Posted on 10/30/2011 5:19:53 AM PDT by IbJensen
Untangling ourselves from entitlements will restore our solvency and our spirit.
America’s financial situation is precarious. Over the past eight years our national debt has doubled to $14.5 trillion, and our total unfunded liabilities now exceed an astonishing $114 trillion. That’s $1,115,000 per federal income taxpayer.
Even the most unrepentant spendthrift understands that these debts and liabilities are unsupportable, nor can they be solved by immorally targeting the rich. Instead, we must enact immediate, across-the-board spending cuts, with special emphasis on the biggest components of our financial wreck: Social Security, Medicare and Medicaid. These entitlement programs constitute the majority of our unfunded liabilities, because despite being labeled “trusts” they’re not actually savings plans.
Rather, the programs are essentially pay-as-you-go schemes. (What little surplus the trusts did accumulate was used to fund other government programs, such that nothing’s been saved[1].) Operating this way has two terrible consequences. First, because funds aren’t saved and invested, they don’t generate returns. Thus there’s no compounding effect for any of the money that’s been withheld. Second, for every year that the programs are in existence, their total future liabilities increase.
Moreover, the programs have grown inexorably over time, partly because they were deemed good in principle, and partly because it takes nothing but a vote to increase benefits.
When Social Security was first rolled out in 1936, the promise was that the program would be very limited, both in terms of contributions and of payout. The most anyone would contribute was $360 per year, including the employer’s contribution. By 2010 entitlement programs cost employees up to $12,648 for Social Security and an unlimited amount for Medicare (at a rate of 2.9% of salaried income). Promised — but unfunded — benefits grew even faster, with payouts exceeding inflation and the years of retirement coverage continuously increasing. By some estimates, a typical 66-year-old couple today will get back double what they paid in. It’s no wonder that our entitlement programs are often compared to criminal Ponzi schemes.
In the past, a myopic focus on the short-term may have allowed some to gloss over the long-term insolvency of the programs, but that’s no longer possible. For we’re now rapidly approaching the time when the money deducted from employees’ paychecks is much less than payouts promised to program participants. Already today, approximately half of Medicare’s funding comes from general tax revenues.
Clearly then, our entitlement programs are an unmitigated financial disaster. But if we’re to properly deal with them, we mustn’t limit our analysis to economics alone. For after all, the deepest arguments underlying the programs aren’t financial — they’re moral. Indeed, much of the reason that there’s never been any reform of the programs is that until recently, few would question the moral views of man’s nature upon which they’re justified.
What are some of these questions?
As recently discussed here and at length here, one fundamental question pertains to whether men are ends in themselves or means to others’ ends. I won’t recap the arguments, but suffice it to say that when the Founders created this land of opportunity (not of entitlements), they clearly enunciated a new — American — ideal in which each of us pursues our own happiness. This put them squarely in the camp of treating individuals as ends in themselves. It’s a camp to which more and more of us are proud to belong.
Another crucial question is whether, in general, men are capable of thinking and fending for themselves.
This question is best answered by observing people throughout history. Compare the success and can-do attitude of citizens living under freedom to those living under any form of statism, and one has to conclude that — when left alone — men are eminently capable of thinking and fending for themselves. It’s only when the state removes and restricts incentives and choices that men become dependent.
For nearly two centuries, Americans, including millions of penniless immigrants, eloquently proved the point. The world marveled at the typical American’s self-reliance, be it his ability to earn a living, build his house, fix his car, or move up the social ladder. In every domain, when left free to think, act, and enjoy the rewards of hard work, Americans surpassed themselves and the rest of the world.
But advocates of entitlement programs deny this. They view man (except perhaps that special breed which constitutes the governing class) as feeble and incapable. He can’t think or plan for himself. He must be forced to act for his own “good.” Indeed, as we saw with the passage of Obamacare, there’s no longer even a pretense of persuasion; we childlike peons are to find out what’s in store for us when the laws have been passed. Ever since the New Deal, it’s this paternalistic view that’s guided government policy.
Tragically, however, the paternalists have the causation backwards. In actuality, it’s their myriad of forced redistribution programs that has fostered a mentality of dependence among the populace. With each new program they implement, they further sever the link between personal action and personal outcomes. Slowly people lose the idea of individual responsibility, and begin to believe that somehow they’re “entitled to” or have a “right to” the products of other people’s efforts. As a result, America’s independent spirit is waning.
Continue to make Social Security payments on the existing schedule, but cap the lifetime payouts to the nominal value of past contributions.
I wish. I've done the calculations. The nominal value of my contributions is about $800,000 right now. That's not theoretical -- it's based on exactly how much I've contributed, and the average long-term US Treasury bond yield each year.
I simulated the investment of each year's contributions into a long-term bond at that year's average yield, and then reinvest the dividends each subsequent year along with the new contributions. Keep in mind that I started my career in the 80's, when US Treasury bonds were paying double-digit interest rates, and would do so for 30 years. So, the balance is much higher than if you used the current Treasury bond yields.
But, if I continue the simulation until I plan to start receiving Social Security benefits (investing each year in a long-term bond at 4%), I still would have about $1.6 million. The current Social Security benefit schedule wouldn't pay me the nominal value of those benefits unless I lived to about age 175.
My point is that this part of the this proposal sounds like a hardship. But, for the baby boomer generation (and subsequent ones) that have been paying much higher payroll tax rates, it's actually an empty promise.
Immigrants, people in exempt jobs, and welfare queens have been able to qualify for a SS check at retirement by simply working for a few hours per year for a few short years. My beef has always been that Social Security should be saved for people who have paid into it their whole lives, (25 to 30 years minimum, full time at least minimum wage).
