Tag Archives: Deficit

Young workers are paying Social Security taxes but will they ever collect benefits?

What if we had no money for anything except entitlement spending?
What if we had no money for anything except interest and entitlements?

The way Social Security taxes work is that you pay 12.4% of your salary, and another 2.9% for Medicare. That’s 15.3%, before any federal, state and local taxes. So, what are you getting for this 12.4% contribution to the Social Security welfare program? You’re supposed to be able to withdraw that money when you retire, but that money isn’t being stored in an account with your name on it. It’s being spent right now on people who are already retired. Will there be money available for you to withdraw when you retire?

If you’re a young person who retires in 2035 or later, the answer is absolutely not.

The Daily Signal has the numbers:

The American people need to know the state of finances of the Social Security program so they can better understand why reform is not only necessary, but absolutely essential. Here are five takeaways from the most recent financial report:

  • $66 Billion Cash-Flow Deficit in 2016

Social Security is still considered solvent and able to pay full benefits because it has accumulated a $2.8 trillion trust fund, but since the entirety of its trust fund consists of IOUs, cash-flow deficits must be financed by general revenue taxes or new public borrowing.

Since 2010, the Old-Age and Survivors Insurance program has taken in less money from payroll tax revenues and the taxation of benefits than it pays out in benefits, generating cash-flow deficits.

  • $14.3 Trillion in Unfunded Obligations

However, this figure assumes that the $2.8 trillion in trust fund reserves are available to be spent. The problem is that these reserves represent liabilities for the U.S. taxpayer. The payroll revenues have been spent and the trust fund was credited with U.S. bonds, which represent claims on the American taxpayer. This is why the actual unfunded obligation is $14.3 trillion.

The trustees report that Social Security’s unfunded obligation has reached $11.5 trillion. That is the difference between what the program is expected to receive in income and what is expected to spend over the 75-year horizon the program’s actuaries consider for projections.

  • Insolvent by 2035

Based on current projections, the Social Security Old-Age and Survivors Insurance trust fund will be depleted by 2035, reducing Social Security’s expenditures automatically to what the program will receive in revenues, regardless of benefits due at that time.

Social Security is only legally permitted to spend funds in excess of its revenues until its trust fund is depleted.

  • 25 Percent Automatic Benefit Cut

What this means for beneficiaries is that in the absence of congressional action, benefits could be delayed or indiscriminately reduced across the board by 25 percent.

Once the Social Security trust fund is depleted, the program will only be able to pay 75 percent of scheduled benefits, based on payroll and other Social Security tax revenues projected at that time.

  • High Costs to Delaying Reform

The trustees highlight that if Congress waits until the trust funds become exhausted, the cost of making the program solvent will be as much as 40 percent higher, meaning significantly greater benefit cuts and/or tax increases for workers and beneficiaries.

There are several key reforms Congress could pursue to preserve benefits for the most vulnerable beneficiaries without increasing the tax or debt burden on younger generations. However, the longer Congress waits the act, the larger the changes that will be necessary to address Social Security’s combined financing shortfall.

Young people working today who retire in 2035 or later will never see a dime of their Social Security contributions. What’s more likely is that the taxes on their income will go even higher. Take a good look at your paycheck, and you will see money being deducted for this entitlement program. This is money you will never see again. It is being used now, to buy the votes of elderly people who vote against reform when they vote Democrat.

The only person to try to do something about these Social Security problems was George W. Bush – a Republican. But his effort to set up private savings accounts was stopped by Democrats, who depend on the votes of the people who collect from Social Security.

These problems are even worse when you realize that Social Security is only one of the entitlement programs that is going bankrupt. There are others – as well as interest on the $20 trillion debt. ($10 trillion of which was added by Obama in his 8 years as Welfare President). Young people: you are paying taxes for programs that will not be there for you when you need them. Stop voting Democrat, because money matters!

Millennials who elected Obama will face high taxes, poverty and unemployment

We can't raise taxes enough to fix this overspending
We can’t raise taxes high enough to fix this much overspending

My regular readers have probably noticed that I have stopped blogging about day-to-day politics, ever since the Republican primary candidates with conservative records (Cruz, Jindal, Walker) were eliminated from the GOP primary. I have heard though that the mainstream media is going all in to elect Hillary Clinton. My concern is that many people rely on television news and will never think about two really important issues. First, Obama has been the worst President in the history of the country and has destroyed the economy for decades to come. Second, his disregard for national security and weak foreign policy has emboldened the enemies of Western democracies, e.g.  Russia, Iran, etc. We will see the consequences of this (wars and terrorism) for years to come. Those are the real challenges we face as a nation.

