The Government Social Security And Medicare Scam

[vt]

The government elites have sold the people's pension down the river. Meanwhile the President and Congress, along with federal government employees get gold plated pensions paid for by the taxpayer.

The best approach would be to use an index like the Wilshire 5000 as a vehicle for deposit of social security funds. No involvement of FIRE at all.

By JEREMY J. SIEGEL
Dec. 21, 2015 7:00 p.m. ET

One commonly held belief about the Social Security system is that baby boomers and the generation that preceded them are making out like bandits, draining both the Social Security and Medicare trust funds and leaving little for younger generations.

It is also widely believed—fervently so in some quarters—that the rich don’t pay their “fair share” of Social Security, since the earnings subject to the program’s taxes are capped each year. (The maximum amount of taxable earnings this year is $118,500.)

Do these notions—particularly the latter—stand up? Last month I turned 70 and, thanks to my earnings, became entitled to Social Security’s maximum benefit, currently $3,500 a month, or $42,000 a year. And so, if I live to 90, I will receive $840,000 worth of (inflation-adjusted) benefits.

Over the past 50 years, according to the Social Security Administration, the combined taxes paid into the system by me and my employers equaled $329,640.

This sounds like a good deal—the benefits I would collect over the next 20 years are more than twice what I put in. But the benefits are only about one-third the $2.27 million I would have accumulated had the taxes instead been invested, over time, in a stock index fund.

Moreover, the benefits I would collect are even less than the $1.28 million I would have accumulated if my “contributions,” as Social Security taxes are euphemistically called, had been placed in U.S. Treasury bonds. This number is particularly important, because the Social Security Administration bought government bonds with my (and others’) taxes to build up its trust funds. In effect, the government made almost one-half million dollars more on my Social Security taxes than they will pay me if I live another 20 years.

What about Medicare? Over the past half century, my Medicare taxes exceeded $1 million, more than three times my Social Security taxes. That’s because since 1994 there has been no cap on the income subject to Medicare taxes. I have calculated that these taxes, invested in Treasury bonds, would now have accumulated to almost $1.75 million.

I do not know the most expensive health-care coverage that I could buy at my age, but the so-called “Cadillac” coverage, upon which the government will apply a stiff surtax, is $10,200 a year. Even if I purchased super-premium, all-inclusive medical coverage that cost $20,000 or even $30,000 a year, I will never begin to make back the money that I paid the government to take care of my medical needs.

There’s another issue. As I continue to work, I will pay both Social Security and Medicare additional tens of thousands of dollars. I won’t get any extra benefits from these taxes.

So are affluent seniors making out like bandits? Not at all. The bandit is the federal government, which provides benefits that are millions of dollars short of what anyone whose earnings are at or above the tax cap easily could have accumulated on his own.

Mr. Siegel is a professor of finance at the University of Pennsylvania’s Wharton School.

[Milton Kuo]

Re: The Government Social Security And Medicare Scam

The government elites have sold the people's pension down the river. Meanwhile the President and Congress, along with federal government employees get gold plated pensions paid for by the taxpayer.

The best approach would be to use an index like the Wilshire 5000 as a vehicle for deposit of social security funds. No involvement of FIRE at all.

While I dislike the Social Security system tremendously because it is used as a slush fund to finance government programs that it was not intended for and which programs I generally dislike, Siegel as usual misses a few key points about things.

Social Security also contains an insurance component which kicks in when a person becomes unable to work before retirement age. Without this benefit, there are people who would become homeless or worse because they have not worked long enough or earned enough money during the time they did work to save for a permanent loss of all income.

Social Security is also an (imperfect) instrument of wealth transference where the people who earn more in a sense contribute to the Social Security of the less well-off who did not earn very much in their working lives. It is imperfect because those who make near the cap of Social Security bear a greater burden than those who earn far above the cap and that is especially true for hedge fund managers who could effectively not pay any Social Security tax if their entire income is from carried interest.

Finally, I think it'd be unwise to put 100% of Social Security in stocks because it constantly has to pay out benefits. 100% in government bonds does not seem a terrible idea to me (I'm not saying it's necessarily a good idea, though) considering Siegel's numbers because while investing in the stock market would likely return more, at least in the short term, I question whether it would return more in the long term due to how big of a player Social Security would become and what happens during stock market corrections and crashes. Social Security money going into stocks might also affect the returns of other investors in the stock market.

