Tag: Social Security

  • Federal spending on autopilot

    Federal spending trends

    Many people know that a large portion of the federal budget is effectively out of lawmakers’ hands. Together Social Security, Medicare, Medicaid, and interest on the debt presently consume about 48 percent of federal spending. But if nothing changes, these programs will grow to consume 90 percent of federal spending by 2084.

    This is the conclusion of Mercatus Center Senior Research Fellow Veronique de Rugy. Her analysis is based on data from the Congressional Budget Office, which makes forecasts in its Long-Term Budget and Economic Outlook. Her report is Defense and Non-Defense Spending Programs Squeezed as Autopilot Programs and Debt Interest Explode.

    The key is this is a forecast if nothing changes. The spending on entitlement programs that drive this forecast are under federal legislators’ control. They can act to make changes over the long term, if they wish to.

    But before last year’s elections, few politicians, even Republicans, were willing to confront the problem head-on. One of the few officeholders willing to do so is Wisconsin Congressman Paul Ryan, who is now chair of the House Budget Committee. His Roadmap for America’s future is a plan that recognizes the seriousness of the current situation, not only with Social Security, but in other areas of the federal budget.

    His recommendations, specific as they are, cause consternation among some Republicans who would rather talk about problems in general terms rather than specifics. A recent Washington Post profile of Ryan referred to “… many Republican colleagues, who, even as they praise Ryan for his doggedness, privately consider the Roadmap a path to electoral disaster. Unlike most politicians of either party, he doesn’t speak generically about reducing spending, but he does acknowledge the very real cuts in popular programs that will be required to bring down the debt.”

    Many of the new members of Congress are eager to take on the long-term problem illustrated in de Rugy’s chart. Let’s hope they have success.

  • Charles G. Koch: Why Koch Industries is speaking out

    In today’s Wall Street Journal, Charles G. Koch, who is chairman of the board and CEO of Koch Industries, writes that economic freedom — not government spending and intervention — leads to prosperity and economic well-being for all, even for our poorest citizens.

    Koch describes an “economic crisis” of increased spending and debt, at both the federal and state levels. The spending cuts currently being considered by Congress, he says, are “relatively minor,” with few proposals for necessary cuts to military and entitlement programs. He describes Wisconsin Governor Scott Walker as someone who takes seriously the challenge of controlling government spending.

    Mismanagement of our finances by both Democrats and Republicans, along with their and President Obama’s refusal to tackle the problem of existing debt and the unfunded liabilities of Social Security, Medicare and Medicaid, means we are looking at “looming bankruptcy,” Koch writes.

    On the relationship between government and business, Koch writes that too many business firms have practiced “crony capitalism”: lobbying for special favors, subsidies, and regulations to keep competitors — who may be more efficient — out of the way.

    While it’s more difficult than practicing cronyism, competing in open markets assures that firms that efficiently provide goods and services that consumers demand are the companies that thrive, Koch writes. It is these efficient firms that raise our standard of living. When politically-favored firms are propped up and bailed out, our economy is weakened: “Subsidizing inefficient jobs is costly, wastes resources, and weakens our economy.”

    He concludes: “I am confident that businesses like ours will hire more people and invest in more equipment when our country’s financial future looks more promising. Laying the groundwork for smaller, smarter government, especially at the federal level, is going to be tough. But it is essential for getting us back on the path to long-term prosperity.”

    Why Koch Industries Is Speaking Out

    Crony capitalism and bloated government prevent entrepreneurs from producing the products and services that make people’s lives better.

    By Charles G. Koch

    Years of tremendous overspending by federal, state and local governments have brought us face-to-face with an economic crisis. Federal spending will total at least $3.8 trillion this year — double what it was 10 years ago. And unlike in 2001, when there was a small federal surplus, this year’s projected budget deficit is more than $1.6 trillion.

    Several trillions more in debt have been accumulated by state and local governments. States are looking at a combined total of more than $130 billion in budget shortfalls this year. Next year, they will be in even worse shape as most so-called stimulus payments end.

    For many years, I, my family and our company have contributed to a variety of intellectual and political causes working to solve these problems. Because of our activism, we’ve been vilified by various groups. Despite this criticism, we’re determined to keep contributing and standing up for those politicians, like Wisconsin Gov. Scott Walker, who are taking these challenges seriously.

