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Friday, February 22, 2013

The Best Thing to Happen to America in a Long Time

 

It’s hard to describe how happy I am to see Walmart facing a slump. I’m delighted  to see that the cause of Walmart’s problem is the 2% increase in Social Security withholding taxes.

 

It’s not just Walmart that is feeling the pinch from higher payroll taxes. According to today’s WSJ (link) damn near every company that has a retail sales base is getting nicked.

 

wsj

BI

 

We are witnessing what happens when tax rates go up. There is (new) definitive evidence that raising taxes decreases consumption. That notion is an old one, but I think the reality that is now being proven out in real time has to make a difference in how people think about taxes, government spending and the real economy.

 

Who is responsible for the increase in payroll taxes that is causing all the damage? Don’t blame the evil Republicans for this one. The liberal wing of the Democratic Party INSISTED that payroll taxes had to go up on January 1. Want to blame someone for the slump in retail? Blame Harry Reid (D-NV).

 

Why would liberal Democrats want to whack their base with higher taxes? Easy answer. Because they love Social Security more than anything else. They would sacrifice anything, including the economy and their political base, to protect SS from the criticism that it was no longer “Off budget and self financed”.

 

What an idiotic position. And now those who fought to get the full 12.4% tax reinstated are going to have to pay the price. The evidence is overwhelming; higher payroll taxes hurt the economy.

 

I’ve felt alone the past 4 years while writing articles on a weekly basis trying desperately to make the point that SS is at the heart of America’s economic problems. I have been vindicated. The ranks of those who will point fingers at SS is going to swell. Those apposed are now going to include all of the big retailers (and their shareholders). That will be a tremendous boost for those who are crying for substantial changes in America’s biggest entitlement program. I can’t wait for ‘them” to publicly come on-board to the opposition.

 

We are living with a program that was designed 75 years ago. Everything has changed – but not SS. The assumptions that were used in the 1930’s are no longer valid today. The ratio of workers to beneficiaries has fallen by 70%. The ratio of worker’s income to GDP has fallen steadily (the rise of the robots). We have substantial changes in expected life. The most significant challenge to SS is the Baby Boomers. Not one of the Boomers was a twinkle in the eye when SS was created.

 

1935 Plymouth – the year SS was created

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America is driving a 77-year-old car. The car is dangerous. It has none of the modern safety devices; it burns leaded gas and has asbestos brake pads. It weighs twice as much as a new car, and only gets 8 miles to the gallon. Yet a small portion of the Deciders in D.C. have blocked any chance of bringing SS up to date, and making it safe to drive for the next 20 years.

 

The Social Security Trust Fund has said that to “fix” SS would require an immediate and permanent increase in PR taxes of 2.2% (above the 12.4% today). Based on the evidence of the past few months it’s easy to conclude that a tax increase of that magnitude would push the economy into a recession – Once in a slump, the economy would be hard pressed to recover.

Not only would higher PR taxes  kill the economy, it would hurt lower paid workers the hardest. The evidence from Walmart reconfirms the fact that SS taxes are very regressive. They hurt the base of people that the liberals claim they are trying to protect. How can Senator Reid defend that outcome? He can’t.

 

NYT

 

There is an alternative. It would mean that we would have to junk the old clunker and get new, safe, energy efficient car. The new car would be expensive, but the payoff would be worth it.

 

SS taxes can’t be eliminated. The program is too big and very hard to unwind and IT IS needed. But SS taxes could be reduced by 3% if changes were made (Employer taxes would remain the same, worker’s payroll tax would fall from 6 to 3%).

 

The changes required to achieve the reduction in taxes have been discussed for years. There has to be changes in age eligibility over a longer period of time. Changes to inflation adjustments have to be made. There has to be an immediate means tax on benefits to fill the Baby Boomer bucket. The means test HAS to be based on both income AND assets. You can’t be a multimillionaire and get SS checks. That has to stop. Now. SS is, and always has been insurance. If you don’t need the insurance, you don’t get paid.

 

IMHO if individual payroll taxes were cut 50% from the current level, the economy would prosper. Unemployment would fall, incomes would rise. Federal tax revenues would increase, in the process, the deficits would fall. A permanent reduction in payroll taxes is the only chance I see for a sustained expansion of the economy.

 

So to the Execs at Walmart, and all of those other retailers that are feeling the SS pinch, I say “Welcome to the club”. You can be the wind behind the sails for the changes that are needed. Just this once I will say that what is good for Walmart, is also good for America.

 

 

Note: Stan Druckenmiller (ex Duquesne Capital) was on TV last night with Maria Bartiromo . Stan is a very sharp guy. He said the same as I have. It’s idiotic that he gets a check from SS. The $200k he might get back in his life is not going to change his spending one bit. But it would make a world of difference to those who are making $40k a year. The Zero Hedge link to the Druckenmiller interview: Link

 

Hope

 

&

 

Change

Comments

  1. If we cut taxes we also have to cut spending. We cannot afford more debt as you have stated previously.

    “IMHO if individual payroll taxes were cut 50% from the current level, the economy would prosper. Unemployment would fall, incomes would rise. Federal tax revenues would increase, in the process, the deficits would fall. A permanent reduction in payroll taxes is the only chance I see for a sustained expansion of the economy.”

    Thank you for your hard work on writing what needs to be said.

  2. conscience of a conservative says:

    Walmart’s been struggling for a while. It certainly absolves senior management of culpability if they can point to an external factor such as increased taxes as the cause of sales slump.

  3. Really off topic but I have not noticed a derby pick this year. Creative Cause did all right especially considering how early you were touting him. Any ideas- second future book coming.

  4. “SS is, and always has been insurance.”

    When I buy insurance I expect it to pay out according the terms of the agreement. Why would you not hold SS to the same standard? I think the problem is with current retirees, who are getting far more than they were promised and far more than they paid for. An immediate across-the-board 10% cut in SS payments and elimination of Medicare part D would be the honest thing to do.

  5. “There has to be an immediate means tax on benefits to fill the Baby Boomer bucket. The means test HAS to be based on both income AND assets. You can’t be a multimillionaire and get SS checks. That has to stop. Now. SS is, and always has been insurance. If you don’t need the insurance, you don’t get paid.”

