have to decide what can we do going forward. And there is no tax level that will support current levels of Medicare/Medicaid/SS that will work. Taxes are inevitable, but the current level of benefits is unsustainable. Therefore plan for cuts in benefits and higher taxes. They are coming, one way or another, after all the loud talk, grandstanding, and demagoguery.

Agree with #1.... not the same IMO either...

Disagree a bit with #2... Medicare/SS are not horrible in their funding (well, medicare might be).... it is all the other stuff (including medicaid) where we have been spending a LOT more than what we were taking in... and since that part of the budget is supposed to pay off all the IOUs that SS had accumulated.... that would mean a lot more drastic cuts...

In a way, the gvmt is defaulting on their obligations to pay back those IOUs...

But I still think that we could do it with cuts alone.... we do not need the size and scope of gvmt we have...
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Old 08-03-2011, 11:47 AM   #13
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Originally Posted by Gone4Good
I really don't know what Scott is saying. At first he argues . . .

But then ends with this . . .

So in the same article SS and Medicare have 'relatively little to do' with deficits and at the same time those program's 'rising cash deficits will grow like mad over the next 10 years.'

So which is it?

The truth is Medicare is pretty much the alpha and the omega, the beginning and the end, of our long-term fiscal problems. If we could somehow figure out how to limit the growth of that one program to the same rate as GDP we'd have no fiscal problem at all.
If we can't raise taxes to pay for exploding medical costs in Medicare, and we don't want to pull the plug on grandma, maybe we could fly her to India or Taiwan for hip replacement or double bypass. I have seen a few interesting programs on this. Costs are a fifth for medical care, expert care, and the facilities over there that caters to foreigners are better than what I've seen here. I always blamed medical costs on technology, but the hospitals were state of the art facilities. Most of the doctors were native, but trained in US. Hospital officials stated the low costs were attributed to much lower salaries and lower liability insurance costs. Americans were quite satisfied with their medical care. I know I'm being unrealistic, but if it can be done somewhere else in an affordable manner can't there be a way to reduce costs and still provide the services here?
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Old 08-03-2011, 11:50 AM   #14
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Perhaps we could offshore welfare recipients and the prison population too.

That would save lots of money.
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Old 08-03-2011, 12:04 PM   #15
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Originally Posted by MasterBlaster
Perhaps we could offshore welfare recipients and the prison population too.

That would save lots of money.
We better watch out, between my facetious idea, and yours, Blaster, we would be in danger of running a budget surplus in no time
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Old 08-03-2011, 01:16 PM   #16
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FWIW, Medicare taxes are already increasing by 3.8% of taxable income for those making over $200K starting in 2013. This includes non-payroll income for the first time. Net, revenues will start increasing then already.
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Old 08-03-2011, 01:23 PM   #17
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I think he is just saying that right now SS and Medicare are not the major problem with the general fund deficit which is caused by spending more than is coming into the general fund for non-SS (and maybe non-Medicare) spending. That is the short term problem people need to wake up to outside of the SS and Medicare problems. He then goes on to say something about the long term revenue problem when the SS and Medicare inflows are less than the outflows. At that point they need serious funds from the general fund and become a major part of the revenue needs.

All of us lived through the failed Clinton attempt to retire as much non-SS debt as possible before we reached this point. That policy failed since 1) one administration cannot commit a future administration to a policy and 2) Clinton had a booming economy and the policy didn't take into account the subsequent recessions and the deficits caused by abnormally low revenue inflows.
and 3) the Bush tax cuts and 4) the war on terror (and its associated rise in defence spending)
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Old 08-03-2011, 01:25 PM   #18
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FWIW, Medicare taxes are already increasing by 3.8% of taxable income for those making over $200K starting in 2013. This includes non-payroll income for the first time. Net, revenues will start increasing then already.
It looks like that is a .9% increase on wages over $200K/$250K married (from 2.9 to 3.8). The new 3.8% is on on taxable investment income -- oops, that's us.

Edit: it looks like that new 3.8% on investment income only applies on investment income that causes adjusted gross income to exceed the 200/250K thresholds. So not us after all -- or at least not most of us who are ERd.
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Old 08-03-2011, 03:10 PM   #19
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It looks like that is a .9% increase on wages over $200K/$250K married (from 2.9 to 3.8). The new 3.8% is on on taxable investment income -- oops, that's us.

Edit: it looks like that new 3.8% on investment income only applies on investment income that causes adjusted gross income to exceed the 200/250K thresholds. So not us after all -- or at least not most of us who are ERd.
Perhaps you're right on the +0.9% part. Would need to recheck. Concerning investment income, that's what I was trying to say. Regardless, it's over and above going back to the pre-2001 income tax reductions such that total taxes on income will be even higher when/if those rates revert.
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Old 08-03-2011, 05:17 PM   #20
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yup. and that's why you keep some cash around the house kids. no looking cash deficit here. or maybe i should read the article.
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