Immigration Reform and social Security – unintended consequences.

No one is discussing the impact that illegal aliens have on the Social Security system, but a recent comment by Art Cashin raised an interesting point.

There are said to be about 11 million undocumented folks around the country who need immigration reform. Most of them are working at any job they can find to make ends meet.

In order to get most of those jobs, they have to supply their employers with a Social Security number. Since they are undocumented, they don't have a Social Security number so many have to submit a false Social Security number.

That, in turn, means a great many have FICA deducted and sent to a Social Security system from which they will never collect. For each, their employers also contribute in their name.

If those perceptions are correct, those folks and their employers have poured millions and millions of "bonus" dollars into Social Security, yet the system remains broken.

If immigration reform comes, the undocumented may finally get be able to collect Social Security.

The bottom line is this: Social security is headed toward insolvency. Immigration reform will bring insolvency closer.

The The Ryan plan to save entitlements vs. the Obama plan.

Is Social Security Still A Good Deal For Workers?

Glenn Reynolds

NO. NEXT QUESTION? This is what happens when a pyramid scheme breaks down. At the top of the pyramid, it’s a good deal. At the bottom, not so much.

Like a lot of government programs, when the inevitable failure occurs the results are catastrophic.

Even the government controlled press is beginning to notice:

If you retired in 1960, you could expect to get back seven times more in benefits than you paid in Social Security taxes, and more if you were a low-income worker, as long you made it to age 78 for men and 81 for women.

As recently as 1985, workers at every income level could retire and expect to get more in benefits than they paid in Social Security taxes, though they didn't do quite as well as their parents and grandparents.

Not anymore.

A married couple retiring last year after both spouses earned average lifetime wages paid about $598,000 in Social Security taxes during their careers. They can expect to collect about $556,000 in benefits, if the man lives to 82 and the woman lives to 85, according to a 2011 study by the Urban Institute, a Washington think tank.

Of course, the AARP is still shilling for the government.   Every time that gang of looters sends me an application I use their prepaid envelope to send back a "hell no."  I just joined Generation America just to support them as an alternative to the AARP.

Those 225,000 disabled.

Wounded in Iraq or Afghanistan? Guess again.

Reading Art Cashin yesterday who highlights something I had not read before. He notes that the labor force declined by 342,000. The pundits chalked that up to early retirement and extended schooling. Not widely noted was that 225,000 tried to drop out by applying for social security DISABILITY! About 90,000 were approved.

It seems that when 99 weeks of unemployment runs out and jobs are scarce, the unemployed or unemployable claim to be disabled and apply for social security. That’s surely a disturbing trend … unless you’re “Julia” and government dependency is a way of life.

What’s wrong with this picture?

The Republican House and the Democrat Senate recently had a fight over taxes. The House wanted to extend the social security tax “holiday” for a year, the Senate bill ended the tax holiday after two months. When the House declined to go along with the two month holiday in favor of the 12 month holiday, the Democrats accused to Republicans of wanting to raise taxes. The MSM, the print and broadcast arm of the Democrat Party, trumpeted the charge that lowering taxes for two months was better for hard pressed workers than a 12 month cut. Let me repeat that: a two month cut in the payroll tax means that you are a tax cutter and love the working class, a 12 month cut in the payroll tax means that you are a tax raiser and hate the working class. Rarely has George Orwell’s “Newspeak” been so evident.

All of this obscures the fact that the payroll tax holiday is a bad idea. It’s bad for two reasons. First, the “payroll tax” is actually a worker’s contribution to the Social Security system. It’s what the government collects to pay current social security recipients. Social Security was designed to be self-funding. It’s what distinguishes it from a welfare system. It has a “trust fund” invested in government bonds that are theoretically there to pay recipients when social security pays out more than it takes in. That time has arrived, and the system is going broke. The “payroll tax holiday” brings the collapse of the social security system closer.

Second, the “payroll tax holiday” was sold last year as a jobs program. The theory was that leaving more money in the pockets of workers would stimulate the economy and lead to job growth. It didn’t work; job growth did not occur. Why? One theory is that the average family is deleveraging, which is a fancy word for paying off its debts and saving for a rainy day. Or perhaps the extra $20 per week went into the family car's gas tank, thanks to the rise in fuel prices.  Whatever the reason, it’s foolish to pursue a failed strategy while accelerating the collapse of social security.

The motivations of actors in this farce are only to be guessed. They probably run the gamut from economic illiteracy to partisan blindness to cynicism all the way to a desire to create a crisis (the Cloward Piven approach). Which brings me to my original point: by what mechanism did the Republicans manage to get portrayed as tax raisers? Is it solely the fault of Republican leadership incapable of providing its side of the argument? Is the MSM so far in the tank for the Democrats that it is willing to tell people that a two month tax holiday is better for them than a 12 month holiday? The answers are not mutually exclusive.