    Both Democrats and Republicans have done a poor job of managing our finances. They’ve raised debt ceilings, floated bond issues, and delayed tough decisions.

    Continue reading at The Wall Street Journal (subscription not required)

  • Goyle on Social Security protection

    Raj Goyle, candidate for U.S. Congress from Kansas, pledges to protect Social Security from changes, including partial privatization and increases in the retirement age. On his campaign website, he says we must work in a “bipartisan, responsible way to adjust Social Security to ensure its long-term stability.” Goyle’s website doesn’t say this, but the only way to make these adjustments is to increases taxes or the deficit — which pushes taxation off to the future.

    Goyle’s opponents in the campaign for United States Congress from the fourth district of Kansas are Reform party candidate Susan Ducey, Republican Mike Pompeo, and Libertarian Shawn Smith.

    In his pledge, Goyle promises to “work for real solutions that strengthen Social Security for the long term.” Specifically, he pledges to oppose all efforts at privatization and raising the retirement age to 70.

    The problem is that after ruling out reforms like these, there’s not much left to do except to raise taxes or borrow more. Evidence of this can be found in an editorial from the Los Angeles Times recently printed by the Wichita Eagle. Titled Ignore fearmongering on Social Security, it mostly looks back at opposition to the formation of the Social Security system 75 years ago.

    But the article recognizes that the system needs “minor adjustments” to remain solvent. The authors write: “Economists say that raising the income ceiling on the payroll tax, applying the Social Security tax to nonwage income or adding a modest increase to the payroll tax could add decades to the health of the Social Security trust fund.”

    Each of these policy changes is a tax increase. The article lists no other solutions than these.

    These recommendations are not Goyle’s. He hasn’t said what he would do to place the system on a sound financial footing, although he uses the same term — “adjustments” — as does the Times editorial.

    But the reality is there’s not much that we can do except raise taxes or increase the deficit if we want to keep the current system.

    We need to do something quickly. Social Security will pay out more in benefits this year than it receives in contributions from payroll taxes. It had been thought that this milestone would not be reached until 2017 or later.

    There are those who cite the Social Security trust fund and its large balance of over $2 trillion as evidence that the system is doing well. Goyle himself recently mentioned that Social Security would be solvent for the next 30 years. Goyle didn’t mention the trust fund, but that is the source of the system’s purported solvency.

    The problem is, as Thomas Sowell explains, the trust fund is merely an illusion. The money in the fund has already been spent by government agencies. The only way they can pay back the fund is through tax revenues or additional borrowing, which increases the deficit and pushes taxes to future generations.

    It’s not as though most Republicans are confronting the problem head-on. One of the few officeholders willing to do so is Wisconsin Congressman Paul Ryan, who is ranking member of the House Budget Committee. His Roadmap for America’s future is a plan that recognizes the seriousness of the current situation, not only with Social Security, but in other areas of the federal budget.

    His recommendations, specific as they are, cause consternation among some Republicans who would rather talk about problems in general terms rather than specifics. A recent Washington Post profile of Ryan referred to “… many Republican colleagues, who, even as they praise Ryan for his doggedness, privately consider the Roadmap a path to electoral disaster. Unlike most politicians of either party, he doesn’t speak generically about reducing spending, but he does acknowledge the very real cuts in popular programs that will be required to bring down the debt.”

    That frank talk about the budget and government spending might be an electoral disaster is a bad sign for America. We need Raj Goyle to be specific about his plans for Social Security adjustments, too.

  • Thompson makes case for liberalism, freedom, capitalism

    Speaking to an audience in Wichita last Thursday, author and scholar C. Bradley Thompson delivered a lecture that explained the foundation of the greatness of America, and cautioned that this greatness is, and has been, under attack.

    Thompson’s lecture was sponsored by the Bill of Rights Institute and underwritten by the Fred C. and Mary R. Koch Foundation. Thompson is the BB&T Research Professor at Clemson University and the Executive Director of the Clemson Institute for the Study of Capitalism. He has also been a visiting fellow at Princeton and Harvard Universities and at the University of London.

    In his lecture, Thompson explained the “two Americas,” which he said are “two radically different moral and political visions for America.” These are two different perspectives on the meaning of the word “liberalism.”

