The Market Ticker – Social Security — We’re Still Lying To Ourselves |

Economy and News

From The Market Ticker

I wish there was something approaching an honest reporter left in this country among the mainsleaze media. But there’s not.

Updated 4:05pm ET The trustees of the Social Security system said Monday the fund that helps sustain retiree and survivors’ benefits will become exhausted in 2033, three years sooner than they projected last year.

At that point, payroll taxes and taxation of Social Security benefits will provide only enough income to pay about 75 percent of the benefits that Congress has promised to retirees and survivors.

In practical terms, this means that a 40-year-old worker who is eligible to collect retirement benefits in 2039, would see his or her expected retirement benefit cut by about 25 percent, unless Congress took action to change the program’s funding or its benefit structure.

So far so good. But it’s the assumptions that are the problem:

The trustees said that to keep the Social Security trust funds solvent over the next 75 years, Congress could take a number of steps:

  • increase the payroll tax rate from its current level of 12.4 percent to 15.01 percent;


The Payroll Tax is not 12.4%; that’s a lie.

Millions of workers will see their take-home pay rise during 2011 because the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 provides a two percentage point payroll tax cut for employees, reducing their Social Security tax withholding rate from 6.2 percent to 4.2 percent of wages paid. This reduced Social Security withholding will have no effect on the employee’s future Social Security benefits.

So the tax is actually 10.4%. And note carefully that the Trustees said that a roughly 2.5% increase would balance Social Security. But we’ve done exactly the opposite by almost exactly the same amount.

So who’s going to be honest and call for (1) an immediate full stop to that payroll tax cut and (2) an increase in the payroll tax to 15%?


In point of fact there’s another option for Social Security that would make even more sense — index to longevity. That would, along with a less than 1% increase (to 13%; the “cut” that’s allegedly temporary must go away right here and now in any event) put the system back into balance.

In short Social Security is pretty easy to fix. It’s unpopular to talk about what has to happen to fix it, but it’s fixable and at a reasonably-small cost to the average employee in terms of tax impact.

Separately, the trustees, who are also the trustees of the Medicare program, reported that the Medicare fund that pays hospital costs for older and disabled Americans will be exhausted by 2024, the same forecast as they made last year.

After the assets of the Medicare fund are gone, if Congress were to take no action, projected Medicare revenue would be adequate to cover 87 percent of the estimated spending in 2024 and about two-thirds of projected costs in 2050.

Nonsense. These figures are nowhere near accurate as they do not include the 9.2% rate of increase that is currently being suffered.

The BEA says that compensation of employees is $ 8.4 trillion (last quarter of 2011, which is the latest available at present.) That’s $ 244 billion a year in Medicare tax (2.9%, both employer and employee parts.)

But the Federal Government spent $ 820 billion last year on health costs, approximately $ 550 billion of it in Medicare and Medicaid. While the program claims to have taken in $ 530 billion there’s obvious game-playing going on here as the total employee compensation as of the last quarter of 2011 is annualized to $ 8.4 trillion and Medicare tax is 2.9% of this, or $ 244 billion.

On a basic cash-flow analysis and given the $ 244 billion of actual bonds in the system for Medicare there is about one year of benefits available on a cash-flow basis, including tax receipts and “bonds in the drawer” for Medicare.

To be succinct Medicare is functionally bankrupt right here and now!

Medicare and Medicaid cannot be fixed at all as the problem is not found in those programs — it is found in the underlying medical system in our nation.

Simply put we have to shut down the cost-shifting, including that represented by:

  • EMTALA, which resulted in the destruction of charity care in general; the Catholic Church “cheered” this as it’s roughly six hundred hospitals were largely relieved of being fully-charity-funded (that is, from your donations in the plate on Sunday) and managed to shift a huge part of that funding to you, the taxpayer, via explicit health “insurance” and private payer support! This of course the Church does want to talk about; a “gun up the nose” isn’t charitable at all, yet this is much of what so-called “charity hospitals” do today. The Church needs to be called out on this loud and long; they’re liars and frauds and have done their level damndest to pretend to provide charity care while offloading it on the general public. This sort of intentional deception is a Satanic abuse of the alleged moral high ground the Church claims for itself.
  • Outrageous development cost shifting from the rest of the world to the United States; price controls in other nations effectively prohibit the cost of development of new drugs and devices from being borne by health systems in other countries. Canada and the UK are two of the worst offenders but hardly the only ones; other nations frequently threaten to break patents wholesale unless they get favored pricing. The medical industry then got passed laws prohibiting reimportation, codifying a “wall” in federal law with felony penalties for breaches that allows this rip-off of the American consumer to continue. As a consequence Americans often pay 10x or even more what a Canadian pays for the same drug or device; we effectively cover all development costs for the entire planet. This must end — now.
  • Specific legal exemptions from anti-trust law and shielding from consumer-hostile practices such as permitting and even encouraging disparate billing for procedures, drugs and devices depending on how one pays; a discriminatory act that when taken for the purpose of reducing competition is flatly illegal in other fields, blatant limiting of competition for various technological practices (e.g. licensing restrictions prohibiting the free opening of new MRI centers to drive down costs) and other acts that in any other field would land the parties involved in the graybar motel for felony criminal violations of anti-trust and restraint-of-trade law.

All of this combines to cause the cost of medical care in the United States to be a literal double that which is charged and obtained in other nations. We simply cannot afford to continue on this path as the growth rate (9.2% compounded for the last 30 years) will result in the bankruptcy of the federal government and destruction of our economy within the next two decades.

The game-playing within the system cannot be maintained; eventually cash flow always wins. You can move things around and pretend for a while but doctors, hospitals and others in the supply chain don’t take empty promises, they want checks. Eventually you are forced to admit that the money doesn’t exist and you’re shuffling the deck and playing with the cash flow from one place or another so as to avoid telling the truth about what’s really going on in the budget and these funds.

This problem has to be solved, and solved now. Neither political party will talk honestly about this, but we must as Americans demand both the truth and real resolution, as the path we are on will resolve in a disorderly collapse of our medical system and shortly thereafter our economy and government.

We cannot afford to continue to play the game that both the Republican and Democrat parties are running in this regard, nor are the so-called “third party” claims (e.g. Gary Johnson) honest assessments either.

The medical system in this country is terminally broken and if it is not corrected now we will all discover that there is simply no money and thus what people claim they have been promised will be shown to be a sham and collapse — and this outcome will be apparent much sooner than people think.

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