The Medicare Problem -- A Reminder
As I have written before, the problem with Social Security is not a mismatch of taxes and benefits - it's simply that 40 years of Congresses have spent the premiums, and now they no longer exist to pay benefits.
The problem with Medicare is actually more difficult. By these numbers, Medicare taxes are not even a third of what they need to be to pay for actual benefits. There are only two solutions that don't involve running up Federal debt: 1) Triple Medicare taxes. or 2) Cut back benefits and/or eligibility by 2/3.
Interestingly, neither party is suggesting either of these solutions, which makes all the light and noise from the Conventions totally meaningless on this issue. The Left's notion that cost control will close the gap is sheer fantasy -- already Medicare is getting an effective cross-subsidy from non-Medicare customers and price controls have gone about as far as they can. In fact, the cost mismatch above is understated as many Medicare costs (e.g. buildings, revenue collection) are actually not charged to the program but to other agencies. The Right's pitch that small cuts around the edges that Grandma won't notice at all will balance the budget are equally a fantasy.
Believe it or not, I have come around to the solution that we need to raise the Medicare tax. I would like to privatize the whole thing, and in particular see a reintroduction of individual shopping and out-of-pocket expenditure to the system. But in the interim we have to acknowledge that there is no way substantial changes to Medicare benefits or delivery is going to happen. The program remains incredibly popular, though one reason for this is that it is priced wrong. I am sure Aston-Martin sports cars would be staggeringly popular if sold for a third of their true cost. In my mind, there is nothing more dangerous to an economy than an artificially incorrect price, and Medicare prices are WAY off. We need to raise taxes to match the current benefits package, and THEN let's talk about reforming the program.
Jesse:
I guess you could say raising the taxes on the actual users of medicare by the same amount that they consume out of the program would have the same effect. But making people pay for what they acutally get is going to be deemed a problem in and of itself that needs "reformation" to fix.
September 4, 2012, 2:12 pmLarryGross:
social security benefits are paid for with the FICA tax - it's a pay as you go system. It's true that FICA will eventually not generate enough to pay full benefits (unless changed) but it's not true that there will be no more money. that's false.
When you say things that are completely false, you undercut everything else you say.
Medicare is actually four programs. Part A is pre-paid with FICA taxes -you pay for Medicare Part A with your payroll taxes.
Part C & D are subsidized prescription drugs and "gap" plans - passed in 2003 - check that date to see who passed it.
Part B is paid for 1/4 with premiums and 3/4 with taxes and is heavily subsidized. Remember also that Part B pays only 80% but unfortunately Part C was passed to cover than 20%. Medicare does not pay for eye care, dental nor long term care either. The solution to Part B, C, and D is to increase the premium, co-pay and deductibles especially on things that are not truly medically necessary even if they improve quality of life - the beneficiary should have more skin in the game. Right now, people who own 2 houses, 3 cars and have a million in assets get dirt cheap health insurance. It's means-tested but not enough.
but I agree - increase the premiums.
remember also - BOTH social security AND Medicare are INSURANCE.
you know this with SS for sure because you get benefits no longer how long you live and their are no "heirs" to get back what you paid into it. Your family would get survivor benefits.
SS is a pay-as-you-go insurance annuity
September 4, 2012, 2:41 pmsean2829:
The real tragedy in those numbers is not the ratio of what's taken in for Medicare vs. what is spent. It's the fact that medicine is so expensive that the cost of medical care is 42% of the wage and benefit combination for an average wage retiree and 35% for a high income retiree. We are getting very close to the point where between a third and half the American population can not afford health care any longer.
September 4, 2012, 3:29 pmLarryGross:
re: the cost of medicare care. The awful truth is that people without insurance still get care but they get it through EMTALA/ER charity care which cost-shifts the costs to those who do have insurance and they get in via MediCaid which is paid for with taxes.
the operative thing that people without insurance still get care but they get very expensive late-stage care - paid for by others.
September 4, 2012, 3:33 pmLarryGross:
oops - MEDICAL CARE not medicare care.... my bad
September 4, 2012, 3:33 pmMingoV:
"By these numbers, Medicare taxes are not even a third of what they need to be to pay for actual benefits."
That's not what the numbers mean. Estimates indicate that current beneficiaries will receive three times more in Medicare benefits than they and their employers paid via Medicare payroll tax deductions. However, there are more current workers than retirees, so the Medicare pay-as-you-go system (aka Ponzi scheme) isn't yet in the red (but it will be within a few years).
