The Truth About Damned Liars About Social Security

Enlightenment from Dale Coberly at Angry Bear.

Further enlightenment from Bruce Webb in comments.

Check it out.

Update:  More perspectives.  Check them out, too.

Deep Stupid # 22 The Social Security Ponzi Scheme

I don't get a lot of idiotic right wing hate mail, possibly because I tend to do this when it happens.

But, sadly, I got one recently from a family member.  Here is the full text, mostly in its original formatting.  The whole thing was in the large font of the title, but I scaled that back down to a more normal size.

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  SOCIAL SECURITY NOW CALLED 'FEDERAL BENEFIT PAYMENT'/ENTITLEMENT!
             
    Have you noticed, your Social Security check is now referred to as a "federal benefit payment"?
    I'll be part of the one percent, to forward this, our government gets away with way too much in all areas of our lives, while they live lavishly on their grossly overpaid incomes! KEEP passing THIS AROUND UNTIL EVERY ONE HAS READ IT.....
    SOMETHING TO THINK ABOUT THE ONLY THING WRONG WITH THIS CALCULATION IS THEY FORGOT TO FIGURE IN THE PEOPLE WHO DIED BEFORE THEY COLLECTED THEIR SOCIAL SECURITY!!!! WHERE DID THAT MONEY GO?????????????
    This was sent to me, I am forwarding it because it does touch a nerve in me.
    This is another example of what Rick Perry called "TREASON in high places" !!! Get angry and pass this on!
    Remember, not only did you contribute to Social Security but your employer did too. It totaled 15% of your income before taxes. If you averaged only $30K over your working life, that's close to $220,500.
    If you calculate the future value of $4,500 per year (yours & your employer's contribution) at a simple 5% (less than what the government pays on the money that it borrows), after 49 years of working you'd have $892,919.98.
    If you took out only 3% per year, you'd receive $26,787.60 per year and it would last better than 30 years (until you're 95 if you retire at age 65) and that's with no interest paid on that final amount on deposit! If you bought an annuity and it paid 4% per year, you'd have a lifetime income of $2,976.40 per month.
    The folks in Washington have pulled off a bigger Ponzi scheme than Bernie Madhoff ever had.
    Entitlement my ass, I paid cash for my social security insurance!!!! Just because they borrowed the money, doesn't make my benefits some kind of charity or handout!!
    Congressional benefits ---- free healthcare, outrageous retirement packages, 67 paid holidays, three weeks paid vacation, unlimited paid sick days, now that's welfare, and they have the nerve to call my social security retirement entitlements?
    We're "broke" and can't help our own Seniors, Veterans, Orphans, Homeless.
    In the last months we have provided aid to Haiti , Chile , and Turkey . And now Pakistan ......home of bin Laden. Literally, BILLIONS of DOLLARS!!!
    Our retired seniors living on a 'fixed income' receive no aid nor do they get any breaks while our government and religious organizations pour Hundreds of Billions of $$$$$$'s and Tons of Food to Foreign Countries!
    They call Social Security and Medicare an entitlement even though most of us have been paying for it all our working lives and now when it’s time for us to collect, the government is running out of money. Why did the government borrow from it in the first place? Imagine if the *GOVERNMENT* gave 'US' the same support they give to other countries.
    Sad isn't it?
    99% of people won't have the guts to forward this.
    I'm one of the 1% -- I Just Did.
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My response:

Dale Coberly Explains Social Security

Dale does a great job of laying it all out - including why SS is sustainable, and what factors affect pay-in and pay-out rates.

The comment section is quite good, as well.  The dumb comments generated meaningful responses.
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Federal Government Tax Reciepts

I'll start off with the H/T's, to Jerry Critter who asked a probing question in comments,  to ifthethunderdontgetya, in Comments at SoBe, who linked to Thers at Whiskey Fire, who linked to an actual NEWS ITEM at the Guardian UK, because you can't get real news coverage from the corporate controlled (the importance of this will soon become clear!) U.S Media.

Now, back to regularly scheduled programming - focused on Federal Tax Receipts.  Where do you think they come from?  I'll just give it away:  Personal Income Taxes, Corporate Income Taxes and FICA (the payroll tax: you know that hyper-regressive flat tax - nominally for Social Security and Medicare - with a ceiling, and from which there are no exemptions nor deductions.)  Note: Other sources of income - excise taxes, and other miscellaneous revenues are not included in this analysis, and are excluded form the totals.

