The View From 1776

Apr

Should we ignore the unfunded liabilities of Social Security and MediCare and let future generations worry about the problem?

Posted by .(JavaScript must be enabled to view this email address) on 08/23 at 10:06 PM
  1. The problem is also that this recession is moving the timetable up and the unfunded liability higher. We lower the tax revenues with wage stagnation, needed to keep up with the payments that are adjusted up.

    When FDR signed the bill for Social Security, he thought that once the first group of workers who hadn't paid in long enough for their own retirement, were through the system it would move to personal accounts, like an annuity invested in government bonds. That is still the best plan if you are going to have one but, faces a huge problem.

    For the worker to pay into his own plan, only, the government would have to pay the difference for what is in the trust fund for current retirees and the shortfall when it ran out. Those not retiring would pay into their own accounts in which government bonds would be held either in reality or as accounting entries. Those that paid into the current scheme would get some of both plans at ratio in proportion to how long they paid into the current one.

    But, that isn't likely because the government doesn't want to be committed to the "bill" that would fall due when the trust fund runs out.

    Same with Medicare which I believe they will "fix" by abolishing the plan and merging it into a national health care plan. That part of the payroll tax will be eliminated and replaced with a new tax of a different structure.

    The idea of a national health care plan is too popular to think it won't eventually happen. We have moved too far into socialism for it not too but, it will be a mess. Our government doesn't do things well to begin with because they under report inflation and that leads to budgeting shortfalls. Each year the tax revenues and spending for the national health care plan will have to rise as fast as health care inflation, not just overall inflation.

    As the population ages, it will cause the cost to sky rocket unless they flood the nation with young immigrant workers and that will cause problems too. We can't maintain the infrastructure we have and if Congress adds the 67 to 100 million they think they will need, with current birth rates, it will require 1/3 more infrastructure. It is a recipe for trouble but, they see no way out.

    The other problem is that we may be facing a very long recession that drains us. We could even face a currency collapse and loss of many government services as we have rebuild the economy and government services from scrap. Democracies end badly. Ours may end really bad because we have the "world's reserve currency" that the world is growing tired of.

    Reform that actually works may not be possible until we have a collapse and start over. Or if we have reform that does work, the tax rate may be so high it crushes the economy eventually. We are going to move from the current 36 million retirees to 71 million in 22 years. To have taxes high enough to cover a 100% increase and inflation in health care with stagnant wages and a recession will make reform beginning now, very difficult.
    Posted by JanPBurr  on  08/24  at  09:40 AM
  2. It is of course folly to attempt to solve complex problems like the funding Medicare in a sentence or two on a blog.

    But we can at least say that through the political process, America needs to get its priorities in order and then decide how to pay for them.

    For instance, is health care for our citizens more important than having a military bigger that that of the rest of the world combined? If so, then cut the defense budget and fund health care. But if a huge military is more important to us, then cut health care and buy more bombers.

    It is the old guns or butter choice. You can't have unlimited amounts of both, unless, of course, you are a politician - of either party - who will tell you that you CAN have everything, and for free!

    The conservatives tell you that through the magic of tax cuts, the money will spontaneously appear. The liberals tell you that a tax hike on the ultra rich will take care of everything.

    The truth is probably somewhere in the middle:

    1) We could adequately defend this country with a military that was, say, 1.5 times bigger that that of our most significant foe.

    2) Some rationing of medical care will be needed, and some consideration needs to be given to whether the 30% the medical "insurance" industry piles on for "administration" actually adds any value to the process of staying well.

    I guess there is the third choice, favored by the current administration, which is borrow all the money they need from the Chinese and let our children pay the tab for the bloated military, the tax cuts, and the out of control entitlements (plus interest).
    Posted by .(JavaScript must be enabled to view this email address)  on  08/24  at  02:10 PM
  3. Testimony to Congress that we can't tax or grow out of this. We are a mature economy, not a growth economy that was in place when we created the programs and systems for funding them that was based on permanent growth.

    So, Congress has a new solution that so far has been thwarted by voters. Legalize the 20 million illegal immigrants here and immigrate 67 to 100 million more. The believe that if you can't tax ore grow enough with 300 million people than you can with 400 million.

    We have to first collapse and end spending for defense, socials security, Medicare, Medicaid, education, and a lot of other things. Then we rebuild with policies based on sound economic and monetary fundamentals.

    For 100 years we have been using fractional banking and growth as "sound economic" theory for long term policy. Even if they were "good" for awhile, long ago they needed reform. Yet, today, instead of reform, Congress and the Fed are continuing to use the flawed policies that got us into this mess.
    Posted by JanPBurr  on  08/24  at  03:13 PM
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