Beware of the looming cash deficit

[donheff]

So... here is what is being stated: We overspent and gave a certain group a massive tax cut and instead spent the middle class' retirement trust. Oh crap... hey... that's alot of money... we don't want to pay that back. MY BAD. Oh well, ez peazy solution... lets just cut Medicare and SS!

+1 This magic trick would shift trillions from the (supposedly retirement/health care dedicated) payroll tax to the general ledger to make up for the unfunded spending that actually caused the debt. That is an extremely regressive tax and is one reason why many of us are so POd about the move to do it. A more appropriate response (IMHO) is to modify SS and Medicare/Medicaid to the degree necessary to correct their funding going forward (but this should include the very real trust funds in their funding). That would undoubtedly require some cuts and some increases in payroll taxes (e.g. lift the cap, continue the already approved Medicare tax increases under Obamacare). Beyond that we need to cut spending and restructure and simplify the income tax and corporate taxes to fairly capture the projected current law revenue stream (to the degree necessary to get us down to a reasonable deficit such as 60% GDP).

 

[Lsbcal]

From a Mary Meeker “USA Inc.” study, and validated by the Department of Treasury and Congressional Budget Office (CBO) calculations, the combined present cost “payment due” from Medicaid, Medicare and Social Security is over six times our current obligations of Treasury debt.

The above was from a recent blog by Bill Gross (the smarty pants bond guy) of Pimco: PIMCO | Investment Outlook - Kings of the Wild Frontier

Sobering stuff. Should I take my SS now instead of holding off for a better check?

 

[Texas Proud]

You aren't missing anything. SS, for those who get it upon retirement, is for those who contributed. Anyone who thinks that is 'welfare' is missing something. People who contributed are indeed entitled to the funds but we've allowed some people to put a bad connotation on the word. It is our safety net for retirement. No matter what happens to our private investments, our SS money should be there when we get old.

I'm not saying that there shouldn't be some means testing, however. (Even if it means that I won't get mine. )

I can almost understand those complaining about some people (not all) who receive SS disability only after working a few years but that is a different discussion.

Medicare is similar in that regard. The problem with medicare is that the benefits are so limited. Access needs to be expanded as well. The fix is easy -- just raise the cap.

SS is an entitlement... in the sense of how gvmt defines payments... and not how you have defined it...

It will not happen, but there is nothing that would prevent Congress from voting to stop paying SS tomorrow... and it would stop... you could go to court and say 'I paid in, I should get it back'.... but you would lose... there is no contractual requirement for the gvmt to pay you.... it is at the whim of Congress..

Therefore, SS checks are an entitlement you receive from the gvmt.... you might not like to think so since some think that means they are getting welfare... I do not think that way... but also do not get SS checks....

 

[youbet]

SS is an entitlement... in the sense of how gvmt defines payments... and not how you have defined it...

It will not happen, but there is nothing that would prevent Congress from voting to stop paying SS tomorrow... and it would stop... you could go to court and say 'I paid in, I should get it back'.... but you would lose... there is no contractual requirement for the gvmt to pay you.... it is at the whim of Congress..

Therefore, SS checks are an entitlement you receive from the gvmt.... you might not like to think so since some think that means they are getting welfare... I do not think that way... but also do not get SS checks....

Well, I do collect SS and I'll chime in and agree with you. SS is an entitlement and is a bit like welfare. The FICA money that came out of my paycheck eventually wound up co-mingled with general fed tax revenues and was spent. My son and DIL now pay into FICA and the gov't is paying me out of that.

And I agree, Congress could stop or modify SS substantially. I believe that within a decade, FICA rules will be changed to significantly increase revenue and the age requirements and formulas for both initial payments and COLA adjustments will be modified to significantly reduce outflow/individual.

It's a huge mistake to think in terms of SS being something you contribute to to fund your retirement. It's an entitlement program funded by taxes and doled out by rules Congress sets and can change.

 

[Texas Proud]

Whether you agree or not does not change the fact that the cost has been huge.


/snip/


Now Burns was also comparing other spending. Bailout, Unemployment extension, stimulus spending that was done (whether anyone likes it or agrees with it or not) to avoid a depression and complete financial calamity. But he quickly singles out SS and Medicare as the culprits!

/snip/

So... here is what is being stated: We overspent and gave a certain group a massive tax cut and instead spent the middle class' retirement trust. Oh crap... hey... that's alot of money... we don't want to pay that back. MY BAD. Oh well, ez peazy solution... lets just cut Medicare and SS!