    It’s not “insurance”. It’s mandatory confiscation with the end result being health care price-fixing. Yet you seem quite willing to FORCE even those who needn’t and wouldn’t participate to do so…

    Only those who desire and need bona fide “insurance” should set up and fund their OWN scheme.

  6. “The means test HAS to be based on both income AND assets.”

    Means testing on assets… one more way to discourage people from saving. Why forego the pleasures of today to save assets that will only work against you in the future? Assets that will only invite more government scrutiny, bureaucracy and paperwork? Frankly, I wouldn’t be surprised if anyone of means wouldn’t find other places to live, renouncing citizenship if this came to pass. Like FATCA, such scrutiny simply drives people of independent means away… especially if they are not incented to stay by the promise of transfer payments from a system they paid into.

    Baby boomers are the first generation born into the promise of government-funded retirements… and the results speak for themselves, a generation of people inclined to spend instead of save with the expectation that there was no need to have retirements savings. More than once in my life I have asked spendthrifts the question, “How will you live in retirement without savings?” and more than once I have received the blatant answer, “The government will take care of me!” (usually said with a wry laugh or nonchalance). The housing bubble also discouraged saving as it was expected that a home would be a source of income at retirement.

    Those few people who saved in spite of these disincentives will now be punitively, and retroactively, selected for invasion of privacy through asset registration? The old axiom comes to mind, registration is the precursor of confiscation. Note to young Americans, don’t bother saving… spend it all and live on the margins.

    • I second Ka’s comments

    • Of course they spent instead of saved. That’s what they were told to do by all the popular money managers, TV economists, and personal finance industry. The past 30 years of prosperity have been because of they spent instead of saved.

      They bought bigger and bigger houses, bigger and bigger cars, bigger and bigger TV’s, smaller and smarter phones – a personal phone for everyone in the family. They went on a 30 year spending binge on credit granted against future wages – which is what the people running the show wanted.

      Take a good look at who was pushing people to spend instead of save.

  7. But wait, the liberals are always telling us that taxes don’t matter!!

  8. I am luckily not an economist but I will wager the 20% increase in health insurance premiums that hit in January and the massive increase in co pays dwarf the 2% payroll tax increase.

  9. Why should generations X, Y and millenials care about any of this garbage? You said it yourself: this so-called “fix” won’t actually solve anything, it just buys another 20 years for baby boomers. After that, just around the time generation X reaches the 65yr mark, the system’s underlying systemic bankruptcy re-emerges.

    This exemplifies the reason Washington DC in general isn’t working. You can’t kick-the-can down the road (make your problem into your children’s problem) — and then call that a “fix”.

    No one is forcing Warren Buffet to take SS benefits — or to donate his billions to Bill Gates. He could donate his billions to Washington — if he didn’t think it was a lost cause. Instead, Buffet thinks younger generations should pay higher taxes.

    No one is forcing Stanley Druckenmiller to take benefits either. He could be sending it all back to Washington in “voluntary payments to the Treasury”. So could all the rich people who are now volunteering younger generations to do what current “leaders” are too scared to do themselves.

    Volunteering others to make the tough choices you are not willing to make is cowardice, and cowardice is not a solution. Lets see these so called leaders step up to the plate and lead. Replace the crooked losers in Washington with people who supposedly are great businessmen (supposedly — they are certainly not acting like leaders)

    The captain goes down with the ship if he can’t save it. The coward jumps on the lifeboat, leaving his children and grandchildren to drown. Either way — Baby boomers are about to show their true colors on Social Security.

    • So Ron Reagan was full of S#it when he doubled my SS payments and told me to man up this will save the system and guarantee payments for generations to come .No I didn’t believe him then so I paid not because I wanted to but because I had to ….something wicked this way comes

      • It was Alan Greenspan who chaired the SS reform commission (appointed first by Jimmy Carter / reappointed by Reagan).

        Blame Greenspan if you want to be ignorant, although you should be man enough to admit the system was already bankrupt in 1978 — that is why Carter initiated reform in the first place. SS was bankrupt beyond repair before Reagan even started his campaign, and in fairness it was well en route to bankruptcy before Carter started his campaign.

        If you were honest, if you were a man, or if you are even mathematically literate — you would blame FDR for making a pyramid scheme in the first place.

        Greenspan did far more damage to the country as Fed Chairman than while heading the SS commission … but that is way too advanced for partisan haters like you to understand

  10. “Those few people who saved in spite of these disincentives will now be punitively, and retroactively, selected for invasion of privacy through asset registration? The old axiom comes to mind, registration is the precursor of confiscation. Note to young Americans, don’t bother saving… spend it all and live on the margins:.”
    THANK you, Ka, for the above post. I have watched many of my contemporaries go through money as though it were water…”live for today” attitudes, while in my family, we have always attempted to watch the budget and work hard while living fully, but wisely. So, now I am supposed to let some bureaucrat decide whether or not I am / am not too fortunate to qualify for social security benefits? Widowed twice, so two husbands and I all paid fully into the S.S. system. Don’t even think about coming after my EARNED benefit now that I have retired and factored it into my planning for many years.

    How about taking a look at the handsome and automatic government pension increases?.

    • There is no way to fix any government program, SS or otherwise, without addressing the ethical cesspool that is Washington DC. It is not just the politicians; it means the corrupt bureaucrats who get paid to fail, paid to go to endless conferences at fancy resorts, paid to work shorter hours and longer vacations, and then they retire with lifetime benefits after doing something close to nothing for 20 years.

      Unless government worker productivity catches up to the private sector — there is no way to make SS or universal healthcare work. Tinkering around the edges and performing silly financial alchemy is not going to fix the structural problems.

      The people of California are “leading the way” on this point too (even if they are doing it unwittingly) — let the municipalities go bankrupt and terminate the obscene pension deals the corrupt government unions cut for themselves.

      We need to do the same to the criminals in Washington. Let the place rot until our public employees start living up to the same expectations as the public they are required to serve.

      No public pensions — you guys get a 401K just like the rest of us.

      No lifetime healthcare paid by taxpayers — you get to pay for private insurance and medicare just like the rest of us.

      No exemptions from all the onerous regulations you impose on the private sector — Congress may not fly private jets, Congress must submit to a strip search by TSA perverts on every single trip. The President and the secret service too. if its good enough for We the People, its good enough for our public servants and representatives. We find it humiliating and pointless, and you will too.

