Financial Reality Part III: Reforming Social Security
by Robert Allen BonelliOur continued annual deficits of over $1.5 trillion will eventually destroy our economy and consume our liberty. We must deal with this crisis now. The Left says that the rich need to pay more, that more taxes will solve the problem. Here is the truth. If we were to double federal taxes on all Americans, our deficits would still be in excess of $400 billion per year. There is not enough wealth for more taxes to do any good. Consider that doubling federal taxes means the top rate would be 70%! With state and local taxes, Americans would have little left for food and shelter. The debate is over. We have no choice but to dramatically cut spending.
Entitlements are the major contributor to the spending crisis and Social Security has long been the most protected of all entitlements. It needs to be reformed in order to reduce its growing burden on our economy. The reforms being discussed will not result in anyone currently receiving, or about to receive, benefits having any less than they are expecting. The Democrats will cry that restructuring Social Security will hurt those who have planned for it, but this is a lie. All reform options being discussed will only impact those who will have the time to plan for the changes. The truth is that if Social Security is not reformed, the program will fail.
Democrats point to a $2.3 trillion Social Security Trust Fund surplus. This is not a cash surplus. It was spent on general government expenses and replaced with Treasury Bonds. Who is responsible for payment of those bonds? The taxpayer is responsible. Yes, the Social Security Trust Fund surplus is nothing more than a government I.O.U. Bernard Madoff could not have done better.
Before the recession accelerated in the fall of 2008, Social Security payroll taxes exceeded benefits paid each year. Surplus cash, though diverted and replaced with bonds, was being generated. However, since the labor force lost eight million jobs in the recession, Social Security benefits now exceed payroll taxes collected each year. With the surplus nothing more than part of the national debt, we have to borrow to make up the difference.
It gets worse.
It now takes three people working to pay for each beneficiary. Since January of this year, as the baby boomers started to turn sixty-five, we are adding 10,000 new beneficiaries each day. Hence, 30,000 new jobs need to be created each day to support these retirees. It is expected that there will be an approximate net increase of 25 million new beneficiaries over the next ten years. To support those additional retirees, our economy will have to create a total of 75 million new jobs, or 625,000 new jobs per month, over that period. During our best economic times, beginning with Ronald Reagan and ending with Bill Clinton, our economy only created an average of 320,000 new jobs per month.
We cannot support Social Security without realistic reform because there is not enough income to tax; not enough economic strength to create the new jobs to cover the growing number of beneficiaries; and there is no cash surplus.
When Social Security was signed into law in 1937, life expectancy was sixty-three and the retirement age was sixty-five. The program was designed to provide a few years of benefits to those who paid into it. Since then, Social Security was extended to provide benefits for surviving spouses and children and to provide disability benefits. Life expectancy today is seventy-eight for men and eighty for women. Social Security beneficiaries retiring at sixty-five, or their spouses, can easily receive benefits for fifteen years or more. The only answer is that the retirement age must be made higher. If we ignore this fact, the entire program will collapse and there will be nothing for anyone.
There is no doubt that the earnings ceiling on Social Security payroll taxes will also have to increase, but remember that the employer’s share increases exactly that same amount as the employee’s share. This means that the cost of adding new jobs will rise and new job creation will face another hurdle.
Some politicians are considering reducing benefits for those retirees who have other sources of retirement income. This is called means testing. The only problem is that the Social Security contract details specific benefits for a particular level of paid taxes. In order to fairly enact means testing, politicians are going to have to allow for some form of private accounts. Money put in those accounts will belong to the account owners regardless of their future means.
You now have the complete truth. The talking points of the Left are meaningless and do nothing to advance the debate. It is time to understand that our economy will collapse under the weight of entitlement spending. Reform of Social Security is a necessary part of resolving the crisis.
Robert Allen Bonelli is the author of “Liberty Rising,” an accomplished business executive, public speaker and involved citizen.
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Lovell Plan / The Fix, Social Security & All Entitlement Workout Plan
The financial problems facing Social Security have now reached a crisis point in terms of the size of the deficits the program is likely to generate over the foreseeable future. It is unrealistic to expect our Congress to be able to resolve this crisis thru benefit cuts or tax increases, as these approaches can no longer be realistically expected to succeed due to the size of the deficits. This fundamental realization led directly to the creation of the Lovell Plan.