Another problem I have is with disability. The disability check should be smaller than the normal retirement amount. Yet, my father received a much larger check due to his heart attacks and triple bypass surgery in his 50's and continued to draw a much higher amount after 65 than he would have qualified for otherwise. After he died, my mother continued to receive this much higher check even though she is much younger than him and not disabled. Yet that is the rules, although I should add that while he worked my dad paid the max amount every year, and that my mother worked and paid in also.
Also, kill Part D, or replace it with a map to the nearest Wal Mart and a list of their $4 generic prescriptions.
Amen to that! Love your list.
Shoot, if that and all the other carp was cut, we could actually INCREASE benefits to our Vets. Who wouldn’t want that? “As VP, I will push for legislation...”
PG, luvs me some Bastiat. Genius. He is eloquent in his description of this virulent evil we now face. We must must MUST stop it!
What else can we REFORM? I can actually envision a really well-rounded and thought-out “master list” we can at least “sticky”(?) somewhere as a reference, so we don’t have the info scattered all over the threads. Why not? This is excellent material. (and it sure beats the heck out of the depressing ‘we can’t fix this’ thoughts)
spankalib,
Thanks you have given me motivation to continue with my list. A few months ago I created a folder with articles about where your money goes, and created the list.
Today I found a new item to add: $900 billion in WASTE in medicare for the following. (IBM had offered to fix the government programming for free. Actually it’s a sin that the original programming did not include screening for such obvious types of fraud.)
List:
Unscrupulous doctors billing for over 24 hours per day of procedures,
Phony companies invoicing for phantom services,
Pharmacists filling prescriptions for dead patients,
Home health-care companies demanding payment for treating clients actually in the hospital,
Double billing
If you don't check any boxes, whatever you've paid into Soc Sec is still yours. Medicare is gone. But now there's no FICA withholding at all. And no general income tax increase to offset the loss in revenue from those who opt out and the increased costs of those who opt in. Let those who use pay.
Step 1 would be to freeze current benefits to those on the receiving end now and end cost of living increases.
Step 2 would be to redefine beneficiaries to only those who have paid into the system, eliminating 25% of the benefit amount over a four year period to those who don’t belong.
Step 3 would be to offer a one-time cash incentive buyout to those who are within ten years of being eligible to receive benefits including a provision that they will never have social security taxes taken from their checks again as long as they live. This would lower the long-term obligations being faced by those in the younger generations and allow more of their money to go toward their own private retirement accounts that they would own.
Step 4 would be to redefine benefit levels for those who fail to accept the buyout offer. They have a choice, the buyout or whatever results from the redefinition committee.
Those who are between ten and twenty years away from receiving benefits will have their social security taxes lowered a little to help them cope with the redefined benefit levels they will receive.
Anyone more than twenty years away from being eligible to receive benefits will not be able to collect anything from social security. Their social security taxes will be decreased as current recipients die off over time until one day it’s simply over and done with.
This approach has everyone giving a little and getting something positive in return. It’s the only way to get full buy-in.
Excellent stuff. Filed under Mcare fraud? And another file name Mcaid fraud?
How ‘bout this one...I know it isn’t “sexy”, but just think how much the cost of education is. Do you realize what a killing the textbook manufacturers are doing? One excuse they use to justify the soaking; “We have to print this new calculus edition, because of new methods of pedagogy”. It is immoral for my kid to have to ask me for 200 bucks for a new calculus book.
How does that work? The manufacturer sends his rep to take the head honchos out to lunch, and forks over part of the skim as ‘grant money’?
Hands out month-long vacation packages?
I don’t know, but SOMEONE’S getting rich off that BILK!
Eliminate tenure while we’re at it.
I swar! If we cut the criminality - we’d be ROLLIN IN DOUGH.
Apologize for the rantishness. Keep adding peeps! We can surely come up with a DOABLE list!
And it WON’T be political suicide.
Some would suggest that America's favorite sport is Football or Baseball. In reality our favorite sport is lying to ourselves.
Amen. I think a lot of people are willing to go through some pain to get the country back on track. I know seniors who paid in their whole lives and are willing to accept less. I am in the category of people in their late 40s/early 50s who paid in a long time but who are going to get their benefits cut or their retirement date pushed back. I know I won't get what I paid in. And yet I will accept that to get the country back on track. The idea that the current system is sustainable is a lie. We all know it. And there are still Americans who are willing to do so as long as we know the system will be fixed. I will not sacrifice just so spending can continue to increase and we can take another step toward Communism. I will sacrifice to cut spending and return to stability.
The purpose of occupy is to fight to keep entitlements and increase the size and scope of government.
Thanks for your lists/posts. I am for cutting ANY and ALL of it. Very good work, algernonpj!
DEFUND socialist collectives, foreign and domestic.
Thanks for your lists/posts. I am for cutting ANY and ALL of it. Very good work, algernonpj!
DEFUND socialist collectives, foreign and domestic.
As soon as they’re made optional, the camel has its nose under the tent. They need to be killed off and those of us who have, like myself, paid in $200M (let alone what my employer has coughed up) deserve at least the pittance until we’re dead. I’m 75 now and haven’t much longer to go.
From day one it should have been an elective program. Taking care of oneself should have been paramount. That $200M invested in the poorest performing mutual fund would have returned millions.
The central socialist government doesn’t deliver what it was intended to perform. It just keeps getting fatter and more obtrusive and larded with the dregs of the failures who can’t find gainful employment elsewhere that meets their qualifications: sloth.
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