    America, Thompson said, is and always has been a liberal nation. The question to ask, he said, is: Which liberalism? Thompson drew a distinction between what he called the old liberalism of America’s revolutionary founding fathers, and the new liberalism associated with “the ‘Republicratic’ party of George W. Bush and Barack Obama.”

    The philosophy of the old liberalism, Thompson said, is summed up in the words of the Declaration of Independence: “We hold these truths to be self-evident, that all men are created equal, that they are endowed by their Creator with certain unalienable Rights, that among these are Life, Liberty and the pursuit of Happiness.”

    The philosophy of the new liberalism, however, is this: “From each according to his ability, to each according to his needs.” These are the words of Karl Marx and the political philosophy of socialism.

    Thompson said that these two competing moral philosophies have dominated American culture for the last 100 years. He asked: which of these is the most dominate in American life and culture today? The answer, he said, is clear, holding up a copy of Newsweek magazine from last year whose cover claimed “We are all socialists now.”

    In examining the two forms of liberalism, Thompson started with the old liberalism. This insisted that men have the right to be free and to pursue their happiness without interference from others. Politically, government should be strictly limited through a separation of church and state, school and state, economy and state, and culture and state. Economically, individuals should be free to produce and exchange their goods and services free from government control, and government should not take wealth.

    Socially, Thompson said that the founder’s liberalism is best expressed by “rugged individualism.” This is distinctly American — there is no French version of this, he told the audience.

    This is a “principled commitment to freedom” in which individuals are morally sovereign.

    Liberalism embodied itself in America’s founders a distrust of political power. The question at the time of the founding was “How can the grasping power of government be tamed and harnessed in a way that would serve the legitimate functions of government?” The solution was to subordinate the government to the Constitution. Written constitutions, then, are the fundamental law.

    Initially, the night watchman state advocated by Thomas Jefferson was strictly limited with a “tightwad budget.” Government asked only that citizens respect the rights of others, live self-starting, self-reliant, virtuous lives, and that citizens deal with each other through persuasion and voluntary trade. In exchange, the state promised protection from domestic and foreign criminals and to govern by the rule of law.

    But the “land of the free,” Thompson said, would not, and could not, last.

    Turning to the new liberalism of Franklin Delano Roosevelt, Richard Nixon, Hillary Clinton, George W. Bush, and Barack Obama, Thompson said these are its principles: Morally, he repeated the Marxian slogan: “From each according to his ability, to each according to his needs.” This, he said, is the moral philosophy of altruism: Selfishness is the ultimate form of evil, and that selflessness is the highest moral good. “Man’s greatest moral duty is to sacrifice one’s self to needs of others,” he told the audience. President Obama has called for such sacrifices, he said.

    In practice, Thompson said that altruism means the hard-working must be sacrificed for the lazy. The best is sacrificed to the lowest common denominator. In practice, he said it punishes ability and virtue, rewards incompetence and vice, destroying incentive, responsibility, integrity, and honesty in the process.

    Egalitarianism is at the center of the new liberalism, he said. New liberalism says that individuals have positive rights and positive freedom. It means that everyone — regardless of ability and productivity — should be made equal. Freedom from fear and want become basic human rights.

    “The modern welfare state is morally corrupting and fundamentally evil on all levels. It teaches one man that he has the right to live off the work of another man.” The impact on the moral character of Americans is that presently 61 million Americans are dependent on the government for their daily housing, food, and health care. This has grown by 31 percent in the last nine years, Thompson said.

    Politically, new liberalism says that the common good trumps individual rights. Individual self-interest must be always be sacrificed to the general welfare. Since this “public interest” is undefinable and non-objective, the coercive power of the government must be too: undefinable and non-objective. “Unlimited ends requires unlimited means,” Thompson said.

    While liberal socialism speaks of grand ideals such as social responsibility, what it really wants is more basic: power. “There is a direct and causal relationship between the morality of sacrifice, and force, and the violation of rights.”

    Examples of the violations of rights and freedoms include Social Security, which violates the rights of younger Americans by forcing them to fund the retirements of senior citizens. Medicare, Medicaid, and Obamacare force taxpayers to fund the health care of anyone who claims to need it. The Community Reinvestment Act of 1977 violates the rights of bankers by forcing them to make risky mortgage loans to people that they wouldn’t have otherwise lent to. The ARRA (the federal stimulus bill of 2009) forces taxpayers to pay for all sorts of programs.

