BRUCE KRASTING ASKS FOR MORE

But the trust fund does NOT eliminate “generational inequity,” it just shifts it to general fund.  This is probably a good thing, because we can afford to pay more out of progressive income taxes rather than regressive payroll taxes. 
1.) To the best of my knowledge, ALL projections show that the majority of SS funds come out of payroll taxes of the year spent over all time horizons.  We’re talking about the margins here.
2.) Putting the trust fund money out on the street, to buy bonds and stocks is a VERY VERY bad idea.  We just went through two asset price bubbles,  throwing more money to the sharks on Wall Street would just mean BIGGER bubbles(and bigger bonuses).  It’s so monumentally stupid, that I tend to suspect that anybody suggesting it is salivating over getting their cut. 
3.) One way to look at things is that the existance of the large SS trust fund enabled the government to borrow less (and therefore more cheaply) on the open market.  Therefore the mis-guided Bush taxcuts looked cheaper than they actually were.  Now that the bill is coming due, the wealthy are dis-inclined to pay back the money to the trust fund.
4.)On the other hand, when money is tight the fact that future retirees have paid for THEIR parents retirements and helped to fund general expenditures does not automaticly put them at the head of the line.  The problem is that the discresionary budget items ,which require appropriations laws to be passed every year, are becoming an ever smaller percentage of Federal spending.  Entitlement spending, which is “self appropriating” grows every year UNLESS the law is changed. 
5.) There’s really no way out of this other than “revenue enhancements.”  Until we as a populace stop electing politicians who tell us “tax cuts will pay for themselves” and “I’ll raise ‘somebody else’s’ taxes, and cut ‘sombody else’s,’ programs we will not be able to move forward. 

  
SSA Combined Trust Funds (OASIDI) Cash Flow Projections
 
OLD DATA:
 
Latest SSA annual report – Intermediate Cost
May 2009
 
FY 2010  +$16.4 billion
FY 2011  +$30.4 billion
FY 2012  +$35.4 billion
FY 2013  +$35.7 billion
FY 2014  +$22.1 billion
FY 2015  +$5.3 billion
FY 2016  -$7.8 billion
FY 2017  -$35.8 billion
FY 2018  -$62.2 billion
—-
 
CBO Summer 2009 Baseline
August 2009
 
FY 2010  -$10 billion
FY 2011  -$9 billion
FY 2012  +$8 billion
FY 2013  +$18 billion
FY 2014  +$17 billion
FY 2015  +$9 billion
FY 2016  -$6 billion
FY 2017  -$23 billion
FY 2018  -$41 billion
FY 2019  -$63 billion
—-
 
NEW DATA:
 
CBO – Budget and Economic Outlook: Fiscal Years 2010 to 2020
January 2010
 
FY 2010  -$28 billion
FY 2011  -$20 billion
FY 2012  -$11 billion
FY 2013  -$2 billion
FY 2014  +$7 billion
FY 2015  +$6 billion
FY 2016  -$3 billion
FY 2017  -$17 billion
FY 2018  -$34 billion
FY 2019  -$55 billion
FY 2020  -$73 billion
 
FY 2010-2020 Total -$230 billion
—-
 
Obama Administration FY 2011 Budget
February 2010
 
FY 2010  -$33.9 billion
FY 2011  -$19.1 billion
FY 2012  -$2.0 billion
FY 2013  +$7.6 billion
FY 2014  +10.7 billion
FY 2015  +$13.8 billion
—-
 
SSA Combined Trust Funds Cash Flow
comparison between SSA May 2009 report
and latest CBO and OMB projections
 
………………CBO…………..OMB……
FY 2010  -$44.4 billion  -$50.3 billion
FY 2011  -$50.4 billion  -$49.5 billion
FY 2012  -$48.4 billion  -$33.4 billion
FY 2013  -$37.7 billion  -$28.1 billion
FY 2014  -$15.7 billion  -$11.4 billion
FY 2015  +$0.7 billion    +$8.5 billion
FY 2016  +$4.8 billion
FY 2017  +$18.0 billion
FY 2018  +$28.2 billion
—-
 
