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It’s no secret that I’m a harsh critic of the Social Security program, including the very way in which it was constructed back in the 1930s.
More importantly, I’m an even harsher critic of the way our lawmakers have systematically mismanaged decisions related to the program – especially in recent years.
But I have to tell you: Even I am continually shocked by how much worse government officials can make things, and how much farther down the road they’re willing to kick the can.
In case you can’t guess, I’m talking about the fact that Congress has now passed the “Middle Class Tax Relief and Job Creation Act of 2012.”
Oh, sure, it sounds magnanimous enough – grandiose even!
But if you take a look under the hood, you’ll quickly realize that this legislation has very little to do with either middle class tax savings OR job creation.
What it should really be called is the “We Hope U.S. Voters Are Too Uninformed to Recognize That We Simply Stole More Money from Their Failing Retirement Program to Buy Votes” act. (I wouldn’t be opposed to keeping “of 2012” in the name if someone insisted.)
I realize that’s a pretty big charge. So let me explain …
Last year, lawmakers decided to cut the amount of money each worker contributes to Social Security by two percentage points.
Then, they extended it for the first two months of 2012.
And with this latest act they’ve extended it all the way through this year.
Now please remember that even before any of these payroll tax cuts, Social Security had already begun taking in less than it was paying out … AND that the program’s Trustees continually underestimated the timing and magnitude of this obvious problem.
Also please remember that when the initial payroll tax cut was initiated in 2011, Washington told us it would be for one year and one year only.
Did I believe that? No. I said as much right here in Money & Markets when the first payroll tax cut was announced!
So the fact that they keep extending this “one-time” cut is bad enough.
But Here’s the REAL Problem with This Latest Payroll Tax Cut …
Sure, the primary part of this legislation – the continued two-percentage-point reduction in the amount that all workers contribute to Social Security – WILL put more money in all our pockets this year. So in that respect it IS a 2012 tax cut – one I’m certainly grateful for.
But it also extends unemployment benefits and shores up certain Medicare reimbursements to doctors, neither of which creates jobs nor saves us any taxes as far as I can figure.
And the elephant in the room is this:
Despite all the early bluster about making sure these items were paid for through other offsets and cuts … our esteemed lawmakers ultimately decided that, uh, that was just a bit too hard to figure out by the end of February!
I mean, who wants to make important decisions like that in an election year anyway, right?
The end result is just another example of robbing money from the Social Security system to get us through today with absolutely zero thought on how it impacts tomorrow.
During negotiations over this legislation, Democratic Senator Max Baucus of Montana called the package “very good for the country” … while Republican Representative Steve Latourette from Ohio was quoted as saying this compromise is “the art of a deal.”
Me? I call the whole thing the art of a raw deal.
And let me be clear – this decision runs deeper than even Social Security.
Reason: It may put us right back into another debt ceiling showdown far sooner than most Americans think possible.
So what can we do about it?
Well, for starters, some of my colleagues and I have been working on a project to get Congress to stop their fiscal insanity. It’s called “The Campaign for a Sound Dollar” and you can learn more about it here.
Second, when it comes to the actual state of our nation’s retirement system, we all need to be as realistic as possible. Yes, near-term payments will keep going out … but the farther down the line you look, the less certain anything related to Social Security becomes.
Therefore, it’s absolutely critical that you continue to build your own private nest egg … with a major emphasis on investments that will both increase in value and provide you with solid cash flows in retirement. To learn more about some of my favorites right now, I encourage you to watch my video presentation located here.
Best wishes,
Nilus
{ 11 comments }
There is no money involved here.Social Security payments and debts are in fiat currency,not money.There is no reason the Federal Reserve can’t create any amount of fiat necessary to keep this program solvent.Of course the new fiat will dilute the value of the old fiat and lower it’s purchasing power.Everyone will get all the fiat they are promised.It won’t buy much,but they will get it.Nothing new here.Same thing for all fiat currency countries,throughout history.
No question that this is not a perfect deal. We expected recovery from the crisis to be slow. Every little bit of stimulus helps, and it has to come through a disfunctional political process. Look back to the Great Depression: it was massive government spending that ended it, not fiscal restraint. Afterward the economy boomed for years and made the deficits shrink as a share of GDP. And with interest rates on long term T-bonds so low today borrowing is cheap. Better to do whatever we can to get the economy going again, and people working and paying taxes. That’s what will get the debt under control.
Massive government spending did not end the depression! What government twaddle have you been reading? Ol’ FDR prolonged an 18 month recession into a ten year depression followed by 5 years of destructive war. 15 years of pent up demand and the forgiveness of war debt is what got the economy moving again otherwise the US and world would still be in a socialist holding pattern. We would be standing in line for the few groceries available just like Soviet Russia was!
Broomy, you drank ALL the Kool-aid. FDR prolonged the depression. WWII got us out! You must really love the Obama tripe …
The economy consists of converting natural resources into things more useful. Growth occurs when more resources are converted. Debt always puts a burden on the future. Debt used to buy capital used to convert natural resources more efficiently causes growth and profit that makes the debt affordable. Debt used for consumption and additional entitlement has little or no affect on resource conversion efficiency.