      Until this happens — who cares whether SS goes belly up? Do the math. Which has a lower cost: helping your parents through retirement, or have overpaid bureaucrats take a large slice for themselves and passing the remainder to your parents?

      Younger generations don’t care about Social Security — we are not going to get it under any proposal. Supporting our own parents (as happened for centuries before FDR) is much less expensive than supporting an infestation of corrupt bureaucrats.

      Let Social Security die. It was always a ponzi scheme. it breaks down basic family bonds. It is evil.

      It was your parents job to take care of you as a child, its your job to help them out in their old age. Wouldn’t hurt for grandparents to provide free child care / spend time with their grandchildren. This system worked great for centuries before the corrupt politicians decided to force themselves into the middle of things. Eliminate the middle man, preserve your family bonds, and 99% of us will be happier and more productive for it.

  11. Mr. Krasting,

    This is a thoughtful post, and you deserve credit for having been right on this issue. That is why I enjoy reading your blog.

    However, the idea of taxing or means-testing people on the basis of net worth is unworkable. Would you require an annual submission to the U.S. government of one’s net worth? Suppose you set a level at which benefits would be reduced, and someone moves under or over that number from year to year. What happens then? I am a tax lawyer and I make money every year trying to navigate people through the system that clients rightfully despise.

    My suggestion is that we carefully raise the retirement age for all government programs.

    • Raising the retirement age can’t be implemented soon. It would take ten-years and then a phase in. This does nothing for the problem of the boomers.

      Yr a lawyer? What do you think of my rules?

      Assume the cut off was $3m. Net worth above that – no payments.

      How to achieve this? I say it is simple, but everyone would hate me.

      A new line on 1040:
      Are you or your spouse now receiving SS benefits? Yes No

      If Yes, do have an adjusted net worth greater than $3m? Yes No

      Okay, some one could lie. But they are lying to the IRS. You know that is trouble. For this, there would be very serious fines. if it was determined that the person had an AJNW >3m then:

      -All future SS for the person and spouse are terminated.

      -A monetary fine equal to the greater of 10xs the amount of benefits fraudulently received, or 10% of the principal of AJNW in excess of $3m.

      That would stop most of the cheaters. Those that have a AJNW of 3.1m will have some very hard choices to make. But if they have an AJNW of 3.1m, they have been staring at the IRS for years, and by now, they know it’s a no-win game.

      The trick is to set the level so that those on the margin are not tempted. So they set it at 3.3m, when they really are trying to capture 3m
      bk

      • Oh come on BK …. Congress can raise the retirement age just as quickly as they raise their own paychecks. It could be its own legislation or attached as a rider to some other crime.

        Phasing it in after 10yrs was never a requirement in the past. All this bailout mentality of the last decade has to stop.

        Raise the retirement age to the expected lifespan minus two years — that was what FDR “promised” (without funding) in his New Deal. Every year that retirees **TAKE** beyond that is generational theft.

        • BTW — applying FDR’s New Deal terms to the Baby Boomers would mean they can start collecting benefits at 81 (expected lifespan is 83 years, subtract two). They can “retire” whenever their own savings allows them to, but they get SS benefits starting at age 81

          That is what FDR’s (unfunded) promise was. No need to phase it in.

          Anyone who doesn’t like this plan should steal money from members of Congress instead of stealing it from children and babies.

          • But…it is not ONLY retiring seniors who are overloading the social security system. People who are MUCH younger are filing for disability left and right these days and most of them are getting it. So, they are not receiving benefits during the “Golden Years”…they often start receiving them in their forties and fifties.

            • it is MOSTLY the retiring baby boomers that are making SS’s bankruptcy too big to ignore. The system has been bankrupt since the late 1970s — the massive numbers of baby boomers hoping to retire (instead of pay into SS) means the scam is about to unfold

              But if it makes you happy, get rid of the disability scam too. It was never funded — just a way to bribe lazy citizens for votes … a lot like what the Saudi regime does to buy off its citizens who are fed up with corruption there.

              Too much corruption in Washington in general. Both parties are crooks

  12. Great post BK, I think you hit a home run here. When I look at major problems facing US such as SS, debt everywhere you look and crumbling roads and bridges I believe the retiring baby boomers will act more as a magnifying glass. It will be the most significant event in of it’s self to cause the bursting at the seams of all these problems. Never before will so many need to be supported by so few workers. If you believe any of these programs can exist in present form through this event I think you will be very surprised.

  13. Why should the government borrow money to send rich people money and hand the debt to young people ? All it amounts to is rich people stealing from young people. They didn’t earn the money, they made a total mess of the country and are leaving behind $20 trillion in unpaid bills at the federal, state and local level.

    Ronald Reagan 1981 Inauguration speech
    “For decades, we have piled deficit upon deficit, mortgaging our future and our children’s future for the temporary convenience of the present”

    and the ME Generation with include those currently over 65 dug the hole deeper.

    • “The fact that we are here today to debate raising America’s debt limit is a sign of leadership failure.

      It is a sign that the U.S. Government can’t pay its own bills.

      Increasing America’s debt weakens us domestically and internationally.

      Leadership means that the buck stops here.

      Instead, Washington is shifting the burden of bad choices today onto the backs of our children and grandchildren.

      America has a debt problem and a failure of leadership. Americans deserve better.“

      – Senator Barack Obama (D-IL) speaking on U.S. Senate Floor Objecting To Raising Debt Ceiling Limit, March 16, 2006 when official national debt was $8 trillion USD, half of what it is in 2013.

  14. Cut all spending..start with military budget

    • Wonder what all the parasitic countries of the world (including Japan) will do when they don’t get “free” defense spending paid for by US taxpayers.

      The Japanese govt won’t last long against China without US military spending

  15. I just love the old car analogy.

    However, I am thinking it might renew the cash for clunkers program, but aimed at humans. “Here’s $500,000, now go away and leave us (the government insurance company) alone. Don’t come back, ya’ hear ?”

  16. I’m a Canadian and I normally like reading Bruce’s commentaries and mostly agree with them. But I can’t agree with this latest one in one respect. Yes, SS is a ponzi scheme and it badly needs to be fixed…… hope you Yanks get it right and very soon.