Source data:
http://www.ssa.gov/OACT/TR/2009/VI_SRfyproj.html#238210
http://www.cbo.gov/budget/factsheets/2009c/oasdiTrustfund.pdf
http://www.cbo.gov/ftpdocs/108xx/doc10871/AppendixD.shtml#1098293
http://www.cbo.gov/ftpdocs/108xx/doc10871/Chapter3.shtml#1096746
http://www.whitehouse.gov/omb/budget/fy2011/assets/technical_analyses.pdf
.

Movie Guy, and I mean this sincerely, that is a superb and useful compilation of this data. I was going to try to chase it all down and am really grateful that you did all the work here.

I would only add that in none of these years under any of these projections would the negative cash flow actually exceed the amount of accrued interest on the Trust Fund, the Trust Fund balances will continue to increase Y o Y throughout. This doesn’t mean we can just ignore those negative signs, those represent real money that will be needed to be raised in the public debt markets, but given the dollar totals for such things as TARP funding, stimulus packages, and war funding that we are experiencing today even that maximum -$73 billion FY2020 number by CBO has to be seen for what it is. None of these numbers will cause the bond market to go to its knees.

And to jump in before Dale does, a modest 0.3% payroll tax increase dedicated to DI would not only put that program in long term actuarial balance, it would also take big chunks out of these negative cash flow projections. If you took these same numbers and isolated OAS you would hardly notice the negatives. On the other hand if you want some truly brutal numbers you can check out the balance sheet for DI.
ftp://ftp.publicdebt.treas.gov/dfi/tfmb/dfifd1209.pdf
Even after credit for some $5 billion in interest the fund was down by $8 billion in Q4 2009 or around 4%. Losses at that rate, which at this point are pretty much locked in, means DI crashing to zero maybe in time for the 2012 election. Then again the fix when broken down to taxpayer per week is just not that much. But somebody will need to do something regardless. Because by the nature of things DI checks are not that generous to begin with (because they are largely based on wage history prior to the disability which for younger disabled is often not much) and slashing them in 2013 is in my view not an option. (And in case you are wondering the difference can not be made up by tapping OAS absent specific Congressional action.)

movie guy

it would be helpful if you would explain what the last chart is actually saying.

Coberly,

The last chart indicates by fiscal year what the impact is on the Government’s general fund if one had assumed that the May 2009 SSA projections were to be reasonably accurate.  The impact includes the loss of any anticipated positive cash flow that would have been used in the general fund prior to ponying up deficit borrowing in the bond market.

The next four fiscal years will be rough.  The SSA cash flow shortfalls certainly aren’t the only revenue problems that the general fund is facing.     

Coberly, 
 
The last chart indicates by fiscal year what the impact is on the Government’s general fund if one had assumed originally that the May 2009 SSA projections were reasonably accurate, only to find out later that the revenues changed (what we’re observing now).  The impact includes the loss of any anticipated positive cash flow that would have been used in the general fund prior to ponying up deficit borrowing in the bond market.   
 
The next four fiscal years will be rough.  The SSA cash flow shortfalls certainly aren’t the only revenue problems that the general fund is facing.   

The last table of data indicates by fiscal year what the impact is on the Government’s general fund if one had assumed originally that the May 2009 SSA projections were reasonably accurate, only to find out later that the revenues and expenses changed substantially (what we’re observing now).  The impacts include the loss of any anticipated positive cash flow that would have been used in the general fund prior to ponying up deficit borrowing in the bond market. 
   
The next four fiscal years will be rough.  The SSA cash flow shortfalls certainly aren’t the only revenue problems that the general fund is facing.   

 income taxes come mostly from the rich, who got the benefit of the money borrowed from the boomer surplus taxes. 