The Lovell Plan offers a departure from these approaches based upon a structured finance solution that does not need a tax increase, benefit cut, or another round of unsupported federal borrowings to create a reasonable solution to the problem. Instead, the Lovell Plan uses an advanced investment-income model approach that eliminates the subjective risks associated with government investment in the private sector so that a higher-yielding income stream can be created to bridge the gap. Within 12 years, this investment-income approach demonstrates the ability to retire all future Social Security Trust Fund deficits in a way that is inflation-neutral and devoid of the risks and conflicts-of-interest that currently plague the capital markets in America.
Under the Lovell Plan, the government would invest approximately $80 billion per year (on a co-investment basis) for 10 years into private-sector companies that meet certain specific organizational, capital finance and operational requirements so as to prevent fraud, abuse and corruption so as to maximize the likelihood of sustainable success that is not dependent upon government oversight or the conduct of fiscal policy (both of which always lead to corruption and failure). This approach will be the result of a new set of means for conduction monetary policy, commercial banking operations, retail banking operations and capital market activities; a new way to obtain credit that doesn’t have the pitfalls of bank lending, the currency risks of fiat money, unsustainable deficit spending or the use of taxation to finance and pay for government. In fact, the government’s investment activities would be expected to replace taxation immediately and remove the limits that taxation places on fiscal spending and our economy.
The cornerstone of this plan is a new organizational approach to our capital markets with a new kind of stock exchange that doesn’t crash and the companies that are listed on it would offer investors the opportunity to be insulated from bankruptcy, total investment loss, yield maintenance and a host of other common investment risks, while increasing capital market access for businesses on an unprecedented scale. This would make it an ideal conduit for fostering investment by government in a controlled manner to give us the ideal solution – the “Goldilocks Effect”: where the government invests enough, but not too much; has a real stake in the game, but not the control; can be an active participant, but would not corrupt the market’s operations or outcomes. The key to the entire Lovell Plan was to create a solution that would meet all of these requirements so that the routine results wouldn’t be a hunch, but a virtual certainty.
The outflow of the Lovell Plan approach is to create a sustainable funding model that also incorporates a specialized form of personal retirement savings accounts for all taxpayers that will phase out the current law funding model and boost benefits to the lowest class of wage-earners by 30% over the long-term. The goals of Social Security remain sacrosanct and our children’s children have a brighter future.
Wasn't it just a couple years ago that Bush tried to be upfront about the problem Social Security was in and the demoncRAT's demonized the republicans for even bringing up the subject?
The Social Security program is simply a useful tool politicians leverage us to get votes. It's a pitiful retirement program that loses money for everyone.
One small step would be to stop paying out SS/Disability/Medicare/Medicaid benefits to illegal aliens who've contributed nothing to the system. SS is based on earnings/contributions. So please, tell me again why we pay for illegals healthcare with Medicaid or for their 'disabilities' with Social Security Disability funds and programs. I'd wager the number of these recipients out numbers the influx of new retirees.
Flat tax.
Take away the primary weapon from the Democrats………………………………..class warfare.
"You now have the complete truth. The talking points of the Left are meaningless and do nothing to advance the debate."
And here is Chris Christie, who has the guts to tell the truth:
http://www.youtube.com/watch?v=rNWEMPmomQE
There is a very simple solution. Just remove the shackles of big government statist, and replace them with freedom. All is going as planned for left in this country. In my younger days in retail, there was a saying,"sales cures all." It is so simple, but left hates consumption by US. Even though government consumes more, and waste's more. This is what is wrong with LUNATIC LEFT. It makes no sense. Besides, government has a spending problem, and now want to make the poorest of US all suffer. THAT IS FLAT OUT TRAITORIST'.
"Government is not reason; it is not eloquent; it is force. Like fire, it is a dangerous servant and a fearful master." George Washington
I don't care WHAT the PLAN is …unless we get honest and straight in acknowledging that Government at EVERY level has a HUGE SPENDING PROBLEM …NO plan will work. Nothing can be or will be fixed.