Raiding the Social Security Trust Fund

The so-call "payroll tax holiday" is really a raid on the Social Security trust fund. 

All of the money from this "tax" is what funds Social Security.  The one-year $120 billion (or two month $33 billion) extension of this reduction of contributions to Social Security will have absolutely no effect on the number one issue facing the American people today: jobs.

To repeat, it failed last year and it will fail this year.  What it is certain to do is bring the collapse of the Social Security system very much closer.  Is this what Obama is aiming for?  The end of Social Security?

Is this what the Democrats are aiming for?  The collapse of Social Security?

Is this what the members of the House and the Senate are aiming for?  No Social Security checks going out because the system has run out of money?

Is the political establishment in Washington DC so reckless and so insane to actually hasten the demise of the Social Security system on which so many people depend?

Why Karl at Patterico is Wrong

The discussion being held among those on the Right (from Republican to Conservative) is how likely it is that a majority of the American people will support entitlement reform.  Karl at Patterico puts one side of the case this way: 

Drum is only half-right.  Reagan – and other Republicans — have been unable to get meaningful spending cuts or entitlement reform because public opinion did not support them.  There are a zillion polls showing that Democrats and Republicans alike only support cuts to space exploration and foreign aid.  Those who routinely rely on MediScare in their campaigns should not need a reminder of this.

At some point a tipping point is reached and people are ready to accept ideas that their parents would have dismissed.  Like married gays.  Today, if you oppose gay marriage, you are read out of “respectable” society.  Gays evolved from perverts … to fun friends interested in antiques … to civil rights icons, all within my lifetime.

So it is with entitlements.  Several streams of thought are meeting and forming a river.  The general public is now involved in the discussion of big thoughts: how can we keep the developed world from going broke.  The concern is not just American; the economies of most of the European states are collapsing under a econo-political burden that is crashing.  Too much has been promised to too many and the inexorable laws of demographics have overtaken the promises.  There are just not enough Greek, Spanish, British or Italian young to pay the benefits of their aging countrymen. They’re farther into the rapids that we are and their canoe is tipping.

But here in the US, while the elderly count on their social security payments, the young don’t believe these programs will be there for them.   I have not taken a scientific poll but if my children are anything near typical, theses thirty-somethings believe in social security just as much as they believe in the tooth fairy.   If they don’t believe they’ll get benefits at the rate the Feds are spending the country into insolvency, it’s entirely possible that we can see a fundamental restructuring both Social Security and Medicare if it’s presented the right way.

I personally think that Paul Ryan’s proposal can be sold to people under 40 because these people think they are going to get cheated of their promised benefits if fundamental reforms are not made.  The median age in the US is 37, 20% of us are under 14 and only 13% are over 65.  Ryan’s proposal protects those who are 55 and older.  His reforms give hope to people like my children that some social safety net will exist for them as they approach retirement.

Perhaps Ryan’s proposal was scrapped due to cowardice on the part of establishment Republicans whose role in life has been to accommodate Democrats.  Perhaps there was not enough time to explain it to the American people before the debt battle reached its peak.  For whatever reason, it would be crime to allow it to languish. 

Do it for MY children. 

Our predecessors created a Ponzi scheme that would make Bernie Madoff proud

Things that can't continue on forever, won't.

Our predecessors created a Ponzi scheme that would make Bernie Madoff proud. They pledged tax revenues to be collected from future generations under the assumption that the population would continue to grow and that more people would always be available to fund the programs. This is just like assuming that housing prices will always go up, and we know what that is costing us. Now, however, the pool of future taxpayers is smaller than the present one, and the burdens they must assume are proportionately greater. In short, this is “taxation without representation.”

The current recipients claim they have paid into the plan, which they have. But their payments were not contributions that prefunded their own retirements or their need for medical services. Rather they were part of a pay-as-you-go scheme. Their tax payments were given to those who already retired or had medical needs. Now, the present generation of retirement age also refuses to recognize this problem, which is on track to absorb the whole of projected government revenues and then some. Instead we seek to do what our parents did by passing on an even more burdensome set of obligations to our children and grandchildren.

If this isn’t “taxation without representation” then I don’t know what is. We are making commitments today for those who will have to pay but who do not have a say in what those burdens are. Not only does this go against the grain of the sentiments that helped to trigger the American Revolution, it is also naïve to think that future generations will continue to honor promises made by past generations. What makes us believe they won’t simply decide to renege on the promises we have forced upon them when the choice might be whether or not to put food on the table for their own families?