–Which I why I said that this is probably a good thing.  I don’t particularly CARE what the well off did with their tax cut. Well actually I DO care, since it appears that rather than spending it on coke and prostitutes they gave it to Wall Street, where it inflated big bubbles in equities and RE.  Only a fraction was siphoned off by the brokers to be spent on hookers and blow.  That fraction may or may not be bigger than the fraction that went to productivity improvements.   But it doesn’t matter, what matters is that they HAVE money now, and we NEED money now. 

This is not a financial issue. As the monopoly provider of a non-convertible floating fx currency of issue, he US government is not financially constrained, and need never default on its obligations other than by voluntary choice, a political act.

The issue is real, however, and it concerns how future generations will decide to distribute the total goods and services they are capable of producing at the time, and it is they who will make that political choice when it comes time.

All the hullaballoo about the sky falling because of “unfunded obligations” is without merit with respect to government finance. It is based on gold standard thinking that is only relevant to convertibility and fixed exchange rates, which no longer apply. Bruce and cohort, join the 21st century.

Maybe a checkmark on the income tax fund to voluntarily rebate the SS money to reduce the cash flow out, as a gift, and not increase government mandates in this regard.  Surely watching the rebate numbers would be a measure of the true spirit of charity from these folk.  If the spirit moves such folk in reality, we can measure it.

MG, “ The impacts include the loss of any anticipated positive cash flow that would have been used in the general fund prior to ponying up deficit borrowing in the bond market.”

That one line puts the entire issue in a new light for me.  Up to now I’ve been thinking that Peterson et al have been complaining that the FICA and Trust Fund together  won’t be sufficient some time soon to cover SS benefits.  That insuficinecy will require the younger portion of the working population to bear a disproportionate cost of supporting geezers.  I assumed that they were just fudging their interpretation of the data as described by Coberly about Krasting.  MG’s summary statement, above, opens a new window of explanation.  Are you saying that the worry of the wealthy and their supporters (that should actually be their sycophants) is primarily that the Trust Fund, as it begins to deplete as planned, will no longer be a source of cheap general budget balancing?   Is their concern that theat TF flow will no longer be available to offset their potential tax liabilities in support of their government?  Is that why we’re supposed to accept that SS benefits should be reduced in some manner? 

Sammy plus there is no reason to simply accept the conflation of SS/Medicare. Legally and practically they are two different programs growing at two different rates. While Social Security is projected to grow modestly as a share of GDP almost all of that just tracks the growth in numbers of retirees. That is if you broke down the numbers to share of GDP per capita the numbers stay pretty stable, senior will just be taking a numerically proportionate share of the larger economic pie. Which pie is achievable if we target policy in ways that generate future productivity and real wage increases rather than in tax cuts that only encourage current consumption.

Which I suggest is a pretty fair description of the aftermath of both the Reagan and Bush tax cuts, forty years ago only Greek shipping magnates spent money in the way Fortune 500 CEOs do these days, lower taxes on capital instead of encouraging reinvestment simply seems to have reduced the marginal cost of consumption. Result Ken Lay having three different houses in Vail and CEOs buying $20,000 shower curtains for their maids.

In any event the conflation of Social Security and Medicare into ‘Entitlements’ and applying a combined growth rate is just a cheap trick promulgated on us by the Peterson people in their largely successful attempt to whip up crisis where there is none.

And I find it always amusing that people who casually suggest means testing more affluent people out of a benefit they paid for suddenly clutch their pearls and reach for the smelling salts if you suggest simply taxing those same people that same amount. It is pretty hard NOT to conclude that means testing is in some hands just a cynical attempt to undermine support for Social Security among the upper reaches of the middle classes.

It is not like I hold the interests of older rich people close to heart, I have no problem taking their money and paying for stuff that has more general utility, but when that gets narrowly restricted to Social Security checks and never applies more widely you begin to sense some special pleading and hidden agendas.

I rather think I personally am in the 21st century. Unfortunately I am battling dinosaurs like Peter G Peterson using the weapons they recognize. It is not my fault that these guys are still fighting to kill the New Deal seventy five years after the fact.