I still think we should tax the rich. And maybe we should mug Canada too. Yeah… that will work…
The main and only problem with Social Security has been that government politicos couldn't stand to see the fund doing well and growing. All they ever saw was a pile of money to get their paws onto.
The Social Security Act was created in 1935, however, since than it has been changed to not be the same as when enacted. Clearly, when congress dipped into the fund, it was theft. Why? Because monies paid into the fund came from an employee and his/her employer, with the government paying nothing. The only means of paying back the stolen money would have been through taxpayers dollars. In other words, paying double into the fund.
Basically, under our income tax code, when you receive a pension, the amount you contributed and did not deduct is returned tax free. However, the remaining portion you receive as income from your pension is taxable. Social security is treated differently, Why? Your guess is a good as mine. Many of the recepients have long recovered their original contributions. If your income is above a certain amount depending upon your filing status, one-half of your benefit is taxed. This is ridiculous. For example, Warren Buffett receives social security. He recovered the amount of his contribution years ago. However, only one-half of the amount he is currently receiving is taxed. That is right. The second wealthiest man in America receives a tax free monthly payout from our government. To his credit, he says this is not correct. Believe me, I am not attempting to throw granny under the bus. But our tax code can easily be adjusted to correct this problem and not dip into the pockets of our elderly who depend upon social security.
The best way to salvage everything is to cut govt spending back to1986 levels. That means no grants, foreign aid, subsidies, etc. It means immediate reductions in govt pay and benefits to match those within the private sector. It means everyone goes on Social security and Medicare. It also means we cut off the faucet on all outgoing funds overseas. We become energy independent, we reestablish our industrial base, and we export quality and quantity. We need an inflow of wealth not an outflow. It also means a return of the military to our shores unless countries are willing to pick up the cost plus 20%. It also means we glut any aid programs to illegals here. Times are going to get worse and worse until we never see daylight again. And whom can we blame for this fiscal mess? We can lay the blame directly at the feet of our idiotic congress and current and past administrations.
We are headed at breakneck speed into a depression that will make the 1930's look like a picnic in comparison.
"The debate is over."
Oh no. Oh no, Mr.
The debate is NEVER over. Unless, there is some junk science, progressive agendas and transfer of wealth involved!!!!
I would agree to not take out my Social Security 'benefits' when I retire (in 30+ years) if the government will reduce what I pay in by at least half. I think that's fair.
No it's a sure thing…failure.
Agree W_U government does have a huge spending problem…..but,
Politicians have a GARGANTUAN TRUTH PROBLEM, none of them on either side of the aisle seem
to be able to tell IT!!!
; )
Social Security is the greatest scam ever perpetrated on any people at any time. Bernie Madoff was an amateur compared to this. I would like to see them do something along the lines of giving people an option, stay in SS and pay income taxes after retirement as people do today, or opt out entirely and take your entire 401K/IRA retirement funds tax free. I would be more than happy to take the latter and give up the couple hundred thousand dollars they've confiscated from me during my career.
…or See it, Think it, Smell it, Touch it.
Well how about this…..we continue to have higher earners have more deducted out of their paycheck. But, everyone gets paid out the same amount each month when they retire? Doesn't that sound like a socially just and equitable plan.
So, if someone has been a janitor for 30 years. And paid in the allocated contribution from their paycheck of 35,000 bucks a year….and someone is a chemist who makes 120K a year and pays in the required contribution based on that salary……when they both retire….they each get $1250 a month.
Isn't that a peachy plan? Everyone gets an equal amount in the end, regardless what they paid in. And, on top of that socially pleasing nod to equality….we have higher earners pay more in to the system. It's doubling our pleasure!!!!!
1) We are all equal!
2) AND, we screw high earners out of money at the same time so as to increase the payout for lower earners.
Socialist Utopia….here we come!!!!! High fives all around, comrades!!!!???
…..Comrades?
I agree…an opt out approach makes tons of sense. The Chileans did this a while ago with very positive benefits.