September 4, 2012, 4:02 pmLarryGross:
the only Medicare that is pay-as-you-go is Part A - which is paid for with FICA. Medicare Part B is paid for 1/4 with subscriber premiums and 3/4 with tax payer subsidies. If your criteria for "broke" is that it is subsidized, then Part B, C, and D are all subsidized with general fund revenues.
The problem is that Medicare is being debated on a sound-bite basis and most folks simply don't know the actual details of Medicare so those folks basically take on faith what they read or hear and quite a bit of it is simply propaganda and not the truth.
Part A is the only Medicare that is financed from payroll taxes and it is pay-as-you-go but it will never be "broke" in the sense that there will be no more money. As long as FICA taxes are collected, it will have money. But it will not have ENOUGH money to pay the benefits now offered. If nothing is done, then the benefits will automatically reduce and people will have to pay more out of pocket.
If you think about it - the same thing could apply to Medicare Part B. instead of continuing to increase the subsidy, people would have to pay more out of pocket. this could be phased in gradually over the years to bring the program back to some level of fiscal sustainability.
but debating Medicare in sound-bites and demonizing it won't help move us to changes we will agree on.
we have too much gridlock and not enough compromise to go forward with fixes to these programs.
Mr. Drumm points out an elemental truth and that is - age is a preexisting condition and the free market will dump any/all who attain the age of 65 because it's pretty certain those folks are going to be using more health care than younger folks. In a free market, seniors are toast.
September 4, 2012, 4:16 pmsean2829:
Even sadder still is that Medicaid and Medicare only pay about 80% of the cost. Health care providers are allowed to charge more to people with private health care coverage to make up the difference. So even a person making an average wage but with health care benefits probably sees ~$2-3K of the premiums paid by them and their employer used to cover the government shortfall. This is a huge regressive tax on working class folks, many of who may not even pay income tax directly.
September 4, 2012, 5:09 pmLarryGross:
Most Medicare folks buy the subsidized GAP coverage to get to 100%. The GAP coverage is subsidized by taxpayers.
but yes.. there is cost shifting going on but it's even worse, much worse for those that don't have insurance.. EMTALA/MedicAid is ALL covered by taxpayers and cost-shifting and it's usually more expensive because people who don't have insurance will wait until their illness or diseases progresses to the more expensive stages.
We proceed on the premise that the uninsured will not get care and add costs to others but it's a horribly mistaken belief. They not only get care, it's more expensive and we still pay for it.
September 4, 2012, 5:19 pmbrandonberg:
The thing to keep in mind with Medicare is that, unlike with Social Security, there's no cap on the tax. This means that the burden of the tax is borne disproportionately by a small subset of the taxpayers, who I am guessing don't show up on this chart. It's not just that Medicare is underfunded; it's also that even when it's fully funded, the average recipient hasn't paid anywhere near the proper actuarial value of the benefits he's scheduled to receive. What we really ought to do is fund it with a head tax and then see how much voters like it.
September 4, 2012, 7:02 pmmesocyclone:
Another thing that would help would be to raise the fertility rate. In the old days, people had lots of kids so some would be around to care for them in their old age. Now that the care is socialized, and birth control is easy, that incentive is gone and most societies are not even having enough kids to replace themselves - with disastrous results in caring for seniors (or paying for it).
September 4, 2012, 7:14 pmHerman:
Yeah, but you want to raise taxes on the wrong people: the folks who are working now, so you can pay bills for others who are not working and weren't paying high taxes when they did. I say the first thing we have to do is means-test the program, and the second thing is greatly increase copays and premiums, and the third thing is gradually wind the program down, including getting rid of the "mandatory Medicare" cutoff of virtually all other health insurance at age 65 even for people who want to buy private coverage.
September 4, 2012, 11:09 pmMark:
Claiming that Social Security is a "pay as you go" insurance annuity is absolutely false. Here are the reasons why. First, with an insurance annuity there is a contractual agreement between the insurance company and the insured. WIth Social Security, there is no contract. It is based on a political promise. Second, when the insured buys an annuity from the insurance company, that company uses the proceeds to purchase real assets that will earn income, dividends, or appreciate in value to the extent that the issuer can pay the insured the guaranteed annuity, administer the process, and make a profit.
These two differences are so significant that Social Security can never be viewed as an "insurance annuity". There is no contract and the money is immediately spent by the government so the "annuity" has no real assets. Social Security is a Ponzi/Pyramid Scheme, pure and simple. It takes from people on the bottom of the pyramid and pays people off at the top, with the "promise" to the people at the bottom that new suckers will be added to the bottom and they will move to the top.
Regardless, Larry's use of the word "premium" and "insurance" is just a disguise. THey are not "premiums", but rather taxes and the main problem with raising taxes is that the programs already have negative cost-benefit values to those making the majority of payments. And, Medicare and SOcial Security are not insurance. THey are entitlements.
