Alas, it will never get implemented. This is because it would be instant political suicidein a democracy where the state predominatesto suggest to voters that it ever should be.
Hence, the fiscal can will be kicked as far down the road as it can until the roadway suddenly ends at the edge of the cliff.
That way, the country will experience an eventual catastrophe; but at least the politicans will avoid the curse of becoming unpopular, and their constituencies the need for preemptive sacrifice, in the interim.
So, meltdown is inevitable, and the fallout will be severe. Romney wont fix it, and Paul wont be elected. Cain? Well, itll probably be one or the other.
The tragedy is that about half of America IS up to challenge of dealing with this dire situation.
The rest of the article:
Americas 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. Thats $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 theyre 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 nothings been saved.) Operating this way has two terrible consequences. First, because funds arent saved and invested, they dont generate returns. Thus theres no compounding effect for any of the money thats 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 employers 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. Its 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 thats no longer possible. For were 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 Medicares funding comes from general tax revenues.
Clearly then, our entitlement programs are an unmitigated financial disaster. But if were to properly deal with them, we mustnt limit our analysis to economics alone. For after all, the deepest arguments underlying the programs arent financial theyre moral. Indeed, much of the reason that theres never been any reform of the programs is that until recently, few would question the moral views of mans nature upon which theyre 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 wont 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. Its 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. Its 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 Americans 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 cant think or plan for himself. He must be forced to act for his own good. Indeed, as we saw with the passage of Obamacare, theres no longer even a pretense of persuasion; we childlike peons are to find out whats in store for us when the laws have been passed. Ever since the New Deal, its this paternalistic view thats guided government policy.
Tragically, however, the paternalists have the causation backwards. In actuality, its 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 theyre entitled to or have a right to the products of other peoples efforts. As a result, Americas independent spirit is waning.
A final key moral question is whether people should be treated primarily as independent individuals or as interchangeable parts of a larger collective.
Here again, history provides ample evidence. Wherever and whenever theyve been free to do so, people have exhibited differing values, plans, and priorities. Societies succeed by respecting and catering to these individual choices and preferences; they fail when individuals arent even recognized. Take, for example, the contrast between the Free Worlds outpouring of diverse and imaginative consumer products with the Soviets monotonously drab and barren output during the Cold War. Or the Maoists brutal mainland uniformity versus the flourishing trade and production of free Hong Kong. Or, for history buffs, the contrast between ancient Athenian and Spartan cultures.
But the evidence isnt only historical, its also intimately personal. We each have unique dreams and aspirations that require differing paths and choices. No one else, much less the government, can know whats best for us (despite what might be good for a fictional average person). College may be generally worthwhile, but the next Bill Gates might be completely justified in dropping out to start a business. Following a safe and steady career path may be good for most, but for the aspiring actor or musician, success may mean taking a very unorthodox route to that one big break.
Yet those pushing entitlement programs see it otherwise. They have a collectivized, one-size-fits-all approach to man. To whatever extent possible, the government should create and impose uniformity: all children should go to public schools until theyre 16. Patients should only be allowed to take drugs approved by some government board. Everyone should contribute 15% of their income to their future retirement and medical needs each and every year. Everyone should retire at 65.
Part and parcel of this collectivized view is the refusal to see individuals at all. Thus theres no recognition that particular people, engaged in particular processes and efforts, earn and produce wealth. By dropping the individual from their worldview, collectivists dont have to confront the moral question of why they find it proper to take from some to give to others.
The result of these collectivist and paternalistic views is a continuous assault on individuals and their rights. This is borne out in the implementation of our entitlement programs.
For example, consider all those who havent yet acquired sufficient skills and experience for a potential employer to justify both their salary and the additional burden of a 15.3% FICA tax. Entitlement programs price these people out of the labor market, and thereby contribute to our stubbornly high rates of unemployment particularly among the young.
The same type of analysis applies to those employees trying to save enough to start a family or a business of their own. For many starting out, the 15.3% withholding tax represents a huge percentage of their discretionary income. Forcing them to prioritize retirement over other genuine values is inimical to their personal success and happiness. Contrary to the one-size-fits-all mentality, peoples circumstances vary widely, and there are often times in a persons life when withholding for retirement is not a good thing.