But the statists won't go for it because they're looking at the huge mass of dependants they've created and rightly realize that all those IOU's won't get paid if you and I head in a different direction. So their approach is to demagogue the issue by painting anyone who proposes an alternative as extremist and cruel. All of it is a thin veil for their coercive system of wealth redistribution.
ummm….on a serious note. If Warren Buffet (or any intelligent person that has been saving for their own retirement….hell my old man worked for an auto parts distributor for 40 years….he never made over 70K a year, and he only made that much at the tail end of his career….but he paid into a retirement plan for those 40 years and had over a million bucks waiting for him at the end) doesn't NEED social security…..shouldn't they have the option not to pay in? LOL…..oh sorry….if they had that option, the rest of you dipsh!ts that don't bother planning for your own retirement wouldn't have enough in the SS system to survive…..I forgot it is the job of those of us that make the sacrifices and plans for our own retirement that are responsible to make sure YOU are covered too…my bad.
Christ, if I didnt have to pay SS dedcutions and could put that into the plan I have worked out….I'd end up retiring a multi-millionaire…..but, you know….gotta take care of those that don't wanna be bothered saving for themselves….
You really have no clue, do you. I did not say make it all equal. I simply said treat it like any other pension. I guess you are in favor having millionaires and billionaires on the public dole.
Well said.
I heard somewhere that we currently have something like 1000 overseas bases. Could that be true?
I missed that part. Great idea! Walter doesn't broadcast all that well, but he's damn smart.
Like many people, my financial plan is based on not receiving SS benefits if/when I retire. This is a ponzi scheme that will collapse in its current form. SS withholding will go up, the age to receive benefits will go up, and means testing will be implemented. Still, the massive theft practiced year after year by the government imbeciles will impact our budgets for years to come. Unless government spending at every level is severely reduced, it's a train wreck that is going to happen.
NO!
If it is like any other pension, thenI am in favor of being allowed to OPT out of SS contributions.
Millionaires don't need the SS checks when they get old.
BUT the SS System NEEDS their contributions…right? Exactly. So, once again, earners have to provide for non-earners during their working years….and then also fund the non-earners retirements.
How are these millionaires on the 'public dole' anyway? They paid in, dumbass.
The ones on the dole are the ones that didn't pay in as much money as the millionaires. Duh.
You are the one that clearly has no clue.
Amen.
Last I heard it was over 200+. It definately could be more now.
Social Security and Medicare are NOT entitlements. They are old age retirement income and medical care insurance plans that all employed persons and their employers are compelled by law to contribute to. The fact that they are in financial trouble is the direct fault of Congress which over the years has appropiated those funds and placed the monies in the general fund for spending. Now Congress wants to weasel out by reducing or eliminating benefits when retired citizens need them the most. It's interesting to note that while Congress wants to cut citizens benefits from these programs, retiring Congressmen are not dependent on SS and Medicare, instead they have a cushy federal retirement and medical plan.
But to make my point, an entitlement is a benefit one recieves from the government such as unemployment or welfare to which the recipient has not contributed. Since workers are forced to contribute to the Social Security and
Medicare funds through payroll deduction they are not entitlements.
Did you catch him talking about the minimum wage, and how it's been used as a tool of organized labor? Basically he was saying that the unions support minimum wage as a way to eliminate lower cost competition that might put the union workers out of work. Another very interesting point.
Great article. Chopping government must include chopping entitlements, but almost every politician's highest goal is to get reelected so only a tiny handful (not a large enough number to get anything done) are willing to do it.
Nothing good every comes from the government handling your money.
I stand corrected!
Petro— Agree 100%—-sales tax— about 20% should do it– ya think???
When someone does tell the truth, like Boehner just recently saying that the US is broke, the propagandist media portrays them as fringe, idiotic, etc. Meanwhile, the economic reality is unchanged, and the problem only continues to get exponentially bigger.
A study from 10 years ago showed that most elderly use up what they contributed in 2 years time. It has become elderly welfare. We have generations of americans who never saved for retirement because they intended to use social insecurity as their retirement.
Madoff just recently, and correctly, pointed out that the US gov't is a giant Ponzi scheme.
Yes, 20% I would be ok with and it would be a constant source of revenue. Think of the money saved in regulatory agencies eliminated……….wow.
Their heads would explode if we took that weapon away.
That is correct. However, the fact we are paying more than $10,000 a year in tax free money to millionaires and billionaires needs to stop.