This Hoover Institute article by Victor Davis Hanson explains the big picture that the mainstream media doesn’t care about.

Excerpt:

Consider the $20-trillion national debt. Most Americans accept that current annual $500 billion budget deficits are not sustainable—but they also see them as less extreme than the recently more normal $1 trillion in annual red ink. Americans also accept that the Obama administration doubled the national debt on the expectation of permanent near-zero interest rates, which cannot continue. When interest rates return to more normal historical levels of 4-5% per annum, the costs of servicing the debt—along with unsustainable Social Security and Medicare entitlement costs—will begin to undermine the entire budget.

Count up current local, state and federal income taxes, payroll taxes, property and sales taxes, and new health care taxes, and it will be hard to find the necessary additional revenue from a strapped and overtaxed middle class, much less from the forty-seven percent of Americans who currently pay no federal income taxes. The Obama administration has tried to reduce the budget by issuing defense cuts and tax hikes—but it has refused to touch entitlement spending, where the real gains could be made. The result is more debt, even as, paradoxically, our military was weakened, taxes rose, revenue increased, and economic growth remained anemic at well below 2% per annum.

The national debt is one ticking time bomb, but there are others. Illegal immigration and Muslim refugees create additional financial problems for the next generation of entrepreneurs and workers:

Illegal immigration poses a similar dilemma. No nation can remain stable when 10-20 million foreign nationals have crashed through what has become an open border and reside unlawfully in the United States—any more than a homeowner can have neighbors traipsing through and camping in his unfenced yard.

Likewise, there are few multiracial societies of the past that have avoided descending into destructive ethnic chauvinism and tribalism once assimilation and integration were replaced by salad-bowl identity politics. Common words and phrases such as “illegal alien” or “deportation” are now considered taboo, while “sanctuary city” is a euphemism for a neo-Confederate nullification of federal immigration laws by renegade states and municipalities.

Illegal immigration, like the deficits, must cease, but stopping it would be too politically incorrect and painful even to ponder. The mess in Europe—millions of indigent and illegal immigrants who have fled their own failed states to become dependent on the largess of their generous adopted countries, but without any desire to embrace their hosts’ culture—is apparently America’s future.

Progressive Christians and  left-leaning Republicans join Democrats in imposing costs on the next generation of taxpayers with open borders immigration policies. The bill for importing people who take more in welfare than they pay in taxes has to be paid by someone. Not only will taxes on individuals go up, but taxes on businesses will cause them to create fewer jobs, or move their production to countries that have lower taxes on business.

The rest of the article talks about more ticking time bombs created by young leftist voters. Obama’s anti-police rhetoric has created a crime crisis that will require more police, more incarceration and higher insurance premiums. Obama’s anti-school-choice policies have made it harder for the next generation to get the education they will need to offer value to employers. Without skills, you won’t have a job, and you will be poor – poorer than your parents’ generation.

Although most young leftists are ignorant about foreign policy, that did not stop them from voting to cause crises that will harm our economy, and may also draw us into war. Territorial disputes involving strong countries like Russia and China could easily lead to war. Sponsors of terrorism like North Korea and Iran have gained strength during Obama’s reign of stupidity. Wars that impact trading partners or allies will cost taxpayers money. And millennials are the ones who are going to get the bill for a failed foreign policy.

The article doesn’t mention other crises like the trillion dollar student loan bubble, or the next mortgage lending crisis, or the unfunded pension programs crisis, or Medicare going bankrupt, and then Social Security shortly after, etc. No one in the mainstream media mentions these things, and the millennials aren’t aware of these problems. It’s not in their culture to put financial concerns above having a good time. But closing your eyes doesn’t make a threat disappear. Millennials can’t study English in college, rack up student loans, spend all their money on alcohol, work minimum wage jobs, then travel to Europe in their 20s, and expect everything to work out when they get serious about career and savings at age 30. These crises – which millennials voted for – are going to make their lives harder than their parents’ lives ever were.

How exposed is your state to the problem of underfunded pensions?