Next, consider every responsible person who could have and would have saved and invested the equivalent of his mandatory FICA withholdings had he simply been allowed to. Over the years many wanted to opt out of the entitlement programs to build their own nest eggs, but they were prohibited from doing so in the name of protecting them from themselves. Now, thanks to our paternalistic caretakers, all that money is gone.
But it doesnt end there, for not only is inclusion in these Ponzi schemes mandatory to employees, but when FICA contributions are inadequate as they already are for Medicare every taxpayer is forced to contribute to the deficiency via the general revenues.
As bad as all this is, perhaps the most egregious violation of rights comes in the treatment of future generations. Thanks to a complicit majority, those of voting age have for years now sought to burden (some might say indenture) the next generation with their retirement and medical bills. Its a classic case of trying to have ones cake and eat it too. Voters approve and enjoy all the current year spending to which their withholding taxes go, but still expect someone else indeed a whole generation to provide them with the very goods they refuse to set aside.
Redistributing wealth in any form is bad enough, but theres a certain audacity to forcing the young and not-yet-born to become the primary victims. (This type of conflict is far from an anomaly; collectivist schemes to redistribute wealth always pit one group against another, here the strife they cause is intergenerational.)
Having now established the moral and economic bankruptcy of our entitlement programs, the question becomes: what do we do with them? Given how long the programs have run and how many people have been forced to participate, there can be no easy answer. But to get us started, why not look at an analogous situation? There are obvious differences between Madoffs and FDRs Ponzi schemes, but reviewing how Madoffs is being handled does provide two valuable insights.
First, as soon as Madoffs scam was discovered, it was shut down. Second, a trustee was appointed to return what funds remained, and then to reclaim money from anyone whod knowingly or unknowingly profited from the scheme. In justifying this, the trustee appropriately decided that no one had a right to fictitious profits or other peoples money. Since there was no investment to generate returns, the most anyone could get back was the dollar amount theyd contributed.
With this in mind, here are some initial ideas on how to tackle our entitlement mess:
1) Stop the programs immediately. No one would accrue another cent towards Social Security, Medicare, or Medicaid.
2) Continue to make Social Security payments on the existing schedule, but cap the lifetime payouts to the nominal value of past contributions. For younger people this would be an easy transition as they could plan their retirements accordingly. For some older people this would be more difficult, and in those cases of real hardship, they could be added to the welfare rolls. (Indeed, its been argued that entitlement programs are already a form of welfare.)
3) Convert Medicare and Medicaid to a monthly payment similar to Social Security and cap these to lifetime contributions as well.
4) Fund the remaining liabilities through the general revenues. This is already how SMI and Part D of Medicare are funded, but the difference here is that over time expenditures would taper to zero rather than growing exponentially as they do now.
Ending a fantasy is never welcome for those who want the impossible and who think that all they have to do is cast a vote to make it happen. Nor can there be any easy or completely just solutions to a colossal, multi-decade Ponzi scheme. But the solution outlined above has several merits:
It ends the program.
No one is cut-off cold turkey.
Anyone who lives long enough gets back what they put in (less inflation).
Unemployment is reduced by the elimination of the FICA payroll tax.
People are once again able to prioritize their values and plan for their own retirements and medical care.
Finally, and most importantly, future generations can once again enjoy the freedoms and opportunities that were and should be this nations hallmark.
Most americans want the problems fixed. At everyone else’s expense. I read a poll quite some time ago in which 70% of the respondants wanted cuts in govt. When asked what, they all pointed at everyone else’s programs.
Agreed. People want their benefits and they’re right - they paid for them with their taxes.
No politician is going to tell voters they shouldn’t get them.
That’s the bottom line.
The depressing part is that a lot of people who are hooked on these entitlements could care less about the country’s fiscal solvency or the future of their kids as long as they keep getting their government cash. To hell with everyone else. Touch my money and I’ll riot. The Welfare state truly did destroy any sense of common sacrifice among our citizens. Now its just gimme gimme gimme and make someone else pay for it. When there are no more “rich” to pay, the entitled class will riot like they are doing in Greece.
Sensible and realistic apply only to the sensable and the realistic, this is like taking heroin away from the heroin addict of coarse with the screaming political support group behind them.
