Fixing SS and MC

As a member of the boomer generation who watches the numbers, I have lived in a world of utter disgust over the last 40 years watching Congress play Least Greater Fool with the Social Security.  It was originally billed as a “savings plan” so that no one would go into retirement without savings.  In reality, it is a ponzi scheme on the current workers to pay for those already retired.  Nonetheless, people pay into SS and consider it their due.  As well they should.  Because even if the government had been putting away their ‘contributions’ (I love government-speak.  Jist dem good ol’ SS troopers passing the offering plate, ya’ know.) into federal bonds, it would have yielded at least 4 times as much upon retirement. 

            The cash flow of the SS is now negative.  In the last ten years, the SS payout per working person has doubled, from $3000 to $6000 and will double in another 6 years.  Even so, the donkeys still claim that the fund is perfectly fine and totally solvent. Not true.  We must finally fix the system, or it will begin to rapidly gobble up the national budget. (even if Dingy Harry doesn’t pass one) An unfixed SS and MC will mean that within roughly 20 years, all the federal government will have money to do is pay seniors.  That’s a generational war I don’t want to be part of. We need to fix this thing.

            Here are several proposed solutions that could fix the SS.

1.    Raise retirement age—If you raise the age to 72 it will fix SS in perpetuity.

2.    Raise Taxes—if you triple payroll taxes it will fix SS in perpetuity.

3.    Raise the cap on payroll taxes—if you raise the cap (currently about $110K) to a million, it will fix about half the actuarial problem.

4.    Means test—Just paying SS to the poor could fix however much you wanted but to fix it for all times you’d have to deny SS to about 1/3 of the middle class plus the upper class.

5.    Cap and Gap—this means don’t change the current cap but start re-collecting 6.2% on those over $250,000, i.e. soak the rich.  This fixes about half the problem.

6.     Collect SS on all incomes—Cap gains, 401K distributions, dividends, etc.  This would come close to fixing the problem forever.

7.    Cut benefits—again, if you are willing to live with less than half the benefits, this could fix it.

 

Politically, these are all hard to do.  Dems bray like jackasses if you bring up raising retirement ages or cutting benefits.  They are keen on things like soaking the rich with 3,5 or 6 or making SS a welfare program with 4. Republicans might agree to a small portion of each of the above but would favor cutting COLA increases to benefits first.  I predict that Congress won’t do major changes.  They will just jigger the numbers to kick the can down the road by 5 years.  Thus the most likely fix is to raise the cap on payroll taxes again.  This pains the least number of voters.  (Same politics as Adolf Hitler: pick on some numerically small group that can’t defend itself, like Jew bankers, and put all the burden on them for failure. Or in this case, “the rich”)  The people who study the insolvency problem say that the logical fix is #1, raise the age since 65 was quite old when the system began.  This would also allow progressives to continue to say “this is your savings plan, your insurance against getting old and having no savings.”  That’s utterly logical, but it counters the progressive plan to make as many people beholden to government as possible. And both pols of both parties lament the squall of the citizenry.  I hate to say this, but if you’ve been working 50 years like I have, and haven’t planned for other income in retirement, am I supposed to feel sorry for you, Mr. Grasshopper? Well, okay, personally I might, but I don’t feel morally right in skewering the rest of the taxpayers to make them liable for your behavior.

            And considering all the solutions for the government to soak the rich, do you think the rich got that way by being stupid like the government?  Will they simply stand meekly to be fleeced or will they move accounts overseas, find ways to make assets grow without realizing income, and use corporations to expense things to support their lifestyle?  Hmm?  Failure to realize this gives rise to the story about Greece.  Greece spends $150 billion a year and collects taxes of $336 from the last remaining taxpaying businessman in Athens who is planning to retire in April.

            At least with SS there is a defined amount of benefits paid according to current law.  With Medicare, the outgo per patient keeps rising faster than inflation.   It is for this reason, I am convinced that Obama has folded MC into Obamacare and plans to just not pay the bills for old folks.  The costs of average health insurance policies have gone up $3000 as opposed to his prediction of $2500 savings from Obamacare.  And since 30 million new insurees will show up at insurance companies demanding insurance no matter what sickness they come with, costs of your insurance will approximately double in the next few years.  Thus, I agree with Rep. Joe Wilson.  There is no way Obama could have fooled himself into believing his own rhetoric. 

            Potential fixes for MC are

1.    Raise payroll taxes—maybe 5X as much as current 1.45% is needed, maybe more.

2.    Cut benefits which means not paying docs and hospitals or Death Panels ala Obamacare—“After age 65 you’ve had a full life and we don’t pay for gall bladder surgery.  Nor do we allow doctors to perform them.  Here’s a pill for your pain.” You’ll have to visit Malaysia to get that gall bladder removed.

All the other fixes like SS has don’t work in the case of MC-- like giving benefits only to the poor or soaking the rich (Rich are already taxed).  Stunningly, the Dems favored cutting benefits stealthily in Obamacare rather than raising taxes. This has consequences. Simply not paying docs (in order to cut benefits) will only cause mass retirements from medicine.  Not paying hospitals will kill hospital economics, especially in rural areas. And that means fewer docs practicing in the hinterlands.  Thus most people will be forced to visit “urban clinics” with lesser skilled PA’s and others dispensing medical care.

            The way to fix MC and healthcare in general is to repeal Obamacare and simply set up a healthcare assistance program to partially subsidize healthcare for those with medical conditions while using payroll deductions to mandate that they must purchase insurance.  Annual cost of this would be $200 billion but far less than Obamacare. The costs might go down to $130 billion if several Republican initiatives could be enacted such as purchase of medical insurance across state boundaries.

            Whether this could happen remains to be seen.  So long as we have our present medical system intact, it could be done.  Once half the docs retire and hospitals close, and Obamacare system gets entrenched, it’s too late.  Based on all those years of watching SS, I’m not optimistic.  It will probably be just like the opportunity to easily fix SS years ago--by allowing employees to designate a portion (20%) into a savings plan of government bonds—has now gone by. It’s too late once the cash flow goes negative.

            The real fix is to have pols who are satisfied with just one term and vow to do the RIGHT thing for our country’s future, not the thing that gets them re-elected. 

            If you are young, I seriously suggest that you learn to live on about 2/3 of your income and save the other third in good investments.  Thus you won’t be dependent on Uncle Sugar.  Because one of these days the national credit rating will be downgraded from A to B to horse manure upon discovery that the Grand Canyon and Yellowstone have been repossessed by China.  I averaged Lower-Middle Income earnings for 20 years before retirement and managed to live on almost poverty level expenses.  Subsequent investments promise a modest retirement at least. If I can do it so can you.

            I know, I’m like that old cowpoke who had to testify before Congress and they found him in Contempt of Congress.  He just said, “Wull, yeah.”