The Social Security Ponzi scheme is running out of steam

You can’t say we didn’t warn you.

While most news accounts said Social Security will dip into its trust fund this year for the first time since 1982, The Hill’s Merrill Matthews points out that there is no trust fund, because the federal government has borrowed that money and spent it.

Matthews writes:

Historically, workers have paid in more than was needed to cover benefits, allowing the trust fund to grow to $2.9 trillion — at least on paper.  However, the federal government has borrowed the trust fund surplus to cover other government expenses, depositing interest-bearing IOUs in its place.

If Social Security must pay out more than it receives, which the trustees say will happen this year for the first time since 1982, the government cannot draw from other assets because it doesn’t have any.  Indeed, the federal government has to borrow hundreds of billions of dollars every year just to cover its current expenses.

Thus the government must borrow the money — or raise taxes — to redeem its IOUs so Social Security can pay benefits.

A certain prescient politician warned us in 1990 while standing in from of a sign reading “embezzlement”:

“It is time for Congress, I think, to take its hands — and I add the president in on that — off the Social Security surpluses. Stop hiding the horrible truth of the fiscal irresponsibility that we have talked about here the past two weeks. It is time to return those dollars to the hands of those who earned them — the Social Security beneficiaries and future beneficiaries. … I think that is a very good illustration of what I was talking about, embezzlement, thievery.”

That was Harry Reid. The same Nevada senator who years later said, “Unfortunately, despite decades of success, many Republicans continue to threaten the future of Social Security. Republican leaders routinely exaggerate the financial challenges facing the program in an effort to create a false sense of crisis. … I have spent my career fending off attacks against Social Security.”

Actually, Social Security is and always has been a Ponzi scheme, depending on future “investors” to pay off the original “investors.” That worked so long as there were 40 workers for every retiree, but does not work so well when the ratio of workers to retirees nears two-to-one.

Embezzlement?

 

 

 

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Newspaper column: Which Senate candidate is correct on handling Social Security?

Heck and Cortez Masto

The race to replace Harry Reid in the Senate is one of the most closely watched and highly contested elections in the nation this year. The most recent poll has Republican Rep. Joe Heck leading Reid’s hand-picked Democratic opponent, former state Attorney General Catherine Cortez Masto, by 3 points — 38 percent to 35 percent with the substantial remainder undecided.

More than $11 million dollars has been spent by outside organizations on this race, the fourth highest in the nation, according to OpenSecrets.org.

On almost every issue the two candidates take opposing stances, but perhaps the most contentious is what to do about Social Security.

Cortez Masto has latched onto a comment then-freshman Congressman Heck made during a meeting with constituents five years ago in which he called Social Security a “pyramid scheme” in which “the people after you are paying for your benefits.”

She has accused Heck of wanting to privatize Social Security to benefit big banks and Wall Street.

“Congressman Heck’s Washington handlers did more contortions than an Olympic gymnast in trying to defend his record of putting Wall Street and the Big Banks ahead of Nevada families,” Zach Hudson, spokesperson for the Cortez Masto campaign said in a recent press release. “First Congressman Heck’s handlers falsely say he does not support the privatization of Social Security — then they immediately say he does support putting the retirement security of Nevada seniors in the hands of Wall Street.”

What Heck has suggested is allowing younger workers to have the option of privately investing some portion of the money that currently is deducted from their paychecks for Social Security.

Heck’s campaign argues that he is “the only candidate in the race for U.S. Senate who is willing to heed the warnings being issued by the Medicare and Social Security trustees. Those warnings are clear: Medicare and Social Security, upon which thousands of Nevada seniors rely, are not on sound financial footing and need to be strengthened if they are to provide the health and income security our seniors deserve. Ignoring those challenges, which would be Ms. Cortez Masto’s approach, will result in benefit cuts and uncertainty for those near retirement age.”

A Democratic super PAC recently spent $900,000 on commercials attacking Heck’s stance on Social Security.

In the middle of this contretemps, Reid himself put out a press release a week ago on the 81st anniversary of the creation of Social Security praising the program for “providing millions with the economic security they have earned and deserve.”

Reid fulminated, “Unfortunately, despite decades of success, many Republicans continue to threaten the future of Social Security. Republican leaders routinely exaggerate the financial challenges facing the program in an effort to create a false sense of crisis. … I have spent my career fending off attacks against Social Security.”

This is the same Reid who earlier in his career took to the floor of the Senate on Oct. 9, 1990, standing next to a sign emblazoned in red letters with the word “embezzlement.”

“It is time for Congress, I think, to take its hands — and I add the president in on that — off the Social Security surpluses. Stop hiding the horrible truth of the fiscal irresponsibility that we have talked about here the past two weeks. It is time to return those dollars to the hands of those who earned them — the Social Security beneficiaries and future beneficiaries. …” Reid ranted. “I think that is a very good illustration of what I was talking about, embezzlement, thievery.”

Nothing has changed in the past 26 years except Reid’s politics.

In fact, the Social Security Board of Trustees in its 2016 annual report states that Social Security reserves will be depleted in 2034, after which there will be sufficient funds to pay only three-quarters of scheduled benefits.

