Tag: Social Security bankrupt

The “Bold Plan to Strengthen and Improve Social Security”

Social Security certainly needs “strengthening and improving.”

The amounts being paid are at starvation levels. The people who need it most often receive the least or none at all.

It contains an unnecessary “gambling” element; you must try to guess how long you will live, to determine when you should begin to receive benefits.

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The sole purpose of FICA

Most of Social Security’s shortcomings are based on the myth that it is funded by FICA. It is not. FICA funds nothing — not Social Security, not Medicare, nothing.

FICA dollars disappear upon receipt by the Treasury. They do not enter those mythical “Social Security Trust Funds.”

They do not enter the economy. Federal spending is unrelated to tax collections, which is why there is a $20 trillion federal “debt.”

According to misleading statements by the federal government:

The Social Security Trust Funds are the Old-Age and Survivors Insurance (OASI) and the Disability Insurance (DI) Trust Funds. These funds are accounts managed by the Department of the Treasury.

They serve two purposes: (1) they provide an accounting mechanism for tracking all income to and disbursements from the trust funds, and (2) they hold the accumulated assets.

These accumulated assets provide automatic spending authority to pay benefits. The Social Security Act limits trust fund expenditures to benefits and administrative costs.

The funds do provide an unnecessary accounting mechanism, but they do not hold anything. They aren’t even trust funds.

According to The Motley Fool there are three elements to a trust fund:

  1. The Grantor: The person who establishes a trust fund and contributes property to it.
  2. The Beneficiary: The person or people who will eventually benefit from the assets in the trust fund.
  3. The Trustee: The person or organization responsible for administering the trust as it was intended.

In the Social Security “trust funds,” the grantor is the federal government, which supposedly populates the funds, but uses your property.

The trustee is the federal government which supposedly manages the assets, except you make the biggest management decisions of all: When to begin taking benefits.

Here is how the Foundation for Economic Education describes it:

Though Congress legislated the Trust Fund, it is not the grantor, because a grantor puts his own property into a trust, which Congress did not do.

As for the Board of Trustees, who in a true trust would hold the legal title to its property,  (the Board not have) title to anything.

Nor do the purported trust “beneficiaries” have property in the fund to which they have an enforceable property right, as beneficiaries of a true trust do.

Board Chairman Altmeyer revealed that Social Security maintains no accounts containing funds earmarked for individuals, and never had.

Its accounts, then, are just record-keeping entities: file folders, not piggy banks.

Assistant Attorney General Robert Jackson stated that under Social Security, “There is no contract created by which any person becomes entitled as a matter of right to sue the United States or to maintain a claim for any particular sum of money. Not only is there no contract implied but it is expressly negatived, because it is provided in the act, section 1104, that it may be repealed, altered, or amended in any of its provisions at any time.”

And the government’s brief for the Supreme Court case Flemming v. Nestor (1960) argued that a current or prospective Social Security beneficiary does not acquire an interest in the Trust Fund—that is, a property right to its assets—and that the belief that Social Security benefits are “fully accrued property rights” is “wholly erroneous.” The Court concurred.

All this confirms the observations by Suffolk University Law School Professor Charles Rounds, a fellow of the American College of Trust and Estate Counsel:

“Despite the term ‘trust,’ the Social Security system contains nothing that remotely resembles the common law trust.

“There is no segregation of assets, no equitable property rights, no private right of enforcement (all characteristics of the common law trust).

“It is merely a system of taxation and appropriation sprinkled with trust terms to hide its true nature.”

Demonstrating the uselessness of FICA, is the “tax holiday”:

The Middle Class Tax Relief and Job Creation Act of 2012 temporarily reduced the amount of Federal Insurance Contributions Act (“FICA”) taxes owed by employees by two percentage points from 6.2% to 4.2%.  This reduction expired on December 31, 2012.

The “holiday” resulted in no change in Social Security benefits.

The purpose of the tax holiday was to stimulate economic growth, particularly favoring the lower- and middle-income Americans. Isn’t that something the government should do all the time?