I am thinking about moving to a new state in the future, and one of the factors I am considering is underfunded pension liabilities. This basically refers to the ability of a state to pay out pensions to retiring public sector employees going forward. I’m going to tell you everything you need to know to solve this problem in this post.

First, Investors Business Daily explains the problem:

A new report by Hoover Institution Senior Fellow Joshua Rauh shows that, unless action is taken soon, many local governments could face bankruptcy because they can’t meet their pension obligations.

[…]The problem is surprisingly simple: States and cities overestimate returns on their pension fund investments, while systematically underfunding them. The result is a growing deficit that will require massive tax hikes or dramatic and painful cuts in government services and promised pensions to public workers.

Rauh’s study looked at 564 state and local pension systems, representing $4.8 trillion in pension liabilities and $3.6 trillion in assets — for an apparent current deficit of just $1.19 trillion.

So far, so good. But Rauh notes the average expected return on pension assets is about 7.6% — which means a doubling every 9.5 years. He calls that assumption “wildly optimistic,” and says a more realistic assumption would be the Treasury bond rate of 3% or lower — less than half the expected return.

Unless pension managers, politicians and voters do something now, the unfunded liabilities of the national system will continue to grow out of control, reaching $3.4 trillion in just 10 years. States and cities across the country would have to raise taxes massively to keep from becoming insolvent.

Right now, state and local governments set aside about 7.3% of revenues for public pensions. To keep the funding gap from exploding and taking down governments across the nation, pension spending would have to rise to  17.5% of revenues on average — roughly equal to a 240% tax increase.

How did things get so bad? Generations of feckless politicians have refused to face down public employee unions, which have negotiated massively expensive pensions for their members while concealing their true cost. Politicians have gone along with it because, heck, it’s not their money and anyway, the problems will take place long after they’re out of office. That’s where we are now.

States and cities will come under intense pressure to raise taxes on local citizens to pay for this travesty. Instead, they should get rid of the public employee unions that have plundered the public for too long and have made local government inefficient, expensive and dysfunctional. If not, they can expect to face the same economy-crippling effects as Detroit, San Bernardino and a number of other cities have — financial insolvency.

Now, obviously states with kick-ass governors like Scott Walker of Wisconsin are not going to have the same exposure to such problems as incompetent governors like Maggie Hassan of New Hampshire. Scott Walker know how to rein in public sector unions.

Let’s get the numbers to confirm this hypothesis.

Bloomberg has the numbers:

Bloomberg ranked 49 U.S. states based on their pension funding ratios in 2014 under GASB 25. (Delaware is not included because of insufficient data for GASB 25.)

Here are the best states… Wisconsin is 100% funded:

States with the best-funded pension liiabilities
States with the best-funded pension liiabilities

And actually there is a comprehensive analysis of the fiscal solvency of all the states right here from George Mason University.

Here’s the map:

Overall fiscal solvency by state
Overall fiscal solvency by state

I notice that the deep blue states like California, Massachusetts, Illinois, Connecticut, New Jersey, etc. are just horrible states. No wonder everyone is fleeing them in droves. Socialism doesn’t work. Eventually, the money runs out.

So, if you’re thinking of moving to a new state, look at that. And if you don’t want to move, then vote for governors like Scott Walker who will take on public sector unions – otherwise, you’re headed for a big tax hike in the future, to pay for the big spending liberals of the past.

Is government good at spending taxpayer money to stimulate the economy?

Canada Election 2015: Socialists in red, Communists in Orange, Conservatives in blue
Canada Election 2015: Socialists in red, Communists in Orange, Conservatives in blue

I’ve been seeing a lot of talk up north in Canada from the substitute drama teacher they elected about how he wants to stimulate the economy by taking money out of the productive private sector and putting into the inefficient, wasteful public sector.

Here’s an example of how he intends to stimulate the economy, as reported by Life Site News. (H/T Kevin the Super-Husband)

It says:

The Liberal government is pledging $81.5 million to the United Nations’ Population Fund to fund “sexual and reproductive health services and rights,” International Development Minister Marie-Claude Bibeau announced Monday.

And that could include access to abortion in countries where it is legal, according to a “senior government official,” who told iPolitics reporter Amanda Connelly that the individual countries in the UN Population Fund (UNFPA) are free to allocate funding to provide access to abortion.