[dcarrigg]

Re: The Government Social Security And Medicare Scam

I'll vote against anyone who wants to hand my Social Security over to Wall Street. Period. So will the majority of Americans. It's a guarantee, not a casino. Some things you don't gamble with. And we know what will happen the next time a 2008 rolls around when stock values are cut in half. The same people that put the money in the casino will cry out, "We rolled snake eyes! The fund is empty. We won't be able to pay out benefits in 2010! We have to take grandpa's healthcare and pension away NOW!"

No, no, no. I'm not playing that game. Social Security has worked just fine for 80 years. The party that hates it has been crying wolf for all 80 of them.

[shiny!]

Re: The Government Social Security And Medicare Scam

I'll vote against anyone who wants to hand my Social Security over to Wall Street. Period. So will the majority of Americans. It's a guarantee, not a casino. Some things you don't gamble with. And we know what will happen the next time a 2008 rolls around when stock values are cut in half. The same people that put the money in the casino will cry out, "We rolled snake eyes! The fund is empty. We won't be able to pay out benefits in 2010! We have to take grandpa's healthcare and pension away NOW!"

No, no, no. I'm not playing that game. Social Security has worked just fine for 80 years. The party that hates it has been crying wolf for all 80 of them.

How would the numbers work if people who wanted to could opt out of SS and Medicaid and invest as they please?

How would the numbers work if there was no taxable income cap and all sources of income were taxed, not just wages?

Pros? Cons?

[vt]

Re: The Government Social Security And Medicare Scam

It's never wise to turn anything over to Wall Street, which is what I said. Siegel's suggestion likely would be using an extremely low cost index like the Wilshire 5000 or the Vanguard Total World Index. Neither would be allowed a penny in such an index.

The program could encompass the same disability features the current plan has.

As to the risk of 100% stocks you could have a balanced fund of say 60% to 70% equities and the rest bonds. The current 100% bonds returns far too little to be a viable plan.

As the Carlin's "they're coming for your social security", they already have and it's the government that is stealing it! They are "borrowing" from the people's pension!
And guess who is paying it back : the taxpayer! The government must be forced to pay back these "loans" and never be able to borrow from the Trust fund.

The contributor should have no ability to self manage (many manage to depletion), just like the current system. Any monies left over go to the family of the social security recipient just like IRAs now. The middle class should be allowed to grow their wealth.

Jeremy Siegel is not a right wing zealot. His book "Stocks For The Long Run" shows that stocks beat bonds 2 to 1 after inflation. This is based on his studies of the 200 year history of the stock market. All should read his book.

Since governments cause inflation by their overspending the taxpayer needs protection from inflation. The current social security system gives us no protection from inflation and is essentially a Ponzi scheme.

[thriftyandboringinohio]

Re: The Government Social Security And Medicare Scam

It's never wise to turn anything over to Wall Street, which is what I said. Siegel's suggestion likely would be using an extremely low cost index like the Wilshire 5000 or the Vanguard Total World Index. Neither would be allowed a penny in such an index.

The program could encompass the same disability features the current plan has.

As to the risk of 100% stocks you could have a balanced fund of say 60% to 70% equities and the rest bonds. The current 100% bonds returns far too little to be a viable plan.

As the Carlin's "they're coming for your social security", they already have and it's the government that is stealing it! They are "borrowing" from the people's pension!
And guess who is paying it back : the taxpayer! The government must be forced to pay back these "loans" and never be able to borrow from the Trust fund.

The contributor should have no ability to self manage (many manage to depletion), just like the current system. Any monies left over go to the family of the social security recipient just like IRAs now. The middle class should be allowed to grow their wealth.

Jeremy Siegel is not a right wing zealot. His book "Stocks For The Long Run" shows that stocks beat bonds 2 to 1 after inflation. This is based on his studies of the 200 year history of the stock market. All should read his book.

Since governments cause inflation by their overspending the taxpayer needs protection from inflation. The current social security system gives us no protection from inflation and is essentially a Ponzi scheme.

Using Social Security tax receipts to buy stocks broadly is ripe with opportunities for Wall Street schemes.
I don't think there is any practical way to prevent Wall street plundering the markets, and effectively stealing the withholding tax money.

If a giant river of SSA cash pours into equity markets, it will be too big and complex to control.
By indirect methods of issuing and controlling shares of stock, Wall Street will divert huge sums into their own pockets.

Today's system is so much cleaner and easier.
The SSA money buys just one thing from one place - US. Govt debt.
The big banks get a slice as the primary dealers and that's the end of it.

[dcarrigg]

Re: The Government Social Security And Medicare Scam

How would the numbers work if people who wanted to could opt out of SS and Medicaid and invest as they please?

If you could opt out, and you lose all your money gambling, then what? What if you end up permanently disabled? There was never a 1:1 correlation between what you paid in and what you get out. Social Security was designed as an insurance program (Old Age, Survivors, and Disability Insurance; OASDI), not as a 401(k) investment vehicle.