    Underlying all these programs is altruism, the moral philosophy which says we must serve others, whether we want to or not.

    Thompson went on to explain how altruism affects our lives day-to-day. The tax and regulatory system means that workers must work (on average) until April 9th to pay their taxes. This means, Thompson said, that for almost three and one-half months we are all enslaved to someone else.

    Thompson said that we are dying a slow death by regulatory strangulation. Endless commands by government bureaucrats regulate nearly all aspects of our lives. “We live in a world today — believe it or not — more heavily regulated than was Nazi Germany during the 1940s or Communist China is today.” Besides federal regulation, state and local governments add to the regulatory burden.

    The regulations have a much more insidious effect, Thompson said: “Each and every new entitlement or regulation passed by government seduces and tranquilizes the American people to become ever more reliant on politicians and bureaucrats for their daily sustenance and for their daily decision making and actions.”

    Thompson continued: “A moral culture of radical independence has become a moral culture of slouching dependence.” The last 80 years have seen the greatest expansion of political power, and the greatest loss of freedom, in our history. The untold story of our national history of the last century is “how the American people sold their freedom and sold their souls to the nanny state.”

    There are two questions confronting Americans today. First, have we reached a “tipping point” where government is on an unstoppable downward cycle?

    Second, and more important: Have we reached a point of no return on the road to serfdom?

    There is also another way to divide the two Americas, Thompson said: the rulers and the ruled. The ruling class is all the politicians of both major parties, along with bureaucrats at all levels, college professors, journalists of the mainstream media, think tank policy wonks, community organizers, and corrupt businessmen who support corporate welfare. This class presumes it is intellectually and morally superior to those it rules over.

    This ruling class, Thompson said, seeks to manage and regulate two classes of Americans: those who work and pay taxes, and those who don’t. By redistributing over one-fourth of what Americans produce, the ruling class rules over the country. The rule of law is replaced by the rule of men.

    And what does the ruling class want, Thompson asked? It wants us simply to obey. The country is drifting slowly and steadily to soft despotism.

    The two Americas are irreconcilable, Thompson told the audience. We can’t have both, he said — we must have one or the other.

    Concluding, Thompson said that “Americanism created a sphere of freedom unprecedented in world history.” The freedom philosophy of Americanism has liberated the creative and productive power of millions of ordinary Americans, listing the many impressive contributions of America to the world. The principles of individualism, limited government, and laissez-faire capitalism have revolutionized human life and improved it immensely.

    This American, “old liberalism” philosophy that has liberated ordinary men and women to pursue their own values and greatness is under attack, and we must fight to keep it alive.

  • Social Security: A good and moral deal?

    Social Security and its future have been in the news lately. Supporters promote it as one of the best examples of successful government programs, and denigrate its critics as pessimists.

    Locally in the campaign for United States Congress from the fourth district of Kansas, one candidate promises to defend the current system, while another has spoken approvingly of Wisconsin Congressman Paul Ryan and the reforms recommend in his Roadmap for America’s future.

    Many of the arguments in favor of Social Security and strengthening the system revolve around the issue of fairness, even casting a moral tone. So what about the fairness of the Social Security system?

    In Slaying Leviathan: The Moral Case for Tax Reform, author Leslie Carbone looks at the economic impact of Social Security and its payroll taxes on middle income people:

    Payroll taxes actually have the bizarre effect of leaving families less able to ensure what they are specifically purported to provide — security in old age. According to The Heritage Foundation, Social Security’s inflation-adjusted rate of return is a paltry 1.2 percent for an average household of two 30-year-old earners, each making just under $26,000, with children. This family will pay about $320,000 in Social Security taxes (including their employers’ share) and can expect to receive about $450,000 back in payments (1997 dollars, before taxes, assuming that they begin collecting at age 67). Had this typical family allocated the same amount to conservative private investment vehicles, such as traditional retirement accounts, they could expect to enjoy a real rate of more than 5 percent per year before taxes, or $975,000 (1997 dollars). Social Security taxes of $320,000 cost this family $525,000.

