Easy Street Investing

“Social Security is structurally sound.”

Nilus Mattive

I have a lot of problems with the current state of Presidential debates, including the fact that other parties’ legitimate candidates are effectively barred from stirring the pot.

Because let’s be honest — these events are really just a chance for the candidates to look good, repeat rehearsed sound bites, and continually redirect to their major talking points no matter what question was originally asked.

Still, I like to watch because you just never know what might be said. Take President Obama’s response to Jim Lehrer’s question on Social Security, which went like this …

“You know, I suspect that on Social Security, [Mitt Romney and I have] a somewhat similar position. Social Security is structurally sound. It’s going to have to be tweaked the way it was by Ronald Reagan and Speaker — Democratic Speaker Tip O’Neill. But it is — the basic structure is sound.

“But — but I want to talk about the values behind Social Security and Medicare and then talk about Medicare, because that’s the big driver or our deficits right now.”

Again, I found it interesting that Obama immediately shifted the topic away from Social Security in his very first breath … and that Romney was equally okay with avoiding the subject.

Romney/Obama Debate

And it was absolutely maddening that Lehrer didn’t do what a moderator should do — which is interrupt, restate the original question, and hold the guys’ feet to the fire!

But since he didn’t, let me help you “check the facts” a bit on this particular topic …

It’s Inherently Contradictory to Say that a Program
Is Both Structurally Strong AND Needs Tweaking!

I’ve lived in plenty of buildings that were constructed long before 1939, the year the Social Security trust fund was enacted, and none of those buildings ever needed new foundations or frames.

And yet here’s our national retirement program — which was already overhauled in the 1980s as President Obama noted — needing ANOTHER round of “tweaking” three decades later.

So when President Obama says Social Security is structurally sound, I wonder whether we just have totally different ideas of what that phrase means.

Because we are not talking about a little paint and some new windows!

This marks the second year in a row that the Social Security system is taking in less money than it’s paying out.

Moreover, it is now believed that these annual deficits are permanent, and will worsen the overall system’s financial health each year going forward.

Does that sound like structural soundness to you?

Remember, as recently as 2009, the Social Security Administration was predicting the program would begin taking in less than it paid out in 2017.

Then, just one year later, they were proven wrong when Social Security actually took in $148 billion less than it paid out.

Talk about a colossal math error!

But it gets worse:

The Social Security Administration quickly said it was only a temporary slip and that a permanent state of deficits would STILL begin much later.

Within one year, they were proven wrong yet again when the Congressional Budget Office reported that the Social Security program had, in fact, already entered a permanent state of annual deficits.

Meanwhile, Let’s Look at What Kind of “Tweaking”
President Obama Has Done to the System Recently …

The only two recent pieces of legislation Washington has passed each resulted in EVEN LESS money going into the Social Security program!

Oh sure, they gave these laws big, happy names. And that was on purpose … because if they had named them appropriately, millions of Americans would have been storming the Capitol with pitchforks.

The first one, called the “Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010,” was signed into law by President Obama on December 17, 2010.

The second one, called “The Middle Class Tax Relief and Job Creation Act of 2012,” is basically a continuation of the original legislation and was approved by Obama on February 22.

The basic idea was simple: Stimulate the economy by putting more money back into all our pockets. You know, good-old fashioned tax cuts.

Hey, who in their right mind would argue with that, right?

Except for one little problem: The tax they cut is the amount of money today’s workers contribute to Social Security.

So this new law is the same thing as telling you to withdraw some money from your 401(k) and go spend it now to get the economy going.

Sounds like a great idea for the next couple months but it will be absolutely disastrous over the long-term … especially if your 401(k) is already running on empty.

Haven’t our elected officials learned anything from the last million times they raided the Social Security trust fund?

It’s the very definition of insanity — doing the same thing over and over again and expecting a different outcome each time!

In my opinion, all this points to one simple fact: Politicians are so concerned with getting elected (or re-elected) that they’d rather keep stealing more money right out of our national retirement account and worry about the consequences later.

So when they’re asked about it on national television, they simply brush the issue under the rug, smile for the cameras, and move on to the next topic.

