Friday, February 25, 2011

The Social Security Trust Fund...Dead Money

Every once in awhile, I stumble across somebody who is under the impression that Social Security funds are resting in some safe account that politicians can't raid and haven't spent.

Four years ago, I was one of those guys. A few folks pointed out- that I was a moron.

Excess contributions and reserves have been spent. When the SSA posted a 49 billion dollar loss this year, that raised my eyebrows. Remember when they said the fund wouldn't go red until 2018? Wrong.

So when you are already bleeding money, what's the smart move? Well according to this government, just cut the employees share. For a year. Snipped from an online article.


The FICA tax (consisting of Social Security and Medicare taxes) is imposed on both employers and employees at an aggregate rate of 15.3 percent.   Half is paid by the employer and half is paid (through withholding) by the employee.  That is, each employer and employee pay 7.65 percent in FICA tax. Of each half, 6.4 percent is Social Security Tax.
In 2011, the Social Security tax is imposed on the first $106,800 earned by an employee.  For this year only, the Act reduces the employee’s share of the Social Security Tax to 4.4 percent of this wage base.  This means that an employee making $106,800 will pay $2,136 less in Social Security Tax in 2011.  An employee making $50,000 will pay $1,000 less.

-You just can't make this shit up. You can't rob Peter to pay Paul. Why not? Because Peter has to finance that 49 billion dollar loss with more Treasury debt. Interest. This year, we are not just going to lose the 3% that should be paid in...we are going to lose an additional 3 or 4% in interest. Can you imagine how ugly this is going to be at the end of this year? I think with the loss of revenue, baby boomers taking their first out, higher costs, the SSA fund loss could triple this year to 150 billion. More treasury debt, more interest.

It also set a unique precedent just prior to an election year. Do you think it's possible to extend this again through 2012? I sure do.

The interesting thing, I think, is that while the DC morons argue about those paltry cuts in the discretionary part of the budget- they could be dismantling and phasing out SS- particularly for younger folks. That has a far greater reward and return. Of course the howls from the largesse gatherers would be so intense- that politicians see it as career suicide. And it probably is.

Sooner or later someone is going to have to step up and commit suicide. That's the way it is. Like all good politicians before them- I fully expect this spineless crew to let someone else commit suicide. I think the whole system implodes as the Bernank just cranks up the presses some more. I can easily see trillion dollar losses in the next five years as the boomers exit at a rapid pace and nobody pays in. The losses will rise exponentially and interest will get tacked on. If this crew can't make some paltry cuts in this years budget and agree on them, what chance do they have of rescuing Social Security? The SSA is dead money...it's just a matter of when.

3 comments:

Airstikes for Peace said...

Good Piece. Do you remember when we fantasized about our employer pulling out of SSI? But the sheep employees would never think of it. "Who is going to take care of us?." I broached the subject again and did more research and found that a "new" incorporated municipality can decide to "opt" out of SSI, but once a municipality is in, they cannot, under law, change their minds and get out. Can you say "enslavement". Just think, If my employer could keep their contribution made on my behalf, and then I could keep my contribution and invest, save, or buy precious metals as you advise, think how much further that small group would be. But the powers that be do not want that. Forget trying to do what YOU want with the money YOU earn.

I'd have more respect for these liars if they would just come out and say "SSI is done. Those folks getting it, sorry, you aint getting it anymore. Those folks who thought they were getting it, you aint. It's over, fini." At least you could try to plan something else. But as long as it is around, folks will still think they are going to get an SSI benefit. Don't hold your breath.

D

Brian said...

Boise PD opted out.

About six months ago, I stumbled onto some obscure blog via a link. The author of that post suggested a "phasing out" win win for everybody. He supported it with a number of mathematical calculations and it looked do-able.

Essentially he kept people in that had paid 30+years but slightly reduced their benefit..younger workers would- depending on their age- contribute less and the benefits they would they would get would be such smaller until at some point, 40 years...the whole mess would be phased out. It was an excellent piece which focused on a slow phasing out that was fair and least painful. It was an excellent strategy but I'll be damned if I can find it.

It's the limbo part of this that drives us all batshit crazy. If they would just make a decision what to do with this mess...we then would be free to plan our lives accordingly.

Thanks D. Have a good weekend!

conservativesonfire said...

I guess I'm just going to have to admit that I am one stupid old man. Why? Because to me fixing SS is the easiest problem we face. But the government has to start by telling the people the truth and they don't know how to tell the truth. Making the emploee pay on all earned income and racheting-up the age to receive full benefits would save the SS for 15 years or more. During that time we start phasing-in a 401K type of system such as Chile has had for the last 18+ years.

But where are we going to find someone to tell the people the truth.