Friday, June 8, 2018

June, 2018, Part 2, Political Class Insanity: Social Security and 600 Pension Programs Heading For Disaster

It is another month which means it is again time to review the latest political class insanity from Washington and around the world. Political class insanity takes many forms including the wasting of taxpayer wealth, criminal fraud within government programs, inane and stupid political quotes and actions, the inability to create and implement effective and efficient government programs, stupid and ill performing economic policies and strategies, and other forms of insanity that continue to evolve and surprise and shock us.

Let's get started:

1) We have pointed out the reality that the Social Security system is fast approaching collapse and a major financial shortfall. Payouts have exceeded revenue collection for a while now and demographics guarantee that this will not reverse itself under a business as usual reality. Too many Baby Boomers are retiring for the financial picture to improve on its own.

This means any or all of three bad things might happen:

  • Social Security taxes get raised.
  • Social Security benefits get cut.
  • Both of the above.
Let’s review how bad things are based on a recent article by Romina Boccia from the Heritage Foundation:

  • The Social Security Administration had a $41 billion cash flow deficit in 2017. Since its so-called trust fund is void of real wealth and consists of only Treasury Department IOUs, the Social Security Administration had to dip into general taxpayer funds at Treasury to make up the $41 billion shortfall.
  • This cash flow deficit has existed since 2010 and has grown strongly ever year since.\Over the next 75 years the Social Security Administration (SSA), if nothing is done to change the current operation, will be short $16.1 TRILLION (yes that is trillion with a “T”).
  • Under the present law, the SSA can receive money from the Treasury Department’s general taxpayer funds based on those fictitious IOUs.
  • But when the IOUs run out then the SSA can only payout what revenue it brings in by itself every year which by 2034, when the trust fund IOUs disappear, will be only about 79% of current payout levels, i.e. every Social Security recipient would see about a 21% decrease in their monthly check, a decrease that will be devastating to a lot of poorer, older Americans.
  • Despite these dire financial numbers, as always, the Washington political class has no energy, clue, or brain power to attack a problem that will affect tens of millions of Americans. Neither Bush, Obama, and now Trump put forth any kind of plan that would fix this situation ASAP since the longer the wait, the more painful the solution. 
However, there is one guy, just one guy, in Congress who has put together a plan to address the problem, a plan that looks remarkably similar to the plan we put forth nine years ago in our book, “Love My Country, Loathe My Government” (which is available on Amazon):

  1. Raise the retirement age for those that can afford to wait to get their Social Security benefit.
  2. Increase the Social Security tax rate, making it fairer across the entire household income range.
  3. Reduce SSA benefits for people that have the financial wherewithal to go without or with reduce SSA benefits.
Congressman Sam Johnson is trying to get this type of plan made a reality before the whole system goes down a death spiral. Of course, it is a good idea so it gets no traction in Washington or the White House. Insane.

2) If getting a 21% reduction in your retirement Social Security check is not bad enough, consider how poorly local and state governments have handled the pension funds of state and local government workers:

  • Harvey, Illinois is a poster child for politicians screwing up as pension plan and the impact it will have on their town.
  • Harvey has a 20% unemployment rate, high property taxes, and home values that have declined 80% over the past decade or so, putting it in a very serious financial situation before talking about pension obligations for retired city workers.
  • Given that Illinois does not allow cities like Harvey to declare bankruptcy, it will have to pay off a heavy pension burden which it is ill able to do, given the financial situation discussed above.
  • It will have to raise taxes which will drive away more residents which will cause Harvey’s tax revenue to get lost which will require more tax increases and the death spiral is underway.
  • But Harvey is not the only U.S. government entity in such dire straits because of their local politicians since according to a recently published study by the Lombardi organization, all 50 states and hundreds of towns and cities are going to get crushed by unpayable pension obligations: “A study of the 649 different pension systems…found systematic problems with the assumptions underlying many trusts… This will have profound effects on citizens of all 50 states… In short, a pension crisis is in the works.”
  • Just five short years ago, only 37 states had state pension plans that were underfunded and now almost every state pension program is underfunded.
Which makes these plans similar to Social Security in that they will have to raise taxes, cut benefits or do both, all of which will have dire consequences for the local and state taxpayers. And of course, virtually no one in the political class is making any plans to head off these potential financial disasters. 

That will do it for today’s insanity. Big time pension and retirement funding issues facing everyone in the face and virtually no politician at any level of government even trying to fix what is surely going to be hard financial times for retirees in a very short time. More insanity to follow.

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