-By Dan Scott
The coming federal budget debacle is one shrouded by lies wrapped in euphemisms, obfuscated by spin. Just as an example of the less than truthful statements coming from the Federal Government in it’s denial of the impending disaster to befall the nation I need only to point to the excerpt from the Trustee’s Report on Social Security.
The outlook for Medicare has improved substantially because of program changes made in the Patient Protection and Affordable Care Act as amended by the Health Care and Education Reconciliation Act of 2010 (the “Affordable Care Act” or ACA). Despite lower near-term revenues resulting from the economic recession, the Hospital Insurance (HI) Trust Fund is now expected to remain solvent until 2029, 12 years longer than was projected last year, and the 75-year HI financial shortfall has been reduced to 0.66 percent of taxable payroll from 3.88 percent in last year’s report. Nearly all of this improvement in HI finances is due to the ACA. The ACA is also expected to substantially reduce costs for the Medicare Supplementary Medical Insurance (SMI) program; projected program costs as a share of GDP over the next 75 years are down 23 percent relative to the costs projected for the 2009 report.
Much of the projected improvement in Medicare finances is due to a provision of the ACA that reduces payment updates for most Medicare goods and services other than physicians’ services and drugs by measured total economy multifactor productivity growth, which is projected to increase at a 1.1 percent annual rate on average. This provision is premised on the assumption that productivity growth in the health care sector can match that in the economy overall, rather than lag behind as has been the case in the past. This report notes that achieving this objective for long periods of time may prove difficult, and will probably require that payment and health care delivery systems be made more efficient than they are currently. To facilitate this outcome, the ACA establishes a broad program of research on innovative new delivery and payment models to improve the quality and cost-effectiveness of health care for Medicare — and, by extension, for the nation as a whole. The improvement in Medicare’s finances projected in this report highlights the importance of making every effort to make sure that ACA is successfully implemented. If health care efficiency cannot be substantially improved through productivity gains or other measures, then over time the statutory Medicare payment rates would become inadequate. In that situation, the payment update reductions might be suspended, in which case actual long-range costs would be larger than those projected under current law.
First a bit of old news to get everyone up to speed. Medicare will go bankrupt despite the insane denials of the Trustees because they are mandated by the ACA to lie to the American People! That’s right, the Law passed by Congress mandated the Trustees to LIE to the public BECAUSE they are required to knowingly make false assumptions about the effects of the ACA. The first false assumption is that doctors are going to work for peanuts and not drop most if not all seniors on Medicare. Why? You have heard of the doctor’s fix? This is where Congress is supposed to outside of the ACA rescind the Medicare cut in reimbursements assumed by the ACA to occur as mandated by Law. If there were ever an example of smoke and mirrors budgeting, this is it.
The second false assumption is that technology will miraculously slash health care costs. On individual treatments and drugs over time, that is true to an incremental degree. However, as medical science progresses to find more effective cures and treatments allowing them to treat more diseases the cost goes up. In simplest terms, today we have treatments for a 100 diseases, tomorrow we will have treatments for 150 diseases. Accordingly, the total cost will go up 50% because we have 50% more treatments for diseases. In other words, the base line for medical care is a moving target, one that always looks to the sky. The ACA falsely assumes there are no new treatments for diseases we currently don’t have now or stated another way, the ACA falsely assumes all known diseases have a treatment. The only way to adhere to the ACA assumptions would be to deny payment for any new treatment not already existing, in other words, any advances in medical science for diseases without an effective treatment comes to an abrupt halt. This is exactly what has happened in Socialized Medicine Countries and why they wait for a new effective treatment or drug to materialize out of the US capitalist based system. This is why Canadians come to the US for medical treatment, the cookie cutter approach simply doesn’t cover everyone.
What the ACA doesn’t do is to target the greatest expense of senior care, that being indigent care due to nursing home stays. Medicare and Medicaid are forced to pay for seniors who have been bankrupted with $5 to $10,000 per month medical bills. Well over 50% of all nursing home care patients are those with Alzheimer’s and Dementia. The financial stability of Medicare in large part is determined by the huge costs of these two twin scourges of the elderly. Instead of wasting billions a year on global warming studies which don’t for one second do anything at all or subsidies for ethanol which is not sustainable, why not target $5 billion a year to cure Alzheimer’s and Dementia with promising therapies like Adult Stem Cell research? A cure or even a successful treatment that stabilizes a person’s memory would prevent millions of people from going into nursing homes in the first place. This would save Medicare and Medicaid so much money that the financial problems of the entitlement would solve itself by avoiding all the other conditions/complications which stem from these two diseases. But I forget myself we are talking about the government programmatically spending money, not the welfare of seniors.