    In Canada we have something similar and it’s called CPP (Canada Pension Plan). And I have contributed to it since it was started back in the 60s. Wasn’t voluntary and was always promoted as part of a person’s pension income. I am now retired and living off my savings/investments and CPP plus the official Canadian pension called OAS (Old Age Security …. pays a small amount monthly).

    What I disagree with is the means testing. I have scrimped and saved all those years and now have a good personal nest egg to rely on. But that was because I was frugal. Question is why should I be penalized by means testing just because I built up a nest egg? Those other buggers lived the extravagant lifestyle with all the fancy goodies and great vacations and never set a dime aside. And now you want me to subsidize them. Not a frigging chance in hell !!

    Bruce is so wrong on this. There is something called responsiblity and if you’re not responsible, then tough luck !!

    Lastly, what Stan Druckenmiller should do if he doesn’t want to collect his SS is to donate it back. Sounds very democratic to me.

    Cheers……………..

    • Porksniffer says: “What I disagree with is the means testing. I have scrimped and saved all those years and now have a good personal nest egg to rely on. But that was because I was frugal. Question is why should I be penalized by means testing just because I built up a nest egg?”

      You are correct; you should not be penalized.

      Unfortunately, in this country, the good old US of A, the problem is inequality. The problem within the problem is how to deal with inequality.

      Redistribution seems to have the upper hand right now.

  17. Why not raise the ceiling on the payroll tax to include ALL income? (it currently taxes only the first $113,700 of earned income.) You can then lower the rate for everyone which accomplishes the following:

    a) You “fix” the system so that future revenue better matches expense projections.
    b) The system is made more progressive than it is currently and..
    c) ..more of the tax falls on those current earners who can shoulder the burden without a major impact on their spending patterns. In this way the impact to the economy is less….and you have fewer situations like the WalMart “problem” you discuss in this post.

    I also agree with the other means of repairing SS. Hike the age over time and lower the growth in annual benefit increases….and yes, means test in as least an invasive way as possible. Anyone who is earning over $1MM does not need to be on the rolls.

    • You obviously haven’t followed BK’s postings nor studied up on the ponzi scheme.

      He explained in many posts why lifting the tax ceiling would not solve anything; it certainly would not permit all your fantasy ideas about lowering rates elsewhere. Even Obama’s team of numerically challenged advisers have conceded that raising the ceiling won’t solve anything.

      Try reading up on the subject before posting Obama’s old propaganda.

      • @Tom, I have read most of Bruce’s arguments and one of his central theses is that we should increase taxes on consumption. As he states below, “I hate income taxes of all kinds.”

        Without adjusting in some way for income, a consumption tax (i.e. Sales or VAT) is a hugely regressive system of taxation, not dissimilar to the payroll tax. Regarding SS, I don’t disagree with trying to change the structural problems (i.e. the system wasn’t meant to support those living for 20+ years after age 65 AND for annual increases in inflation). That will mean adjusting the timing and CUTTING the amount of benefits. Before attacking my comments, please read them in their entirety.

        I support cutting the benefits side of the equation, but not without making the tax system that finances SS more progressive.

        • @boyd: “…but not without making the tax system that finances SS more progressive.”

          Liberals take it as a matter of faith that so-called “progressive” taxes are somehow better — completely oblivious to the fact that not everyone agrees. Just because your college professor was a communist and told you what to think does not mean he was ever correct.

          Taxing everyone at the same rate is quite fair — people who make 10x more should pay 10x more taxes.

          Penalizing people for success — which is the heart of so-called progressive taxation — is morally wrong. Tax the crap out of college tuition (make the F-ing professors pay it) — see if they think its fair when they are force fed their own medicine.

          Back in the real world — any proposal to “tax XYZ to fix …” is dead on arrival. Congress will spend double whatever revenue before you finish your sentence. You cannot fix SS, or anything else, until Congress’ spending habits are brought back under control.

          Do you know that the entire wealth of the Forbes 400 Richest people — which represents a lifetime of earnings (and often quite a bit inherited from previous lifetimes) — would not keep the criminals in Washington going for even one full year? How do you plan on taxing “the rich” without putting millions of people (that work for the companies the rich own) out of work? And you plan to do this act of stupidity to allow 7-8 months of political pork spending? Are you on crack?

        • A means test is the most progressive approach.

          Totally agree – Higher taxes are dead on arrival when it comes to “fixing” SS.

    • Tom, I hate income taxes of all kinds. Raising payroll taxes is the worst kind of tax. I say there is no solution to SS that starts with, “Lets raise taxes on blah blah…” I say you have to cut the benefits side of the equation.

  18. I give Bruce credit for raising an important issue that must be debated. Bruce did well to present a starting point from which we may negotiate our way toward a workable solution. However, if Bruce believes he has come up with a simple and lasting solution, he is deluding himself. So let’s start at the beginning. SS is broken and out of date. It is not an insurance policy. If it were, we would be paying a premium based on risk. For example, College grads would pay a lower premium than high school drop-outs, etc. But we don’t pay based on our risk of need, we pay a flat rate based on some irrational assumptions that the next generation will always outnumber the current generation, that inflation will never be outrageously high, and that a bunch of people will die before they are able to collect. It is a Vegas gamble, not an insurance policy.

    That said, I think we can agree that SS cannot continue unchanged and needs an immediate solution. Bruce believes that the immediate solution is a means tax on benefits. That would have an immediate effect, but it would be wrong to do so (as pointed out by KA, GMS and Gregg). Part of the problem with SS is that someone decided that it should be a payroll funded system, when it should have been an income based system. If I could go back in time to 1935, I would fund SS with a percentage of income that would include rent income, capital gain income, etc. And then we are paying into the system based on asset accumulation instead of payroll. Instead of tax benefits because of means and assets, we would have been taxing accumulation of wealth throughout the working lifetime of everyone. Another quick way to increase SS funding is to eliminate the payroll ceiling. You all are aware, are you not, that once you reach a certain payroll plateau you stop paying into SS for that year. If we eliminated that ceiling, the people would be paying into SS with a percentage of all payroll instead of just the first $55000 or so.

    • …”someone decided that it should be a payroll funded system, when it should have been an income based system.”

      We already have a payroll **AND*** an income based system … you will find your income portion (and everyone else’s) is due April 15th each year

      As always happens when political crooks are involved, proposals to switch from tax system B instead of system A usually results in BOTH tax systems being used… and somehow the two tax systems are still not enough to keep up with Congress’ spending habits.