Did a few snips on your post as it was long.... but a good post...

I know that we have spent a lot of money.... but a lot of what was spent was NOT on the war on terror... sure, it was wars, but not to get the people who attacked us.... this is an after the fact statement, but Iraq was not against the perpetrators.... and why did we keep spending money after we toppled the gvmt I still don't get that...

We also have spent a lot in Afghanistan that was not needed...

And the cost of Homeland Security is not all 'new' spending... we had a lot of the costs before it was created... but I also think that we have wasted many billions on the name of security even though we are not more secure....


As to Burn's comment.... he did NOT go to SS as the culprits... reread what he said.... he said that IN ADDITION to the cash that was spent on OTHER things, we will have to get even more cash to pay SS and medicare IN THE FUTURE... this is a true statement... we overspent on the wars, on welfare, on all the other items of gvmt (education, roads, EPA, medicaid, etc. etc.)... and now do not have our stash of cash sitting on the side that we needed to pay the SS and medicare payments we promised.... so, in your terms.... "our bad"....


Now, we can raise taxes to pay for all the gvmt that we have been overspending on over the last few decades AND to get more cash to pay the higher SS and medicare claims.... OR we can cut out a lot of gvmt and pay what we collect...

BTW, if the costs were one time items to keep us out of recession... then why has our spending not gone down I wish I knew....

 

[MasterBlaster]

Regarding Chinico's post, To compare WWII and recent wars, To feel the enormity of WWII one would need to normalize any cost estimates (yours and others) by the GDP in place at the time. When you do that the scope of WWII becomes clearer. WWII was an all-out effort, this recent thing clearly is not.

 

[chinaco]

Did a few snips on your post as it was long.... but a good post...

I know that we have spent a lot of money.... but a lot of what was spent was NOT on the war on terror... sure, it was wars, but not to get the people who attacked us.... this is an after the fact statement, but Iraq was not against the perpetrators.... and why did we keep spending money after we toppled the gvmt I still don't get that...

We also have spent a lot in Afghanistan that was not needed...

And the cost of Homeland Security is not all 'new' spending... we had a lot of the costs before it was created... but I also think that we have wasted many billions on the name of security even though we are not more secure....

We could debate that all way long.


But my point... maybe better stated. Take those wars and improving intelligence plus homeland security then add in the expenditures to try to rescue us from a depression.... and we just spent the amount spent on WWII inflation adjusted.


Nothing to do with SS and Medicare!

As to Burn's comment.... he did NOT go to SS as the culprits... reread what he said.... he said that IN ADDITION to the cash that was spent on OTHER things, we will have to get even more cash to pay SS and medicare IN THE FUTURE... this is a true statement... we overspent on the wars, on welfare, on all the other items of gvmt (education, roads, EPA, medicaid, etc. etc.)... and now do not have our stash of cash sitting on the side that we needed to pay the SS and medicare payments we promised.... so, in your terms.... "our bad"....


Now, we can raise taxes to pay for all the gvmt that we have been overspending on over the last few decades AND to get more cash to pay the higher SS and medicare claims.... OR we can cut out a lot of gvmt and pay what we collect...

BTW, if the costs were one time items to keep us out of recession... then why has our spending not gone down I wish I knew....

I think your could be correct... he seems to shift his discussion back and forth a little. In doing so the message is a little confusing.


Hey maybe I am in agreement with him. He could be saying the same thing... nobody wants to pay back the trust fund much less the interest on it.



Hey... you should be able to read between the lines on my rant anyway!

 

[Lsbcal]

Regarding Chinico's post, To compare WWII and recent wars, To feel the enormity of WWII one would need to normalize any cost estimates (yours and others) by the GDP in place at the time. When you do that the scope of WWII becomes clearer. WWII was an all-out effort, this recent thing clearly is not.

Once I did a calculation of the human cost in WWII. Simply the deaths devided by the number of conflict days:
deaths per day in WWII = 25000

Yes, that is twenty five thousand per day. This put our current wars into more perspective for me. But any premature death is a personal tragedy and deeply felt by those who know the person.

Somebody should check my math. These deaths were from military and civilian causalities all over the world. Estimated totals for WWII were 62 to 78 million.

 

[Texas Proud]

We could debate that all way long.