Now on to the ill considered news. One need only look at Social Security’s Estimated Operations of Trust Fund Chart to year 2019 to see why the Federal Government is sticking it’s head in the sand and why Barney Frank pretending nothing is wrong with Social Security is just ludicrous. This was the same guy who said nothing was wrong with Freddie Mac and Fannie Mae and blocked attempts to reform the system when we could have avoided the mortgage meltdown as far back as 2001. Annual OSI payments will be doubling in less than nine years and where pray tell will the Federal Government get an extra $500 billion a year to pay back the money Congress misappropriated from the SS Trust Funds? That’s right the Suckers, I mean the Taxpayers. Is it any wonder why Governor Perry called Social Security a Ponzi scheme? Here is the cruel and very rude truth ALL Democrats don’t want you to hear, don’t want to deal with and certainly will engage in any distraction via politics of personal destruction to avert the public’s eyes. We could freeze the annual federal budget right now, i.e. no increases ever, and the Treasury would still be forced to sell bonds in ever greater amounts annually because Congress has not been willing to deal with Social Security without stabbing each other in the back for petty political reasons. One needs only to look back to the Bush Administration for the typical behavior of Democrats like Barney Frank (again).
While some of the increases in Social Security spending are due to the baby boom generation retiring, that wave is already cresting as to the numbers who will draw retirement. The real factor in Old-Age and Survivors Insurance (OSDI) is the Cost of Living Allowance (COLA) that has always been a political hot potato. A one or two percent increase given in one year lasts literally for forever in terms of annual outlays. When COLAs are added on top of one another there is a compounding of the increase in expenditures just like interest in a savings account or a loan. This is why the current CPI is a joke since I maintain it is under reporting current inflation in order by stealth to stop the COLA increase instead of being honest with the public. Its called political cowardice. Which brings us to the real reason why Social Security is a Ponzi scheme and not a bonafide pension plan. For all the claims of actuarial calculations by the Social Security Trustees, it is a false assumption that the some $3.5 trillion in bonds they hold of Federal Debt will or can ever be paid back. A Ponzi scheme is one where investors are mislead as to the return of their capital, i.e. never in this case. The Law is quite clear about this even though the politicians have not, the Federal Government is under NO OBLIGATION to ever pay back one penny of Federal Insurance Contributions Act (FICA) we and our employers have paid into the system as it is considered a tax and not a premium. Tomorrow, the Federal Government could declare ALL of the bonds held by Social Security as null and void and no one would have any legal claim to say otherwise.
The real issue why Social Security and the Federal Government is facing fiscal disaster is because of the irresponsible spending of Congress by misappropriating ALL the surplus FICA funds. All of this money, if this were a bonafide pension plan would have been invested to meet the actuarial needs of the pensioners and NOT the whims of the spendthrifts in Congress. Both Democrats and Republicans are responsible for this misappropriation of funds. While Republicans did not overtly desire to take those funds, they did collaborate to offset budget expenses (liberal spending priorities) which makes them equally as guilty as the Democrats who intentionally had no interest in ever paying that money back.
Congress has over the years essentially fostered a falsehood in the public mind that they are getting their money back. For those at the inception of Social Security this was true and more so since they got significantly more out of the system than they put in. That dynamic no longer holds true, today’s pensioners will barely receive more than they put in. Ordinarily that wouldn’t be a problem IF the surplus funds were properly invested but they weren’t, they were spent. A normal pension fund is required to invest all receipts in such as way as to meet its future obligations. The Social Security receipts were not invested, they were spent and low interest IOUs were left for a later Congress to default upon. Again, like with the ACA, the Social Security Trustees were required by law to LIE to the American People based on the knowingly faulty assumption that these funds “invested” would be paid back and thus based their charts and tables on that lie. You think the lie with the ACA was the first time? Wrong, you remember the compromise deal struck by a Democrat controlled Congress under Tip O’Neill with Ronald Reagan in 1983? The entire premise of the deal was to ensure that receipts were always greater than expenditures under the guise they were saving Social Security. The government had absolutely no intention of ever repaying back those “surplus” funds. Little wonder then that the ACA in dealing with Medicare seeks play the public as gullible rubes to keep that program in the black by slashing medical care to seniors. Again, how was that deal sold? To make room for the uninsured…to the tune of $300 billion by never paying back the surplus funds collected for the benefit of the retired AS PROMISED.