      This is why a national sales tax (to discourage consumption instead of discouraging income) failed. It would be a great idea INSTEAD OF an income tax. But we all know Congressional criminals would do it IN ADDITION TO income taxes.

      There is no way to fund a crooked government that measures its “success” by how much money it throws at every problem. Even when all parties agree more money isn’t solving the problem, you get some idealistic public school educated fool who screams “we have to do something!!” even when that something leaves us all poorer and the problem doesn’t get fixed.

      Why don’t we tax political campaigns and lobbying groups? That is where the real money is. Tax colleges and non-profits — who are by far the biggest employers in many states. That is where the real money is.

      Taxing business is a waste of time — the factories have moved to Asia, and firms like GE pay more for lobbying costs than they do in taxes. Only small businesses that can’t afford lobbyists / bribing Congress have to pay taxes

      • I was wasting my time, trying to come up with alternatives for BK’s means test, when my true belief is that SS is flawed. So when I talked of an income based system, I was speaking only in relation to SS funding, I know that we already have an income based tax, and a payroll based tax, AND a tax on consumption, and a use tax (tollways and gasoline and hunting/fishing licenses), AND property taxes. And in some cases we are taxed multiple times for the same thing.

        I think your best point is that taxing business is a waste of time. Those taxes just get passed on to the consumer. The government spends a lot of time administering a tax that is paid by Joe Citizen.

  19. Boyd;
    Raising the ceiling to tax all income would mean that for every dollar of tax, one receives 15 cents in benefits.
    This break point (one of 3) confirms the fact David says SS is not an insurance policy.
    Other than disability and death benefits, SS is primariily an annuity that pays retirement benefits.
    What sane individual would buy an annuity, of which for every dollar he puts in, he gets back 15 cents in benefits?
    That insuer woiuld quickly go out of business.
    Don Levit

    • Don,

      Another reason that SS should be run in the private sector. Should we look at IRA accounts in which the annual deposits of 6 percent are legally required, but the account is invested in the market, funds determined by the citizen, cannot be withdrawn before age 65, and upon death is passed to heir’s retirement acct?

    • @Don Levit: “What sane individual would buy an annuity, of which for every dollar he puts in, he gets back 15 cents in benefits?”

      This is why Social Security is going to end, no matter what silly rhetoric is on the TV. Everyone under age 50 (democrat, republican, independent, and the confused) has no interest in funding a mature ponzi scheme. We all know we are going to get much less out of it than we put in, and we all know we can support the elderly in our family cheaper and better if we don’t have to pay for a middleman (aka the army of bureaucrats, lobbyists and “think tanks” in Washington DC).

      Simply put, for everyone under age 50 — Social Security is worth more dead than alive. We don’t care about fixing it, which is why many different commentators (not just Bruce) have tried and failed to “raise awareness”.

      We are already aware. Its a ponzi scam. The baby boomers are the last generation who might benefit from the scam. That is why it is their problem. A few “entrepreneurial youths” are trying to game the system by collecting disability … but there aren’t enough of them to make a difference.

      To quote Bill Clinton — “its the economy stupid”. the economics of social security are obvious: baby boomers win, everyone under age 50 loses. No one can get traction on “fixing social security” because the people who would have to pay the most would get no benefit — actually we lose big time.

      We still have to support our parents, but we do not have to support a welfare system of government leaches who are gaming the system.

      Any effort to fix social security would have to address the massive number of people gaming the system — including every single government employee. Naturally, the parasites in DC think we need to raise taxes, so they can continue to be paid more and do less. That makes “reform efforts” DOA.

      Taxing the rich (which increasingly means the political class and the elderly) doesn’t transfer wealth. Younger generations are already buried in trillions of dollars of debt, mostly incurred to fund a bloated bureaucracy in DC and another bureaucracy in academia.

      Paying more to get less is not something any politician can sell. Social Security is dead.

      When Social security was first proposed, the elderly as a group were dirt poor and the young had lots of wealth. Today, the opposite is true. Younger people are buried in student loans, and presumably are going to have to pay off the $16 trillion and counting of national debt — since there is no plan to even balance spending in the next ten years.

      Transferring wealth from relatively poorer (and debt ridden) younger generations to a relatively wealthy elderly generation is not even socialism — its stupid. Having a low productivity, high cost middle man (aka government employees) — even more stupid.

      Social Security can no longer be fixed. Baby boomers kicked-the-can down the road so far that it went past the dead end sign. You are out of runway.

      • Gregg: I had a great reply for you, but Bruce’s website ate it. So, I will try again.

        I agree with much of what you say. I am 60, but I too would rather see SS dismantled than to pour untold amounts of money into a system founded in delusion. However, it is always dangerous to make this into a generational battle. There are many in the older generation who deserve all that you say. However, generalizing opinions across the entire group is how discrimination begins. That said, I will support you in your arguments that it is not economically feasible, financially balanced, nor strategically sound to save the SS program. Bruce argues that the system is needed. And it is, because we apparently need to fund people who lived through a period of unheard-of opportunity and earning prospects, yet found a way to spend it all. The fact that they spent it all is probably why the economy was so good.
        And the issue has been kicked down by the road, but not by the older generation, but by those who pretend to represent us. Our government representation has spent all that we have provided plus assets that were not intended for their use. This goes beyond government arrogance. Arrogance is when representative consider themselves shepherds of an ignorant flock. But it goes beyond that. They do not represent us. They think they own us.

        So, now that we recognize that the vast majority of my generation earned lots of money and spent it ( and this includes union and government employees and business owners and executives) what are we going to do with all these people who cannot afford to retire and will someday also be unable to work? It is that question and the question of unfunded pensions that probably got Obama re-elected. Those people are afraid that those who were frugal and fiscally responsible will be unwilling to bail them out of an ugly financial position.

        And rightfully so. I find myself with very little sympathy for these people. However, it is a reality that we will have to face. The question is do we have to face it with SS? Bruce would have us take a means test in which those who have assets over 3 million will be unable to benefit from the program, even though they paid heavily into it. I do not meet that 3 million criteria, but I would rather see the SS program die than to risk allowing assets, which I have earned and paid taxes on, be taxed a second time.

