Politics of the Mess
I discuss the CBO’s assessment below, but first let’s dive into the politics because politics will determine when and how the situation is resolved.
Mike Rounds on CNN suggests he supports funding Social Security on a year-by-year basis pic.twitter.com/a8TluKtZn2
— Aaron Rupar (@atrupar) February 12, 2023
Reflections on Social Security
Radical Left Irony
Social security is a PayGo system. PayGo means that today’s workers pay Social Security taxes into the program and money flows back out as monthly income to beneficiaries.
While not quite weekly as one person sarcastically commented, SS is paid out more frequently than once a year.
Note the comment “They [Republicans] hate you”. What a hoot.
Neither party hates you.
But one party believes more government and higher taxes are the solution, while the other disagrees. Where precisely is the hate in this?
Pay-As-You-Go Social Security and the Aging of America
PayGo has been a well-understood problem for decades.
For example, the Dallas Fed has a 2002 article that highlights the problem, Pay-As-You-Go Social Security and the Aging of America: An Economic Analysis
Because it is a mature pay-as-you-go retirement system, Social Security provides current and future workers with below-market returns. These workers bear the burden of the unfunded liability arising from windfall gains to past retirees. Alan D. Viard uses these principles to examine the effects of three demographic developments: the low birthrate since the baby boom ended in 1965, the impending retirement of the baby boomers, and the downward trend in old-age mortality. The low birthrate reduces Social Security’s long-run rate of return as the unfunded liability is spread across fewer workers.
Unlike birthrate changes, the downward trend in old-age mortality does not change the growth rate of national labor income. Since this trend does not change the unfunded liability or the number of future workers, it is economically possible to respond without changing any worker’s burden. However, such a response requires that aggregate benefits be reduced as the number of retirees rises. If, as is likely, aggregate benefits are instead left unchanged or increased, the burden of the unfunded liability is shifted from current to future workers.
Perpetual Stalemate
Well guess what happened? It’s easy to understand why. Neither party was willing to address the problem in 2002 or now.
Democrats still do not want to cut benefits and Republicans still do not want to raise taxes.
Given this stalemate has been in place for over 20 years, there is no reason to believe that it won’t last another 11 years before reduced payments necessitate a funding resolution.
Blame Game
In his state of the Union address, President Biden purposely blamed Republicans in general for the statements of a few Republicans.
Republicans fell into his trap.
GOP legislators gave Biden boos and cries of “liar” in his SOTU address when he accused them of wanting to cut SS benefits.
Then Biden poured it on in a speech on Medicare and Social Security in Tampa, Florida on February 9.
“They are more than government programs. They are promises that we made. Now these guys want to cut it. I don’t get it. I really don’t. I don’t know who they think they are.”
This is like blaming Democrats because Jack the Ripper was a Democrat.
Cuts Off the Table
Please note that House Speaker Kevin McCarthy stated Social Security cuts are off the table for debt-ceiling talks.
More accurately, cuts in Social Security are off the table for another eleven years, if not forever, because any person suggesting them will never be elected president.
Biden is fighting a fictitious strawman that he knows does not exist. But that’s what politicians do, and on both sides.
Trump had to know that Mexico would not pay for the wall, but making ridiculous claims and fighting strawmen are what all politicians do best.
Trump frequently goaded Democrats into poor responses. Now, Republicans are on the receiving end of fictional nonsense.
Question of the Day
Did Biden learn political tactics from Trump?
If you are honest, you have to admit that politically speaking, Biden is playing his strawman lie very well, aided in part by Republicans.
Biden goaded Republicans into SOTU booing that he further capitalized on just two days later in retirement haven Florida.
CBO Projections
Let’s now turn our attention to the CBO’s 2022 Long-Term Projections for Social Security
In CBO’s projections, spending on Social Security exceeds revenues to the program in 2022 and increases relative to GDP over the next 75 years, while revenues remain stable. If combined, the program’s trust funds would be exhausted in 2033.
In CBO’s projections, Social Security’s actuarial deficit over the next 75 years is equal to 1.7 percent of GDP, or 4.9 percent of taxable payroll. That is, the federal government could maintain the necessary trust fund balances through 2096 if it immediately, and permanently, raised payroll tax rates by about 4.9 percentage points (or implemented an equivalent reduction in benefits or combination of tax increases and benefit reductions). After 2096, however, the gap between revenues and outlays would widen, and shortfalls would continue to increase.
CBO projects that if Social Security outlays were limited to what is payable from annual revenues after the trust funds’ exhaustion in 2033, Social Security benefits would be about 23 percent smaller than scheduled benefits in 2034. They would be 35 percent smaller by 2096, and the gap would remain stable thereafter.
What the CBO Does Not Say
The CBO failed to mention there is no Social Security Trust Fund that politicians in both parties refer to.
Social Security is a PayGo system but the money has already been spent.