There are essentially three ways to save Social Security as we know it. The pain now for workers, the pain now for seniors OR the pain all the time for everyone.
A comment first on one of the Deficit Commission’s proposals: Raising the retirement age contrary to their considered opinion of those in the know is an extrapolation fallacy. The reason it is a fallacy is that those facing a delayed retirement age will simply retire early at 62 1/2 to cumulatively collect far more over their lifetime than those waiting to age 70 1/2 to collect the maximum payout. Life expectancy is 75.4 for males and 80.4 for females. Raising the retirement age from 65 to 69 is a paper chase that bears no semblance to reality because it is based on the extrapolation fallacy, all factors are not equal and human beings don’t behave according to mathematical trend lines. It is faulty reasoning to maintain just by changing one factor that there won’t be a corresponding counter balancing change elsewhere.
1. In the pain now for the workers approach as was done back in Reagan’s day, raising the FICA tax will only delay the date another twenty or thirty years for another generation to grapple with, because in the meantime, ALL surplus funds once again would be misappropriated by a spendthrift Congress leaving NOTHING in the future. This is the preferred solution by Democrats as this rakes in billions of dollars into the general fund for more vote buying scams (like ObamaCare) making the population ever more dependent on give away programs like Food Stamps, HOC, etc. Of course, a general tax increase would follow on the heals of any FICA increase since if you accepted one approach how could you not accept a general tax increase using the same approach? Any tax increase in Social Security will no doubt fall equally upon businesses as the individual and thus even more investment money for job production will be squandered by the government. The cruel outcome will be everyone will accept a lower standard of living in the name of Equality to avoid fiscal Armageddon.
2. In the pain now for seniors plan (also pain for Congress), four things must happen. Firstly the Social Security Trust fund must be severed from the Federal Budget thus preventing Congress from misappropriating funds in the future otherwise don’t bother making any reform because we will be right back to where we started in short order. The Social Security Trust fund would start to become a bonafide pension fund by actually investing ALL surplus receipts and Congress would be required to pay back in equal installments the $3.5 trillion in IOUs over a set period of time such as 30 years.
Secondly, seniors would accept a zero COLA increase for the foreseeable future until such time the Trust fund could afford it. This is just like every pension fund operates, why should Social Security be any different? The benefit of this approach is to give assurance to everyone that there will be a return on their money. The Treasury can count on exactly what their outlays will be and Congress will be forced to go directly to the public if they want to start a new program because they will have to justify a tax increase for that program. This approach ends the lying and restores trust in government.
Furthermore, thirdly in addition to the zero COLA requirement, all survivor benefit payments to non-seniors would have to end. This means children of deceased parents would no longer collect a monthly check until age 18 for support and education purposes. This is supposed to be a personal responsibility by parents for their children, that is why LIFE INSURANCE exists. We can no longer afford to socialize personal losses at society’s expense.
Fourthly, the disproportionate payout between income levels must cease, a person should only get out proportionately what they pay in on an annual basis. The current system is skewed to favor low-income earners thus the system is unsustainable since there is no way to actuarially predict income strata a decade from now.
A fifth option should also be considered, that is ending Disability Insurance payouts. Just as with Life Insurance for parents to financially care for their offspring in the event of their untimely demise, it is a personal responsibility to carry disability insurance to retirement age in the case of incapacitation. It is wrong to force the general population to pay for person’s upkeep just because that person refused to act responsibly while they were drawing a paycheck.