To raise "premiums" on both Medicare and Social Security without fundamentally changing the nature of the programs is ridiculous. Major efficiencies and improvements, like the Ryan-Wyden Plan, means testing, raising retirement ages, and privatization need to be implemented before shoveling more and more money to the issue.
And, to contradict Larry's claim about the rich getting "dirt cheap health insurance", that is a falsehood. THere is no limit on income for Medicare taxes. You pay 2.9% if you are Bill Gates or the poorest person in the room. To get the same "product", higher income people pay much more than lower income people. THe subsidy lies on the lower end of the income scale.
September 5, 2012, 3:03 amLarryGross:
It's an insurance annuity and described as such in it's official title and it functions that way although I do agree with you on the investment distinction but in terms of how it functions, it functions pretty much the same way which pays you a benefit until you die and then there is no residual fund for your heirs, only a survivor annuity if you elected it at the beginning. Both SS and private pay you no matter how long you live - which if you think about it is a gamble for the private annuity if you outlive that fund they invest in - then they have to pay you with other money - coming in from other premiums - i.e. pay as you go.
Both SS and Medicare ARE insurance because they both pay you no matter how long you live and in Medicare's case no matter your medical expenses. That's insurance. Your benefits are not capped.
I agree, increasing premiums is not the only way to fix but in the end it boils down to reduced benefits or increased premiums or both and it may well men that SS/Medicare should not be available until 70 or whatever number going back to the premise that retirement is the time between when you retire and when you die (actuarially) and that time has expanded as people have lived longer.
it's dirt cheap insurance compared to what other people pay for health insurance both now and when they retire (if they had to buy private ins and id not have Medicare).
How much do people pay for insurance equivalent to medicare? several hundred dollars a month, right?
How do you reconcile the 2.9% at all income levels and means-testing? It IS an entitlement but it i ALSO insurance. You are 1. guaranteed to be able to buy it no matter your health status and 2. they will pay your expenses no matter how much nor how long you live.
It's an entitlement because Medicare Part B - you have not paid into .. there is no 2.9% payroll tax for Medicare Part B. You are entitled to buy it but you never paid a penny into it until you sign up for it. Medicare Part B is totally voluntary. You can choose not to get it.
The most important thing about debates in my view - is to get the facts straight first. If you look up SS and Medicare - you'll see that they are both called insurance and yes they are also entitlements because you are "entitled" to get them but you still have to pay payroll taxes and premiums. They are insurance because they cover you no matter how much you earned (and paid).
September 5, 2012, 3:26 amLarryGross:
SS =
Old-Age, Survivors, and Disability Insurance (OASDI) federalprogram (from Wiki).
and
Medicare is a national social insurance program, administered by the U.S. federal government since 1965, that guarantees access to health insurance for Americans ages 65 and older (wiki).
Medicare offers all enrollees a defined benefit. Hospital care is covered under Part A and outpatient medical services are covered under Part B. To cover the Part A and Part B benefits, Medicare offers a choice between an open-network single payer health care plan (traditional Medicare) and a network plan (Medicare Advantage, or Medicare Part C), where the federal government pays for private health coverage.
September 5, 2012, 3:28 amLarryGross:
I found this useful in better understanding SS:
September 5, 2012, 3:50 amhttp://www.justfacts.com/socialsecurity.asp
CTD:
"There in no free lunch."
Only if you start eating yourself...
September 5, 2012, 7:06 amMark:
OMG.....your problem is that you spew government propaganda. If someone actually sold an annuity structured like Social Security they would be RIGHTFULLY sitting in jail next to Bernie Madoff. The "facts" you are claiming are wrong. The government PRETENDS that they are insurance and talks about things like a "LOCKBOX", a fanciful invention that tries to imply that the assets to support the programs actually exist. But it is not insurance, it is an entitlement program.
The "premiums" we pay are not premiums at all either. Rather, they are taxes pure and simple. Why aren't they "premiums"? Because if they were premiums I would pay exactly what someone else in my risk class would be paying and I would have a specific contract that specified what services I would be getting, now and in the future, for my premiums. With Social Security and Medicare, none of those exist. You claim that it is insurance because we will be "guaranteed" to buy Medicare insurance. But, unfortunately, this is another lie that the government is telling you. There is no guarantee. It does not exist. Your future benefits depend on the future political conditions of the United States of America.