OK.  That was easy.  This one is not.  How much of Federal Taxes do you think comes from each source?

Oooh.  Toughie.  I suspect you will be surprised.  I sure was   The White House Office of Management and Budget is a Storehouse of useful information - including the answer to this vexing question.

Here is a graph showing the log of tax receipts from these sources, since 1934.  Individual Taxes in Blue, FICA in Yellow, and Corporate in Red.   This is on a log scale.  The upside: constant growth presents a straight line.  The downside: differences on that scale are really hard to assimilate.

What we can see here is that there was a time in the late 30's when receipts from corporate taxes and personal taxes were about equal.  It was even a 3-way near-tie with FICA for a couple of years. After that, corporate taxes steadily declined for decades as a portion of the total.    (The spike down in the data between 1976 and 1977 is due to a separately tabulated calendar quarter in the tables.)

Here's  a close up of the last couple decades, on a linear scale.

Imagine what the size of the deficit would be without FICA!  Ponder the meaning of these lines at a time when corporate profits are at record highs, and unemployment levels are at record highs!

Now, lets look at the data in a totally different way, to put all this in perspective.  Here, each source is presented as a percentage of the total Federal Tax Receipts.

 

Can't tell you exactly what I might have expected, but it sure as hell wasn't this.   Pick your inflection point - either '77 or '84 will do.  Since 1977, the percentage of the total paid by corporations has wobbled around a bit, but averaged 11% of the total.   The percentage coming from personal income tax has been 50%.  Obviously, the amount contributed by FICA is 39%.  Let's have a look at trends since 1977. 

The corporate tax trend is basically flat at 11%. The contribution from individual taxes is actually at a slight decline.  Meanwhile the trend for contribution from FICA has steadily increased for well over 30 years!

Are you as shocked as I am?

Here, to put the perspective in perspective, is a look at total receipts, on a log scale. 

I've placed a couple of best fine lines, a blue one through the entire data set, and a red one through the period 1958 to 2000, which seems a little more regular than the entire set.  At the far end, we had the Great Depression and WW II.  At the near end we had Bush tax cuts, Bush wars, an the ensuing Great Recession. Surprisingly, the red line has a slightly lower slope than the blue line.  Not surprisingly, total receipts have been close to flat for the last decade, as the Bush tax policies have succeeded in starving the government.

General observations:

1)  During the post WW II golden age, the corporate contribution to total tax receipts, though continually declining, was typically far greater than during The Great Stagnation - the period since roughly 1980.
2)  The FICA contribution to the total, despite a break point to a lower slope circa. 1980, has grown steadily since WWII.  It is now virtually tied with personal income tax for the biggest contribution chunk.
3) Since the turn of the century, tax cuts and a stagnating economy have caused a huge gap in tax receipts.  Grover Norquist's plan to destroy government by starvation is working like a charm - at the Federal, State, and local levels.
4) Not shown here, but obvious if you think about it or look for the data, is the decline the growth in government spending, at all levels - for everything except defense - since 1980.

If, like Norquist, you want life without government, take a look a Somalia.  Or dig out A Distant Mirror by Barbara Tuchman and see what life in Europe was like in the 14th Century - a time when society deteriorated, there was little or no effective government, and roving bands of thugs terrorized peasants, kings, and even the Pope.

Because the Rethug plan, in thrall to the Kochroaches, is to take us back to feudalism.

If we will allow it.
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Understanding Social Security

I understand it. Kevin Drum understands it.  Rethugs refuse to understand it.  How about you?

Drum:

The weird thing about this is that Social Security isn't even hard to understand. Taxes go in, benefits go out. Unlike healthcare, which involves extremely difficult questions of technological advancement and the specter of rationing, Social Security is just arithmetic. The chart on the right tells you everything you need to know: Right now, Social Security costs about 4.5% of GDP. That's going to increase as the baby boomer generation retires, and then in 2030 it steadies out forever at around 6% of GDP.


