Everyone knows that the U.S. budget is being devoured by entitlements. Everyone also knows that of the Big Three — Medicare, Medicaid, and Social Security — Social Security is the most solvable.
Back-of-an-envelope solvable: Raise the retirement age, tweak the indexing formula (from wage inflation to price inflation), and means-test so that Warren Buffett’s check gets redirected to a senior in need.
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The relative ease of the fix is what makes the Obama administration’s Social Security strategy so shocking. The new line from the White House is: no need to fix it because there is no problem. As Office of Management and Budget (OMB) director Jack Lew wrote in USA Today just a few weeks ago, the trust fund is solvent until 2037. Therefore, Social Security is now off the table in debt-reduction talks.
This claim is a breathtaking fraud.
The pretense is that a flush trust fund will pay retirees for the next 26 years. Lovely, except for one thing: The Social Security trust fund is a fiction.
If you don’t believe me, listen to the OMB’s own explanation (in the Clinton administration budget for fiscal year 2000 under then-director Jack Lew, the very same). The OMB explained that these trust-fund “balances” are nothing more than a “bookkeeping” device. “They do not consist of real economic assets that can be drawn down in the future to fund benefits.”
In other words, the Social Security trust fund contains — nothing.
Here’s why. When your FICA tax is taken out of your paycheck, it does not get squirreled away in some lockbox in West Virginia where it’s kept until you and your contemporaries retire. Most goes out immediately to pay current retirees, and the rest (say, $100) goes to the U.S. Treasury — and is spent. On roads, bridges, national defense, public television, whatever — spent, gone.
In return for that $100, the Treasury sends the Social Security Administration a piece of paper that says: IOU $100. There are countless such pieces of paper in the lockbox. They are called “special issue” bonds.
Special they are: They are worthless. As the OMB explained, they are nothing more than “claims on the Treasury [i.e., promises] that, when redeemed [when you retire and are awaiting your check], will have to be financed by raising taxes, borrowing from the public, or reducing benefits or other expenditures.” That’s what it means to have a so-called trust fund with no “real economic assets.” When you retire, the “trust fund” will have to go to the Treasury for the money for your Social Security check.
Bottom line? The OMB again: “The existence of large trust fund balances, therefore, does not, by itself, have any impact on the government’s ability to pay benefits.” No impact: The lockbox, the balances, the little pieces of paper, amount to nothing.
So when Jack Lew tells you that there are trillions in this lockbox that keep the system solvent until 2037, he is perpetrating a fiction certified as such by his own OMB. What happens when you retire? Your Social Security will come out of the taxes and borrowing of that fiscal year.
Why is this a problem? Because as of 2010, the pay-as-you-go Social Security system is in the red. For decades it had been in the black, taking in more in FICA taxes than it sent out in Social Security benefits. The surplus, scooped up by the Treasury, reduced the federal debt by tens of billions. But demography is destiny. The ratio of workers to retirees is shrinking year by year. Instead of Social Security producing annual surpluses that reduce the federal deficit, it is now producing shortfalls that increase the federal deficit — $37 billion in 2010. It will only get worse as the baby boomers retire.
That’s what makes this administration’s claim that Social Security is solvent so cynical. The Republicans have said that their April budget will contain real entitlement reform. President Obama is preparing the ground to demagogue Social Security right through the 2012 elections. The ad writes itself: Those heartless Republicans don’t just want to throw granny in the snow, they want to throw granny in the snow to solve a problem that doesn’t even exist! Vote Obama.
On Tuesday, Democratic senator Joe Manchin of West Virginia denounced Obama for lack of leadership on the debt. It’s worse than that. Obama is showing leadership. With Lew’s preposterous claim that Social Security is solvent for 26 years, Obama is preparing to lead the charge against entitlement reform as his ticket to reelection.
During the last general election, Senator Lisa Murkowski sent out a flyer with a picture of an older woman on it saying that Joe Miller, her Republican opponent wanted to take away her Social Security even though Miller was simply advocating necessary reforms. But in their lust for personal power, politicians will say anything to get elected. History will look back on my generation, the baby boomers, as the worst generation. The generation that destroyed everything the greatest generation built and left their grandchildren with a mountain of debt and a second rate country.
Shame on the pandering politicians and shame on us for electing them.
As nearly always Mr Krauthammer is dead right. Obama could be excused for this fraud if he were as stupid as he thinks we are: but he is not. He is simply insultingly despicably cynical.