To summarize, so far:

  1. Federal taxes do not fund federal spending, nor do they fund Social Security benefits. Federal spending does not rely on federal taxing.
  2. The federal government, being Monetarily Sovereign, cannot run short of its own sovereign currency, the U.S. dollar. It creates dollars, ad hoc, by paying creditors.
  3. Just as the federal government cannot run short of dollars, no agency of the federal government can run short of dollars, unless Congress wills it.
  4. There are no Social Security trust funds. They are just bookkeeping devices.
  5. The non-existent “trust funds” cannot run short of dollars unless Congress wills it.

Keep these points in mind as you read excerpts from the following article:

Dean Baker: A Bold Plan to Strengthen and Improve Social Security Is What America Needs
Posted on November 9, 2019 by Yves Smith
By Dean Baker, co-founder of the Center for Economic and Policy Research, where he is a senior economist.

The Social Security 2100 Act proposed by (Democrat) Connecticut Representative John Larson is getting closer to being passed by the House of Representatives. If it were to be approved and become law, it would both improve the program’s benefit structure and its financial picture.

The biggest item on the benefit side is that it guarantees a benefit of at least 125 percent of the poverty level for anyone who has worked for at least 30 years.

The logic here is straightforward; we should be able to ensure that anyone who has put in a full lifetime of work will not be in poverty in their retirement years.

An income of “At least 125 percent of the poverty level” does not guarantee anyone will not be in poverty, unless the government also can guarantee no one will live in a higher-cost area like New York, much of California, or many big American cities.

Further, why is it necessary for someone to have “worked for at least 30 years”?  Is there a moral code requiring labor for 30 years.

And what about people whose labor is not as a salaried employee? Does their labor not count?

The second big change on the benefit side is that it changes the cost-of-living formula for adjusting benefits by tying it to an index of consumption items purchased by the elderly rather than the overall Consumer Price Index.

The inflation adjustment for Social Security benefits has long been a major issue, with many politicians wanting to change the formula to reduce benefits.

Well, of course, that is what “many politicians” want. It is what the rich, motivated by Gap Psychology, pay them to “want.”

The third feature on benefits is a change in the formula that will increase average benefits for a bit less than $400 a year. This has provoked some opposition since this increase will go to not just lower-income seniors, but also middle-class and relatively affluent seniors.

The average benefit this year is just over $17,600, certainly not enough to maintain a middle-class lifestyle.

All this effort for a $400 per year benefit increase? And if $17,600 is “not enough to maintain a middle-class lifestyle” (It isn’t), would an increase of $400 to $18,000 be enough?

Hardly.

And now we come to the most economically ignorant part:

Rep. Larson proposes to cover this increase, as well as the projected Social Security shortfall, by having a gradual increase in the payroll tax and applying the tax to very high-income workers.

On the latter point, the income subject to the payroll tax is currently capped at just under $133,000. This means that someone earning millions of dollars each year would pay no more in Social Security taxes than someone earning $132,900.

Larson’s bill would make wages over $400,000 subject to the tax.

Note that the tax is on wages. But rich people receive most of their income from non-wage sources: Stocks, bonds, rents, etc.

And, as we have shown, taxes do not fund Social Security benefits. FICA taxes merely remove dollars from the economy, with a disproportionate coming from the pockets of the middle- and lower-income people.

In addition to being unnecessary and a burden on the economy, FICA is, and would remain, the most regressive tax in America.

No wonder the rich love it. FICA widens the Gap between the rich and the rest.

His other change is an increase in the payroll tax of 0.1 percentage point annually, split between workers and employers. This increase would continue for 24 years, for a total increase of 1.2 percentage points on both the worker and the employer.

While this is a middle tax increase, it is much smaller than increases we saw in the decades of the 1950s, 1960s, 1970s, and 1980s. More importantly, if we can sustain decent wage growth, it is a tax that should be easy to bear.

It is an unnecessary tax that is especially “easy to bear” for the rich, for they pay so little of it.