    Social Security is not a very good investment, as we now see. It’s even worse — cruel and unfair, we might say — when workers pay into the system for years and then die shortly after starting to receive benefits. If people owned their own retirement savings, they could pass these assets on to their heirs or anyone else they choose.

    An argument often used against privatizing the Social Security system is that people will have to make investments in stocks and bonds. Securities markets sometimes go down, as they have recently, and sometimes do not perform very well for long periods. So the Social Security supporters ask: Do we want Americans’ retirement security dependent on such uncertain investments?

    It’s true that markets go up and down. But over the long term, the direction has been up. Young workers do not need to be concerned about the performance of the market over the next few years. Their time horizon is measured in decades.

    Furthermore, over long periods of time, the performance of securities markets is closely tied to the performance of the American and world economies. If markets do not perform well over time, it is almost certain that the economy is underperforming too. Such a poor economy makes it even more difficult for young workers to pay the taxes necessary to pay the Social Security benefits that retirees will demand. Those young workers will have to pay, as there is no Social Security trust fund that can be drawn upon, despite the claims of its backers.

    It’s contrary to economic freedom and personal liberty for the government to force Americans to participate in a retirement program. Forcing us to participate in one that performs as poorly as Social Security is a tragedy, not a mark of kindness and moral superiority.

  • Goyle’s social security protection pledge is a tax increase pledge

    Raj Goyle, candidate for Congress, has pledged to protect social security. He doesn’t mention the tax increase that will be required to fulfill this pledge.

    Goyle’s opponents in the campaign for United States Congress from the fourth district of Kansas are Reform party candidate Susan Ducey, Libertarian David Moffett, and Republican Mike Pompeo.

    In his pledge, Goyle promises to “work for real solutions that strengthen Social Security for the long term.” Specifically, he pledges to oppose all efforts at privatization and raising the retirement age to 70.

    The problem is that after ruling out reforms like these, there’s not much left to do except to raise taxes. Evidence of this can be found in today’s Wichita Eagle, which carries an editorial from the Los Angeles Times. Titled Ignore fearmongering on Social Security, it mostly looks back at opposition to the formation of the Social Security system 75 years ago.

    But the article recognizes that the system needs “minor adjustments” to remain solvent. The authors write: “Economists say that raising the income ceiling on the payroll tax, applying the Social Security tax to nonwage income or adding a modest increase to the payroll tax could add decades to the health of the Social Security trust fund.”

    Each of these policy changes is a tax increase. The article lists no other solutions than these.

    These recommendations are not Goyle’s. He hasn’t said what he would do to place the system on a sound financial footing.

    But there’s not much that we can do except raise taxes if we want to keep the current system.

    We need to do something quickly. Social Security will pay out more in benefits this year than it receives in contributions from payroll taxes. It had been thought that this milestone would not be reached until 2017 or later.

    There are those who cite the Social Security trust fund and its large balance of over $2 trillion as evidence that the system is doing well. But as Thomas Sowell explains, the trust fund is merely an illusion. The money in the fund has already been spent by government agencies. The only way they can pay back the fund is through tax revenues.

    It’s not as though Republicans are confronting the problem head-on. One of the few officeholders willing to do so is Wisconsin Congressman Paul Ryan, who is ranking member of the House Budget Committee. His Roadmap for America’s future is a plan that recognizes the seriousness of the current situation, not only with Social Security, but in other areas of the federal budget.

    His recommendations, specific as they are, cause consternation among some Republicans who would rather talk about problems in general terms rather than specifics. A recent Washington Post profile of Ryan referred to “… many Republican colleagues, who, even as they praise Ryan for his doggedness, privately consider the Roadmap a path to electoral disaster. Unlike most politicians of either party, he doesn’t speak generically about reducing spending, but he does acknowledge the very real cuts in popular programs that will be required to bring down the debt.”

    Also: “House Minority Leader John A. Boehner (R-Ohio) has alternately praised Ryan and emphasized that his ideas are not those of the party.”

    The fact that frank talk about the budget and government spending might be an electoral disaster is a bad sign for America.

  • Obama not first with trillion dollar deficit

    A Wall Street Journal column from last year highlights the lack of honesty in government accounting. The column speaks of fiscal year 2008. That period of time ended on September 30, 2008.