Surely even democrats can see through this brazen pretence?
None of this matters....until the msm starts reporting the truth about Obama he will get away with everything. It is because of the media that Obama will get re-elected. Mark my word, when we get the Republican primary winner, the media will eat him or her alive...and most Americans will fall for it again, because most Americans dont pay attention like those of us who read these reports, they all watch ABC,CBS,NBC...etc..etc. Those networks will never turn on Obama because they have way too much invested in him.
When Bernie Madoff does it, it's called a Ponzi scheme (and he get 150 years in jail); when the Federal government does it, it's called Social Security.
That Obama would commit financial treason to get re-elected should surprise no one. Couple that with inherent selfishness of the Worst Generation and you have the recipe for a winning strategy.
But of course everyone does NOT know " that the U.S. budget is being devoured by entitlements." If everyone knew enacting a solution would be much more politically viable.
Countering entitlement reform and saving the unions dovetail nicely into the mean, fiscally conservative, Tea Party beholden GOP narrative.
Dramatically logical and factually fraudulent. Sounds like a docudrama from Michael Moore. The good thing is, Moore and the unions are off the deep end and, so far, they're still doing the talking.
The next Republican candidate should make a promise to take the papers contained in the Social Security Trust Fund into the nearest parking lot and dump them in a pile, sprinkle some #2 diesel fuel on them and take a match to them. That will get the public's attention and demonstrate just how much those pieces of paper are worth. No more demagoguuery about a trust fund.
Thanks Mr. Krauthammer. We've known this for quite some time...that is if one ever took the time to read WFB...
"The federal Social Security program was the crowning intervention of the New Deal. It has always depended heavily on illusions. The first of these was that money paid in to Social Security was actually being sequestered someplace, subject to convenient materialization when contributors reached senior age. A second illusion was that the program was designed for those who would otherwise be in need. A third illusion was that money paid out would correspond in some way with money paid in, and that the age at which payments would be activated would coincide in some way with the age at which physical decrepitude set in." WFB December 17, 2004 1:30 P.M.
"There is no movement by any organized body of American consumers that is prepared to say: Just give us back what you borrowed from us and we’ll call it quits. You can’t in these days, successfully appeal to Americans to reason in that way. If the accounting goes forward as it now threatens to do, Social Security will give the retired American who lives to age 80 twice or three times what he invested in the Social Security program." WFB May, 3, 2005, 2:36pm.
A lib-progressive-independent fraud...butressed by RINOs...hopefully dismantled by conservatives...just give us what you owe us and we'll call it quits!!!
We all know that "means testing" may initially target the Warren Bugffets but anyone with half a brain knows it will trickle down to anyone who paid into it above the poverty level. Ask anyone now paying a state income tax that was "only" designed to make the "rich" their "fair share".
As someone who pays into Social Security at or near the max every year and will be forced to do so at the point of a gun by jackbooted government agents for the rest of my life, only to be told that sorry, since you paid a lot into this scheme you are forbidden to get anything out of it I support Obama on this.
He will kill the lie that is social security faster and maybe then I won't have to pay for benefits I will never get.
Lie on this all you want Obama. The sooner you run this into the ditch the better off the people paying in will be.
I have an idea, let's transfer the money out of the highway trust fund to cover our social security tab! Oh, that's right congress already spent that too and not on highways Those are being fixed with the stimulus money. It is so confusing, no wonder our elected officials have such a tough job!
The real fraud has been repeated over and over as one congress after another raised SS taxes above the level required to pay benefits with the knowledge that they would have the excess to help hide their overspending. But were all of the various newspaper and TV reporters who have spoken glowingly of the trust fund over the years in on the fraud or just woefully ignorant?
2. Retirement age: Raise it for people who don't have the kind of backbreaking jobs my father had. For me it should be 70. If we're incapable of making these kind of fine distinctions, perhaps index it to the final benefit (computed before means testing) to get a rough equivalence between tough jobs (which are generally low paying) and easy jobs (which are generally high paying).
Firgues lie and liar figure. We rode the gravy train and now the Piper has to be paid. Forty six states are having financial problems, we are giving foreign aid to our adversaries, there's intenal and external corruption, etc. Looking at the chaos and fiascos going on in our country I'd say that our chickens are indeed coming home to roost.
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