The article continues:

After adjusting for prices, wages have risen 1.5 percent annually over the last five years. If we can continue this pace of wage growth, the Larson bill would take back much less than 10 percent of the pay increase in taxes.

Of course, wage growth may not continue, but then our focus should be on getting decent wage growth, not blocking revenue needed for Social Security.

One wonders what “take back” means. The wage increases come from the private sector, and the taxes go to the federal government. So the government would not be taking “back” anything. It simply would be taking.

The article ends with this bit of nonsense:

In short, this is a well-considered bill that would accomplish good for current and future retirees. Congress should move on it.

No, it is an ill-considered bill, put forth by a Congress that either is ignorant of economics, or has been paid by the rich to widen the Gap between the rich and the rest — or both.

There is nothing “bold” about the plan, and it does nothing to “strengthen” Social Security, which is infinitely strong, based on the federal government’s infinite ability to fund it.

A “bold” plan would be to institute the “Ten Steps to Prosperity” (below), beginning with Step #1, Eliminate FICA.

Rodger Malcolm Mitchell
Monetary Sovereignty
Twitter: @rodgermitchell
Search #monetarysovereignty Facebook: Rodger Malcolm Mitchell

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The most important problems in economics involve:

  1. Monetary Sovereignty describes money creation and destruction.
  2. Gap Psychology describes the common desire to distance oneself from those “below” in any socio-economic ranking, and to come nearer those “above.” The socio-economic distance is referred to as “The Gap.”

Wide Gaps negatively affect poverty, health and longevity, education, housing, law and crime, war, leadership, ownership, bigotry, supply and demand, taxation, GDP, international relations, scientific advancement, the environment, human motivation and well-being, and virtually every other issue in economics.

Implementation of Monetary Sovereignty and The Ten Steps To Prosperity can grow the economy and narrow the Gaps:

Ten Steps To Prosperity:

1. Eliminate FICA

2. Federally funded Medicare — parts A, B & D, plus long-term care — for everyone

3. Provide a monthly economic bonus to every man, woman and child in America (similar to social security for all)

4. Free education (including post-grad) for everyone

5. Salary for attending school

6. Eliminate federal taxes on business

7. Increase the standard income tax deduction, annually. 

8. Tax the very rich (the “.1%”) more, with higher progressive tax rates on all forms of income.

9. Federal ownership of all banks

10. Increase federal spending on the myriad initiatives that benefit America’s 99.9% 

The Ten Steps will grow the economy and narrow the income/wealth/power Gap between the rich and the rest.

MONETARY SOVEREIGNTY

–Charles Krauthammer’s scary misinformation on Social Security

The debt hawks are to economics as the creationists are to biology. Those, who do not understand Monetary Sovereignty, do not understand economics. If you understand the following, simple statement, you are ahead of most economists, politicians and media writers in America: Our government, being Monetarily Sovereign, has the unlimited ability to create the dollars to pay its bills.
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Recently, the noted commentator, Charles Krauthammer, wrote an article titled, “Et tu, Jack Lew?” In this article, he said:

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 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.

I was amazed. Krauthammer actually gets it? He’s right, of course. There are no dollars in the so-called “trust fund,” simply because FICA, and indeed all federal tax money, is destroyed upon receipt. This is one of the features of a Monetarily Sovereign government. It has the unlimited ability to create money, so it has no need to store money.

But alas, Krauthammer’s understanding was not to be, for in the very next paragraph he said:

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.

Wrong, wrong, wrong. Our Monetarily Sovereign federal government does not spend tax money on anything. In fact, there is no relationship whatsoever, between federal taxes and federal spending. This has been true since 1971, the end of the gold standard, and Krauthammer et al have not yet noticed the most influential economic change in our lifetimes. Today, even were federal taxes to fall to zero, this would not affect by even one dollar, the federal government’s ability to spend. (This is not the case for the states, counties and cities, which are not Monetarily Sovereign and so do spend tax money.)

Krauthammer goes on to say:

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.”

Wrong again. Federal spending is not financed by raising taxes or borrowing.