I suggest, although arguably affective during the depression, similar additional stimulus today will not change the shift in values and work ethic and consumption habits that have occured since the depression and will therefore just magnify our chalenges by kicking the proverbial can down the road while increasing the debt burden and the ultimate devaluation of the dollar via massive money printing.
I suggest that, because a shift in values and time use,
I ran through some simple calculations. which anyone over 60 can do, using the info on the letter I receive annually from Social Security . Taking the sum of all earnings which fell under the annual cap and multiplying it by 0.12 (the total 12% of employee plus employer contribution) I got a sum which could be considered my total IRA-equivalent account, if SSI were treated as an individual account. I then assumed that the account earned an interest rate equal to that of inflation and thus was what was calculated firstly. I then divided that by the amount the letter said I was to be paid to see how many months it would last. Then divided it by 12 to see how many years it would last. Surprise! Surprise! It would only last 6 years! But I have been already collecting for six years. Hmm. Thanks to all you young folks paying in….. I hopefully will continue to collect. Yes folks, it is a Ponzi Scheme. Try the calculation yourself. And, of course, this doesn’t take into account all those younger recipients who never paid in enough to cover their disabilty payments.
Simple solution (If we were united and had guts) is to write in a vote to cut everyones social security right now to where it should be, then we will see the only answer is to throw the bums out and charge the ones that stole it. Then we can learn to help each other again without the governments involvement and also how to work for a living.
I thought what ended the great depression was the great war or world war 2
Broomy: It’s refreshing to hear a voice of reason.
Chaz: Soc. Sec. is (or was intended to be) “insurance”. Some people pay into Soc. Sec. and never have a “claim.” Others (apparently yourself) didn’t pay in much, but have received a large (by comparison) “claim.”
When someone pays $600 per year for (for 20 years) for homeowner’s insurance, and never has a claim, they don’t complain that it was “wasted money which would have paid off better if it were in a ‘private savings account.'” Likewise, when someone pays for one year and has a total loss due to a fire, they don’t complain that it must be a “ponzi scheme” because they got more out of it than they paid in.
That’s just how *insurance* works.
Mark, You seem to ‘miss the point’. I paid in what was required of me based on the caps – ie my income was mostly above the caps, thus I paid in the maximum for most of my career. That is why I have been collecting the maximum monthly rate. And, no matter that they call it ‘insurance’, it isn’t, since most people make it to retirement , and thus will and do collect, and there are also those who collected when younger due to some disability. For them it is ‘insurance’. For the rest of us who do retire it is a ‘given’ payout of dubious duration given the current status of the program and its solvency.
Chaz wrote: “I paid in what was required of me based on the caps – ie my income was mostly above the caps, thus I paid in the maximum for most of my career. That is why I have been collecting the maximum monthly rate.”
Your point above seems to be that you earned more than Soc. Sec’s max income limit, therefore your insurance “premium” was limited. But, you’re collecting the max “claim” now that you’re in retirement.
If I understood you correctly, I think you’re missing an important point: Your monthly benefit is limited to a maximum monthly amount just like your income (for paying the “premium”) was limited. Google for “how your social security benefit is figured.” Calculate your benefit manually on that form.
It’s an eye opener for many who don’t understand that the first $700 of average monthly income counts for about 90% of your monthly benefit. Monthly income between $700 and $2500 contributes another 30%. Everything above $2500 and $4000 contributes about 15%. ($4000, or whatever the number is today, corresponds to the max income that a “premium” is taken from. Ergo, anything over that amount does *not* count toward your benefit.).
In other words, the payout is very much “progressive” like insurance. Those who earn more receive less (as a percentage of their earnings). The idea being that they earned more and therefore need less assistance with sustenance-level income.
Chaz wrote: “there are also those who collected when younger due to some disability. For them it is ‘insurance’.”
Actually, that’s *welfare*. Social Security was originally intended to protect a future generation from a free-wheeling generation who thought the sky had no limits. It was to provide at least the minimum basics in *retirement* so a future generation wouldn’t be faced with making up the shortfall (or, watching elderly people starve in the streets as an exercise in Social Darwinism.).
I strongly support Social Security’s original aim, and strongly oppose the turn it took in the ’60s when disability (welfare) was added to it. I also strongly disagree with modern attempts by both political parties to obscure it’s original purpose by referring to it as an ordinary, “cut-able” tax. Or, that the income limit should be raised as if it should be a more progressive tax (obscuring how it is progressive on the payout side, like its original intention: insurance.).
Chaz wrote: “For the rest of us who do retire it is a ‘given’ payout of dubious duration given the current status of the program and its solvency.”
I agree with your sentiment. But, I don’t believe solutions can be attained unless we discuss the problem accurately. Emotional hyperbole only compounds the problem. We should frame the problem in terms of what Soc. Sec. was intended to be, whether that was useful, and how it is failing (or why). Just saying “it’s a ponzi scheme” doesn’t help anyone (when we consider how insurance could be called a ponzi scheme too.).
But, I definitely agree that the more it’s turning into a benefit giveaway (or stealth vehicle to tax the wealthy, and blur the delineation between the general fund and Soc. Sec’s necessary capital reserves based upon actuarial planning), it’s a problem.