David Axelrod: “This is not the time” to have a plan to reform Social Security

David Axelrod ran into a buzz saw this morning, and on MSNBC, of all places. Time's Mark Halperin asks a rather predictable question of Axelrod, noting that Barack Obama never mentioned Social Security reform in his 60 Minutes interview last night (and Steve Kroft apparently never asked about it, either). Where's the plan, Halperin asks --- and Axelrod makes not one but two huge gaffes in answering:

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First, Axelrod insists that “this is not the time” to have a proposal to address the critical unfunded liabilities of Social Security. Really? Isn’t an election a time to discuss plans for the nation’s future, especially on pressing fiscal issues? Furthermore, Obama has been president for most of four years now, and Axelrod is all but admitting that Obama hasn’t got a plan at all on this issue. He’s tossing the issue back to Congress, and in his snotty way telling Mark Halperin that he doesn’t have any standing even to ask the question.

Next, Axelrod admits that Medicare is a bigger problem. That’s true, but that’s not been the position of the Obama administration. They keep claiming that ObamaCare has fixed the problem in the short term and bent the cost curve downward over the long term. Now Axelrod admits to reality, which is that ObamaCare didn’t help save Medicare at all — and that it’s on the same decade-long trajectory to collapse as it was when Obama took office.

What have we found out from today’s episode of Morning Joe? Obama has wasted four years while the entitlement collapse continued to pick up steam, and even after four years, he still doesn’t have a plan to address it.

OBAMA ADVISER DAVID AXELROD: “Well I think that there, too, Mark, the approach has to be a balanced one. We’ve had discussions in the past. And the question is, can you raise the cap some? Right now Social Security cuts off at a lower point. Can you raise the cap so people in the upper incomes are paying a little more into the program? And do you adjust the growth of the program. That’s a discussion worth having. But again we have to approach it in a balanced way. We’re not going to cut our way to prosperity. We’re not going to cut our way to more secure entitlement programs – Social Security and Medicare. We have to have a balance.”

Idiot. The cap goes up automatically almost every year. In fact, under the Obama administration, the cap remained at $106,800 for the years 2009-11. In 2012 it is $110,100. By comparison, in 2000 the cap was $76,200 and in 1991 when Clinton took office, the cap was $53,400. And there is no earnings cap on Medicare (HI) payments.

Contribution and Benefit Base

IOU's. Problem solved

Nope that won't solve the problem with SS. Here is how the system works"

SS is a pay as you go system. Today's workers pay for today's retirees. Money taken in thru the payroll tax is used to pay benefits. Any "surplus" is put into the General Fund and the Treasury issues non-market, interest bearing T-bills in the amount of the "surplus" and deposits them into the SS Trust Fund, which currently has about $2.6 trillion. The SSTF is part of the $16 trillion national debt and is held under "Intragovernmental Holdings" as distinct fromt he publicly held debt.

SS has been running in the red since 2010. It has been paying out more in benefits than it collects in revenue. To make up the shortfall, it cashs in the IOUs in the SSTF thru the General Fund, which just happens to borrow 42 cents on every federal dollar spent.

Source: CBO "Combined OASDI Trust Funds; January 2011 Baseline" 26 Jan 2011. Note: See "Primary Surplus" line (which is negative, indicating a deficit)

Matters are even worse than this chart shows. In December, Congress passed a Social Security tax reduction. Workers are temporarily paying 2 percentage points less, from 6.2 percent to 4.2 percent, in Social Security payroll taxes this calendar year. Since the government is making up the shortfall out of general revenues, CBO’s deficit projections for the trust funds do not include that. But CBO’s figures predict that the "payroll tax holiday" will cost the government’s general fund $85 billion in this fiscal year and $29 billion in fiscal year 2012 (which starts Oct.1, 2011.) Since every dollar of that will have to be borrowed, the combined effect of the " tax holiday" and the annual deficits will amount to a $130 billion addition to the federal deficit in the current fiscal year, and $59 billion in fiscal 2012.

Social Security has passed a tipping point. For years it generated more revenue than it consumed, holding down the overall federal deficit and allowing Congress to spend more freely for other things. But those days are gone. Rather than lessening the federal deficit, Social Security has at last — as long predicted — become a drag on the government’s overall finances.

As recently as October, CBO was projecting that it would be 2016 before outlays regularly exceed revenues. But Social Security’s fiscal troubles are more severe than was thought, and the latest projections show the permanent deficits started several years ahead of earlier predictions.

Even if the T-bills in the SSTF represented real money, it would not be enough actuarily to pay the future benefits. In the next 20 years we will double the population over 65. By 2030 one out of every five people in this country will be 65 or older. And by 2030 there will be just two workers for every retiree. SS is a Ponzi scheme. The people at the top of the pyramid will receive muc more in benefits than they put in. That won't be the case for future retirees.

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