        • I understand that many in your generation earned megabucks and already spent it. I understand that many baby boomers are now terrified of living the retirement they did NOT save for. I understand that boomers are a very large voting block that will try to steal more for themselves because they are so afraid.

          My points are twofold: whether baby boomers want to stick their heads in the sand or not, you got your chance and your second chance (and more). You are asking for charity now, and you are arrogantly trying to claim you are “entitled” to handouts. You are not.

          The second point is perhaps far more important. Because you already spent your inheritance and then took out tens of trillions of so-called “debt” — YOU have forced US to make a tough choice: who is going to go without? Your so-called debt is insulting — you have no intention of paying any of it back, not now and certainly not while you are collecting SS handouts. Essentially, you already stole $16 trillion that you refuse to pay back — actually you intend to keep racking up more junk “debt” that you also won’t pay back.

          Ask your grandchildren: there is no free lunch. The money you stole (via your fraudulent “debt”) will have to be paid back by someone. That someone is younger generations. It was not and is not a free lunch.

          Now you want even more? Are you really that stupid? Who do you think is going to get stuck with that bill as well? Do you think money grows on trees? How fucking senile are you people?

          When (not if) younger generations are made to choose between denying basic needs to our baby boomer parents (who had every chance in the world and already wasted it), or denying basic needs to our children … are you really selfish enough to think any good parent would sacrifice their child to save the grandparents?

          Baby boomers are selfish enough to do that — see the $16 trillion and counting you already stole from your grand kids. But if you look at thousands of years of human history, boomers are the exception. Most grandparents would (and have) willingly give their lives if it meant protecting their offspring.

          I can’t help but think that this breakdown of basic family connections was caused by a faceless middleman (Soc Sec) being forcibly wedged between generations.

          The problem is: now that those family ties are broken (allowing baby boomers to steal anonymously from their grand kids), what makes you think the family ties to help out grandma and grandpa in their old age are any less breakable?

          Cutting social security handouts is exactly like cutting welfare benefits. If grandma had to literally take $16 trillion from her grand-kids (which **IS** what you are doing) — she would justifiably feel like a monster for doing so. But stealing it anonymously via SS is somehow “ok”. By the same logic, cutting off welfare benefits is anonymous — it isn’t like watching grandma starve.

          Social Security was a license for baby boomers to steal from their offspring. It is also a license for junior to ignore you in your waning years. Anyway, junior is far too busy working three jobs to pay off your so-called debt.

  20. Part of the problem with trying to solve the problem is most people look at it from their own selfish veiw of the way it should be to benefit them. What if everyone saved their own money and there was no SS ? Like $1 trillion a year of new money would pour into the market chasing after investments and over the decades the globs of money built up would become trillions of dollars of stupid money which is what gave as the housing crises because trillions was poured into mortgage backed securities. Somebody was buying all that junk paper and buying insurance against it from AIG or we would have another DOT.CON bubble or some bubble like 1929.

    The narcissist of the ME Generation will never see the bigger picture because anything outside their self centered world is an abstraction to them.

    • I presume that you are referring to the selfish baby boomers as the “ME generation”?

      “Its the economy stupid” came from a baby boomer. So did the housing bubble and the AIG mess. So did the dot-com bubble (younger people write the software, baby boomer bankers floated the stock).

      Baby boomers are running the country, and turned the largest creditor nation in the world into a $16 trillion (and counting) deadbeat.

      Baby boomers had a national savings rate that was one quarter of their parent’s generation (if we omit their massive debt — including their debts, boomers have had a negative savings rate)

      Boomers lived beyond their means their whole lives — and they will reap what they sowed in retirement.

      • Don’t make this into a generational battle. All the issues you cite are the direct result of vast greed. And who are we looking to for a bailout? Those of us who saved and were fiscally responsible. And that group crosses all generations.

        • @david: “Don’t make this into a generational battle.”

          Baby boomers wanting to tax younger generations because baby boomers lived beyond their means ***IS*** generational theft — by definition.

          Want to keep things civil? Man up and propose an extra tax payable by baby boomers only — pay down the national debt to the levels it was before you clowns started mismanaging the country.

          Stop lying and claiming that stealing from future generations is somehow “stimulus”

          And send that creepy little Bernanke guy to prison where he belongs. He was not elected by anyone — boomers or other. He has no head of state immunity or any other kind.

          Send the creep Bernanke to prison.

  21. john1959 wrote ” is most people look at it from their own selfish veiw of the way it should be to benefit them”

    Of course you want continued benefits for yourself — you are a selfish baby boomer. Why don’t you explain how you plan to repay the $16 trillion you already borrowed before you ask for more?

  22. The ME Generation isn’t just baby boomers. To think some of the people born in the 1930’s and early 40’s had absolutely nothing to do with helping create todays mess is simpleton thinking along with thinking every baby boomer was involved, most just did their lame jobs with no say so in anything.
    A 52 year old truck driver in Alabama is a baby boomer, he didn’t have anything to do with creating this mess anymore than a 64 year old lady working in some chicken processing plant in the Carolina’s have anything to do with creating todays mess which also involves state and local government.

    Our government spends over $6 trillion dollars
    The federal government collects about $2.5 trillion
    State and local governments also collect around $2.5 trillion up from $1.5 trillion in 2000 and this financially illiterate country is going on about the federal government raising taxes $1 trillion over a 10 year period while every year we pay another $1 trillion to state and local government compared to 12 years ago.

    In 1980 this country had $5 trillion in debt which includes government debt ( federal,state & local ) corporate debt and personal debt and now we have $55 trillion in debt. The illusion of prosperity was created by debt and more debt. McMansion nation is a total fraud and unsustainable. People are delusional if they think luxury retirement communities for millions of people is going to last long.

    http://www.ssa.gov/cgi-bin/netcomp.cgi?year=2010

    our government spends 100% of W-2 income

    all the foot stomping and temper tantrums in the world isn’t going to change the numbers anymore than playing some silly blame game. We are bleeding money buying imports we can’t afford, we waste tons of money as a society funding the lifestyles of the dumb and stupid.

    “You see the point: roughly 80% of the U.S. economy is waste, friction, skim, fraud, profiteering and diminishing-returns inefficiency. Any system that spends 80% of its surplus on diminishing returns is doomed to insolvency.”
    http://www.oftwominds.com/blogfeb13/Pareto-economy2-13.html

    Bruce and Charles are the only 2 financial bloggers I know of who write good stuff.

