Denninger takes a swipe at SS today:
========================================================================
Here Come The Lies (Social Security)
I shouldn't be surprised at the spin that is put on the annual Social Security report, nor by the "advocacy" that so-called "Grass Roots" organizations like Move On (in reality funded by folks like George Soros, directly and indirectly) put out on this topic.
But occasionally, something stinks so badly that it demands response. Like this, for instance:
In recent years, during which conservatives have intensified their efforts to destroy one of the few U.S. government programs that actually works as intended, the report's publication has become an occasion for hand-wringing and crocodile tears over the (supposedly) parlous state of the system's finances.
Ok, I'm game. Let's talk about what's "intended."
For example, a black male has a life expectancy (as of 2007, at birth) of 68.8 years. A white woman has a life expectancy of 81 years.
So a black man could be expected to live 3.8 years post-retirement at 65. A white woman, 16 years. Put another way, if a white woman and a black man have exactly the same earnings history in their lifetime, the white woman will receive 4.21 times the Social Security "income" as will the black man.
(Incidentally, if you're a native-American man you're in worse shape than the black man - the only ethnic group that is.)
Those who want to talk about Social Security's purposes never want to discuss this little bit of rather intentional and institutionalized racism. And incidentally, this is the biggest argument for Social Security (in whatever form it is) being an individual trust fund and being an accumulated asset over one's work life. While such would not prevent you from dying before you received "all your benefits" (whatever they may be) it sure would prevent the government from stealing them - at least your children would get the money!
The old age and disability trust funds, which hold the system's surplus, grew in 2009 by $122 billion, to $2.5 trillion. The program paid out $675 billion to 53 million beneficiaries — men, women and children — with administrative costs of 0.9% of expenditures. For all you privatization advocates out there, you'd be lucky to find a retirement and insurance plan of this complexity with an administrative fee less than five or 10 times that ratio.
Well yes, when I can stick a gun up every employer's nose and force them to pay, it's rather easy to have a low expense ratio. Let's be realistic - this is hardly an indicator of anything other than the fact that government is efficient in extracting money.
The guys with the most guns usually are.
Despite what Social Security's enemies love to claim, the trust fund is not a myth, it's not mere paper. It's real money, and it represents the savings of every worker paying into the system today.
Oh no it's not.
So I'm going to train a microscope on it.
Your argument (and credibility) is about to be destroyed.
Most Americans pay more payroll tax than income tax. Not until you pull in $200,000 or more, which puts you among roughly the top 5% of income-earners, are you likely to pay more in income tax than payroll tax.
That's not true at all. Social Security (legally called OASDI or FICA) is a "first-dollar" payroll tax of 12.4%. You pay all of it, despite the claims of many who say "half is the employer's." Uh, no, he pays you 6.2% less than he would have otherwise, and remits it to the government, along with "your half." It is not possible to tax a company - all taxes are paid by people (think about it.)
Most middle-class people have an effective Federal Tax Rate of significantly higher than 12.4%. It is certainly true that for those people who are in the lower-income brackets their federal income tax burden is near or at zero - especially for those who qualify for the EIC. But a 12.4% effective federal income tax rate typically shows up for a single person with income around $50,000, and for a married couple in the $60-80,000 bracket. This hardly qualifies them as "Rich" or "in the top 5%."
Since 1983, the money from all payroll taxpayers has been building up the Social Security surplus, swelling the trust fund. What's happened to the money? It's been borrowed by the federal government and spent on federal programs — housing, stimulus, war and a big income tax cut for the richest Americans, enacted under President George W. Bush in 2001.
Really? The "big income tax cut for the rich" is the primary cause?
War, yes. Housing? Yes. "Stimulus" (mostly hiring government hacks of various sorts)? Yes.
But, if George W. Bush was so horrifyingly bad, how is it that President Clinton also stole the Social Security surplus - and claimed "budget surpluses" that didn't exist? Was his social spending not part of the picture?
Never mind that the real budget ball-buster in the 2000s wasn't war and wasn't tax cuts for the rich - it was Medicare Part D, which was sold as and in fact IS a huge giveaway to Americans of reasonably-modest means, since the wealthy can (and do) pay cash for "better" care than Medicare will provide.
The interest on those bonds, and the eventual redemption of the principal, should have to be paid for by income taxpayers, who reaped the direct benefits from borrowing the money.
No they didn't. Oh, and incidentally, your housing bubble out in LA? Guess who profited from that? It wasn't the rich who were buying houses in a bidding frenzy for $800,000 when they worked at Cost Cutters for $8/hour. That was middle and lower-class folks buying crack-shacks that were sold as mansions, living large on phony "appreciation" in their value.
Indeed, that was the primary "beneficiary" of the "easy money" programs. While it is certainly true that the Blankfein's and Lewis' of the world skimmed off billions, in the grand scheme of things we're talking tens of trillions of fake wealth here, and those Escalade "pimp-mobiles" were, by and large, being "bought" and "enjoyed" by people who simply couldn't afford them - and they weren't, for the most part, banksters.