“Sexual and reproductive health services and rights” is well-known UN-speak for contraception and abortion on demand, noted Campaign Life Coalition’s Matt Wojciechowski, who represents CLC at the United Nations.

The Liberals’ decision is a reversal of the Conservatives’ stated ban on abortion funding as part of international aid in the 2010 Muskoka Initiative on Maternal Health.

At that time, the Conservatives pledged $2.8 billion over five years towards improving maternal health and the lives of newborn infants in developing countries, but the initiative, including the Tories apparent refusal to fund abortion, was subject to ongoing criticism.

The Conservatives pledged a further $3.5 billion from 2015 to 2020 for maternal, newborn and child health care projects in developing nations in May 2014, at which time Harper was again criticized when he reiterated that his government would not fund abortion overseas as part of that initiative.

The Liberals promised during the October 2015 election campaign that they would “cover the full range of reproductive health services as part of the [Muskoka] initiatives,” which a Liberal Party official at the time confirmed included abortion where legal, reported Connelly.

“Canada is committed to universal access to sexual and reproductive health services and rights,” Bibeau stated in a press release Monday. “We also believe that programming decisions on these matters should be driven by evidence and outcomes, not ideology.”

Trudeau has been very energetic about how he is going to stimulate the economy by taking money from job creators in the private sector and spending it to “create jobs”. Well, this is what happens when Christians vote for government to “create jobs” by “infrastructure spending”. And they are going to be running budget deficits much worse than what they promised. This is what the vast majority of Canadians voted for in their last election.

But we also waste money down here in the United States, too. Do you ever wonder what happens to the cut that the government takes out of your pay for your private sector activities? The Constitution sets out areas where the federal government is authorized to spend money. But the Democrat Party doesn’t believe in the Constitution, they believe in buying votes and pushing the culture to the left.

Congressional Budget Office: Debt to GDP ratio
Congressional Budget Office: Debt to GDP ratio

Here’s a story from the Daily Caller to explain what stimulating the economy looks like in the United States. (H/T Dad)

Excerpt:

Academics at the University of Oregon have determined that glaciers and the science that studies them are deeply sexist.

“Merging feminist postcolonial science studies and feminist political ecology, the feminist glaciology framework generates robust analysis of gender, power, and epistemologies in dynamic social-ecological systems, thereby leading to more just and equitable science and human-ice interactions,” reads the paper’s abstract. The research was published in the peer-reviewed journal Progress in Human Geography in January.

The study, by historian Dr. Mark Carey and some student researchers, was financially supported by taxpayer dollars. The National Science Foundation (NSF) gave Carey a five-year grant which he used to write his “feminist glaciology” paper. Carey has received $709,125 in grants from the NSF, according to his curriculum vitae.

“Most existing glaciological research – and hence discourse and discussions about cryospheric change – stems from information produced by men, about men, with manly characteristics, and within masculinist discourses,” Carey wrote. “These characteristics apply to scientific disciplines beyond glaciology; there is an explicit need to uncover the role of women in the history of science and technology, while also exposing processes for excluding women from science and technology.”

Carey concluded glacier research is intertwined with gender relations, masculine culture, geopolitics, institutional power and racism — these apparently led to to glacier-related academic and governmental jobs being predominantly filled by men. Damages from melting glaciers target women and ethnic minorities, who “are more vulnerable to glacier changes and hazards than are men,” according to Carey.

That’s a shovel ready project, right there. That will create jobs for sure. And no wonder that people in academia tend to support Democrats. They support Democrats for the same reason that people on welfare support Democrats – because that’s where they get their money for sitting around doing nothing. Private sector research into new products and services is more useful, and doesn’t cost taxpayers a dime.

Public Works

Henry Hazlitt’s book “Economics in One Lesson” explains the problem with taxing the private sector to build public works.

Henry Hazlitt’s Economics in One Lesson, chapter 4, entitled “Public Works Mean Taxes”.

Excerpt:

Therefore, for every public job created by the bridge project a private job has been destroyed somewhere else. We can see the men employed on the bridge. We can watch them at work. The employment argument of the government spenders becomes vivid, and probably for most people convincing. But there are other things that we do not see, because, alas, they have never been permitted to come into existence. They are the jobs destroyed by the $10 million taken from the taxpayers. All that has happened, at best, is that there has been a diversion of jobs because of the project. More bridge builders; fewer automobile workers, television technicians, clothing workers, farmers.