When you retire, the “trust fund” will have to go to the Treasury for the money for your Social Security check.

Yes, the Treasury will do what has been doing and is designed to do: Create the dollars to pay Social Security benefits.

So when (Office of Management and Budget Director 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.

No, federal taxes and borrowing do not fund federal spending. Both could be eliminated, and the federal government could continue to spend trillions. Yes, there can be inflation implications, but the federal government neither needs nor uses tax money for anything.

Think about it. If you had a money-printing press in your basement, and had the unlimited ability to print money, would you borrow the money you previously had printed, and could continue to print, forever? Would you ask for tax money so you could pay your bills? Would you have any unpaid debts? Would creating money cause a “deficit”?

Krauthammer’s (as well as politician’s, other media writers’ and mainstream economists’) confusion comes from three sources:

1. Prior to 1971, when the federal government was not Monetarily Sovereign, it did spend borrowed and tax money.
2. The states, counties and cities, being monetarily non-sovereign, do spend borrowed and tax money.
3. You and I and all businesses, are not Monetarily Sovereign. We do need a source of income before we can spend.

In short, Krauthammer et al, do not realize the federal government is completely different from all the monetarily non-sovereign entities. He confuses federal “debt” and federal “borrowing” with personal debt and personal borrowing.

So when your Social Security benefits are cut needlessly, you’ll understand why. It’s the Krauthammers of the world, ignorant of economic reality, who are driving our economy. And this indeed is scary.

Rodger Malcolm Mitchell
http://www.rodgermitchell.com

No nation can tax itself into prosperity, nor grow without money growth.

MONETARY SOVEREIGNTY

–Why Robert J. Samuelson wants to cut Social Security, Medicare and Medicaid.

The debt hawks are to economics as the creationists are to biology. Those, who do not understand Monetary Sovereignty, do not understand economics. If you understand the following, simple statement, you are ahead of most economists, politicians and media writers in America: Our government, being Monetarily Sovereign, has the unlimited ability to create the dollars to pay its bills.
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Robert J. Samuelson is a weekly columnist for The Washington Post, writing on political, economic and social issues. His column usually appears on Wednesdays. Add his name to the long list of economics writers who are ignorant of Monetary Sovereignty, the basis of all modern economics.

In a March 7, 2011 column titled, “Why Social Security is Welfare,” he makes the following comments:

Recall that Social Security, Medicare and Medicaid, the main programs for the elderly, exceed 40 percent of federal spending. Exempting them from cuts – as polls indicate many Americans prefer – would ordain massive deficits, huge tax increases or draconian reductions in other programs. That’s a disastrous formula for the future.

Yes, Robert, not cutting Social Security, Medicare and Medicaid would “ordain” (?) deficits. However, because the U.S. now is Monetarily Sovereign, there is zero connection between deficits and taxes. For your benefit, Robert, I’ll say again what you as an economics writer already should know: “Federal taxes do not pay for federal spending.”

And so far as those draconian reductions in other programs, why do you believe a nation with the unlimited ability to create dollars, needs to cut spending, when inflation is nowhere in sight?

Here is how I define a welfare program: First, it taxes one group to support another group. . .

Robert, now repeat after me until you get it: “Federal taxes do not pay for federal spending.” State taxes do pay for state spending, and city taxes do pay for city spending. The states and cities are not Monetarily Sovereign. But, federal taxes do not pay for federal spending. In fact, FICA could be eliminated, and this would not reduce by even one penny, the federal government’s ability to support this program – even were benefits doubled.

Since the 1940s, Social Security has been a pay-as-you-go program. Most benefits are paid by payroll taxes on today’s workers.

Things have changed markedly since the 1940’s, and Robert has not kept up with the changes. In August, 1971, one of the biggest economic changes in our lives occurred. We became Monetarily Sovereign. At that instant, Social Security ceased being a “pay-as-you-go” program, because FICA no longer supported benefits. In a Monetarily Sovereign nation, tax dollars are destroyed upon receipt. They do not, and cannot, support federal spending.