    It has been widely noted that 2009 will have the first “trillion-dollar deficit” in American history. Actually it’s the second. In fiscal 2008, the national debt increased from $9 trillion to slightly over $10 trillion. Yet the budget deficit in the last fiscal year was officially reported as being $455 billion. How could the national debt have increased by considerably more than twice the “deficit”? Simple. Just call the money borrowed from the Social Security trust fund an “intragovernmental transfer” and exclude it from the calculation of the deficit.

    Corporate managers have gone to jail for less book cooking than that.

    More about the fictional Social Security trust fund is at Social security trust fund needed now.

  • Social security trust fund needed now

    Almost overlooked in the news this week is the fact that Social Security will pay out more in benefits this year than it receives in contributions from payroll taxes. It had been thought that this milestone would not be reached until 2017 or later.

    The New York Times article Social Security to See Payout Exceed Pay-In This Year reports on this. The news article doesn’t come right out and tell us not to worry, but it does report on the large balance in the Social Security trust fund. This balance, the article says, will be used to make up the difference between payroll tax contributions and benefits paid out.

    The problem is that there really is no trust fund, at least not in any economically meaningful sense. The Times article does contain this: “Although Social Security is often said to have a ‘trust fund,’ the term really serves as an accounting device, to track the pay-as-you-go program’s revenue and outlays over time.” But the article doesn’t tell us the entire story behind this accounting device. We’ll have to look somewhere else for that.

    An article from the Heritage Foundation (Misleading the Public: How the Social Security Trust Fund Really Works) explains the workings of the trust fund:

    There is no cash in the Social Security trust fund, and there never has been any. The Social Security trust fund is merely an accounting device filled with IOUs that future taxpayers must repay. … Private-sector trust funds invest in real assets ranging from stocks and bonds to mortgages and other financial instruments. However, the Social Security trust funds are only “invested” in a special type of Treasury bond that can only be issued to and redeemed by the Social Security Administration. … In short, the Social Security trust fund is really only an accounting mechanism. The trust fund shows how much the government has borrowed from Social Security, but it does not provide any way to finance future benefits. The money to repay the IOUs will have to come from taxes that are being used today to pay for other government programs.” (emphasis added)

    At the Cato Institute, a 1999 article Pointless Debate over Social Security Trust Fund also explains the truth behind the trust fund:

    Starting in 2014, the situation will reverse. Social Security will no longer run a surplus but instead will run a deficit. Social Security will begin spending more on benefits than it is taking in through taxes. To continue to pay those benefits, it will have to start redeeming the bonds in the trust fund. But, as President Clinton’s own fiscal year 2000 budget admits, those bonds are not real economic assets. Rather, “they are claims on the Treasury that … will have to be financed by raising taxes, borrowing from the public, or reducing benefits or other expenditures.” … There is no way to actually leave the Social Security surplus in Social Security. The surplus must be used to purchase bonds, the purchase of the bonds will generate revenue for the government, and that revenue must be spent. … Social Security taxes should be invested in real financial assets, not government promises to raise future taxes. (emphasis added)

    In 2008 Allan C. Sloan wrote:

    How can I say that, given Social Security’s $2.3 trillion (and growing) trust fund? It’s because the fund owns nothing but Treasury securities. Normally, of course, Treasury securities are the safest thing you can hold in a retirement account. But Social Security’s Treasuries won’t help cover the program’s cash shortfall, because Social Security is part of the federal government. Having one arm of the government (Social Security) own IOUs from another arm (the Treasury) doesn’t help the government as a whole cover its bills.

    Here’s why the trust fund has no financial value. Say that Social Security calls the Treasury sometime in 2017 and says it needs to cash in $20 billion of securities to cover benefit checks. The only way for the Treasury to get that money is for the rest of the government to spend $20 billion less than it otherwise would (fat chance!), collect more in taxes (ditto), or borrow $20 billion more (which is what would happen). The spend-less, collect-more, and borrow-more options are exactly what they would be if there were no trust fund. Thus, the trust fund doesn’t make it any easier for the government to cover Social Security’s cash shortfalls than if there were no trust fund. (emphasis added)

    As you can see by the dates mentioned in these articles from the past, the day of reckoning for Social Security arrived earlier than predicted.

    Liberals dispute the true nature of the trust fund, contending that there really is money in the fund that can be used to pay benefits.