Jack–Well, sounds right to me! This isn’t about us ordinary people at all.  It’s about the financial markets, as I gather Krastig’s argument.  I was unmoved. /snark/  NO

Plus I am afraid you are misreading the origins of ‘unfunded liability’ in this particular case. It doesn’t derive from gold model thinking, instead it was almost entirely a tactical move introduced into the debate with the 2003 Report.

Prior to that Report the focus was on Actuarial Balance over the Short Term (10 year) and Long Term (75 year), periods that made sense since there were many millions of people with quasi-contractual agreements that assumed an obligation to deliver a set level of benefits. And it made colloquial sense to call that obligation a ‘liability’ even if legally it wasn’t one, the Supreme Court having ruled that beneficiaries don’t have an ownership interest in a specific level of benefits.

But while the Short Term liability was always in a sense very real, cutting benefits in a time frame that didn’t allow alternative planning being simply too inequitable, the Long Term liability was always essentially fictional, it always being anticipated that some fix would be instituted on the revenue or benefits side or both that would make that theoretical liability simply vanish. Which made the introduction of Unfunded Liability over the Infinite Future Horizon simply a parlor trick allowing the magician to pull really scary numbers out of his hat. Its use in recent years does not derive from some Ron Paul/Austrian thinking, instead it is simply a vehicle for fear-mongering by people who probably still call FDR the ‘Class Traitor’.

And that is the same Bruce Krastiing who is so very proud of his association with Michael Milkin;
not presently, but in the past when Milkin was running afowl of the law at Drexel.  I guess the concept of birds of a feather may apply.

Nancy,

Very nicely said!!!

The means-testing solution turns the program on its head to avoid paying a relatively small (in budget terms) amount of money to a small number of people. FYI. NO 

Total social security payments in 2009 were $562B, so if we eliminated the top 25% that is $140B.  Eliminating the top 25% per year would probably eliminate $2T over the next 10 years.  That is a lot of dough.

buff,

It’s time to own up to the fact that SS is welfare –  if you define welfare as taxpayers are providing income support to those who are no longer able to work.  I don’t have a problem doing this for many reasons, not the least of which is that current recipients provided income support to the previous generation.

The problem with means testing in general is that you have to reach pretty far down the income brackets before you raise significant money. Let us say you have a million millionaires each drawing down the maximum benefit of $28,000 a year. Okay that is $28 billion a year. But people at that level of income are already being taxed on benefits and at a pretty might rate, a lot of that theoretical $28 billion is already being sucked into the $20 billion we already take in tax on benefits already. What you don’t want is a situation where everyone with a half decent pension is means tested out of Social Security.

Apart from the philosophical objections to taxing benefits (I didn’t like the tax on benefits to start with) I am thinking there is just not that much money to be had going after millionaires, particularly since the very wealthiest of them may not even be eligible for Social Security to start with, inherit $100 million and you might never even pay in and so have no check to means test away.

Under that logic an annuity from a private insurer is welfare, certainly if the premium was paid by the federal government. It would also apply to federal civilian and military retirement. My Dad was retired military and after he retired, in part for health reasons, he continued to get income support from the taxpayers first in the form of a military pension, but also in the form of subsidized groceries at the Exchange at Moffitt Field, and medical care through the military and VA.

I am thinking that telling the guys at the bar at the local VFW that they are all welfare queens because taxpayers are providing income support because that war injury makes them no longer able to work might be a little dangerous. Cause even the old one-legged guy would probably find a way to kick you in the ass on your way out the door.

For most people in this country their is no such thing an “earned welfare”, “welfare” being by common definition aid given to the helpless. Whereas a retired 30 year Gunny Sergeant who happens to be collecting Social Security is not likely to see it that way.

Your definition is just too sloppy.

Bruce,

I was looking at this as a wealth check. In otherwords if you had no taxable income (or NO income), were 65, but had $500 million in assets (say Tax-free munis or just a pile of cash) you wouldn’t get SS.