And, that is how I can reconcile mean-testing. It is going to have to happen and it is going to impact me. The Social Security eligibility ages need to be increased. The "early" option to collect benefits at 62 needs to be eliminated. The disability portion of SSI needs more cost control. And, the premiums and out of pockets for Medicare need to be means tested. ANother change that will impact the other side of the ledger is that the income rules for earnings will have to be made more fair to lower income individuals to allow older people in lower income brackets more incentive and more benefits by working longer. THe sooner we do this, the better.
And, this does not even get into privatization. The real problem with Social Security is that it does not create wealth and capital. That is how you combat poverty, you create wealth. Putting 12.4% of your income into an "insurance" annuity is incredibly bad financial management. If you were a financial planner and devised Social Security as the product you sell, you should be sent to jail. Only complete morons would buy such a product.
September 5, 2012, 10:47 amIt needs to be done quietly at first. Maybe the first step is that Social Security "donors" are directly given the government IOU's from the cash flow of the program. These IOUs would be in the person's individual name and maybe guaranteed a certain interest rate. The IOUs would not mature until after a specified retirement age, but they can be transferred on the death of the owner to the retirement accounts of heirs.
Then, a certain portion of the private investment accounts would eventually be allowed to invest in other investment vehicles. The risk would be controlled by requiring a 50% investment in the government IOUs and maybe some limitations as a person ages.
LarryGross:
Nope. we deal in facts as opposed to some folks. It IS an annuity. it walks, talks, and quacks like a private annuity. A private annuity once it pays out everything you paid in - has to continue to pay you. how does it do that? it does it the same way SS does by using money from other annuities using actuarials.
re: the lock box - the vast, vast majority of SS benefits comes from FICA taxes not the so-called lock box which is a small fund set aside to cover short term losses while SS is reformed.
It's "insurance" because it also pays for you if you are permanently disabled and it provides survivor benefits if you die.
Do not confuse FICA taxes for SS and Medicare Part A with Medicare part B premiums.
Get the facts and stop sucking up propaganda ... know what the hell you are talking about.
re: govt lies. I suppose you consider the pensions and health care benefits paid to military retirees as also "lies".
the disability part of SS is going to not being able to pay out all benefits but it will still be taking in FICA taxes. It will fall short of paying out unless and until it is adjusted. We should be so lucky with other parts of the budget that do not automatically lower payouts to stay within revenues!
the ace in the hole for SS is that it is inflation-adjusted. If you check into it - what you'd pay into a pre-funded pension - a 401(k) or IRA is hard pressed to deliver back to you benefits that are not inflation-indexed. That's the big downside to private funds.
but you do need to understand the difference between FICA as a revenue source and the trust fund/lock box. FICA is the primary revenue source for SS and Medicare Part A - not the trust fund/lock box.
the problem here is that people don't know and when they search for info, they seek out stuff that confirms their own biases instead of looking for the facts. You cannot find the facts by going to biased sites that have agendas. The link I provided to you is heavily footnoted with links to credible sites to back up what is written. I would suggest that to you to no matter what site you go to. Use the foot notes and verify the information. Cross check it, validate it and question it when you cannot find other sources that confirm it.
A good start is the SS Trustee Report. It is fairly detailed and give you some honest facts about the program.
September 5, 2012, 11:02 amMark:
Hilarious. Lets look at your claim about a "lock box". There is no lock box. There is no "small fund". There are no assets. That you believe that there is only betrays the absolute problem with your "facts". The "trust fund" is intergovernmental accounting. The funds were created by transferring money from one check book to the other, spending it, and in the process creating an IOU (checkbook 1 to checkbook 2). According to you and the government, somehow an asset was created. And, the Trustees gladly play along with the scam, noting "interest incomes" and "Fund balances". But, it is all fiction. It is done for political reasons to propagate the system. It is harder to make changes to an entitlement that has "ASSETS". But it is all fiction. The ASSET and the LIABILITY are owned by the same entity. The "interest income" is being paid and received by the same entity. The assets cancel out the liabilities. The income cancels out the expense. It is all political show.
Lets look at your claim about private annuities. The reason a private annuity can continue to pay you even after it has paid you everything you paid in is that it has assets that earn returns. By investing the money that you pay into the annuity NOW, they will make returns over the investment period to be able to pay you back your money and interest. If the insurer cannot do this, then they are will be out of business or practicing a Ponzi scheme.
I will partially agree that the disability and survivor benefits of Social Security are insurance. But, only partially. The problem with these pieces is again, the lack of contract and the fact that your future "payments" are dependent on government fiat. For example, a couple of decades ago the survivor benefits for children were changed so that there was no continued payments after the age of 18. The government can change this age to 14, or 12, or whatever age they want to after the fact and for political reasons. The other problem with the disability and survivor benefits are that they are incredibly inefficient and expensive compared to private plans. We would be better off economically if we eliminated these programs and everyone voluntarily purchased their own term life and disability insurance plans. There clearly would be some segments of the population that are truly disabled or are indigent. Those people should be supported by welfare programs paid out of the general fund rather than by a tax posing as an "insurance" program.