3. The pain all the time for everyone approach is to refuse to decide and we just do nothing. Congress will have to either raise taxes or cut expenses to meet the increasing pay back of the Social Security trust fund IOUs as expenses ramp up to $500 billion more a year by 2019. The Federal government under the voters current discontent would more than likely cut an increasing amount per year out of the federal budget thus politicians would die the death of a 1000 paper cuts through 2019 with their constituencies. The Rent Seekers and their Liberal Democrat enablers will howl with outrage to force a compromise of tax increases and budget cuts. Each year, seniors would wrongfully get increasing share of the blame for the budget woes that actually are the responsibility of the politicians who lied and misappropriated the FICA payroll tax funds for the past 30 years. The politicians at some point would declare seniors the problem to slash Social Security payments to actual FICA collected far sooner than 2039. Given the Orwellian deceitfulness of the current crop of politicians and their blaming seniors for the Social Security funding woes, this outcome would be a certainty meaning a 25% pay cut for everyone drawing Social Security.
A government can only exist as long as it’s citizens consent to it’s use of power. Whether that consent is through fear or apathy or hopelessness, there comes a day when a tipping point occurs and consent is withdrawn. That day is quickly coming since the current spendthrift Democrat controlled Congress from 2006 to present wildly ramped up spending to the point of crowding out investment in the private economy. Investment in the private economy is what drives job creation and without it Social Security is unsustainable. This wild spending spree now is forcing the Federal Reserve to buy Treasury bills and bonds with printed money thus introducing inflation to potentially unsustainable levels. Food prices are already rising in response to this paper printing. All three scenarios above are built upon the caveat of reasonable inflation, all bets are off if Carter level inflation returns as planned upon by the Federal Reserve in response to buying up Treasuries to keep the interest rates unsustainably low. If significant inflation becomes a reality then no amount of budgetary restraint will save the government and those who run it from the wrath of the citizenry. What this means is a universal and de facto default of all US Dollar denominated (both federal and state) bonds given the value of those bonds being denominated in Dollars will become worth less causing loss to the bond holders. Given that a large portion of the US debt is owned by foreigners, their response would be to rightfully dump bonds forcing the Federal Reserve to print more dollars to purchase them on the open market. Any attempt by the Federal Reserve to print money on that scale would introduce hyper-inflation, destroying the economy.
Unless this new Congress responds immediately and responsibly there will be a financial meltdown of the US economic system. That means taking a hatchet to the federal budget and reforming Social Security. While entitlement programs run according to formulas mandated by law, it is Congress that makes the law and can change it at any time for any reason. That means reforming the other entitlements to both means test recipients at 100% poverty levels versus the 200%+ now used and enforce the citizenship requirement to remove unlawful and fraudulent recipients who should go home to their respective homelands. The time of largess is over and if we can’t face up to that reality then seniors will be left with only 75% of their retirement income eating dog food again in short order because of our enabling weak character. The bottom line here is nothing can be off the table, not Social Security, not Food Stamps, not HOC, not subsidies for your favorite agenda item or any other sacred cow. We had our chance years ago to nibble at the edges to save ourselves from this mess but we allowed our politicians to talk us into doing nothing because they were more interested in your votes. Pick your poison but don’t self-righteously proclaim we are cruel because we won’t let you take everything we have in the name of social engineering called Equality of Outcome.
References:
Federal Government not obligated to pay retirement benefits
Is There a Right to Social Security?
Entitlements and Guaranteed Bankruptcy
Social Security funding projection chart
Subsidies by the billions Wouldn’t this be a good place for the new Congress to start cutting billions of dollars?
Governor Perry calls Social Security a Ponzi scheme
National Vital Statistics Reports, Table 7
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Dan Scott calls himself a “Member of the Global Capitalist Cabal preaching Capitalism and personal responsibility as the economic solution to world poverty.” He is also a member of the 14th Amendment Society — victimhood is a liberal code word for denying the civil rights of others. He is also a proud member of the Global Warming Denier Cabal, insisting that facts not agendas determine the truth.
Dan can be reached for comments at dscott8186@yahoo.com.
In the ethical exercise of journalism to avoid the appearance of impropriety due to a conflict of interest, this blogger discloses that I receive no direct monetary reward or compensation or in kind gifts for the views I express. This is to demonstrate ethical conduct unlike Congress whose Quid Pro Quo legislation benefits their campaign contributors and in some cases themselves directly.
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