But your right, its probably not worth the effort for the sums you would get back unless you went way down the wealth chart.

Islam will change

I will add on last comment regarding Mr. Krasting, which is intended as something of a defense of his posture.  What with his insistance that his distorted argument is in fact correct and now finding that he is one of those that had sought income tax refuge through UBS deposits outside of the country, one might think that he is inconsistent with regard to the good of the country in general and the economy/budget in particular. 

We need to understand Buce’s perspective.  He is a very wealthy man, so it would appear.  At the heart of virtually every very wealthy man’s point of view is economic self actualization.  While such a core motivation can be said to exist in every man, it is particualrly powerful in the very wealthy man.  Not so much as an inherent characteristic which has resulted in financial  success,  but as a result of that success whether earned through personal achievement or good fortune or the right set of parents.  Financial accrual brings on the sense of entitlement.  We, the average people, cannot begin to understand the level of personal need, the depth of financial motivations, that develop in the very wealthy man.  It blinds his perspective.  The needs of others are secondary and every rationale that supports that concept is assumed to be valid regardless of the opinnions of others.  The rich are different.  They have more money and that difference creates within the wealthy man that sense of entitlement that his is more important than yours or ours.

So we need to recognize this character of the very wealthy man (and woman) in order to understand that they do not procede with their arguments from the perspective of the common good.  The man of modest means is more likely to recognize the needds of his neighbor.  He may, however, not be positioned to help, but he will at least share that understanding.  The very wealthy man has no such understanding with others.  He does not operate as a deceiver, but is himself blinded by his own avaricious needs.  He never has enough.  So he can never understand that some one else with so much less may need a bit more.

Bruce,

Most of your response is unecessary strawmanning over semantics.   I agree with you and cobs that the SSTF will perform as a standalone entity, and I commend your work on this.  Unfortunately it is NOT a standalone entity.   It is intertwined with the Federal budget which is currently $13T in debt, projected to grow by $5T in the next 5 years.   http://preparetovote.files.wordpress.com/2009/11/national-debt-chart1.png?w=400&h=369 

The 2010 budget is to spend $3.8T and only take in $2.6T.  We are spending 50% more than we take in.  Wrap your head around that for a second. 

buff is correct that it is not a SS problem, it is a general fund problem.

This is unsustainable, not only according to sammy, but also the CBO:  http://www.marketwatch.com/story/us-remains-on-unsustainable-budget-path-cbo

Every spending item is on the table, whether you like it or not,  and SS is about 20% of the budget.  (I agree with you that the bigger, and separate, problem is Medicaid, but that is going to be hard to untangle). 

I would LOVE there to be a solution that doesn’t involve touching SS, but I can’t see it.  However I am open to suggestions.

Jack,  
  
In general, you start out with the notion that Lib talking points are existential truths.  Therefore anyone who doesn’t agree with them is either ignorant or malevolent, so your only responses can be ad hominems. 
  
You should entertain at least the possibility that those who disagree are at least as smart or well intentioned as you are.

Sammy

how about first you take your lecherous eyes off Social Security.  there are three ways to pay for the budger problem.

the most sensible is to raise taxes on the higher brackets.
the next most sensible is to raise taxes on all brackets.
third would be to raise the payroll tax.. this would continue the theft by the rich from the poor, but it would be better for the poor to be robbed than to have their social security crippled.

oh, yeay, i guess fifth would be for those damn tax cuts that were going to trickle down to actually work as advertised.

sammy

oh, hell,  i believe you are well intentioned.  but i had hundreds of students who were well intentioned.  they really wanted to pass my class.  their mothers and fathers really wanted them to pass my class.  even I wanted them to pass my class.  in the end I gave them gentleman C’s,  but they didn’t understand a damn thing.  and i tried.  god how i tried.