I made no mention of the military pension and health benefits. But, I believe that these benefits are contractual. When you work in the military or for the federal government they contractually agree to these future benefits. So, I would not claim that these are government lies. But, federal pensions and retiree benefits are not Social Security and the distinction is obvious. Nice you brought those points up!
As far as the "ACE IN THE HOLE", that is absurd. There is no way that the rates of return for SOcial Security can compete with 401(k) or any other real savings program. The reason? Where does the principal go? What is the rate of return for your social security "investment" if you die at the age of 61? Negative infinity. Oh, you will claim that your survivor will get "death benefits", but the average person would have been much better off getting private term life insurance for that.
The proof is in the pudding. If a person invested their social security "premiums" in a modest return of 3%, they would accumulate assets that would, at 3%, give abut the same income as Social Security. But, the rate of return of this is much higher because not only does the person get the income generated, they also own the assets. When they compare the "rate of return of Social Security" they are only comparing incomes. They neglect that at the end of the income stream you get nothing from Social Security. That changes the rate of return significantly, and capital creation is what creates wealth (and eliminates poverty). Given the choice between Social Security and a mandatory private pension contribution even people with limited understanding of personal finance would choose the mandatory private pension contribution.
September 5, 2012, 12:17 pmNL7:
Alternative reform: everybody is guaranteed to get back the amount they paid in (with some sort of inflation adjustment) but then cut off after that. Reason posted some Rupe polling a while ago suggesting most people see Medicare and Social Security as products they bought, and that they just expect to get their money back out and may be willing to accept reform if they get their money back.
I really only want one reform to Medicare: let me opt out. I'd like to take my previous FICA payments with me (maybe apply it to my Social Security payroll tax or give me an income tax credit?), but I'm young enough that it makes sense even if I have to cut my losses. Just let me keep my 1.45% and maybe my employer will let me keep their 1.45% payments saved. I'd take the same deal for Social Security, since the investment is net-destructive.
September 5, 2012, 12:20 pmLarryGross:
The "lock box" IS real. It's a fund - a trust fund. It's a trust fund like about 100 other trust funds that range from the gas tax to military pensions to airport fees.
All of them work the same way. Virtually all are "check book" type accounts. There is nothing unique or special about the SS "lock box".
They were also designed explicitly to work this way. There is no govt conspiracy.
and yes. it's true - the govt ends up owing money to itself.
Each of these funds by the way pretty much redeems treasury notes every day on the same day they are depositing new funds.
here you go: http://www.gao.gov/assets/210/200562.pdf
re: paying you when the fund runs out. they do investments, yes but what happens if you live much longer and outrun those also - and it does happen.
they pay you with money from the other funds or from new annuity purchases. It works much like insurance does. In fact, if you look it up you'll see that an annuity is classified as an insurance product and is often sold by insurance companies.
re: contracts. The civilian and military pensions and health care as well as Medicare are not "contracts" either. They pay you benefits until you die. that's it.... and you do not get a lump sum when you die. And if you want to elect survivor benefits, it reduces your total pension.
The govt can and does change things like age qualifications... on any /all entitlements.
re: ace in the hole. Check it out guy. http://finance.yahoo.com/news/social-security--the-cheapest-annuity-in-town.html ... just google it and you'll find that the inflation adjustment in SS is far better than anything you will get in a 401(K) (which is nothing).
http://retireplan.about.com/od/socialsecurity/a/cola.htm
If you REALLY want to compare - you'd have to use an inflation factor for your private pension PLUS you'd have to factor in the cost of death and disability insurance and survivor benefits.
Keep in mind how much the average person made in the stock market in the last few years - they not only got killed - they also are still vulnerable to inflation.
again - I urge you to do more than just visit sites that confirm your biases. get the facts. visit other sites and seek out the truth.
September 5, 2012, 12:36 pmMark:
More comedy. LEts take some quotes from the source you gave: "In the federal budget the meaning of the term “trust” differs significantly from its private sector usage. In the private sector, a person creates a private trust fund using his or her own assets to benefit a stated individual(s). The creator of the trust names a trustee who has a fiduciary responsibility to manage the designated assets in accordance with the stipulations of the trust. In the federal sector, the Congress creates a federal trust fund in law and designates a funding source to benefit stated groups or individuals.2 However, in contrast to a private trust fund, the federal government does not have a fiduciary responsibility to the trust beneficiaries, and it can raise or lower future trust fund collections and payments or change the purposes for which the collections are used by changing existing laws. Moreover, the federal government has custody and control of the funds as well as the earnings of most federal trust funds."