The key phrase is “the money has already been spent“.
The Lie Gets Bigger Every Day
If you have not seen the Debt Clock, updated every second, please give it a look.
As of February 12, 2023, the US government is over $31.5 trillion in debt and rising rapidly.
The idea of a Social Security trust fund is a big perpetual lie and the lie gets bigger every day.
There is no pool of Social Security money to pay out. Nor is there a pool of money that will run out in 2033.
The payroll tax money both collected and to be collected has already been spent and nearly $32 trillion more.
That said, by law, payments will be lower by 2033 or sooner if we do nothing.
Demographically Sobering Thoughts on US Employment in the Next Five Years
Meanwhile, here are some Demographically Sobering Thoughts on US Employment in the Next Five Years
People are rapidly shifting from high participation rates (working or seeking work) to much lower ones.
For 2023, the CBO estimates a 2023 increase in the age 65+ population of 2 million and that 2 million accounts for the total rise in population.
Please see the above link for 8 charts that describe the setup.
Four Social Security Resolution Ideas
- Higher Taxes
- Lower Benefits
- Legislation Changing the Rules
- More Debt
The SS solution will involve some combination of higher taxes, lower benefits, changing the rules, and more debt.
By changing the rules I mean legislation that eliminates the requirement that SS is PayGo.
More debt is a given. Lower benefits is out.
Whether or not taxes rise will depend on which party is in control of Congress and the White House.
The current path is a combination of #3 and #4 with bigger deficits an rapidly piling up debt.
A recession will exacerbate the problem.
Welcome to the Global Recession
The CBO projections imply that optimistic estimates of tax revenue are accurate.
I strongly disagree. Consumer spending hit a brick wall in the US, EU, UK and Australia. Guess what that means.
For discussion, please see Welcome to the Global Recession, It Began in December Last Year
Count on huge pressure for Congress to do something if and when strong layoffs begin.
That “something” is guaranteed to mean bigger deficits and faster rising debt.
Biden is a Socialist in Practice
Biden is a Socialist, not a moderate Democrat. We would be no worse off, and arguably better off, had Bernie Sanders won the election in 2020.
Please reflect on that idea for a minute.
Also recall my December 28, 2021 article Elizabeth Warren May as Well Be President, She Makes All Biden’s Calls.
Warren is an outright Marxist who amazingly claims to be “capitalist to my bones.”
Biden Begs for More Inflation and Tax Hikes
On February 7, I noted Biden Gives a Well-Delivered SOTU Speech Begging for More Inflation and Tax Hikes
I go over 25 points, most of them inflationary, begging for still more deficit spending. Biden’s solution is higher taxes.
The president got a standing ovation from Senator Warren and the progressives in his SOTU when he brought up Warren’s billionaire tax idea.
“Pass my proposal for a billionaire minimum tax,” said President Biden despite the fact that the controversial proposal is likely unconstitutional.
For Democrats, the solution is always more government spending, more government control, and higher taxes.
The Progressive wing is clearly in control of the Democratic party. Expect it to stay that way.
I advise everyone to take that into consideration for the 2024 election.
Dear Trump
Dear Mr. Trump, please stop the infighting Florida Governor Ron DeSantis. Feuds are counterproductive.
You are a net liability to Republican chances in 2024. Put your ego aside and bow out of the race so DeSantis can win.
This post originated at MishTalk.Com
Please Subscribe!
Like these reports? I hope so, and if you do, please Subscribe to MishTalk Email Alerts.
Subscribers get an email alert of each post as they happen. Read the ones you like and you can unsubscribe at any time.
If you have subscribed and do not get email alerts, please check your spam folder.
Mish
“Well guess what happened? It’s easy to understand why. Neither party was willing to address the problem in 2002 or now.
Democrats still do not want to cut benefits and Republicans still do not want to raise taxes.
Given this stalemate has been in place for over 20 years, there is no reason to believe that it won’t last another 11 years before reduced payments necessitate a funding resolution.”
Great article Mish. Agree with almost everything. What can we learn from this?
· We have been aware of the SS problem for many decades now. Yet we do nothing about it because it is a political football in a system that rewards those who blame the other party for the problem. And as long as we continue to play the “blame game”, nothing will be done about it. Which is one reason to not waste your time on these political footballs.
· Since nothing will be done about this problem, you are best to focus on building your own wealth for retirement. Because complaining about it will get you nothing but stress and anger (which I see here all the time).
· Where I disagree with Mish is near the end of this otherwise excellent article. It doesn’t matter who the Republican candidate is, or whether they win the next election. They are not going to do anything to fix this problem. Trump vs DeSantis is just a side show best ignored.
Annual deficit is 25% of total spend.
No wonder things are broke, and no, not everyone who receives SS paid into it.
You say we need to adapt – how would you “adapt” to a changing climate?