Social insurance is about mitigating risk. Letting people gamble with it does the exact opposite. It makes everything more risky.

How would the numbers work if there was no taxable income cap and all sources of income were taxed, not just wages?

This probably has to happen. Eliminating the cap (or raising it) alone would solve almost everything. Adding in unearned income would make it solvent forever.

[shiny!]

Re: The Government Social Security And Medicare Scam

If you could opt out, and you lose all your money gambling, then what? What if you end up permanently disabled? There was never a 1:1 correlation between what you paid in and what you get out. Social Security was designed as an insurance program (Old Age, Survivors, and Disability Insurance; OASDI), not as a 401(k) investment vehicle.

Social insurance is about mitigating risk. Letting people gamble with it does the exact opposite. It makes everything more risky.



This probably has to happen. Eliminating the cap (or raising it) alone would solve almost everything. Adding in unearned income would make it solvent forever.

Thanks, as usual, dcarrigg. I'd like to see an elimination or raising of the cap and unearned income be made taxable, but I'd also like an end to the government being allowed to borrow from the fund.

[dcarrigg]

Re: The Government Social Security And Medicare Scam

Thanks, as usual, dcarrigg. I'd like to see an elimination or raising of the cap and unearned income be made taxable, but I'd also like an end to the government being allowed to borrow from the fund.

That sounds very reasonable to me.

The distinction between adding risk to people's lives and mitigating it I think needs to come back front and center in American policy anyways.

Better half just got shunted to a 'defined contribution' health plan for next year. I figure that will be almost everyone in America by 2020. Now there's no group policy, no negotiating power, and you have to pay for it in after-tax funds. Hurts everyone but the employer who gets out of eating the cost of increasing premiums. And Obamacare lets it be possible, because now there's a "marketplace." In case others haven't been watching, it seems to me the options get worse and the prices go up every year on that sucker.

The top 2015 gold plan vs the top 2016 gold plan is double the deductible, 20% coinsurance instead of 0% coinsurance, 150% increase in copays and out-of-pocket max, no more flat rates for MRIs, CT scans, and physical/occupational therapy--now you've got to pay a percentage...all a much worse deal. For that much worse deal, you only pay $30 more per month than you did for the much better deal last year. And this has been going on since they started it.

[vt]

Re: The Government Social Security And Medicare Scam

Thanks, as usual, dcarrigg. I'd like to see an elimination or raising of the cap and unearned income be made taxable, but I'd also like an end to the government being allowed to borrow from the fund.

Taxing unearned income is a problem for the middle class without pensions trying to save for retirement. Any such proposal should only tax such income above a certain threshold.

[Milton Kuo]

Re: The Government Social Security And Medicare Scam

Better half just got shunted to a 'defined contribution' health plan for next year. I figure that will be almost everyone in America by 2020. Now there's no group policy, no negotiating power, and you have to pay for it in after-tax funds. Hurts everyone but the employer who gets out of eating the cost of increasing premiums. And Obamacare lets it be possible, because now there's a "marketplace." In case others haven't been watching, it seems to me the options get worse and the prices go up every year on that sucker.

A friend who recently lost his job and was looking to purchase a health insurance policy asked me what I did in 2011 when I was self-employed. I told him I used a web site that got bids from multiple insurers to select the lowest priced, high-deductible plan from a well-known insurer. While five years have elapsed and I suppose prices should increase to account for inflation (which the Federal Reserve claims is less than 2%), the premiums are over 50% higher than they were when I purchased. That's roughly a 10% per annum increase.

Like your wife, my current job's health care plan gets crappier and crappier each year, too. The services provided are crappier and the out-of-pocket expenses are high even though the premiums have increased. Employees are offered a $260/year discount if they answer some sort of survey which asks a lot of personal questions. I choose to pay the extra $260/year because the kind of information sought is only going to be abused by the insurance company/industry. I fully expect that in the future, all employees will be required to answer the survey and no discount at all will be offered.

[santafe2]

Re: The Government Social Security And Medicare Scam

The top 2015 gold plan vs the top 2016 gold plan is double the deductible, 20% coinsurance instead of 0% coinsurance, 150% increase in copays and out-of-pocket max, no more flat rates for MRIs, CT scans, and physical/occupational therapy--now you've got to pay a percentage...all a much worse deal. For that much worse deal, you only pay $30 more per month than you did for the much better deal last year. And this has been going on since they started it.

