CBO – The Coming Raid on Social Security

BRUCE KRASTING ^ | 02/12/2013

[SeekAndFind]

 

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)

What the CBO fails to state is that the raid on OASI will result in a significant reduction in the End Date for the retirement Fund. In its report to Congress last year SS forecast that the Retirement fund would be exhausted in 2033. The DI drain (and other negative revisions by CBO) will bring the End Date to below 2030 in the upcoming SS report to Congress. That would be a very significant development. The CBO does not want to be the one who puts a new SS end date “out there”. To me, this was a cop-out by the CBO.

 

Given that discrepancy between the trust funds’ operation and the baseline’s assumption, CBO is not providing DI or combined trust fund totals for the year of exhaustion and thereafter.

 

The timing of this story is interesting. The question in my mind is will the “fix” come before or after the bi-election. If Obama was a gambler, and he believed the Democrats could re-take the House in 2014, then he might defer action on DI until 2015. This scenario creates the opportunity for option #1, a tax on the rich to supplement DI. Of course that is gambling, and there would be a small window of time to push through a new income tax to save DI.

Then there is the Republicans. Do they want to push this before, or after 11/2014? I could argue both ways, but in the end, it gets back to the fact that no one wants to “do” anything with SS. It’s better to do “nothing”; that makes #4 the most likely outcome.

 

I hope that some of the big Defenders of SS pick up on the information from the CBO regarding the coming raid on the retirement fund. This is a huge constituency (60m beneficiaries – 150m contributors – every politician in the country – all of the Press). If that group catches on to what is about to happen to the retirement fund, there will be a great chorus of, “Don’t you dare touch my money!”

 

I’m trying to stir the pot on this one. I want DI’s terminal condition to come onto the table sooner versus later. I’m hoping that if and when it does come up for discussion, it opens the door on the broader issue of what the hell America is doing with entitlements. Basically, I’m trying to pick a big fight. For the good of the country, wish me luck.

 

[Lurker]

There is no “trust fund”.

There never has been a “trust fund”.

There never will be a “trust fund”.

[whitedog57]

Bruce Kasterling is a leftist blowhard. All his ideas are more of the same: tax the rich, don’t cut benefits. FU.

[freedumb2003]

Anyone under 55 who thinks he/she will see a DIME of SS is living in fantasyland.

When people are paying over 50% of their gross income for SS alone, it will end.

My worry is they will Federalize 401(K)s

[eyeamok]

I have an idea that will fix this problem and will restore Social Security, immediately SEIZE ALL ASSETS of Every last member of Congress, The Administration, and Their Families if any wealth was passed down, like the Kennedy’s, going back to the first Day they STARTED STEALING THE MONEY and REPLACING IT WITH WORTHLESS IOU’S.

[GeronL]

They gonna steal all those IOU’s?

[cripplecreek]

LOL aren’t the raiders going to be surprised.

[MisterArtery]

Well, actually there was. Don’t know if it was called that but the SS taxes collected were not touched and earning interest until Windy Lyndy Johnson and the band of usual Democrats decided to use them to fund the Great Society and pay SS benefits out of the general fund.

[cripplecreek]

Well, there’s always the highway fund.

Oh wait.

[RoosterRedux]

This is Obama's way to strike at old white people.

Those who know...know Obama is at war with America. And this is an easy way to strike at its core.

Strike the heart of America...and America will die (or at least, that is what Obama thinks).

Frankly, I am impressed that he has (or his handlers have) thought this through so thoroughly.

I'm impressed. They've done their analyses, they've implement their programs, they're now about to wage war against us.

And we just sit here...waiting to get hit.

Wake up...let's get ready to hit back.

Can I get an amen...will any of you freepmail me about this?

[sten]

if its drying up in 15 years... 10-14 yrs short for me... then why should I continue paying now?

[abb]

You are correct.

http://www.ssa.gov/history/BudgetTreatment.html

From the beginning of the Social Security program its transactions were reported by the administration as a separate function in the budget. This is sometimes described in present usage by saying that the Social Security program was “off-budget.” This was the budget representation of the Social Security program from its creation in 1935 until 1968.