But my point... maybe better stated. Take those wars and improving intelligence plus homeland security then add in the expenditures to try to rescue us from a depression.... and we just spent the amount spent on WWII inflation adjusted.


Nothing to do with SS and Medicare!




I think your could be correct... he seems to shift his discussion back and forth a little. In doing so the message is a little confusing.


Hey maybe I am in agreement with him. He could be saying the same thing... nobody wants to pay back the trust fund much less the interest on it.



Hey... you should be able to read between the lines on my rant anyway!

Got it on the first point.... but I am also of the mind that a lot of these expenses are gonig away in the near term.... but our budget deficit is not... so something is up here...

Yes, he does not make it as clear as I would have liked.... I think his point was that the current cash crisis is NOT realted to SS and medicare even though a lot of people talk that way since they make up a large part of the budget... and you are right that people do not want to pay it back... I will say that I would much rather cut out a lot of the other gvmt spending and keep SS as close to what was promised as possible... not sure about medicare as there is a lot of fraud etc. and medical costs are skyrocketing...

Also, not mentioned in the article is the possibility that the cost of the healthcare bill will be a lot more than we were told and we have to get cash to pay for that....

On you last sentence... I try...

 

[Beryl]

SS is an entitlement... in the sense of how gvmt defines payments... and not how you have defined it...

Your second clause is incorrect.

People who paid into SS are indeed entitled to it by law and that is exactly the way I defined it. I don't allow people to spin the word negatively. I also don't have a problem with 'the government' because **I** (like every other citizen) am the government (for, by and of the people - remember?)

I paid into SS since I was 13 years old and paid the maximum for 29 years until I retired 6 months ago. By law, I am entitled to receive benefits at the established retirement age. The laws can change so that I am not allowed to collect at a particular age or at a particular rate because of means testing and then I would no longer, by law be entitled to it. I may not like that change but that is what legislation and voter participation is about.

Therefore, SS checks are an entitlement you receive from the gvmt.... you might not like to think so since some think that means they are getting welfare...

Welfare is a entirely different concept. The 'some' who think SS is welfare are wrong and I don't care what ignorant people think.

I do not think that way... but also do not get SS checks....

Glad to read that a Texan is informed. (I was born in Houston.) Are you or will you be entitled to it with the current laws? Do/did you pay into SS or are/were you self-employed?

 

[Lsbcal]

Your second clause is incorrect.

People who paid into SS are indeed entitled to it by law and that is exactly the way I defined it. I don't allow people to spin the word negatively. I also don't have a problem with 'the government' because **I** (like every other citizen) am the government (for, by and of the people - remember?)

I paid into SS since I was 13 years old and paid the maximum for 29 years until I retired 6 months ago. By law, I am entitled to receive benefits at the established retirement age. The laws can change so that I am not allowed to collect at a particular age or at a particular rate because of means testing and then I would no longer, by law be entitled to it. I may not like that change but that is what legislation and voter participation is about.
...

I particularly like the way you are taking some responsibility for 'the government'. We should all be a little more humble in assigning blame.

BTW, if one looks at the table I referenced above, SS is a smaller part of the big problem then many of us think. When the bipartisan commission (appointed by Obama, no flames please) reported their suggestions I took a look at the slide presentation. The changes needed to SS were not all that draconian IMO. I think SS will still be there for us, maybe a little reduced, but something you can still count on.

 

[calmloki]

Once I did a calculation of the human cost in WWII. Simply the deaths devided by the number of conflict days:
deaths per day in WWII = 25000

Yes, that is twenty five thousand per day. This put our current wars into more perspective for me. But any premature death is a personal tragedy and deeply felt by those who know the person.

Somebody should check my math. These deaths were from military and civilian causalities all over the world. Estimated totals for WWII were 62 to 78 million.

Cost/death is another dramatic item. Or % of population involved in conflict. Civil war horse vs. WW2 jeep vs. whatever great wallowing land going anti-IED armored craft is currently used. Much greater survivability today for the troops due to personal expensive armor and superior expensive medical intervention, followed by expensive rehabilitation. To some extent it seems we have traded money for blood.

The Civil war had maybe 3,750,000 fighters and 618,000 deaths, mostly from disease. In battles combatants were hit at a rate of 110 to 150/1000.

World War 2 had about 13,100,000 American combatants with about 311,000 deaths.

Viet Nam had 2.59 million who served. 58,169 were killed and 304,000 wounded.

