Thursday, June 2, 2016

Obama’s Latest Whopper—-Let’s Raise Social Security Benefits!

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The U.S. has approximately $80 trillion of unfunded liabilities for social security, medicare and other entitlements sitting atop a work force that is rapidly aging and an economy that is lapsing into stasis. Yet in the midst of a campaign diatribe about Donald Trump’s alleged lack of preparation for the highest office in the land, the current White House occupant proved that in nearly eight years he has learned exactly nothing about the nation’s abysmal fiscal plight.
“And not only do we need to strengthen its long-term health, it’s time we finally made Social Security more generous and increased its benefits so that today’s retirees and future generations get the dignified retirement that they’ve earned,” Obama said in an economic call to arms in Elkhart, Indiana.
Don’t bother to say he must be kidding. After all, our President also claims the disaster known as Obamacare is a roaring success; and that he has created 14 million jobs—-when, in fact, there are fewer full-time, full-pay “breadwinner jobs” in America today than when Bill Clinton scuttled out of the White House 16 years ago.
Still, your don’t have to be even a know nothing about baby-boom demographics to recognize that the words “increase” and “social security benefits” will never again inhabit the same universe. To wit, there are about 50 million persons 65 or over at present, but this number will rise to 80 million by around 2040 and nearly 100 million a decade or two thereafter.

Moreover, as we keeping insisting there is nothing in the OASDI trust funds except intergovernmental accounting confetti. Every dime that was ever collected from the social insurance taxes, which bring in more than $1 trillion per year in revenue, has already been spent on education grants, Federal salaries, aircraft carriers, cotton subsidies, windmill farms and thousands of other Washington boondoggles.
So that steep demographic curve in the chart above means only one thing. Namely, that to fund even the current wildly unaffordable benefit schedule, massive amounts of addition cash will have to be extracted from taxpayers, the bond market or other programs.
The graph below gives a hint of the magnitude of the cash shortfall that is already baked into the cake under current entitlements. Even under the optimistic economic forecasts of the government chief actuary, the OASDI funds will be running a $250 billion annual cash deficit before the next presidential term ends, and upwards of $1 trillion per year by 2040.

But the sheer mathematical impossibility of funding higher cash and medical benefits for what will soon by 80 million retirees is only part of Obama’s latest whopper. An even more egregious element was the notion that Washington ought to pony up “more generous and increased its benefits” because present and future retirees should “get the dignified retirement that they’ve earned.”
Well, no, they haven’t earned what they are getting now, let alone the gravy that Obama is proposing to spread on top. That’s because one of the great lies of Washington is that social security and medicare are “insurance programs” which workers earning by paying “premiums” in the form of taxes.
In fact, the whole rigmarole of trust funds and actuarial booking keeping is a just a smokescreen to provide political cover. These programs are actually intergenerational transfer payment schemes that shift massive amounts of funds from the working population to retirees.
As shown in the chart below, the average beneficiary of social security and medicare does not pay lifetime taxes that are even close to expected lifetime benefits. Thus, beneficiaries who retired in the 1980s paid only 34% of their lifetime benefits in taxes, and the cohort of retirees from 2010 and beyond will have paid only 75%.

The cases above are actually generous because they are based on a married couple each earning the average wage over their working lifetime. In fact, the benefits schedule is heavily skewed in favor of lower wage workers, beneficiaries without working spouses and/or eligible children. At the very bottom of the wage scale, for instance, the so-called “replacement rate” is 90% of monthly earnings compared to an average of 40% for all beneficiaries; and, of course, the non-working spouse and child’s benefits are pure welfare add-ons that have nothing to do with earnings or taxes paid.
Finally, our clueless President managed to get a third whopper into the single sentence quoted above. Namely, that any fiscal issue relating to social security is not a matter of the here and now, but a prudential “need to strengthen its long-term health” in the by-and-by.