And consider Chapter 5 as well, entitled “Taxes Discourage Production”.

In our modern world there is never the same percentage of income tax levied on everybody. The great burden of income taxes is imposed on a minor percentage of the nation’s income; and these income taxes have to be supplemented by taxes of other kinds. These taxes inevitably affect the actions and incentives of those from whom they are taken. When a corporation loses a hundred cents of every dollar it loses, and is permitted to keep only fifty-two cents of every dollar it gains, and when it cannot adequately offset its years of losses against its years of gains, its policies are affected. It does not expand its operations, or it expands only those attended with a minimum of risk. People who recognize this situation are deterred from starting new enterprises. Thus old employers do not give more employment, or not as much more as they might have; and others decide not to become employers at all. Improved machinery and better-equipped factories come into existence much more slowly than they otherwise would. The result in the long run is that consumers are prevented from getting better and cheaper products to the extent that they otherwise would, and that real wages are held down, compared with what they might have been.

There is a similar effect when personal incomes are taxed 50, 60 or 70 percent. People begin to ask themselves why they should work six, eight or nine months of the entire year for the government, and only six, four or three months for themselves and their families. If they lose the whole dollar when they lose, but can keep only a fraction of it when they win, they decide that it is foolish to take risks with their capital. In addition, the capital available for risk-taking itself shrinks enormously. It is being taxed away before it can be accumulated. In brief, capital to provide new private jobs is first prevented from coming into existence, and the part that does come into existence is then discouraged from starting new enterprises. The government spenders create the very problem of unemployment that they profess to solve.

We need to realize that outside of Constitutional spending authority, taxes are a waste of money. We’re $19 trillion in debt. We can’t afford talk of “stimulating the economy” through government spending. It’s a lie. Government spending kills job creation. They can hide the impact by adding the spending to the debt, but eventually, we do feel the impact of wasting money. Especially the foolish young socialists, who are going to have to pay it all back.

Liberal Party has made Ontario’s economy a disastrous failure

Liberal Party has dominated Ontario since 2003
Liberal Party has dominated Ontario since 2003

I like to follow the economic situations in the most liberal Canadian provinces to see how bad things can get when liberals are in charge. This article is by Joe Oliver, who I have mentioned before on this blog.

Here’s the article from the Financial Post:

The numbers tell the story. Ontario is the largest sub-national debtor in the entire world, just one alarming distinction. Its debt is more than twice that of California, a state with three times the population and one that has its own severe fiscal problems. Its debt is $294 billion, or over $21,000 per capita. Net debt to GDP is up 48 per cent in the past 10 years to almost 40 per cent, second only to Quebec. Last year’s interest obligations totalled $11.4 billion, about the same as the cost of community and social services. I doubt many Ontarians realize how much they are paying just in interest on the provincial debt. It averages $840 per person every year and rising. Not surprisingly, Standard and Poor’s downgraded Ontario’s bond credit from AA- to A+, citing a very high debt burden and very weak budgetary performance

The energy sector is nationalized in Ontario – there is no free market competition, it’s all government-run. Consumers have one choice when they want to purchase electricity – the provincial government. How well has nationalizing the energy sector (“Ontario Hydro”) worked out?

Some of its biggest problems are self-inflicted. Recently, we received a stunning revelation from Bonnie Lysyk, the province’s Auditor-General. In the past eight years, electricity cost $37 billion above market price. Even more staggering, it will pay a further $132 billion above market by 2032. The by-now infamous Green Energy Act guaranteed the price for wind and solar, so that they cost double and 3.5 times the U.S. market price respectively. As a result, energy costs have skyrocketed by 70 per cent, a regressive tax that hurts lower income earners disproportionately and depresses personal consumption. Higher energy costs also render businesses less competitive, which discourages job-creating capital investment.

Surprise! Green energy doesn’t lower electricity bills. But that hasn’t stopped the Liberal government from jumping into it with both feet.

There is no respect for the taxpayer in Ontario… every dollar earned there is seen by the ruling elite as more fuel for her vote-buying schemes. They want to spend their way to prosperity, as if spending money in the right way will cause economic growth. Well, here’s the truth: the government can never cause the people who start businesses and create value to produce more by taking more from them. The more the government takes from job creators, the more job creators scale back their productivity.

We should learn from the failure of socialism in other countries so that we don’t repeat their mistakes here.

Related posts