“On-Budget”-

In early 1968 President Lyndon Johnson made a change in the budget presentation by including Social Security and all other trust funds in a”unified budget.” This is likewise sometimes described by saying that Social Security was placed “on-budget.”

[SeekAndFind]

RE: then why should I continue paying now?

If you are on a salary, it’s automatically taken off your salary anyway via the payroll tax.

If you have your own business, you have the IRS to contend with.

[sten]

so... either theft or a gun to my head is the reason

check

[Ruy Dias de Bivar]

Here is the promise from 1964!

http://www.ssa.gov/history/ssa/usa1964-2.html

Self-Supporting

“The program is designed so that contributions plus interest on the investments of the social security trust funds will be sufficient to meet all of the costs of benefits and administration, now and into the indefinite future—without any subsidy from the general funds of the Government.

Both the Congress and the Executive Branch, regardless of political party in power, have scrupulously provided in advance for full financing of all liberalizations in the program.”

And HERE is where your money went! Read and weep.

http://www.socialsecurity.gov/OACT/ProgData/fundFAQ.html#n4

[DManA]

Good start. How about everyone he has EVER BEEN a member of congress. They really don’t cash in until they “retire”.

[muawiyah]

All SS FICA has been used to purchase US bonds ~ which means that the gub'mnt already borrowed it.

I was around at the time the last big change was made to SS ~ under Ronaldus Magnus. It was pointed out at the time there was the possibility that if America's workforce subject to FICA were sufficiently prosperous they could actually buy up 100% of the national debt.

Subsequently the big payout to the Baby Boomers began and that means the bonds must be sold (to others) to pay the benefits due.

The Great Obama Recession is restricting growth in private sector employment, and with that destroying the opportunity for Americans to be prosperous and make those FICA payments.

The solution is obvious ~ transfer ownership of federal property to the SS funds and begin selling it off to pay the benefits required by law.

In the end we'll end up with a federal government with dramatically reduced property.

[publius911]

The Obama Flying Monkeys keep hammering on the myth that Social Security, Disability and Medicaid are all inseperable and eternal. Until recently they weren't and the outlook was not bleak.

Disability has exploded in the last 8 years (there are no means testing or fraud investigators) permanent Disability is being abused beyond credibility. All it takes is an unethical doctor the purchase of a cane and the crooks no longer have to deal with nasty stuff, personal responsibility, employment, child support or any of the responsibilities of citizenship.

Try to find the annual numbers on permanent disability for the last 12 years. Good luck. My sense is it has tripled in the last 12 years, and it is 80% fraud. I personally know of a few cases where permanent disability has been "won" by unemployed (and unemployable) people who have never held a permanent job and, while on multiple welfare programs visit casinos and buy groceries I haven't been able to buy for years. If taxpayer money were not the only source of these abuses, I wouldn't care one iota.

If bare subsistence is too "demeaning to" expect from the indolent or the fraud-prone, where is my "equal protection?"

Same thing with Medicaid. Why was that shoved into medicare, although it is welfare with a catchy name? Totally non-contributory. I don't care how much Obama spends, just move it back to the welfare packages, where it is clear and can be debated without bankrupting "Social Security" (the original program that workers pay for 40 or more years.)

[VRW Conspirator]

There is no “trust fund”.

Lock box with no lock.

[publius911]

Given that discrepancy between the trust funds’ operation and the baseline’s assumption, CBO is not providing DI or combined trust fund totals for the year of exhaustion and thereafter.

Most people don't grasp the role of the CBO, nor its limitations. All analyses by the CBO MUST accept the baseline assumptions and projections provided to it by Congress. It may not challenge nor change them even if the assumtions and projections are absurd; WHICH THEY ARE, MORE OFTEN THAN NOT.

Let's put the blame where it belongs. On both the criminal constituents of Congress.