So all the whining you hear about how redeeming the trust fund will require a tax hike we can't afford is simply the sound of wealthy taxpayers trying to skip out on a bill about to come due. The next time someone tells you the trust fund is full of worthless IOUs, try to guess what tax bracket he's in.
The money isn't there and can't be raised. We're talking about close to one hundred trillion dollars between Social Security and Medicare. This exceeds (several times over) all of the wealth of those "fat cats" you'd like to tax.
Why? Because your premise is a lie - the "fat cats" sure did skim off what they could, but the biggest beneficiaries of these programs were in fact the so-called "middle class" that lived like Gods, despite having a laborer's wage. Now the bill is on the table and they, like you, are screaming about it.
Incidentally, one of the other claims raised by MoveOn is related to this:
Reality: Social Security doesn't need to be fixed. But if we want to strengthen it, here's a better way: Make the rich pay their fair share. If the very rich paid taxes on all of their income, Social Security would be sustainable for decades to come.5 Right now, high earners only pay Social Security taxes on the first $106,000 of their income.6 But conservatives insist benefit cuts are the only way because they want to protect the super-rich from paying their fair share.
Uh huh. Social Security benefits are capped. That is, your Social Security wage base (what you pay taxes on) are all that goes into the computation of benefits. Further, benefits are REGRESSIVE with increasing income in that wage base: You get 90% of your first $761 in monthly indexed earnings, 32% of that over $761 and under $4,586 and just 15% of that over $4,586 - until you hit the tax cap, at which point it goes to zero.
What MoveOn doesn't want to talk about is that if you remove the cap on taxation then you also remove the cap on Social Security payments. Yes, I'm sure they'll bend it (and you) once again, so that you can only be credited for some small part (if any) of that additional tax. In other words, contrary to the claim that Social Security is a pension into which one pays, it is clear that it is no such thing - you only get full benefit for the first $9,132 in income in a year - that which doesn't even get you to the poverty line! For the rest, your benefit base falls off to only 15% of what you earn over $4,586 monthly (that is, an annual income of $55,000) up to the cut-off, at which point you neither pay more tax nor do you get more benefit.
The last time I checked $55,000 wasn't exactly a "rich man's" salary, and yet that middle-class taxpayer is literally bent over the table in that his benefit calculation is only 15% of the money he's earning.
The rest of the arguments there are equally-bereft of legitimacy; indeed, MoveOn is counting on you not to understand fifth-grade math. That allegedly-intelligent people actually read and believe that bilge says more about the failure of our educational system than anything else.
Social Security doesn't contribute a dime to the federal deficit, and in these days of market stagnation and cutbacks in pensions, it has never been more important to millions of Americans.
Oh yes it does, and yes it will. Shuffling around paper to hide a deficit doesn't make it disappear - it just changes the optics of the matter.
Those "IOUs" issued to OASDI are not marketable paper. This is a clever trick; see, if they were marketable bonds then the Social Security trustees could sell them to anyone they wished. That, of course, would bring market discipline to stealing the so-called "surplus", because the trustees could always sell out to meet their obligations and in so doing, interest rates would rise - probably a hell of a lot.
But instead they're "specials" - they are, in fact, IOUs. They can only be sold back to Treasury, which is then obligated to issue real bonds into the real market in order to obtain the funds that the trustees need to pay benefits.
Treasury and Social Security did this, incidentally, because doing so protects the face value of those "special IOUs." If they were instead issued as marketable securities their market value would rise and fall with interest rates. Fiscal profligacy would thus tend to punish the Social Security fund in times when rates were high, and help it when rates are low (like now.) But by making them non-marketable this is avoided, and as such the trustees can claim "stability."
Such claims are a chimera as they are entirely reliant on the government being able to issue into the private market Treasury securities to pay off the IOUs as needed. Should rates rise due to unreasonable amounts of issuance, Treasury would find itself in a debt-spiral where issuing the required bonds causes funding costs to rise faster than the sold bonds raise revenue. From that spiral there is no escape - indeed, it is precisely the threat of that outcome that led to the Greek panic earlier this year.
Social Security was always a sort of Ponzi Scheme, albeit one with long lead times and big up-front banked "surpluses." The fiscal reality of that Ponzi is what led the government to make big changes to how "inflation" (CPI) are calculated, since that's how benefits are indexed. Rather than admit the ponzi then, they decided to screw literally everyone and send bad price and demand signals into the market. This in turn was a major driving force in the credit bubble.
The Social Security trustees were right in the 1980s - the system was broke. The problem is that the so-called "fixes" were nothing other than papering over insolvency in a puerile attempt to shift the damage to society generally via manipulated government statistics.
Unfortunately Ponzi Schemes can't be made viable with tricks. They can only be repudiated, or they will eventually collapse, with the only unknown being time.
It is well-past the time when we should recognize the truth about Social Security - including the intentional institutionalized racism that was present at its inception and continues today, along with the fact that one cannot "jigger" so-called "benefits" via manipulated inflation statistics and receive a positive outcome over time.
market-ticker.org/