The GAO explains what a Federal "Trust Fund" is "Federal trust funds represent one accounting mechanism used to link earmarked receipts1 with the expenditures of those receipts. The Office of Management and Budget (OMB) and the Department of the Treasury determine budgetary designation as a trust fund when a law both earmarks receipts to a program and identifies the account as a “trust fund” account." Lets review. A trust fund is an accounting mechanism. Unlike private trust funds, it does not have assets just "funding sources". A private trust fund creates income for its recipients from the earnings generated by the assets in trust and also by any draw on those assets that is allowed by the trust document. A trust fund of the federal government is just a check book that earmarked funds go in and out of. It is a checkbook.
Also, unlike a private trust fund, the government has no fiduciary responsibility to the "Trust Fund", and can make whatever changes to the trust fund that it desires. So, basically it is a political con-job to try to create the impression that Medicare and Social Security are solvent and have assets backing their future obligations.
It is a con-job because it is sold to gullible people like you that it is a funding source for future obligations. But it is none of those things because it holds no real assets. It is, at best, a claim against some future income that comes from some non-earmarked sources. But, since their is no true fiduciary responsibilities these claims are not legal claims on the future funds.
Your claim, with link, about the "ace in the hole" is idiotic, but not surprising. Munnell is simply illustrating the benefits of delaying your Social Security claims. The longer you delay receiving Social Security, the higher your "benefit" will be. She demonstrates that delaying entry into the SOcial Security system that the return on your investment, defined as the money you would spend from savings during that delay, is higher than what you should expect out of an annuity. That is good advice and most people understand that delaying is usually the best course. Of course, this is also dependent on such factors as your health, prospects for other sources of income during the gap, and your level of pre-retirement savings. Clearly, if your health is bad and your life expectancy is limited, you do not want to delay receiving your Social Security benefits.
But, this is a far cry from comparing the rate of return from a privatized system were the individual owns the assets in their account and the Social Security system. What is MOST valuable about a privatized pension system, where the individual owns the assets, is that it creates wealth, not just income. A person with a 401(k) balance can pass the residual amounts in their accounts to their heirs. This can significantly improve their heirs standard of living and retirement savings. This is how "rich" people are created. Liberals like Larry think that the main difference between rich and poor is their income. But, it isn't. The biggest difference is in their net wealth. And, until you have wealth you are not far from being poor.
September 5, 2012, 9:47 pmLarryGross:
No comedy here. You're were given credible links that accurately describe the way that Federal Trust Funds work and you continue to believe what you wish. There are also no shortage of credible references that demonstrate that even a low inflation rate seriously impacts personal retirement funds over 30 hears. There is no liberal or conservative here. You have a bias and you refuse to believe even credible information provided. Every single industrialized country -in the world - INCLUDING Singapore and Hong Kong have social security type systems with payroll deduction funding. You will continue to believe what you wish. Actual information as opposed to propaganda is not of real use to you, it's clear.
this is not about liberal or conservative. it's about whether or not one is really interested in facts. So we're done here.
September 6, 2012, 2:50 amMark:
LOL....no, that document described a Federal Trust EXACTLY the way I had previously described it. It is just an accounting gimmick. That was verified in the same link you provided.
You continued claims about "inflation rate" on retirement accounts is actually pathetic. You act as there are no ways to protect your portfolio from inflation. The other fallacy to your claim it to believe that Social Security has a "guaranteed' protection for inflation. Again, as in all other aspects about the program, there is NO REAL GUARANTEE. In fact, that is one issue that should be the first to be modified. The government has been too generous in the COLA adjustments to Social Security in the past.
AS far as my "bias", I have destroyed all the "facts" you provide.
As far as "every single industrialized country", these programs are major problems in almost every industrialized nation. They started with a nice little public pension and low payroll costs. THen they got more and more generous as the middle class liked the programs and wanted more. It is usually good for political careers to give constituents more and more, but all the while the demographics shifted away from sustainability. When Social Security started, there were more than 16 workers in the economy per recipient and the median life expectancy was about 62 years of age (less than the retirement age). In 2012, there are 2.5 workers per Social Security recipient and the life expectancy is almost 80 years of age (more than 15 years past SOcial Security). The Demographics don't lie either. Social Security, and Medicare as we know it are not sustainable programs. Modifications, which I have pointed out, NEED TO BE MADE.