We can’t continue to grow government and transfer payments forever, and the time to address those issues is now, while they are still manageable. Nor can we avoid the problem by cutting only discretionary spending, as is the approach in the current deficit agreement.

Unfortunately, the course taken by the leaders of both parties and the administration fails on all counts. They have placed us on the risky path of financial fragility rather than stability. A ratings downgrade might be the needed wake-up call for the country, our politicians and its senior citizens.

You're Gonna Pay

The Other McCain provides the lyrics to the first verse:

Old people grumblin’ ’bout funded medications
Subsidized housing in the capital of the nation
3 trillion dollar deficit on top of 15 trillion dollar debt
Bullet trains, windmills, and monkeys on cocaine
Monkeys on cocaine
You’re gonna pay
You’re gonna pay
You’re gonna pay
Someone’s got to pay

The Social Security Acounting Trick

One of the positive by-products of the debt negotiations is the fact that more and more people are learning that the Social Security Trust Fund is an accounting fiction.

Sometimes it takes a crisis for the truth to come out.  Bernie Madoff would still be scamming his clients if the market had not tanked and enough people wanted their money back.  The public would still think that there is a real Social Security trust fund with real assets in it until Obama threatened that Social Security checks may not go out unless the government could borrow more money.

Mark Steyn: 

That monthly Social Security check? Fuhgeddabouddit. “I cannot guarantee that those checks go out on August 3rd if we haven’t resolved this issue,” declared the president. “Because there may simply not be the money in the coffers to do it.”

But hang on. I thought the Social Security checks came out of the famous “Social Security trust fund,” whose “trustees” assure us there’s currently $2.6 trillion in there. Which should be enough for the August 3rd check run, shouldn’t it? Golly, to listen to the president, you’d almost get the impression that, by the time you saw the padlock off the old Social Security lockbox, there’s nothing in there but a yellowing IOU and a couple of moths. Indeed, to listen to Obama, one might easily conclude that the whole rotten, stinking edifice of federal government is an accounting trick. And that can’t possibly be so, can it?

I'm curious why we on the Right, including those in elected office are not making a bigger deal about this.

Washington gets $200 billion a month, Social Security costs $50 billion a month, and Obama is threatening to starve Grandma?

It's the Chicago way.

Some Thoughts on the Debt Ceiling, Politics and Social Security.

TV’s talking heads (including my friend Charles Krauthammer) believe that Obama’s winning the PR war as Republicans and Democrats battle about how much and under what conditions the debt ceiling will be raised. And of course the rest of the MSM is reinforcing this belief.

This has given Obama and the Democrats the courage to force a showdown. If what they know of the mood of the country is what they read in the NY Times, Washington Post and catch on the TV news they are misreading what the American people who don’t work for these media outlets are really thinking.

The latest Gallup poll shows that most people don’t want the debt ceiling raised, even after Obama threatened to shut down social security payments.  (H/T Instapundit).

“Despite agreement among leaders of both sides of the political aisle in Washington that raising the U.S. debt ceiling is necessary, more Americans want their member of Congress to vote against such a bill than for it, 42% vs. 22%, while one-third are unsure. This 20-percentage-point edge in opposition to raising the debt ceiling in Gallup's July 7-10 poll is slightly less than the 28-point lead (47% vs. 19%) seen in May.”

My discussions with clients throughout the country indicate that they are worried about the effects of the government running into the debt ceiling, but their concern is how it will affect the markets. Regarding the debt itself, they are very concerned about the size of the debt and the government’s inability to control its propensity to spend.

The most amazing thing about the social security and the other “entitlement” programs is that the younger generation – the thirty-somethings - has long ago decided that Social Security will not be there for them when they retire. My generation – the baby boomers – grew up with s social security system that matured as we did. The younger generation looks at social security like they look at us: old, creaky, and destined to pass on; the only question is … when?

Jeff G. Explains "that both the President and CBS news are, you know, lying through their fucking partisan Marxist pie holes."

In other news, the sun rose in the east.

Senate Republicans Have a Bill To Prevent Obama From Stopping Social Security Checks.

But the Senate Democrats won't pass it. 

Republican Senator Marco Rubio on Rush Limbaugh: 

SENATOR RUBIO: Senator Pat Toomey has a bill that does that, that actually directs them to pay certain things first, and I don't think Harry Reid, with all due respect, is gonna be giving it a hearing any time soon, but there is a bill out there that will direct that, and I am a cosponsor of it as are most of my Republican colleagues in the Senate.