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IcyPeaceMaker
02-13-2008, 11:35 AM
The Great Cover Up and Most People are Too Uniformed to Understand

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The Great Cover Up

The longer a problem exists the more difficult it is to cover it up and inevitably it will pop up again.

From: QuinnsCommentary

As the February 1, 2008 Wall Street Journal © so ably points out the next president will be faced with the huge and growing national debt, with most of that debt made up of so called entitlements programs (nearly one trillion dollars is the annual budget just for Medicare, Medicaid, and the like with another $600 billion for Social Security.).

So when you hear of all the new programs and great solutions from the candidates, try asking yourself how he or she will pay for more programs of any kind. The long term debt of the U.S. is not there as a result of the military budget or even the “war.” It is there because politicians over the years enacted programs that would accumulate liabilities to staggering levels with no long term planning (I was going to say thinking but that was absurd) on how they would be funded. Have no fear, given their way politicians will do so again.

In 1935, Social Security became the law of the land and millions of Americans were covered by a retirement income program. However, life expectancy at that time was less than age 65 so not many people would collect benefits for very long. In fact, it was not until 1949 that life expectancy at birth exceeded age 65. It’s easy to give money away when you are giving very little and when your planning takes you no further than the next election. By 2004 not only was life expectancy up to 77.8, but there were far fewer people around who could pay the bill and far fewer still in the years ahead. Funny, you don’t hear about that on the campaign trail. The first monthly retirement check was issued to an individual who had paid a total of $22.54 into the system and received $22,000 in benefits over her lifetime (paid for by her children and grandchildren).

Sen. Obama’s solution to the Social Security problem is to take the cap off wages subject to FICA taxes, simply raise taxes and reduce the amount of money people have to spend and save rather than tell people that we can no longer afford a generous set of benefits boosted each year by an unrealistic COLI. Taking the cap off is too little too late. To be more precise, if the cap on taxable wages were lifted less than half (49%) of the programs deficits and only 1/10th of all federal shortfalls would be eliminated. [1] But hey, soaking the “rich” plays well in East LA

When Social Security began, the tax on employer and employees was 1% on $3,000 in earnings. There have been 20 increases in the OASDI rate since the inception of the program. Today that tax is 12.4% plus an additional 2.90 % for Medicare. Historically, the majority of additional funds needed for Social Security were obtained by increasing the rate and the earnings subject to taxation. When Social Security was implemented, there were 16 workers for every Social Security recipient; today there are 3.3 workers for every recipient, and it is estimated that by 2030 there will be only two workers for every recipient. [2] Guess what that means, as the US population ages and the birth rate is not generating sufficient workers, it means we need more immigrants, especially the well educated, skilled variety. And as an aside if you think we are going to solve the illegal immigration problem by building walls, think again. Let’s say we did stop all the illegal influx from Mexico. How much do you want to pay for a head of lettuce, or a dozen oranges or even a bottle of California Merlot? Get real, Americans benefit from immigration legal or illegal, like it or not and Americans like what they get for very little money. And here is a thought, employers of illegal immigrants take $600 million from their wages each year and pay it to Social Security. Guess what, this “everything is linked” nonsense I have been preaching is real.

Experts tell us that the unfunded liability for Social Security through 2080 is about $74 trillion dollars, that’s even more than Bill Gates and Warren Buffet have combined. Medicare has $34 trillion in unfunded obligations over the next 75 years and yet Congress added $80 billion more a year enacting the prescription drug plan. There is always a logical and supportable reason to give more to the people, that is as long as the people on the receiving end are not paying for it, but rather the obligation rests with the next several generations.

Social Security was never envisioned as a welfare program or wealth transfer for that matter. It was intended as a way for people to fund their retirement (yikes like a 401 (k) plan or IRA) and yet today that is exactly what it is, little more than welfare. And more than 70 years after enactment Social Security comprises more than half the income for more than 60% of the program’s beneficiaries; furthermore, for 30% of its beneficiaries, Social Security represents more than 90% of their total income. [3]

What happended? Well over the years politicians “improved” Social Security many times adding survivor benefits, disability benefits, a permanent COLI, children’s benefits and even benefits for the ex-wives of a beneficiary. What also happended is that rather than viewing Social Security as supplemental income in retirement Americans became more and more dependent and why not, it was free money from the government after all.

Fast forward, the Bush tax cuts reduced federal receipts and lowered the budget surplus by nearly $ 2 trillion. One has to wonder what happended to all that money, the answer is it went back into the economy which may be why Congress is now giving us back another $150 billion or so, again to stimulate the economy. But where will that $150 billion go? Well, if you accept the fact it will be spent by “working Americans,” chances are it will be spent at Wal-Mart, so we know exactly where the $150 billion will go… to China!

So tell me again how this all works, spend, spend, spend and tax to pay for that spending but don’t tax sufficiently to actually pay for the spending. Then cut taxes to keep the economy rolling and when it doesn’t, give back more tax revenue you don’t have to stimulate the economy once again. And yet again, raise taxes to help pay for the old and new spending, that is, until the economy needs more stimulation. The various candidates are making promises for an array of new programs, from health care to early child education to who knows what and they have schemes to pay for it all, like Sen. Clinton paying for one program by eliminating federal contractors. Well, if we can eliminate contractors what the heck are they doing now and why didn’t Congress eliminate them before this? There is a growing deficit, right?

But wait a minute, we can be creative in paying for lots of new goodies, but how are we going to pay for what we already have and can’t afford? Forget expanding health care, how about dealing with the fact that by 2030 nearly 60% of a Social Security check will be consumed paying for Medicare Part B and D premiums and co-payments?

But there is another way, just encourage people to spend what they don’t have, accumulate debt, take a home equity loan…wait, that doesn’t work either.

[1] Social Security Office of the Chief Actuary

[2] The CPA Journal Online

[3] The CPA Journal Online