Yes the paid in dumb ass. But they have long ago recovered the amount they paid in, dumb ass. I know this is beyond your level of comprehension, dumb ass.
Perhaps (I pray) the energy behind the Tea Party and the awakening of people to these problems in general will help reform happen this time 'round. We are at the point now where we have no choice. Hopefully, the leadership realises it soon.
LOVE these articles. Foldering them and filing away. We know what needs to be done, but can we light our leaders' arses on fire enough to get them to take this road?
I agree, …..Boehner needed a united front with his Rep'b leadership team backing him up on all the
cable news shows, reiterating what he said. He was brave to fly near the flame, but he needs back-
up. They need to make it a theme and stick with one narrative.
Congress must get serious. They seem to be waiting for a miracle. It ain't happenin'!
Boehner was hired to be the House Speaker, he needs to be able to pull strings and make the
earth move. So far I don't see him exercising that ability. I see more of a ''deer in the headlights"
look from him.
.
That's the point– MUCH easier to manage. I can point to several countries who use this scheme and it work VERY well.
Look, Social Security is and always has been a Ponzi scheme, but it hasn't been well run. Let's let Bernie Madoff out of jail and put him in charge of it. At least he knows how to run a Ponzi scheme.
So, if a janitor pays in for 30 years at $35K a year salary. And a millionaire pays in for 30 years at 250,000K salary…..clearly the millionaire is paying in more, correct? And if they both retire at 65….and start collecting benefits….YOU ARE SAYING THE MILLIONAIRE GETS HIS FULL INVESTMENT BACK FIRST? LOL.
Please. Stop. They aren't recovering their pay in any faster than the janitors. The only difference is…if the millionaire wasn't forced to pay in, the janitor would have no retirement.
Clown.
Why?
If they are forced to pay into the system, they deserve to get what everyone else gets.
Your people call it Social Justice, dummy.
If you don't want to give them the same benefits they are paying MORE for than other people….then give them the option not to participate. But you can't do that, cause your welfare Ponzi scheme would collapse without them.
You tax them more to pay for the lower middle class. You charge them more property tax to pay for the lower middle class. And you want them to pay for your retirment and not be allowed the same outcomes you get from the system.
Not very socially just of you, or equality driven. My. How the values of the progressive are fluid.
Look, we know you Obama lovers are all about hitching your future to the work of others and hoping to reap a piece of their rewards and success. But, eventually, as you are seeing in todays economy….your dead weight will hold the rest of us down.
Socialism doesn't work. Never has, never will. Over regulation destroys economies. Over taxation destroys economies. Command economies destroy themselves.
Too simple.
You are really clueless, aren't you. First, your monthly Social Security payment is based in part upon the amount of your contributions. So the more you pay in, the larger your monthly payment. Second, I said you tax it after their principal is returned. You do know what principal is, don't you. So if they get their money back in two, three, four years, it does not matter. All I know is Warren Buffett has stated he received his principal back years ago. Now go back to junior college and take some personal finance courses. I know it will be hard, but you will get through.
No, Joseph. Us Obama lovers resent paying millionaires and billionaires tax free income. I guess you are in favor of it.
In addition to making the changes suggested, it would also make sense to link Medicare eligibility to Social Security eligibility. Both are retirement programs, so individuals should "retire" for both Medicare purposes and Social Security purposes at the same time.
Sounds nice. Don't like it.
You mean the same millionares and billionares that, if they employ people, are forced to pay matching contributions via payroll taxes?
I'd prefer they just mail me a check for the total amount of money they've stolen from me. Then they can leave me and what I earn alone.
Hell, no. I want what they stole from me too. Anything less is unjust.
You speak the truth bbtruth. It sounds great until you really think about it.
So we're supposed to trust the government to invest in private companies? So the government would get to buy up stocks of companies thus picking what companies "win" and what companies "lose". So now the government would own a good chunk of the means of production. Wait, I've heard something like that before…oh yeah it's the definition of socialism, the government owns the means of production. Not only that, the government would get to purchase its ownership shares with taxpayer money so we could all finance the road to our own destruction, hurray!
