Raiding Social Security OASI? (1 Viewer)

dapperdan

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A very interesting article on what appears to be a pretty massive raid on the Social Security OASI fund, it looks like the SS Disability Fund will run out of money by early 2016:
Every politician in America knows that Social Security (SS) is a third rail. Any Pol who tries to mess with the country's largest and most popular entitlement program is going to have the likes of the AARP coming after them. It's not possible to win an election on a platform that advocates cutting back SS.

With that in mind, I find it interesting to report that a very credible source is now predicting that Obama AND Congress will take action over the next 24 months that will substantially undermine both the long and short-term health of SS. The legislative raid on SS will certainly total in the hundreds of billions, it could top $1T over the next fifteen years.

So who is this "credible source"? And just how is this raid going to happen? The source of this information is the Congressional Budget Office (CBO); the following is how it will play out:



SS consists of two different pieces. The Old Age and Survivors Insurance (OASI) and Disability Insurance (DI). Both entities have their own Trust Funds (TF). OASI has a big TF that will, in theory, allow for SS retirement benefits to be paid for another 15+ years. On the other hand, the DI fund will run completely dry during the 1stQ of 2016. By current law, the DI benefits must be cut across-the-board by 30% on the day that the DI TF is exhausted.

This would mean that 11 million people (most of whom are very sick) would get slammed from one day to the next. There is no one in D.C. who wants this to happen. I don't think the American public wants this outcome either. So what are the fixes?

1) Increase income taxes on +$250k of income to pay for the DI shortfall. Maybe, but this will not happen with the current Republican controlled House.

2) Increase Payroll taxes to cover the DI shortfall. I see zero political support for a permanent Payroll tax increase.

3) Cut benefits by 30%. This would be insane - it will not happen with Obama running the show.

4) Kick the can down the road and raid the OASI TF for the annual shortfalls at DI.

Of course #4 is the path that will be taken. #s 1, 2 and 3 are not politically feasible. I have been wondering what will happen with the DI conundrum. I was surprised to see that the CBO spelled out what will happen in its report on the Budget and Economy - SS Trust Funds. The report has this footnote:

CBO projects that the DI trust fund will be exhausted during fiscal year 2016. Under current law, the Commissioner of Social Security may not pay benefits in excess of the available balances in a trust fund, borrow money for a trust fund, or transfer money from one trust fund to another. However, following rules in the Deficit Control Act of 1985 (section 257(b)), CBO's baseline assumes that the Commissioner will pay DI benefits in full even after the trust fund is exhausted.

The "loophole" to drain the OASI insurance is already law - so Congress doesn't have to do anything to raid the retirement fund. The "do nothing" plan is always the best option in D.C.

The footnote goes on to provide an estimate for the size of the raid:

For illustrative purposes, below are the cumulative shortfalls in the DI trust fund beginning in 2016. Those shortfalls do not include interest expenses.

DI Trust Fund Cumulative Shortfall
($s in Billions)
2016 -15
2017 -55
2018 -94
2019 -133
2020 -173
2021 -215
2022 -260
2023 -307
Wow! At this rate the raid tops $1T in 2029. This is is a big dent in a Trust Fund of $2.8T.

There is an import "tell" from the CBO. In the footnotes it highlights the fact that there is a discrepancy, and uses this an excuse to avoid establishing an adjusted end date for the OASI Trust Fund. (It's not a complicated calculation)
CBO - The Coming Raid on Social Security | Zero Hedge
 

Det. Brees

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Why is said considered,an entitlement program? Don't we pay into it!
 

Det. Brees

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Hell , if you don't pay in why on gods earth are you allowed to receive benefit from it.
 

dtc

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Hell , if you don't pay in why on gods earth are you allowed to receive benefit from it.
When a 14 yr old kid gets in a car wreck and becomes disabled he's never paid in, but on the long track to being paid for it and I think that's the biggest problem facing SS right now.

The explosion in disability recipients is more troubling than retirees. The number of lawyers making their living fetching SS payments is disgusting and the system by which any applicant is summarily denied just in hopes they'll go away is immoral. Paying some lawyer to get SS benefits only drives up the costs and reduces the benefit's value.

Also, there are far too many people receiving benefits who work cash on the side and in my industry I see it all too often. Worker's Comp claim from an uninsured "Work Comp Exempt" sub turns into a life of disability benefits with a guy still working for cash on the side.
 

dtc

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I pay enough. The benefits are too generous, paid out too soon, and sometimes to the wrong people.
If you're an employer you probably pay way too much. I know I do. And I completely agree too many are receiving benefits and particularly disability.