Iraq and Afghanistan have yielded 44,372 wounded from the 1.3 million who have served and 5554 deaths.

 

[haha]

Here's a biggie- the Battle of Borodino, aka Battle of Moscow had over 250,000 troops. In that single day September 7, 1812, over 70,000 men were lost. Over 1/4 of the combatants did not wake up on September 8.

Ha

 

[Jay_Gatsby]

I see our current economic slump and government fiscal crisis as a tipping point towards economic maturity. We can go the way of great societies of history and become extinct, collapsing under the weight of our own largess while allowing other countries to rise in our stead. Alternatively, we can mature as a society and prioritize our economy and government spending in a way that preserves our nation. This latter option will require shared sacrifice, not just sacrifice by the rich. As has been proven time and time again throughout history, if you rely solely on the rich, eventually there will be none. Allowing the wealthy to pay the vast majority of taxes, and half of the population to pay no taxes at all, is not shared sacrifice.

 

[Beryl]

The changes needed to SS were not all that draconian IMO. I think SS will still be there for us, maybe a little reduced, but something you can still count on.

I'm praying (literally) that this is true. I'd budgeted for it for any increased healthcare costs since I FIREd and I'm concerned that we may all get coupons to take to our doctors instead of Medicare.

Moreover, given the pension eliminations and cuts, and 401K shrinkage, there are so many hard-working people who absolutely need SS to survive. I'm no multi-millionare but I'm willing to give up a little so they can make it.

 

[Texas Proud]

Your second clause is incorrect.

People who paid into SS are indeed entitled to it by law and that is exactly the way I defined it. I don't allow people to spin the word negatively. I also don't have a problem with 'the government' because **I** (like every other citizen) am the government (for, by and of the people - remember?)

I paid into SS since I was 13 years old and paid the maximum for 29 years until I retired 6 months ago. By law, I am entitled to receive benefits at the established retirement age. The laws can change so that I am not allowed to collect at a particular age or at a particular rate because of means testing and then I would no longer, by law be entitled to it. I may not like that change but that is what legislation and voter participation is about.



Welfare is a entirely different concept. The 'some' who think SS is welfare are wrong and I don't care what ignorant people think.


Glad to read that a Texan is informed. (I was born in Houston.) Are you or will you be entitled to it with the current laws? Do/did you pay into SS or are/were you self-employed?

By your own statement you say that it can be changed by Congress.... so all the money you paid in does not mean you will get a SS check... sure, the current law say you will, but as both you and I have stated that can change by a vote tomorrow if they wished... and there is nothing you can do about that...

Now, if it were a private firm, they could not take it away at their whim... that is the difference to me... sure, they can change future calculation and benefits, but what you have been promised up to today is what you will get (unless they go bankrupt).... again, all of SS can be taken away from everybody tomorrow... including people who are getting checks now... (sure, not going to happen, just saying)... that is a big difference IMO...


I will be under current law... but I don't understand you saying being self employed being a disqualifer.... I was self employed many many years ago and paid into SS at twice the rate... self employed pay both halves of SS.... I do think that I am still young enough that my benefits will be cut... I hope that it does not get to means testing because I think that it will them be more of a welfare system than a SS system....

 

[donheff]

we can mature as a society and prioritize our economy and government spending in a way that preserves our nation. This latter option will require shared sacrifice, not just sacrifice by the rich... Allowing the wealthy to pay the vast majority of taxes, and half of the population to pay no taxes at all, is not shared sacrifice.

We hear this mantra all the time from various groups who certainly are not composed solely of earners in the top brackets of American society. For example, I have read that Tea Party demographics fairly closely mirror the country as a whole. So do Democrats, so do Republicans. So, it is reasonable to assume that about half of the people in groups who parrot this talk are themselves in the half the population who allegedly pay "no taxes." I'm sure there are a fair number right here in ER.org who are at or below the median income. Do you think half the people who repeat the "no taxes" mantra would fess up to being among the supposed dead beats? No, of course not. They see a big deduction from every pay check. It is right there on their pay slip labeled FICA. Yes, they pay into SS and Medicare at the rate of 8.5% of their paychecks and an equivalent amount they never get to see in their checks because their employers send it in on their behalf. Those taxes are not considered "taxes" in the cited mantra because they are supposedly dedicated to SS. But we freely spent the proceeds of excess FICA taxes to pay other expenses. So now we worry that the rich may have to help pay those trust funds back? Back when DW and I were in that "rich" category, we were not paying FICA or the employers FICA match on most of our income. Nor were our peers. We didn't ask for a tax cut then and have no objection to a return to previous levels now because we agree with your highlighted statement calling for shared sacrifice. Virtually every "rich" person I have talked to has no problem whatsoever going back to the rates from the 90s. They would like to see us work out a sensible, balanced way out of our mess rather than pretend we can cut it out of the "deadbeats."