Sammy

thanks. i am glad it has not all been in vain.

i don’t see the deficit being reduced in one year. some of it should come from growth.  a 3% tax increase, in the absence of growth, will be necessary to pay the money congress owes Social SEcurity. this is not huge.  or Social SEcurity taxes could be raised and the poor couldkeep “lending” money to Congress.  this is not fair, but better than crippling Social Security.

in any case it really frightens me how easily you and others can go from “the country is in trouble” to “lets rob social security.”

go do the arithmetic again.  figure what the debt actually is.   figure the interest on the debt.  figure out what percent of taxes go to pay the interest on the debt.  any number higher than that will pay down the debt, other things being equal.

if i understand your numbers…. and i don’t claim i do…  there is a 1.2T deficit this year, if that was the only debt, interest would be about 48Billion per year (at 4%).  Income is about 7Trillion per year, so it looks to me like a tax of 7 tenths of one percent will pay the interest on this years deficit.  there is a lot i didn’t look at.  and nothing i looked up. but it doesn’t look from here that there is much of a problem.  I think the total debt is about 8Trillion… again, without peeking…  this would be about 320 Billion in interest.. or about 4 and a half percent of Income.  Not to be sneezed at, but hardly crippling.  no one i know can seriously claim that his income is 5% more or less than it “ought” to be.  and if the money is collected as a tax, it does not disappear from the economy, so forget that old canard.

Hmm. In my town we have a really, really cool Childrens museum. I think the building and the contents are owned by the City but all the funds for acquisition and operation come from generous private donors

Yes officially there is little barrier between continuing support of the Childrens Museum and steer repairs, the fact that all the initial capital funding was private and that much of the current operating expense is too being no reason not to tap that for the cop shop being totally legal is a good excuse for fucking over little kids. It is just the same budget in the end.

Sammy,
Let’s go back to where you said, “It’s time to own up to the fact that SS is welfare –  if you define welfare as taxpayers are providing income support to those who are no longer able to work.”

Now let’s take a look at the worker who is 50 to 55 years of age.  That worker has been in the job force for about 30 years,  at least 66% of the total work life.  During that time that worker has been making FICA payments into the Social Security budget.  Most has gone toward to-date social security expenses, psy as you go. A smaller amount has gone into the Trust Fund to cover the “rainy days” of future economic activity and to provide a source of funds to make up for the eventual short fall brought on by large numbers of workers retiring, like that worker will do, at a time when there may be an insufficient number of workers making FICA contributions relative to those retirees. 

On the pay as you go side of the contributions why is it so difficult to understand that current workers are contributing to the retirement funds of their grand parents, their great aunts and uncles and others in their extended families.  They may be, or will certainly soon be, contributing to the retirement funds of their parents for added measure.  Why?  Is it ouot of the goodness of the worker’s heart?  That would be nice to think, but it is an insufficient idea for the purpose of stabilizing the retirment needs of a whole population.  If we had to rely on the goodness of our hearts then we would be relying on charity.  It doesn’t work to stabilize an economic system.  So way back when, when the economy experienced a major shock to its stability our elected representatives realized that retirement income stability was good for the entire economy.  Voila!! Social Security.  It’s the system legislated, and adjusted over the years, to assure that we pitch in in such a way that each generation of workers helps to support their own grand parents, aunts and uncles, and eventually our own parents in their retirement years. 

That system has taken on increasing importance to the stability of our economic system over the past thirty years because of the virtual disapearence of the traditional employer
based retirement system.  Those came to be recognized as an unstable means of sequestering retirement funds for workers.  Corporate America saw that form of deferred compensation as a drain on profitability.  The individual retirement plans/schemes have also proved to be less than a stable form of building a nest egg.  The equities market does have a tendency to crash their values every decade or so. 

So no, Sammy, Social Security is not welfare.  A worker has to contribute inorder to eventually qualify for benefits.  Yes, there is an insurance aspect to the system so that a worker’s family did not become destitute if the bread winner died early, but that’s a small part of the total system.  We all put aside a percentage of wages with the help of the Treasury Dept because wiser folks recognized the need to stabilize old age and retirement
funding.  Again, it isn’t welfare for those reasons.