I've got no qualms about raising the age, lowering the rate and increasing the cap on income to the moon. Make the employee pay more of the cost and take the burden off the employer and you'd likely see more hiring too.
 

JonsDuu

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No clue as to why you should be able to get money out of it if you have out no money into it. It makes no sense to me.
You only get money if you paid into (or are the beneficiaries of someone who paid into it). If you're referring to survivor benefit, your spouse/parent paid into it. If you're referring to a dependent disability, well, the provider paid into it.

People who work for the railroad do not pay into Social Security, nor do they draw from Social Security.

dtc said:
I've got no qualms about raising the age, lowering the rate and increasing the cap on income to the moon.
Social security will fix itself in about 3 decades -- that's when the baby boomers died off and the X-ers are the retirees. When the boomers died off, the generations revert back to its pyramid scheme, which allows social security to be stable again. The current problem with ss is the working population is too small to support the retirees--the boomers, which is huge. The x-ers are tiny, the y-ers a little bigger, and the echo-boomer are much bigger. Once we get back to a tiny group at the top of the pyramid with a big wide base, everything will go back to being kosher. Until then, bite the bullet and double the payroll taxes. Either that or open the floodgate and import hundreds of millions new workers.

I don't understand the raising the cap part. SS is partially based on equity -- you get out what you paid into it. The adequacy part skew the payout toward the lower end; eg the lower income take more out than the higher income. But raising the cap only means the higher income get more out later.

Unless you proposing something else -- which is to raise the cap only on the paying in part and cap the payout amount. Why bother with that and just raise the tax rate?

As for too generous, well, that's politics for you. Any "insurance" company that actuarially pay out more than they take in will eventually become backrupt. A well-run insurance company will see that and raise the premium so that doesn't happen. The elected public servants of the USA, on the other hand, are more concern with election than fiscal responsibility. The payroll tax rate should had been raised a long time ago such that we don't actuarially pay out more than we take in. But any politicians who talk of raising the premium will get killed at the polls.
 

BIG E

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When a 14 yr old kid gets in a car wreck and becomes disabled he's never paid in, but on the long track to being paid for it and I think that's the biggest problem facing SS right now.

The explosion in disability recipients is more troubling than retirees. The number of lawyers making their living fetching SS payments is disgusting and the system by which any applicant is summarily denied just in hopes they'll go away is immoral. Paying some lawyer to get SS benefits only drives up the costs and reduces the benefit's value.

Also, there are far too many people receiving benefits who work cash on the side and in my industry I see it all too often. Worker's Comp claim from an uninsured "Work Comp Exempt" sub turns into a life of disability benefits with a guy still working for cash on the side.
:plus-un2::plus-un2:

I've been saying the SSDI is the most abused program there is. It's way to easy for someone to claim they're nuts and receive benefits. They need to tighten this program up and get rid of the fraud and use it only for the people that truly deserve it.
 

the-commish

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I don't know if this has been mentioned before (I don't believe it has been) but the regular SS Trust Fund, which was supposed to have $4.8 trillion in it at the end of 2011, had only $2.7 trillion in it. This was due to government borrowing from the fund for use as general expenditures, and not paying it back. And, here's something else: starting in 2009, outgoing payments from the fund exceeded incoming taxes. So, to me, means testing of benefits and lifting the cap on payroll taxes would reverse this trend. That would not, however, solve the problem of where the federal treasury is going to get the $2.1 trillion to repay the Trust Fund.
 

JonsDuu

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That would not, however, solve the problem of where the federal treasury is going to get the $2.1 trillion to repay the Trust Fund.
Like all Ponzi scheme, the only way to keep the scheme going is to recruit more people.
 

the-commish

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Like all Ponzi scheme, the only way to keep the scheme going is to recruit more people.
I don't think you read the part of my post about means testing, and lifting the payroll tax cap. As far as SS being a Ponzi scheme, while Paul Ryan might agree with that, I certainly do not. It's only in recent years (2009 to be exact) that there have been more benefits paid out than taxes taken in. And, unlike a Ponzi scheme, the way to solve it is not by "recruiting" more people to pay in; it's by taking in more $$$ (lifting the payroll tax cap), and paying out less (means testing). And, unlike a Ponzi scheme where $$$ are taken in and, eventually, not paid out, SS benefits will be paid out.

How do I know that SS benefits will always be paid out?
1/ The people collecting SS benefits vote, generally in greater percentages than the rest of the population.

2/ Not paying out these benefits would leave a large percentage of the population who depend on these benefits without subsistence. And, who do you think will pay so that they don't starve to death? The government of course. So, not paying the benefits would be completely counterproductive.

That doesn't sound like any Ponzi scheme I ever heard of. Bernie Madoff would have rejected that out of hand.
 