 

[Beryl]

I will be under current law... but I don't understand you saying being self employed being a disqualifer.... I was self employed many many years ago and paid into SS at twice the rate... self employed pay both halves of SS.... I do think that I am still young enough that my benefits will be cut... I hope that it does not get to means testing because I think that it will them be more of a welfare system than a SS system....

If you never paid into it, you aren't eligible for SS. That is what I meant. Some people who are self-employed don't pay anything into the "gov-mint" so I was wondering if that was your situation.

I don't want means testing either but I'm more concerned about the many seniors who are counting on SS.

IMO, SS is a wonderful program but we need to secure it so it will be available for current and future seniors. I'd like to see us add more into it (via taxes) and make it illegal for any entity from robbing it (the "lockbox" thing). We can't count on "the market" (privatizing it), many people don't have children who are financially stable, and no one wants charity. We need to make sure seniors can retire in dignity after many years of contribution via hard work.

 

[GregLee]

As has been proven time and time again throughout history, if you rely solely on the rich, eventually there will be none.

How many times is "time and time again"? More than one?

 

[Culture]

How many times is "time and time again"? More than one?

USSR (and all its components), Cuba, Vietnam, North Korea, Mainland China, Hungary, East Germany, Poland, Czechoslovakia, Bulgaria, Romania, Albania, Yugoslavia, Lithuania, Estonia, Latvia and Zimbabwe. I am sure the fine readers here can come up with a few other socialist paradises.

Although to be fair, even in these instances the political leaders were generally wealthy. It is just everyone else that gets the shaft.

 

[Culture]

The problem with discussing SS is that it is a pension plan with a strong welfare component. Proponents generally ignore the welfare part, and critics generally ignore the pension part.

I say get rid of the welfare component and make it a pure pension plan. You get out what you put in. I think the population as a whole would be happier with this approach.

Medicare, OTOH, is almost a pure welfare plan. The average medicare benefit is close to 60% of the average SS benefit, yet the recipients only paid in about 20% of the revenue to "purchase" those benefits. We need to elminate medicare and create something else, perhaps a government funded charity system for those who cannot afford private care. This system could rely on nurse practitioners and midwives, eliminate ridiculously expense end-of-life procedures, ignore hypochondriacs, ration specialist, outlaw malpractice claims in the government system, use only generic drugs, etc.

 

[GregLee]

USSR (and all its components), Cuba, Vietnam, North Korea, Mainland China, Hungary, East Germany, Poland, Czechoslovakia, Bulgaria, Romania, Albania, Yugoslavia, Lithuania, Estonia, Latvia and Zimbabwe. I am sure the fine readers here can come up with a few other socialist paradises.

I asked for instances of the generalization: "if you rely solely on the rich, eventually there will be none." So, interpreting your reply as best I can, I guess you think the socialist systems you mention have relied "solely on the rich". Is that really what you mean?

 

[Culture]

I asked for instances of the generalization: "if you rely solely on the rich, eventually there will be none." So, interpreting your reply as best I can, I guess you think the socialist systems you mention have relied "solely on the rich". Is that really what you mean?

No, I mean they relied on the rich until there were none. In most communist countries this was a very accelerated process, taking some time between instantaneously (say Vietnam's annexation of South Vietnam) to five to ten years (in the case of the USSR at its founding).

I also forgot to include the People's Paradise of Cambodia on the list, as well as Venezuelan (which is headed downhill fast).

Do you have any counter-examples of countries that relied solely on the rich for funding and succeed long-term?

 

[GregLee]

Do you have any counter-examples of countries that relied solely on the rich for funding and succeed long-term?

No. I would have to see some evidence before accepting that the communist socialist systems you list ever relied solely on the rich for funding.

 

[Beryl]

Most Americans don't know the difference between Communism, Socialism, Marxism, Maoism, Anarchism, Libertarianism, Liberalism and how they relate to our their affair with Capitalism. All they know is that they don't like any of them and they are 'of the debil'.