Best wishes,

Nilus

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  • Hanrod

    Nilus, you are misleadling here, and I think you know that. “Tweaking” is exactly the right term, and tweaking would take the cap off of income for SS contributions, thus much strengthing the system, JUST FOR STARTERS. Other, non-substantive, changes such as taxing all SS payments showing more than, say $100-150,000. of household income etc. Eventually, the payment levels from SS could likely even be increased from present. AND, contrary to the first commenter here, most of us know that the SS fund income has been reduced by some 2%, for THE TEMPORARY payroll tax reduction. Most of even the Democratic leaders are now ready to let that lapse, returning to the usual 6+% contribution.

    On the other hand, I think that, in an even better alternative, we could eliminate ALL, so-called, “payroll taxes”, at least for employers, i.e. both SS and MediCare, and maybe even unemployment comp, etc., thus putting all employers on a equal “wages cost only:” tax footing, regardless off whether they need many or few employees for their profits, THUS while decreasing the current disincentives for hiring, and possibly creating more of that. THEN we tax corporations ONLY on their profits, and the government funds all citizen welfare benefits from those taxes. Too, let us have some other U.S. job enhancements, by disallowing all corporate tax deductions for cost of foreign labor. There are many other such possibilities, Let’s get TRULY creative, and restore “OF, BY AND FOR THE PEOPLE” (i.e., not for the legally priviledged (and government licensed for that priviledge) corporations, trusts and other entities!

    • Nilus

      I can cover this in another article more thoroughly, but just look at the history of Social Security — the number of expansions, tax hikes, and other fairly significant changes — and I think you will see why I argue that it has never been, nor ever will be, “structurally sound” in any permanet way. Able to be “tweaked” much far out into the future though? Certainly — at the expense of some and for the benefit of others.

  • Rode

    Published on July 27, 2009 by Ryan Howes, PhD, ABPP in In Therapy

    I hear this every week, sometimes twice a day: “The definition of insanity is doing the same thing over and over and expecting different results.” No, it isn’t.

    To be clear, insanity is a legal term pertaining to a defendant’s ability to determine right from wrong when a crime is committed. Here’s the first sentence of law.com’s lengthy definition:

    Insanity. n. mental illness of such a severe nature that a person cannot distinguish fantasy from reality, cannot conduct her/his affairs due to psychosis, or is subject to uncontrollable impulsive behavior.

    • Nilus

      C’mon, Rode! Many words have strict legal definitions as well as other less stringent, commonly-understood meanings. I think the phrase in question capturesone of those general ideas well enough: i.e. constructing a false set of expectations based on an illogical premise. But even if we use YOUR more stringent definition, I would still posit that many in Washington are insane, wouldn’t you?

  • jrj90620

    It is structurally sound,in fiat terms.The govt(federal reserve) can create any amount of fiat currency,at no cost,to pay any debts.So,everyone will get the fiat they are promised.It just won’t buy as much as you expect.It’s called dishonesty and that’s how our govt works.American voters elect dishonest salesmen to run the country and since they are dishonest,govt is also.Of course, if American voters were honest and not seeking “something for nothing” we might get honest leaders.No sign of that happening.

  • T

    I thought the tax cut was from Payroll taxes ?

    • Nilus

      Yes, exactly … it was a cut to the payroll tax that funds Social Security. =^)

  • Michael H.

    Nilus,,
    This viewpoint is contradictory to your earlier article suggesting delaying the payment for Social Security. If SS funding is not healthy and may go bankrupt, we should start receiving it as early as possible.

    • Nilus

      Hi, Michael. I see why you might think that. But in my view, even without changes, the payments to current and soon-to-be retirees will continue to be made so the strategy still makes sense mathematically. If someone is a belt and suspenders type, then clearly taking money earlier is the best route regardless of the math. And really, the bigger thing is that I believe changes ARE coming. The only question is which ones … more thoughts on that in the near future.

  • Sharon

    Nilus,

    Good article. I don’t think I know anyone who is aware that the tax cuts are actually raiding the Social Security Trust Fund. I have mentioned that concept before and I just get blank stares. And both parties seem to be OK with the deception.

    • jrj90620

      What trust fund?Just a lot of Govt IOU’s.Same as if you were saving for your children’s education and putting money in a jar.Along the way you need the money for current expenses,so you take the money out of the jar and put in some IOU’s.So,when the kids get ready to go to college,they find a bunch of IOU’s in the jar.Why do you trust this govt?