I had a CT scan earlier this year. Locally the deductible was $150. I sometimes work in AZ so I called a couple of the larger providers there and found I could get the same scan - with no insurance - for $99. And for that price the Radiologist even provided a short consultation with my Internist. Insurance companies and health care providers in the US have gamed the system so much they may find some day that all anyone wants is catastrophic health insurance.

[santafe2]

Re: The Government Social Security And Medicare Scam

Thanks, as usual, dcarrigg. I'd like to see an elimination or raising of the cap and unearned income be made taxable, but I'd also like an end to the government being allowed to borrow from the fund.

shiny!, it's a bit confusing but the federal government doesn't really borrow from SSI. When Johnson was president and in the middle of the Vietnam war he wanted to hide the amount of deficit spending the war caused so he and Congress invented the Unified Budget which reports SS Trust Fund receipts and all other receipts in the same bucket. Neat trick. And of course once that was done every president since has been happy to lie about the level of yearly federal deficits, (or the famous and almost non-existent surpluses of the late 90s). The usefulness of the Unified Budget will come to an end in the next year or so when the fund starts drawing down, unless Congress raises tax rates and/or creates a medical system that works....um, that's not going to happen.

[Milton Kuo]

Re: The Government Social Security And Medicare Scam

Jeremy Siegel is not a right wing zealot. His book "Stocks For The Long Run" shows that stocks beat bonds 2 to 1 after inflation. This is based on his studies of the 200 year history of the stock market. All should read his book.

Since governments cause inflation by their overspending the taxpayer needs protection from inflation. The current social security system gives us no protection from inflation and is essentially a Ponzi scheme.

I have never stated or implied, here or anywhere else, that Siegel is a right wing (or left wing) zealot. I know nothing of Siegel's political leanings although, if I had to guess, I would guess he's more likely a Democrat than a Republican. My criticisms are solely based upon my opinion that his idea is flaky and, having read other articles written by him in the past, that he's a lousy economist/market analyst/financier or whatever he is who is grossly out of touch with the situations of people who still have decades to work before they reach retirement age.

That said, this is exactly why I am against heeding any advice from Siegel without carefully thinking it over:

http://www.zerohedge.com/news/2016-0...-bad-out-there

Siegel is a broken record and the data he has is from a different era where there wasn't nearly as much money flying around even correcting for inflation. Furthermore, there are a lot more inputs and players in the system than there used to be and I strongly suspect that putting all of the Social Security money into index funds is going to have fairly negative, unforeseen side effects and that's not even considering the tremendous efforts that Wall Street and Washington D.C. will make to pilfer that pile of money.

Finally, it's one thing for tiny Norway to invest its sovereign wealth fund into global stock markets; it's another altogether for the behemoth U.S. to start pumping the Social Security monies it collects yearly into the global equities markets and that's not even taking into the account the lump sum of money that should currently be in the Social Security system. The front-running games would be relentless.

No thank you, Dr. Siegel. There are far, far too many ways for things to go wrong with your idea of putting Social Security into the stock markets. And Siegel's track record, at least from his articles I've read over the past decade-plus, is not exemplary. I think a far better and safer idea would be putting them into TIPS. I'll take the relatively lousy return on capital with TIPS over seemingly ever-increasing risk of not having my capital returned at all.

[vt]

Re: The Government Social Security And Medicare Scam

Fact Checker

Clinton’s claim that Bush wanted to ‘give the Social Security trust fund to Wall Street

“After Bush got reelected in 2004, the first thing he said was, let’s go privatize Social Security. … And you know what, their whole plan was, their plan was to give the Social Security trust fund to Wall Street. Imagine that.”

— Hillary Clinton, remarks during an MSNBC/Telemundo Democratic town hall in Las Vegas, Feb. 18, 2016

George W. Bush’s plan for private Social Security accounts — which died a quick death after even congressional Republicans balked at the idea — remains a favorite bogeyman of Democrats. Even more than a decade after the plan’s demise, the claim that the GOP will “privatize” Social Security still pops up in attack ads.

We have explained before that “privatization” is one of those pejorative political labels used by opponents of the Bush plan, akin to the bogus Republican claim that the Affordable Care Act is a “government takeover” of health care. Just as the health-care law preserves the private health-care system, private accounts in Social Security would have been established as part of the current system.

But there’s something else about Clinton’s claim that was wildly off. Let’s take a look.

The Facts

Social Security has two trust funds — one for retirement benefits and one for disability benefits — that are are currently invested in Treasury securities, one of the safest investments possible. (Some argue that’s an accounting fiction, but that’s not right. For more information, see The Fact Checker’s Guide to Social Security.)