  23. The ME Generation isn’t just baby boomers. To think some of the people born in the 1930′s and early 40′s had absolutely nothing to do with helping create todays mess is simpleton thinking along with thinking every baby boomer was involved, most just did their lame jobs with no say so in anything.
    A 52 year old truck driver in Alabama is a baby boomer, he didn’t have anything to do with creating this mess anymore than a 64 year old lady working in some chicken processing plant in the Carolina’s have anything to do with creating todays mess which also involves state and local government.

    Our government spends over $6 trillion dollars
    The federal government collects about $2.5 trillion
    State and local governments also collect around $2.5 trillion up from $1.5 trillion in 2000 and this financially illiterate country is going on about the federal government raising taxes $1 trillion over a 10 year period while every year we pay another $1 trillion to state and local government compared to 12 years ago.

    In 1980 this country had $5 trillion in debt which includes government debt ( federal,state & local ) corporate debt and personal debt and now we have $55 trillion in debt. The illusion of prosperity was created by debt and more debt. McMansion nation is a total fraud and unsustainable. People are delusional if they think luxury retirement communities for millions of people is going to last long.

  24. http://www.ssa.gov/cgi-bin/netcomp.cgi?year=2010

    our government spends 100% of W-2 income

    all the foot stomping and temper tantrums in the world isn’t going to change the numbers anymore than playing some silly blame game. We are bleeding money buying imports we can’t afford, we waste tons of money as a society funding the lifestyles of the dumb and stupid.

    “You see the point: roughly 80% of the U.S. economy is waste, friction, skim, fraud, profiteering and diminishing-returns inefficiency. Any system that spends 80% of its surplus on diminishing returns is doomed to insolvency.”
    http://www.oftwominds.com/blogfeb13/Pareto-economy2-13.html

    Bruce and Charles are the only 2 financial bloggers I know of who write good stuff.

  25. SS has evolved to something it was never meant to be. Initially it was for that lady wit 4 kids and virtually no means of support, the man who was not able to work due to a loss of leg or that man who worked all his life, lived to 65 and provided him a meek retirement, etc.
    For a while we were told we could retire and live off we saved. That worked for a while but then got eaten through inflation or worthless stocks and funds. Then by the appreciation of our homes. Again that worked for a while.
    Today we have a useless congress who support their party rather than you and I. The world requires far less lower and middle labor and less insight. At one time a family could support itself on 40 hours of labor. Today nearly all require 80 and many still need some kind of social support. Our middle class doesn’t like it Our upper class complains but they must prove a world where we can live. Some one has to pay the bill. Once upon the time it was employer. Today it is the government. I don’t know the answer but I do know things are going to get a lot worse.

  26. The leadership of the country (sorry folks, but it is mostly baby boomers at the moment) has no plan to get things back to normal.

    http://macrorants.wordpress.com/2013/02/23/troubling-similarities-between-iraq-and-fomc-policy/

    • The leadership of our country is, and has been, a culture separate from those of us who work, earn our way, and prepare for the future. It is not of baby boomer, or ME generation. It is that our representatives have forgotten that it is their duty to represent us. Instead, they believe that we exist for their benefit. You want to blame someone? Blame us all for letting this happen– we have yet to teach our government who they work for..

      And they have no plan to get things back to normal, because what has been happening is normal. The problem is they have no plan to return things to balance.

  27. Bruce, just for comparison, how much is the 2% over a year compared to the sequester.
    Are the politicians using the sequester to hide the impact of the SS tax increase?

    • Sequester = $85b
      2% tax increase =$120B

      Raising taxes has a bigger consequence than cutting cutting spending. As far as the economy goes I would suggest that the tax increase is 2X more harmful than the sequester.

      That said, this sequester will hurt if left as it is – 4 days to go….

  28. BK, if only they had thought to link the retirement age to average lifespan and adjust it every 5 or 10 years old farts like you and Stan D wouldn’t be bankrupting the system! Great piece as usual.

  29. Your article targets the wrong area–try taxing high frequency trading and the quadtrillion in fraudulent derivatives trading–The big banks own the FED and run the treasury and are using this as a way to completely rape the middle and working classes……the Bush tax cuts for the rich almost exactly equals the shortfal on Social Security–its about time for the wealthy elite to stop using their ill gotten power thru wealth in a treasonous manner.

  30. I am heartened to read the comments of those who correctly identify SS as a Ponzi scheme. The only difference is that while Ponzi set out to defraud, SS was good-hearted, but yet every bit as destined to fail as any other Ponzi scheme. Politicians want kudos and hosannas today, and the easiest way is not to steal from other taxpayers immediately, but down the road. They hope to be dead when the SHTF.

    So, what is the average person to do? Simple, buy gold. Buy it as often as you can, as if your life depended on it. Because it will, someday.

    • Another gold trader heard from! There has been more gold sold in gold funds than exists in physical inventory. I fear that is another bubble whose usefulness has passed.

      • Damn! David, I was supporting everything you have posted until you disparaged gold. Precious metals have their limitations, especially the fact that you can/will be taxed on the nominal appreciation in value when you sell via nearly any observable channel, however there are not very many other places to try to secure the purchasing power of savings in this era of global money printing. I think PMs may have their place in a future underground economy. Governments will have no more success in clamping down on the black market than they do in keeping drugs out of prisons, let alone off of the streets. I don’t think the usefulness has passed, it is only beginning once again, and we will see this in spades when dominoes of sovereign debt begin toppling.
        It’s funny how some people so readily see the tin foil hats when the reality of the fraudulent fiat money system is so obvious and cuo bene is similarly clear, the banksters/military/industrial comples and government/regulatory servants.

  31. Another savior of the day with a dumb solution. Of course if people have more money, they’ll spend more. If WalMart would pay its employees more, they would spend more. But wait, shareholders would make less money and spend less. Or we could reduce gov spending to lower taxes. But wait, these newly unemployed gov workers will not spend anymore. Think a little bit; a communicating vessels solution will never solve the problem. It will just move it somewhere else. As an aside, I’m from Switzerland and we have Fica/Fuca like here and it works fine. You just have to manage it correctly.