That's it. That's the story. Our choices are equally simple. If, about ten years from now, we slowly increase payroll taxes by 1.5% of GDP, Social Security will be able to pay out its current promised benefits for the rest of the century. Conversely, if we keep payroll taxes where they are today, benefits will have to be cut to 75% of their promised level by around 2040 or so. And if we do something in the middle, then taxes will go up, say, 1% of GDP and benefits will drop to about 92% of their promised level. But one way or another, at some level between 75% and 100% of what we've promised, Social Security benefits will always be there.

Go to the link to see his chart.

Another possibility (my favorite) is to remove the payment cap.  Currently, SS Premiums are collected on the first $106,800 earned in salaries and wages.  Take off the cap.  Apply the pay-in rate to all earned income, and then to unearned income like interest, dividends and capital gains, if that's what it takes.

Part of the Rethug disinformation campaign is to make you believe that we are broke.  We are not broke.  We simply have a very skewed distribution of wealth in a very rich country, and a strong instinct among the greedy rich to skew it even further.  It's the middle class that is going broke.

Now that the Rethug party and the tea party are both wholly-owned subsidiaries of Koch industries, the goal is transparent.  The actual .extent of their avarice is not always apparent, though, and can be difficult to comprehend.  I've wondered for a long time if their goal was 12th Century style feudalism or more modern version as in a So. American style banana republic.  Either way, it's a stark have vs have not divide.

Thom Hatrmann says the Rethugs want to roll back the New Deal.  A caller suggested they want to go beyond F.D. Roosevelt to roll back the progressivism of Teddy Roosevelt.  I say they want to roll back the enlightenment and return the world to feudalism.

UPDATE:  Karl Smith weighs in, with  trichotillomania and associated emesis.
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A Parable For Our Times

A boy named Bart has a paper route.  He doesn't want to spend his earnings now, but save them for later in life, so he can stop pitching papers some day.  His dad, Homer, offers to hold the income in trust, and puts the money in the same drawer with his spending cash.  It's in an envelope marked "Bart's future." 

But Homer is a bit careless, One day he gets thirsty and notices that the beer fund drawer is empty - except for Bart's envelope.  Homer takes the cash, and slips in an IOU, then goes to Moe's for a few cold ones.  With the passage of time, Bart naively keeps turning the money over to Homer, whose thirst is unquenchable - so the IOU's build up.

Suddenly one day, Homer has a cup of tea and realizes that he has built up quite a debt to Bart, and doesn't know how he'll be able to pay it back, pay the mortgage, and keep drinking, all at the same time.  So he says: "Bart, you are part of my budget problem.  It is unreasonable of you to expect to get all of your money back. In fact, you're a bit of a leach to expect it. I have a problem with finances, and we must all share the pain.  You wanted your money when you were 18.  Now you have to wait until you're 21.  And I'll probably only give you 80 cents on the dollar.

"Meanwhile, keep turning over your earnings.  I'm thirsty." 

This is how Social Security is related to the Federal Treasury, and this is how paying SS benefits affects the Federal budget.  
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The Social Security Trust Fund

In another part of the Universe, I was directed to this publication from the CBO, dated 2002.

I find this document to be confusing, and I wonder what it's point is.  Here is the opening section, set off in a box in the original.

By law, the Social Security program is treated as an "off-budget" entity, and its financial figures are displayed separately from the rest of the budget. The separate display, along with the use of trust funds as an accounting device, is a means of distinguishing the program's finances from those of other government activities. However, the distinction can be confusing when it leads people to think of Social Security as an independent financial entity. Social Security is a federal program, and as such, all of its taxes are received by and its outlays dispensed from the U.S. Treasury. 

Focusing on an accumulating balance in the Social Security trust funds can also be misleading. The only economically significant way that the government has a surplus is if there is a unified budget surplus--when total receipts are greater than total outlays. Although separate taxes are collected for Social Security, the money left over after benefits are paid is used to fund other government programs or to pay down the debt held by the public. Moreover, in the future, those separate tax receipts will become insufficient to maintain the program once the post-World War II baby-boom generation begins drawing federal entitlement benefits. Social Security and other entitlement programs will then be dependent on the federal government to cover their costs--at the same time that the government must pay for its many other functions. 

Regardless of how any federal program is financed and accounted for--and whether it is presented as on- or off-budget--a full understanding of the government's looming fiscal strains and the potential economic impact of its fiscal condition requires that all government functions be considered together. It is the federal government's total claims on the nation's resources that affect the economy—not the individual components that make up those claims.