Take your own advice. Open your mind. Stop believing the propaganda that "trust funds" exist. But, you never will. One of my observations is, in today's world who really are the "conservatives". The Democrats have their head in the sand demanding no changes to Social Security, Medicare, a myriad of other government programs. They block any changes to education policy. They refuse to even consider examining tort or malpractice laws. Republicans have ideas on modifying all of these things, to create efficiency and sustainability, and to make vast improvements. Yet, "liberals" fight to maintain the status quo, since the modern definition of liberal really has become "spend more money".
September 6, 2012, 10:18 amLarryGross:
What the document shows is that there are over 100 different trust funds and they all work the same way. there is nothing unique or different about the SS trust fund. If you talk about the transportation trust fund which is where your gas taxes go - it works the same way. In times of deficit and debt, the govt does spend the money coming in from various revenue sources including FICA taxes but it issues treasury notes and those notes are redeemed every day.
It's also true that it's possible for the govt to not redeem them any more but in that case all the other treasury notes sold to the public would be also at risk.
there is a reasonable debate on the deficit/debt -based on facts but no reasonable debate based on propaganda and conspiracy theories. The Trust Funds have been in existence for a very long time and they work exactly as they were designed to work. If someone thinks there is something nefarious going on - then they need to show more than claim the govt is using "accounting tricks" unless you claim that they always have from the beginning - which would sound pretty foolish if you ask me.
with regard to inflation - there are a ton of 30 year inflation calculators you can access and plug in what you'd pay in payroll taxes and see how it comes out. Most of these calculators will show that for a relatively low 3% inflation factor - considered for over 30 years - will render whatever you save to about 1/2 of what it was originally worth.
Most SS recipients get about 1200 a month. it's pretty easy to go back and see what you'd have to save each paycheck to yield about that much. It's a pretty close calculation especially if you have to figure in the cost of a survivor annuity that is also inflation adjusted.
but one of the important facts about Medicare is that there are 4 Medicares and only Part A is paid for with payroll taxes. Part B is totally voluntary and you do not pre-pay for any of it.
If you want to get upset about subsidies - Part B is the one you should focus on because it charges about 1/4 what the costs to provide and the other 3/4 comes out of general revenues.
and before you say it - I'm IN FAVOR of increasing the premiums and decreasing the benefits so that the program is not so heavily subsidized. If you really want to worry about the impacts to the budget - worry about Part B, C and D - not SS or Part A which have almost no impacts to the budget.
again.. I'll argue on the merits and on the fact but not on propaganda and conspiracy theories.
you choose.
September 6, 2012, 12:57 pmMark:
LOL, more with the "Trust Funds", I get your point. The governemnt has a lot of differerent checking accounts that they call "Trust Funds". Earmarked money goes into these "Trust Funds" and money is spent out of these accounts. Sometimes, other accounts borrow funds from a "Trust Fund", and an intergovernmental agency IOU is created. We get that. But, what you don't get is that it is meaningless. The IOU is valueless. It is not the same as a government bond that is sold to the public. The liability and asset are owned by the same entity. An intergovernmental IOU owned by a "Trust Fund" has no value.
September 6, 2012, 2:54 pmAnd, I will reiterate, the accounting trick isnt that the government runs "Trust Funds" for earmarked programs. It is that they create the impression for gullible people like you taht the "assets" of the Trust Fund are real.
As far as your claim about inflation, sure, if you have -3% real growth in your investments, the real value of your savings will decline in half over 30 years. Real growth is defined as investment return - inflation. So, if you cannot generate a 3% investment return when inflation is 3% your savings will decrease in real value. This is why inflation is such an important factor and why "whipping" inflation in teh 1980s was such an important victory.
AS far as teh average $1200/month Social Security check, to claim that rate of return would be difficult to beat is pretty specious. Lets take an average person who starts work at 21 at $20,000 (about $9/hour) and every 5 years improves their income $5,000. Next, lets assume that it cost 2.4% for the individual to get a term-life and long term disability policy to replace these parts of FICA (this is a major overestimate of the cost, particularly at these income levels but I chose this to make the investment 10%). And, instead of Social Security, we make this individual make a mandatory 10% pension investment.
Next, lets assume a very measley 3% nominal rate of return for this person's pension portfolio. This person would have a total portfolio, at age of 67, worth $358,000. At 3% nominal yield, this person will have a retirement income of $900/month. Aha, less than the Social Security average! But, we are using very conservative rates (for example, teh Vanguard Long-Term Bond Fund, a very conservative Bond Fund, has a yield of over 4% and if you change the nominal yield to 4% the portfolio value increases to $454,000) and ignoring the fact that this individual now has $358,000 of assets taht they can draw down and/or pass down to their hiers. That fact changes the rate of return calculations significantly, and is usually ignored by proponents of legacy Social Security.