In the late 1990s, as the federal government started running unexpected budget surpluses, Democrats and Republicans argued about what to do with the projected trillions of dollars in extra money. Republicans began pushing for a big tax cut, while then-President Bill Clinton countered with “Save Social Security First.”

The old-age retirement program was expected to face financial stress with the pending retirement of the baby boom generation. The leading edge of that generation would reach retirement age around 2008, and today some 10,000 Americans retire each day.

In his 1999 State of the Union address, Clinton proposed transferring $2.7 trillion of the budget surpluses to the Social Security trust funds — and investing 20 percent of the funds in the stock market, most likely in index funds. Clinton’s goal was to have about 14.5 percent of all trust fund assets in stocks. By 2014, it was estimated, the government would own nearly $1 trillion of the shares of U.S. corporations.

The hope was that the higher returns from stock investments would help extend the solvency of the program as baby boomers moved into retirement.

As a technical matter, Clinton proposed to invest general revenues in the stock market in order to bolster Social Security; he did not propose diverting payroll-tax revenue destined for the trust funds. Tapping general revenues, however, was also controversial because it would break the link between Social Security and workers’ paychecks. In any case, one could certainly say that the first president who wanted to “give the Social Security trust fund to Wall Street” was Bill Clinton.

Clinton’s proposal was met with horror by Republicans, who feared government manipulation of the securities markets. (Then-Federal Reserve Chairman Alan Greenspan was an especially strong foe.) Republicans countered with an alternative proposal — allowing individuals to direct a portion (about 15 percent) of their Social Security payroll taxes to individual retirement accounts. These were called “personal accounts,” in that Americans would have a choice of investment options modeled on the retirement program for federal workers.

In response to the GOP demand for “personal accounts,” Clinton floated an alternative system called Universal Savings Accounts, in which each American would receive an identical chunk of money from the government to be invested.

In essence, the two parties split this way: Republicans proposed to “carve out” personal accounts within the existing Social Security system, while Democrats proposed to “add on” personal accounts while leaving the current defined-benefit system of Social Security in place.

When Bush ran for president in 2000, advocating personal accounts, he specifically rejected the idea of government investing any funds earmarked for Social Security in the stock market. Instead, he laid out broad principles for a “carve-out” plan, such as saying current retirees and anyone over 55 would stay in the current system, that participation for younger workers would be voluntary and that the investment choices would be limited to a few broad-based investment options, such as stock and bond index funds.

Bush’s Social Security agenda was sidetracked by the Sept. 11, 2001, attacks, but when he was reelected in 2004, he pushed forward with a version of a personal-account plan, declaring, “I earned capital in this campaign, political capital, and now I intend to spend it.”

Under Bush’s Personal Retirement Account (PRA) plan, the payroll-tax diversion was relatively small, starting out with a cap of $1,000 per year and eventually expanding to no more than one-third of payroll taxes. The investment options were modeled on the ones in the Thrift Savings Plan (TSP) for federal employees, with a bias toward “life cycle” plans that shift investments from stocks to bonds as a worker nears retirement. A key feature was that participation was voluntary; even people who chose the PRA option would not have been compelled to invest any of it in the stock market.

“TSP was our model for account administration, and TSP has a quasi-government entity managing account administration,” said Keith Hennessy, director of the White House National Economic Council under Bush. “It is true that our PRAs would have allowed you to take on (limited) investment risk, but that’s a different meaning than ‘giving the Social Security trust fund to Wall Street.’ That’s an absurd and patently false claim.”

Gene Sperling, who was director of the National Economic Council under Bill Clinton, suggested The Fact Checker was being nitpicky about Hillary Clinton’s language. ” ‘Wall Street’ was clearly her shorthand for the fundamental conflict between Republicans and Democrats over whether to carve out personal accounts from payroll taxes that now are dedicated to the Social Security trust funds,” he said. “I don’t think anyone watching had any question what she was talking about.”


In any case, for all the effort Bush put into crafting and promoting his concept, it went nowhere. Bush could not even get a committee vote on his idea, even though Republicans controlled both houses of Congress, as Republicans were wary of embracing a concept under furious assault by Democrats.

The Pinocchio Test

We realize that Clinton was speaking off the cuff at a televised forum, but her language on this issue is still very sloppy.

The GOP’s “whole plan” was not to put Social Security’s trust funds into the stock market. It was designed as a voluntary program, in which individuals could choose to direct a relatively small portion of their payroll taxes to investment options besides Treasury securities. Ironically, it was Clinton’s husband who actually had proposed to invest money earmarked for Social Security in the stock market.

Shorthand or not, there is also little excuse for referring to the Bush plan as privatization. Clinton earns Three Pinocchios.

Three Pinocchios