JonsDuu

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I don't think you read the part of my post about means testing, and lifting the payroll tax cap.
SS is equity-based. What you get out is what you put in. So removing the payroll tax cap means removing the payout cap.

Means testing is a fancy word for direct taxation. Means test run counter to equity based. Why bother with an equity based program? Just eliminate SS and go straight to direct taxation.



As far as SS being a Ponzi scheme, while Paul Ryan might agree with that, I certainly do not.
A Ponzi scheme is where the distribution come primarily from new money. It's differ from a pension in that the distribution come from earning on the contribution.

Simple question -- where's my money I put into SS? It's in a "trust" account, which got zero dollar in it. In its place is an IOU, backed by the "faith" of the United States government.

Where are all the money being paid out this fiscal year coming from? From new money via the current fiscal year payroll tax.

What happens to a Ponzi scheme when new money dries up? It collapses.

What's happening to the SS program when new money dries up (eg high unemployment) -- it collapses, propped up only by enormous debts.

It's only in recent years (2009 to be exact) that there have been more benefits paid out than taxes taken in. And, unlike a Ponzi scheme, the way to solve it is not by "recruiting" more people to pay in; it's by taking in more $$$ (lifting the payroll tax cap), and paying out less (means testing). And, unlike a Ponzi scheme where $$$ are taken in and, eventually, not paid out, SS benefits will be paid out.
What are you talking about? A Ponzi scheme will be paid out for as long as new money are found. Mad Mad ran his scheme for years because he found ne money for years.

As for lifting the cap and the mean test, see above.

SS had been working because each succeeding generation were bigger than the previous generation. That changed with the Generation X, which is much smaller than the baby boomers. That translate to not enough new money to keep the ponzi scheme going.



How do I know that SS benefits will always be paid out?
1/ The people collecting SS benefits vote, generally in greater percentages than the rest of the population.

2/ Not paying out these benefits would leave a large percentage of the population who depend on these benefits without subsistence. And, who do you think will pay so that they don't starve to death? The government of course. So, not paying the benefits would be completely counterproductive.
Wishful thinking. Go see France.

Currently, the percentage to receive SS is huge (the baby boomers) compare to the perecentage paying into SS (the X & Y). Wait until the X & Y have more votes than the boomers and we'll see what happens.
 

dtc

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I don't think you read the part of my post about means testing, and lifting the payroll tax cap. As far as SS being a Ponzi scheme, while Paul Ryan might agree with that, I certainly do not. It's only in recent years (2009 to be exact) that there have been more benefits paid out than taxes taken in. And, unlike a Ponzi scheme, the way to solve it is not by "recruiting" more people to pay in; it's by taking in more $$$ (lifting the payroll tax cap), and paying out less (means testing). And, unlike a Ponzi scheme where $$$ are taken in and, eventually, not paid out, SS benefits will be paid out.

How do I know that SS benefits will always be paid out?
1/ The people collecting SS benefits vote, generally in greater percentages than the rest of the population.

2/ Not paying out these benefits would leave a large percentage of the population who depend on these benefits without subsistence. And, who do you think will pay so that they don't starve to death? The government of course. So, not paying the benefits would be completely counterproductive.

That doesn't sound like any Ponzi scheme I ever heard of. Bernie Madoff would have rejected that out of hand.
Another difference is a Ponzi Scheme is an attempt to defraud whereas SS is an actuarially sound program bounded only by politician's inability to tell the truth and do as they're told. The population of the US is growing. The cyclical deviations in size of generational groups is a problem, but one that's self correcting over time.

It's as if the folks who think SS will go broke don't realize that a couple decades later it will be flush.
 

JonsDuu

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Another difference is a Ponzi Scheme is an attempt to defraud whereas SS is an actuarially sound program bounded only by politician's inability to tell the truth and do as they're told. The population of the US is growing. The cyclical deviations in size of generational groups is a problem, but one that's self correcting over time.

It's as if the folks who think SS will go broke don't realize that a couple decades later it will be flush.
SS is actuarially paying out more than it takes in. Out should be equal to in.

Politicians -- well, no comments.

SS don't go broke. Just the payout will be 70% less than what it should be and we need to figure out how to address that until it self-correct in 3 decades.

But to tell the young generation you need to put more in now to cover the difference and you won't get back those extra isn't fair.

To tell the current retiree you need to take out 30% less because we politicians are bunches of not-quite intelligent public servants isn't very fair either.

Splitting down the middle won't work because SS isn't enough to live on as it is now.

Best solution is to tell the current working populace to put in 70 hours work weeks and thing should be cozy.
 

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