As for the argument that private investments are too risky, Cato Institute’s Michael Tanner notes that if workers who retired in 2011 had been allowed to invest just half of their payroll tax deductions they would have retired with more income than they are getting under Social Security and, even under the worst-case scenario,  their benefits would equal traditional Social Security payouts.

“With Social Security already running a cashflow deficit today — and facing a $21 trillion shortfall in the future that will make it impossible to pay promised benefits — private investment and personal accounts should be part of any discussion about reforming the troubled system,” Tanner advocates.

Sounds like what Heck proposes.

A version of this column appeared this week in many of the Battle Born Media newspapers — The Ely Times, the Mesquite Local News, the Mineral County Independent-News, the Eureka Sentinel and the Lincoln County Record — and the Elko Daily Free Press.

Editorial: Remember how they voted on the budget when you vote

This past week Congress kicked the budget can down the road, along with any pretense of trying to rein in deficit spending that will balloon the federal debt to $20 trillion, passing a budget deal that blows the top off budget caps and gives Obama a blank check.

The deal suspends borrowing caps until March 16, 2017, well after Obama leaves office. It increases spending on defense and domestic programs.

Among the more egregious aspects of the bill is that it steals $150 billion from the Social Security Trust Fund, paid into by workers to finance their retirements, in order to put a temporary patch on the disability insurance program, which has exploded under Obama as people unable to find work have managed to find “disabilities” to keep a check coming in.

It is being called the “Bipartisan Budget Act” because a few Republicans in the Senate and the House broke ranks to support the putrid deal, though not one single Democrat opposed it.

Obama signs budget deal. (Reuters photo)

As for the Nevada delegation, all four Republicans voted no, while the state’s two Democrats voted aye.

“It’s business as usual here in Washington. This latest budget agreement is not a long term plan or solution the American people deserve. This plan will force Congress to revisit this same exact issue in a short amount of time. …” observed Nevada’s Republican junior Sen. Dean Heller. “It’s past time Washington addresses the needs of the people of this nation instead of continuing to punt to the next big deadline.”

Of course, the state’s retiring, long-sitting Democrat Sen. Harry Reid was effusive in his praise. “The bipartisan budget agreement passed today will help prevent a government shutdown and avoid a disastrous default on our nation’s obligations. It also will prevent a drastic cut to Social Security disability benefits, and a massive increase in Medicare premiums,” Reid said in a statement. “This agreement is not perfect, no legislation is, but it accomplishes two major priorities that Democrats have supported from the very beginning. The budget agreement promotes economic growth and job creation over the next two years by providing relief from the devastating sequester cuts. It also invests equally in both the middle class and the Pentagon.”

Rep. Cresent Hardy, a Republican representing the 4th Congressional District, like Heller, noted that the bill simply kicks the can down the road. “Our nation’s financial security is nearing a breaking point that we ignore at the endangerment of our future. Today’s so-called ‘Bipartisan Budget Act’ breaks current spending caps by $80 billion and does nothing to rein in long-term spending. Washington needs to take a long look in the mirror and make some difficult decisions based in reality.”

Hardy said the deal simply borrows more money and only delays and increases the problem for the next generation.

Rep. Joe Heck, who represents the 3rd Congressional District and is running for the Republican nomination to replace Reid in the Senate, said in his statement, “Admiral Michael Mullen, former Chairman of the Joint Chiefs of Staff, called our national debt ‘the most significant threat to our national security.’ Yet this budget bill suspends the debt limit, giving the President a blank check until 2017, without making the significant reforms necessary to reduce spending and address the major drivers of our nearly $18.5 trillion debt. The House has addressed, and I have supported, legislation to boost defense spending to keep our nation safe through the National Defense Authorization Act — which the President vetoed — and the annual defense appropriations bill — which Senate Democrats blocked from getting a vote. At some point Washington has got to get serious about reducing our spending and the debt. Failure to do so is harmful to our national security. This deal falls short of that standard.”

Republican 2nd District Rep. Mark Amodei voted no, while 1st District Rep. Dina Titus voted with her Democrat colleagues.

Not only will Nevadans in 2016 be contemplating who the next president will be, but also one of our senators and all of our members of the House. Keep these votes in mind when you go to the caucuses and polls.

A version of this editorial appears this past week in the Battle Born Media newspapers — The Ely Times, the Mesquite Local News, the Mineral County Independent-News, the Eureka Sentinel,  Sparks Tribune and the Lincoln County Record.

How to fix the Social Security debacle

I kept thinking this week as Washington bureaucrats celebrated the 80th birthday of Social Security that I should point out how the whole thing is a big Ponzi scheme, as I did in 2009. Eighty years ago every retiree was supported by 40 workers, but soon that ratio will be 2 to 1.

Sen. Harry Reid says Social Security is just fine, though in 1980 he said the trust fund was being embezzled.

Stephen Moore beat me to it with today’s op-ed in Investor’s Business Daily. “From the moment Franklin Roosevelt created Social Security in 1935, the system was set up as a classic Ponzi scheme,” he writes, citing the worker to retiree ratios.