Think about it, Robert. Why would a government with the unlimited ability to create dollars, need to use taxes to pay for anything? It makes absolutely no sense. Sadly, Robert still lives in a gold-standard (aka “flat-earth”) world.

Annual benefits already exceed payroll taxes. The gap will grow.

Yep, the difference between FICA collections and benefits will grow. More net money will be created. This will stimulate economic growth. So what is the problem?

No doubt people would be outraged (by benefit cuts). Having been misled, they’d feel cheated. They paid their taxes, why can’t they get all their promised benefits? But the alternative is much worse: imposing all the burdens on younger taxpayers and cuts in other government programs. Shared sacrifice is meaningless if it excludes older Americans.

No, shared sacrifice is meaningless if it is purposeless. There is absolutely, positively no reason to cause widespread human misery by cutting Social Security, Medicare and/or Medicaid benefits. Causing misery out of sheer ignorance is unforgivable.

Rodger Malcolm Mitchell
http://www.rodgermitchell.com

No nation can tax itself into prosperity, nor grow without money growth.

–What will help the poor? Taxes vs. Spending

The debt hawks are to economics as the creationists are to biology. Those, who do not understand monetary sovereignty, do not understand economics. Cutting the federal deficit is the most ignorant and damaging step the federal government could take. It ranks ahead of the Hawley-Smoot Tariff.
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Now that the new tax bill has passed, three related issues will remain in the news:

1. Will tax reductions cause inflation? (In the unlikely event they do, the Fed will prevent/cure inflation by raising interest rates)

2. Will tax reductions bankrupt Social Security and Medicare? (No. Because the federal government is Monetarily Sovereign, federal spending is not constrained by taxes. If FICA were reduced to $0, this would not affect by even one penny the federal government’s ability to support Social Security and Medicare. Tax reductions cannot bankrupt the U.S. or any of its agencies.)

3. Should taxes on the rich be increased as soon as the current law expires? That is the question discussed in this post.

Some people favor higher taxes on the rich, because they believe this somehow will help the poor. The concept is that by taxing the rich, we close the “gap” between rich and poor, and this closed gap benefits the poor.

I discuss this “gap” further at Closing the Gap and at A Partial Solution for the Gap.

I strongly empathize with the desire to aid the poor. But bringing down the rich is not the way. Whether Bill Gates has $50 billion or is brought down to “only” $10 billion, does not affect the poor. We have had 90% top tax rates, and that did nothing to help the poor. In fact, increasing taxes on anyone, rich or poor, removes money from the economy, which slows the economy. Slowed economic growth always hurts the poor more than the rich, as witness the most recent recession. Who was hurt most, the rich or the poor?

As I mentioned, the federal government does not spend tax money. Unlike state and local governments, which are not Monetarily Sovereign, the federal government spends money it creates ad hoc. If the wealthy were taxed at the 99.99% rate, this would not increase by even one cent, the federal government’s ability to spend, i.e. to help the poor.

The poor benefit most when the economy is growing fastest, because that increases the availability of jobs and money. So to help the poor, we must stimulate the economy. That is, if we want to help the poor, we very simply should help the poor. The Federal government could:

–Increase Social Security benefits.
–Initiate free universal health care insurance.
–Increase unemployment benefits.
–Pay a salary to all students. ( SALARY)
–Eliminate FICA. (FICA)
–Increase the standard deduction on income taxes.
–Allow home rent to be tax deductible.
–Increase food stamps.
–Pay states and cities to reduce sales taxes

There are many ways to help the poor. We should focus on that, not on punishing the rich, which may provide some emotional satisfactions, but does not provide financial benefits to anyone. Let me see some of your ideas for helping the poor.

Rodger Malcolm Mitchell
http://www.rodgermitchell.com

No nation can tax itself into prosperity. Those who say the stimulus “didn’t work” remind me of the guy whose house is on fire. A neighbor runs with a garden hose and starts spraying, but the fire continues. The neighbor wants to call the fire department, which would bring the big hoses, but the guy says, “Don’t call. As you can see, water doesn’t put out fires.”