A Different Look at Social Security

All the talk you might hear about Social Security financial problems and federal budget busting is lies and drivel - aka, BULL SHIT.  Let's have a look at SS funding for a different reason.

Here is some detail on the SS premium withheld from pay, from Money Zine.

Generally, FICA taxes are collected at a rate of 7.65% on gross earnings - earnings before any deductions. The breakdown of FICA is 6.2% for Social Security (Old-Age, Survivors, and Disability Insurance or OASDI) and 1.45% for Medicare.  The following table shows the FICA limits for 2005 through 2011:

2011 FICA Tax and Social Security Limits

• FICA Tax Rate = 7.65% (see note below)
• Social Security Limit = $106,800 
• Maximum Social Security Contribution = $6,621.60 (employer) / $4485.60 (employee)

Note:  In 2011, the FICA tax rate for employees was lowered to 5.65%.  The employer tax rate remained unchanged, while the Social Security rate for employees was lowered to 4.20%.

2010 FICA Tax and Social Security Limits

• FICA Tax Rate = 7.65%
• Social Security Limit = $106,800
• Maximum Social Security Contribution = $6,621.60

2009 FICA Tax and Social Security Limits

• FICA Tax Rate = 7.65%
• Social Security Limit = $106,800
• Maximum Social Security Contribution = $6,621.60

2008 FICA Tax and Social Security Limits

• FICA Tax Rate = 7.65%
• Social Security Limit = $102,000
• Maximum Social Security Contribution = $6,324.00

2007 FICA Tax and Social Security Limits

• * FICA Tax Rate = 7.65%
• Social Security Limit = $97,500
• Maximum Social Security Contribution = $6,045.00

2006 FICA Tax and Social Security Limits

• FICA Tax Rate = 7.65%
• Social Security Earnings Limit = $94,200
• Maximum Social Security Contribution = $5,840.40

2005 FICA Tax and Social Security Limits

• FICA Tax Rate = 7.65%
• Social Security Earnings Limit = $90,000
• Maximum Social Security Contribution = $5,580.00

 At first, I wasn't going to pull such a long quote, but the information illustrates how the funding base increased through 2009, leveled, and now has been cut.  Many economists are enthused by the extra $2146 this will put into the pocket of whoever is making $106,800, and up - proportionally less for those who make less.  Again, I call BULL SHIT!  This will cause underfunding of the SS trust, and give ammo to those who claim SS is unsound and want to blow it up.  Big, big mistake.  It would have been far, far better to increase the dole in some other way for those at the low economic end of the spectrum.  But that is not anybody's goal these days.

Here is a look at total FICA collections per year from 1957 on.  The hook at the end is rather disturbing.  (Vide supra.)  Other than that, it's an exponential looking line, and those are hard for the human eye and brain to suss - at least for this aging, bifocal-laden human.  Let's try a log scale.

I'll over-state the obvious again, since it's central to my main point: a log scale presents a steady rate of growth as a straight line.  What we have here is clearly two different realms, with two different growth rates.  Each realm has a best-fit straight line superimposed.  Raising the amount collected per earner in the most recent years has not even maintained the slower growth rate of recent decades.  I picked a break point of 1984.  Your eyes might wiggle it around a bit differently, but that is a second order detail, at best.


Here is a close-up of recent history.

It's no surprise that the Clinton era was above trend, and the W regime pretty much defines the trend since Reagan.  Receipts for '08-9 are not just below trend, but flat, due to the recession.  In 2010 we have only actual decline in the data set.

What does this tell you about the state of the American worker?  Remember, the collection base went up every year through '09.

Here's a look at what a program in trouble - and then not -  looks like.  The plot is log of Total Fund Assets at the end of the year.

It looks as if the fund - for whatever reason - was not on a sound actuarial basis through the 60's and 70's - despite robust growth in collections.  During the Reagan administration, this was addressed, and the fund has grown every year since - even through 2010, with receipts stagnating.

Slower year over year growth in receipts since 1984 saved the program.  It will take someone with more knowledge than I have to explain that conundrum.

But my main point is that - at least through 2010 - total FICA receipts are an indirect indication of how the American worker is faring.  It's clear that since around 1984, he hasn't been faring very well.

Data through '09.
Data for '10.
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