Moore not only points out the problem, but he offers a fix:

There are options to fix the program, but they’re all very bad for today’s and tomorrow’s workers. Democrats want to raise the tax — and take even more money from workers’ paychecks. Republicans, like New Jersey Gov. Chris Christie, want to cut benefits. Anyway you cut it, young workers will be asked to pay more in and get less out.

Another fix that would forever end the Ponzi scheme and provide today’s young workers with higher, not lower benefits. Give them the option of putting 10% of their 12.6% payroll tax dollars into an individual account that’s invested in an index fund of all stocks.

At historic rates of return, this would give workers a 7% return per year, which would let them retire as millionaires after 40 years of work. They’d receive two to three times more than Social Security promises.

Social Security could still be there as a backstop for those who didn’t reach a minimum benefit, and the feds could issue long-term bonds to pay existing retirees their promised benefits.

 

IBD chart

Newspaper column: Delusional candidates would rob Peter to pay Paul

Vice President Joe Biden breezed through Nevada one afternoon earlier this month, stopping long enough to pitch the idea of increasing the federal minimum wage 40 percent from $7.25 an hour to $10.10, saying this would not cost jobs and would pump $19 billion into the nation’s economy.

“All of this is disposable income, and it gets straight into the economy,” Biden said, which is utter Keynesian nonsense because it is nothing more than redistributionism, taking money from some pockets and putting it in others.

President Obama has called for raising the minimum wage. Nevada Sen. Harry Reid has repeatedly championed a higher minimum, though our junior Sen. Dean Heller has voted against it.

It is an issue in some of the four congressional races on the ballot, as recounted in this week’s newspaper column, available online at The Ely Times, the Mesquite Local News and the Elko Daily Free Press.

Bilbray and Heck take opposite stances on raising minimum wage. (R-J photo)

Asked about the minimum wage issue after his Democratic opponent came out in favor of raising it not to $10.10 but to $15, Republican Rep. Joe Heck, whose 3rd Congressional District covers the southernmost reaches of the state, replied, “The last thing our economy needs is another mandate from Washington that will cost us jobs. Raising the minimum wage will not increase jobs, expand opportunity, or be a silver bullet to reduce poverty. Instead, it will cost mainly young and low-skilled workers the chance to get a start in the working world and learn critical job skills that will help them transition to more gainful employment.”

In fact the Congressional Budget Office has estimated that raising the minimum wage to $10.10 could cost a half a million jobs.

But opponent Erin Bilbray told the Las Vegas newspaper, “I believe this will help the economy and make it stronger. I think when you give the middle class money it helps us all.”

In the 4th Congressional District, covering the southern half of rural Nevada and northern Clark County, Democratic incumbent Steven Horsford has supported the $10.10 minimum pay.

“I don’t support continuing to give corporations and billionaires tax subsidies and tax loop holes when we can’t give minimum wage workers — who make $14,500 — a raise,” Horsford said during a debate with Republican opponent Crescent Hardy.

For his part Hardy shrugged off the issue and replied, “To bring it to $10 an hour — it ain’t no big issue.”

In the 1st Congressional District in urban Las Vegas, incumbent Democrat Dina Titus has issued a statement saying, “I believe that everyone deserves the opportunity to earn a decent wage for a hard day’s work, whether they’re a young worker trying to earn money for college or a single mother supporting a family. In short, the minimum wage is about fairness …”

Republican opponent Dr. Annette Teijeiro replied to an inquiry by saying, “The myth of creating a ‘living wage’ by government fiat is just that, a myth. Artificial government mandates do not create prosperity and in some cases create financial ruin.

“As a small business person, I understand that if my payroll budget is tight then the only way to accommodate a mandated government wage increase is to fire enough workers to afford the increase or to increase the cost of the products and/or services I sell. So the end result of a government mandated minimum wage increase are more payroll taxes paid by the employer and the employee, and less workers to be able to pay for this new expense or higher prices to afford the payroll increase costs.”

In the northernmost part of the state, the 2nd Congressional District, Republican incumbent Mark Amodei in 2013 voted against raising the minimum wage to $10.10 and his Democratic opponent apparently has not made an issue of it.

The facts are on the side of the opponents of raising the minimum wage.

James Sherk, a senior policy analyst in labor economics at the Heritage Foundation, told Congress a year ago that every dollar increase in minimum wage really only raises take-home pay by 20 cents once welfare benefits are reduced and taxes are increased, meaning the $10.10 proposal nets only 57 cents an hour. Sherk noted a number of workers would lose their jobs and go from $7.25 to zero.

Then there are the affects on prices for everyone.

Mark Wilson, writing a policy analysis for Cato Institute, reports that a “comprehensive review of more than 20 minimum wage studies looking at price effects found that a 10 percent increase in the U.S. minimum wage raises food prices by up to 4 percent and overall prices by up to 0.4 percent.”

If raising the minimum wage by 40 percent would pump $19 billion into the nation’s economy, image how the economy would purr like a kitten if Social Security checks next year were raised 40 percent instead of a paltry 1.7 percent. We don’t hear anyone calling for that do we?