I especially like the part where the plan talks about how it's all going to be unicorns, rainbows, and lollipops for everyone, quote "…a new kind of stock exchange that doesn’t crash and the companies that are listed on it would offer investors the opportunity to be insulated from bankruptcy, total investment loss, yield maintenance and a host of other common investment risks, while increasing capital market access for businesses on an unprecedented scale." Pure bs packaged up so it seems to make sense. It's a progressive vision for social security reform pure and simple.
I'm sure this is exactly the sort of plan the government would absolutely LOVE to implement if they thought they could get away with it.
According to the CDC, 2,423,712 people die in the US each year, or about 6,640 per day. Not all are elderly, but it's clear that the number of new retirees is offset by a substantial number of decedents. For the sake of argument let's say the real number of new SS recipients amounts to 4,000 per day. That's only 40% as large a problem as you've described.
If you believe Social Security to be a retirement program you're sadly mistaken. It's a trust fund where you are a trustee and the government is the beneficiary. Most SSA cards even have a notice on them that they don't belong to you, they belong to the SSA. You simply hold the card "in trust", in other words you're the trustee. Since the card really belongs to the government, they are the beneficiary. Any money you receive from the SSA is payment for what a good job you did keeping that card safe.
If you really want to see how they're shafting you, and why no meaningful Social Security reform will EVER be implemented look up how trusts work. Since the card doesn't belong to you but to the trustee, only the trustee is authorized to use the card. Anytime the trustee acts, it is the trust that has acted. That means anytime the card is used, anything obtained from its use belongs to the trust. What has the trustee position obtained by using the card that you thought was yours? A job and its associated salary? A house? A car? A bank account? They're all part of the SSA General Trust Fund now.
Social Security will never be meaningfully reformed, it brings in too many assets to the government.
Social Security is entirely optional. All you have to do is never use the card and you won't be subject to the taxes.
Hey federal government. Write me a check today for the dollars I have paid in to SS since I began working 42 years ago at age 14, along with the money my employers paid in on my behalf (after all, that is my money too), and an average rate of return over those 42 years equal to the CPI, all tax free, and I will sign a contract with you agreeing to NEVER draw a dime of SS. DO WE HAVE A DEAL? I know I can do a much better job investing my money for retirement than the federal government ever will.
My husband and I are both 33 and while we know we will be paying payroll taxes until we retire – we are not counting on one dime of SS. We both figure it will be kaput by then. So we're paying for retired seniors (and the disabled, and everyone else SS covers these days) now, and also saving for our own retirement on a middle-class income, while raising four kids. Not easy, but responsible.
I'm with you!
I personally think we should just finish paying those who already rely on it and those that are about to rely on it and can't change their positions.
Everyone else – you're on your own, but at least that includes getting reimbursed for what you did pay in and getting to keep future earnings.
Then we better learn how to be smarter with our money. I think it's the only way that makes sense in the long long long term.
Get rid of it and refund stolen wages. This program was unconstitutional the moment FDR signed it into law.
What a joke.
Ata boy obama, great work, you moron
WASHINGTON – China, the biggest buyer of U.S. Treasury securities, owns a lot more than previously estimated.
In an annual revision of the figures, the Treasury Department said Monday that China's holdings totaled $1.16 trillion at the end of December. That was an increase of 30 percent from an estimate the government made two weeks ago.
The government made the change to its monthly report based on more accurate information it obtains in an annual survey. That survey more does a better job of determining the actual owners of Treasury securities.
China was firmly in the top spot as the largest foreign holder of U.S. Treasury debt even before the revisions. But the big increase in Chinese holdings could ease fears that Chinese investors might begin dumping their U.S. holdings. Such a development could send U.S. interest rates rising. That would slow America's economic recovery and increase Washington's costs for financing the $14.3 trillion national debt.
Guv Toadie: "Hey I have a billion dollars here. I want to buy up shares at the current market price."
Board Chairman: "Great! Send me the check!"
Guv Toadie: "Just one thing. You must put my wife on the Board at a salary of one million dollars a year."
Board Chairman: "Okay, well what are her qualifications?"
Guv Toadie: "Well she graduated from cosmetology school — with honors! And her husband is a government fund manager…"
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