Pure bullS#!&. If a person kicks in $12,648, that is matched by the employer, or just over $25,000. Take that and multiply it by 45 years and you get $1,125,000. Since the average balance over the 45 years is half that, it comes to $562,500. Figuring that interest rates average just 4% for all those years, that's $22,500 per year in interest times 45 or $1,012,500 in interest added to the $1,125,000 in principal, or $2,137,500 total. Even assuming life expectancy rises from 78 to 90, that's $85,500 per year. I don't know about you, but my SS check is a little south of that amount. In fact, at my current payout, the fund keeps growing because I don't even get $22,500 a year.
Even worse, they take the money if you die early. My Mom paid in for 42 years and died 8 months after she retired. The gov't gets to keep the funds. That's why we should do what Chile does and have individual retirement accounts. At least that way, you could leave something to your heirs.
Good article, GREAT thread. These evil socialist schemes have been built on the backs of DEAD Americans, people who have been FORCED to pay their entire lives and have never taken anything or very little in return.
The solution: More dead Americans combined with socialists TAKING more of your money.
The program: Hillarycare/Romneycare/Obamacare/Totalitariancare
The method: FORCE
From “The Law”...
Now this must be said: When justice is organized by law that is, by force this excludes the idea of using law (force) to organize any human activity whatever, whether it be labor, charity, agriculture, commerce, industry, education, art, or religion. The organizing by law of any one of these would inevitably destroy the essential organization justice. For truly, how can we imagine force being used against the liberty of citizens without it also being used against justice, and thus acting against its proper purpose?
This is the seductive lure of socialism. And I repeat again: These two uses of the law are in direct contradiction to each other. We must choose between them. A citizen cannot at the same time be free and not free.
Woe to the nation when this latter purpose prevails among the mass victims of lawful plunder when they, in turn, seize the power to make laws! Until that happens, the few practice lawful plunder upon the many, a common practice where the right to participate in the making of law is limited to a few persons. But then, participation in the making of law becomes universal. And then, men seek to balance their conflicting interests by universal plunder. Instead of rooting out the injustices found in society, they make these injustices general. As soon as the plundered classes gain political power, they establish a system of reprisals against other classes. They do not abolish legal plunder. (This objective would demand more enlightenment than they possess.) Instead, they emulate their evil predecessors by participating in this legal plunder, even though it is against their own interests.
It is as if it were necessary, before a reign of justice appears, for everyone to suffer a cruel retribution some for their evilness, and some for their lack of understanding.
It is impossible to introduce into society a greater change and a greater evil than this: the conversion of the law into an instrument of plunder.
Is there any need to offer proof that this odious perversion of the law is a perpetual source of hatred and discord; that it tends to destroy society itself? If such proof is needed, look at the United States [in 1850]. There is no country in the world where the law is kept more within its proper domain: the protection of every person’s liberty and property. As a consequence of this, there appears to be no country in the world where the social order rests on a firmer foundation.
I do not think that illegal plunder, such as theft or swindling which the penal code defines, anticipates, and punishes can be called socialism. It is not this kind of plunder that systematically threatens the foundations of society. Anyway, the war against this kind of plunder has not waited for the command of these gentlemen. The war against illegal plunder has been fought since the beginning of the world. Long before the Revolution of February 1848 long before the appearance even of socialism itself...
But it does not always do this. Sometimes the law defends plunder and participates in it. Thus the beneficiaries are spared the shame, danger, and scruple which their acts would otherwise involve. Sometimes the law places the whole apparatus of judges, police, prisons, and gendarmes at the service of the plunderers, and treats the victim when he defends himself as a criminal.
But how is this legal plunder to be identified? Quite simply. See if the law takes from some persons what belongs to them, and gives it to other persons to whom it does not belong. See if the law benefits one citizen at the expense of another by doing what the citizen himself cannot do without committing a crime.
Then abolish this law without delay, for it is not only an evil itself, but also it is a fertile source for further evils because it invites reprisals. If such a law which may be an isolated case is not abolished immediately, it will spread, multiply, and develop into a system.
Above all, if you wish to be strong, begin by rooting out every particle of socialism that may have crept into your legislation. This will be no light task.
Frederic Bastiat 1801-1850
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.
The purpose of occupy is to fight to keep entitlements and increase the size and scope of government.