    • The size of government cannot be sustained. Government employment, like many government programs, has the intended design to make as many people as possible dependent on the government. Those people will re-elect representative who promise to maintain that sustenance. The problem is: what happens when there are more government employees and dependents of government programs than there are people who actually create revenues? But government employees pay tax, you say? No, they recycle tax. They accept a paycheck created with revenues earned in private enterprise. You think that is impossible? Illinois already has more public employees and government dependents than privately employed individuals. I, for one, no longer wish to support non-productive people.

    • Fabian, it time for you to read Frederic Bastiat’s “That Which is Seen and That Which is not Seen”. In 1850 he explained that the concern for soldiers’ (government employees) employment upon return from out-of-country military activities was misplaced.
      Switzerland is relatively well positioned wrt the financing of its social security system, however this will have to be closely monitored due to the deteriorating demographic situation and the relatively poor return on investment of funds in the pension plan. I completely lost faith in the wisdom of the country of my forefathers when they sold half of the Swiss gold patrimony at less than half of current prices. They exhibited an outrageous sense of entitlement to the savings of their predecessors in supporting these sales by popular vote. If I recall correctly, 1/3 of the proceeds went to the federal govt, 1/3 to the cantonal govts and 1/3 to the national pension plan. This was another case of temporary high living financed by others. The debt-based high living we have seen in so many countries has resulted in unrealistic expectations of a continued high standard of living and/or ability, especially on the part of the US, to prosecute unnecessary wars for the benefit of some small segment pulling the strings of power.

  32. SS problems start with our legislators. Most problems start with our legislators but let me be clear about SS. We all have been “required” to contribute to SS during our working years. In addition our employers contributed just as much as we did. If it wasn’t the law for the employer to contribute as much as I did then the employer could have given me that same money in my weekly paycheck. Lesson number one: Taxes always take away from someone, no matter how well deserving, and give to what the government thinks needs to happen in an ideal world. In our real world this means the individual has lost control of their resources. I paid dearly into the system as rates increased year after year, trying to work hard, get raises and work overtime to get past the maximum FICA requirement. I did that for several years until it became impossible to get to that “no extra tax” area.
    What did my government do? It took the money from the SS fund and left behind IOU notes in the form of government bonds behind. To add insult to injury, as more people retired, they tried ways to bring payments under control. In recent years the government has taken to miscalculating the COL or as normal people would say fraudulently calculate that COL.
    Now consider the person who would be allowed to put that money (7.5% of a 65,000 income or round it out to $5,000) to work in a “Permanent” Insurance product. for 40 years. That person would have a cash value of $400,000 and a death benefit of around $1,900,000.00. That assumes he would never take out a loan and other minor details.
    You and John Stossel miss the point about law abiding citizens doing what their government demanded. In Stossel’s case he complained that a widow now is collecting three times the money she or her husband ever paid in ……. DUH! If he or she paid was allowed to pay into something legitimate like this Permanent Life Insurance then the government would have to jump thru the wringer to get it’s greedy hands on that money. The problem sir is our government is broke and doing everything in it’s power to ruin this economy and taxing anything that moves making the situation untennable. Remember Reaganomics??? If more people work the system is solvent. We lost 400,000 plus jobs in this country over the last four years and no movement by this administration has made headway to get that problem solved! Instead they concentrate on a policy of divide and conquer and micromanagement. Sue Arizona for enforcing the law. Sue Moody’s for correctly downgrading the Government’s bonds and raid some small farmer in the north for selling unpasteurized milk to a customer who knew exactly what is was getting! Your government is out of control and your buying in to it. Grow up and offer a better solution like adding a small component going to Permanent Insurance and SS could be saved.

  33. You’re happy that Walmart is affected by the RESTORATION of the SS payroll withdrawal. And you were on Wall St as a pro? I don’t believe it, you RHINOS are as bad as those progressives, who themselves couldn’t pass an Eco 101 exam if their life depended on it, but surely you were taught better by your aging parents & perhaps some grandparents too. Once the elderly get beyond their working years & suffer through what the banks did to our economy, what recourse do they have? Start over, I’ll bet an assh*le like you thinks that way. IDIOT!!!

  34. Hey would you mind stating which blog platform you’re using? I’m going to start my
    own blog soon but I’m having a hard time deciding between BlogEngine/Wordpress/B2evolution and Drupal. The reason I ask is because your design and style seems different then most blogs and I’m looking for something unique.
    P.S Apologies for getting off-topic but I had to ask!

  35. A major issue is changes in life expectancy. In 1935 when SS was begun, life expectancy at birth was about 62, rising to 75 by the age of 60. SS only had to support one for ~10 years after over 40-45 years of work. Today’s life expectancy is closer to 75 at birth and rises to over 80 at the age of 60. Work 40-45 years and get SS payments for almost 20 years. Many of today’s boomers able and want to work longer. Eligibility age for SS should be pushed back. Subsidized computer skills training to keep older workers employed, for example, would be a better use of funds.

    • Unfortunately, we will not be satisfied with only a solution to the problem. We want to punish those who caused the problem.

      Life expectancy is only one of the problems with SS. Don’t try to make this too simple. If you want to make it this simple, I would say that life expectancy is not a surprise, It is something that has been measurable for years, and therefore, SS could have been adjusted long ago to compensate. SS has been mismanaged. At the very least, it should have been clear that there was no room to “borrow” from the fund.

  36. “Unfortunately, we will not be satisfied with only a solution to the problem. We want to punish those who caused the problem.”

    David — I’ll reiterate what I’ve stated to others on this blog who’ve assumed a similar stance, “gee, get in line” or maybe better, “grow up”. Because there are lots of people floating around who would have plenty to say about the so-called Greatest Generation or others before them.

    Your error is in getting sucked into the titled age groupings idea. HISTORY is riddled with humans wreaking lousy, often horrible, things on others. It’s not new….in the slightest.

    Although, I’m somewhat empathetic to the future economic plight of younger people, it truly pales in comparison to, for but one example, humans in Africa being corralled, shackled and sold to foreigners to live in distant lands, away from their families, doing hard manual labor until they died. Oh wait, this still occurs today. Women and girls around the world captured, drugged, sold and held prisoner for years on end to service men’s sexual desires.

    Yea, really Daivid — give me a break. The line for punishment is long….you get to stand at the back.