Put any realistic nominal yields these individuals could have generated from the ranges of bull markets that existed in teh past, and even lower income individuals forfeited the generation of hundreds of thousands of dollars of wealth. That is a sad fact.
LarryGross:
re: "meaningless". No. No more or less than any treasury securities that the govt holds and redeems. You may not trust the govt but the policy is a legitimate policy in terms of being put into place -on purpose - and the govt has always redeemed the treasury notes.
anything other than that is just conjecture and undemonstrated at that.
by why do you focus on this in the first place as virtually all of SS/MedA benefits are paid from FICA and the trust fund is not the primary funding mechanism - FICA taxes are.
So what is you point?
re: calculating rates of return. you have to factor in - inflation over 30 years guy. If you go to any calculator and put in whatever you pay in FICA taxes and compute that as as a fund, factoring in the inflation - and then go to the social security calculator that has the inflation adjustment built in - you're going to find that inflation almost halfs whatever you set aside.
just try it guy .. http://www.calculator.net/retirement-calculator.html.
http://www.ssa.gov/estimator/
http://www.ssa.gov/policy/docs/ssb/v65n1/v65n1p17.html
you are listening way too much to the propaganda sites and not doing your own homework.
September 6, 2012, 3:08 pmMark:
Again, the trust funds do not hold real Treasury securities. They are intergovernmental IOUs. I have said this earlier, but did not realize you would be so slow. The IOUs that the "Trust Fund" holds are "assets" to the trust fund. What entity has the liabilities? The same government. So, to make it simple for you, lets do the bookkeeping:
Assets
Trust Fund IOU's x trillion
Liabilities
Trust Fund IOU's x trillion
Net Worth
0 (Zip) (Nada) (Nothing)
The government could, if it wanted to, keep the money in the "Trust Fund". But this would mean that the government would have to sell that many more bonds on the market, increase the deficit, and pay out REAL money in interest instead of fake account transfers.
What you really are trying to claim is that these accounts in the Trust Fund represent real promises that the government MUST honor in the future. Maybe they will. But, remember from your own source, the government has no fiduciary responsibility for these trust funds. The Highway Gas Tax Trust Fund can be raided tomorrow and spent on whatever the government wants. There is a reason why it makes this point early in their documentation. IT IS NOT REAL. It is a promise, but a promise that most likely cannot be kept because giving the current level of benefits to future retirees is unsustainable. Changes need to be made otherwise the program will collapse.
re: calculating rates of return. If you looked at my example, it all was in nominal dollars. I didn't care about "real" returns, because it was unnecessary. An average income person, putting away 10% of their income, earning a modest 3% a year will have a retirement portfolio worth $358,000 in current dollars. Even at this minimal nominal return, this compares favorably with income you would receive from Social Security, and the individual has the value of the portfolio to draw down and/or pass to their heirs.
As far as listening to "propaganda", I think we really know who is doing it.
September 6, 2012, 9:23 pmLarryGross:
The trust funds are temporary holding places for FICA taxes until they are used to pay benefits. Every day, money is deposited in return for special treasury notes - the very same way that an investor would pay money for Treasury Notes. Later, those notes are redeemed for money to pay benefits just like if China cashed in some of their treasury notes and got their money.
The US govt has never failed to provide cash to those who redeem the treasury notes.
It is as REAL to the people who invest their money in treasury notes as any other investment that people buy, get paper and that paper can be later redeemed.
Why are you so bound up on this as part of SS and Medicare where there are more than 100 trust funds that work this same way and the trust funds themselves have been around for decades?
Why is this an issue? What is your point? That the US "could" fail to redeem them? Why is that an issue with SS and Medicare any more or less than any of the other 100 trust funds or for that matter the 10+ trillion in treasury notes the govt has sold to the public including China.
re: pensions vs SS - if you refuse to address inflation vs cost-of-living, you are living in denial guy. the approach to comparing SS to personal pension is just to count the dollars put aside then assume a rate of return for the pension without ever really considering inflation and the survivor features is simplistic and dumb. When you fully include inflation and the survivor feature - it's a much closer calculation but the bigger point here is to know that from the get go from your own research and reading rather than taking the propaganda (which almost never deals with the facts) and then finding out that you forgot to include these things.
This is what I mean when i say - use facts, not propaganda. If you use facts - you understand how trust funds work - for decades across all govt and if you use facts, you understand how inflation is a significant impact to private pension plans.
September 7, 2012, 3:19 am