Going Off The Deep End With Elizabeth Warren on Social Security

Full disclosure: the bulk of my personal income comes from Social Security. Without Social Security, I would probably be living under a bridge.

Once upon a time, I was a relatively wealthy man. Not rich. Well off. Then there was this great big recession, and I basically lost it all…just as I was getting ready to retire.

This is not an uncommon story. It is, in fact, the stories of around twenty million Americans who are 62 or older.

There were other factors that eroded the incomes we earned during our working years:

Exorbitant medical care expenses, including over-priced health insurance plans and equally overpriced fees for drugs and medical services.

The escalating costs of undergraduate and post-graduate education in the United States. You may not remember this – you might not be old enough to remember it – but in the early nineties there was a bulge in the numbers of middle aged people seeking new undergraduate and post-graduate degrees as part of their career change process.

Many of these people had a substantial percentage of their net wealth tied up in their homes. Many of those homes have lost value, at first during the recession that began in the real estate sector in 2008, and then again as those larger homes lost favor with younger families.

Now, these older workers are too old to find jobs in the work place, but they are still carrying many of those student loans. People in their fifties and sixties struggling with student loans they can’t pay off because the jobs they were transitioning into never existed or dried up while they getting the education they thought they needed to get those non-existent jobs, while they try to squeeze the equity out of their homes. (Hint: do look at Reverse Mortgages, while they still exist.)

Be that as it may, it is certainly thrilling to seniors like myself that Elizabeth Warren, 70, has got our backs, proposing an across the board increase of $200 per month in the monthly stipends of the 61 million Social Security recipients in the United States.

Warren is also proposing an increase of as much as $600 a month for low income workers who never paid enough into their Social Security Accounts to earn enough back for a decent retirement income.

It is never going to happen, regardless of who is elected president.

The price tag for this item STARTS at $146 billion a year, and there are no means tests to determine whether or not a given retiree should receive the additional stipend.

Warren plans to pay for this largess by dispensing with the rule that caps the taxable income for Social Security at $250,000 per year. Right now, workers and their employees split the cost of Social Security on only the first $250,000 of the worker’s salary (or less of course if the worker earned less.)

Note to Elizabeth Warren:  most high earning employees do not receive the majority of their compensation as salary.  There are stock options and deferred income plans that shelter the income of these workers to the point where this change in the Social Security taxing plan might not produce any additional income at all. The only sure revenue generator is to increase the TAX RATE, not the basis on which the tax is figured.

But let’s ignore that for a moment. Let’s pretend that the income will appear.

Right now, economists are warning everyone who is willing to listen that the annual disbursements to Social Security recipients will exceed the annual income from Social Security payroll taxes in 2020  – and that’s next year.

Once that happens, the Social Security Administration will have to make up the difference between the monthly disbursements and the monthly revenues by using the Trust Funds….until they run out, probably around 2035

At that point, whichever gang of crooks is in control of the government in 2020 has the following choices to choose from:

  1. Allow the Trust Funds to be depleted by 2035, which turns Social Security into the world’s largest Ponzi scheme, at which point they will have to reduce stipends by at least 33 percent.
  2. Decrease Social Security stipends NOW to match the decreasing revenues.
  3. Increase the Social Security tax rate to cover the 33 percent shortfall.
  4. Remove the $250,000 taxable income cap for Social Security taxes
  5. Implement a means tests to determine whether a given individual actually needs the Social Security stipends (a move that will fail a Constitutional test.)

Since the fifth option is really a non-starter, we only have four ways to prevent the collapse of Social Security as a viable program…and whichever gang is currently in control of the government at the time will probably have to use a combination of all four options in order to keep Social Security solvent.

The only reason Social Security didn’t ever qualify as a the world’s largest Ponzi scheme was that there was a substantial net surplus each year after the annual operating expenses had been deducted. Once Social Security starts living from hand to mouth, the only thing saving it from becoming an actual Ponzi scheme is that government regulations require everyone who works in America to pay into the system.

Unfortunately, one of the two major political parties has been trying to figure out how to kill Social Security ever since it was enacted in 1935 by an overwhelming Democratic majority in Congress.

The Republican party HATES Social Security. They hate Social Security because of the employer contributions to the fund, which amounts to one-half of the total Social Security taxes paid in any given year.

Over the past  85 years, those payments have amounted to trillions of dollars (in 2018 adjusted dollars) of lost revenue for American businesses.  Corporate America regards those taxes as theft and wants it stopped.

Without the employer contributions, you would have to double the Social Security taxes on workers from the current 6.2% to 12.4%. Unlike your income taxes, which are figured on the adjusted net income, Social Security taxes are figured on the worker’s gross income. By a show of hands, how many of you can make ends meet if you are forced to pay and additional 6.2% of your salary into the Social Security fund?

Even if there were no employer contributions required by the Social Security Act, rest assured that the Republicans would STILL want to kill Social Security, because they want that money circulating through the economy rather than being kept in the government’s coffers.

(The money isn’t actually kept in the vault, by the way. The federal government has been borrowing those funds from the Social Security Trust Funds ever since the Johnson administration, trading special  Treasury Bonds in exchange for the funds, so the money really stays in circulation…but it also represents a substantial portion of our national debt.)

The bottom line – as far as Elizabeth Warren’s very fine idea of increasing my Social Security disbursement by $200 is concerned – is that it is never going to happen, and Elizabeth Warren knows this, which makes this campaign proposal very cynical.

Warren knows this because she knows the math. She knows that Social Security revenues have declined as the work force shrinks and the average salaries for low and middle income workers fail to rise even to the level of inflation. She knows that the disbursements are increasing as higher income workers begin to retire, and more workers are opting to cash out at 62 rather than 66.

I would love an extra $200 a month. I really would, but I know that I am never going to see that money, and neither are you because the Democrats have to face their own choices when it comes to Social Security.

An incoming Democratic administration will find itself facing the same dilemma the Republicans would be facing: Social Security Administration’s imminent shift from accrual to cash, at which point the Democrats, assuming they have the votes, will have to choose between these options:

  1. Immediately increasing the Social Security tax rate to protect the Trust Funds from depletion
  2. Raising or removing the cap on Social Security income in the tax calculations to spread the pain more equally among higher earning workers
  3. Increasing the employer’s percentage of the Social Security tax (good luck with that!)
  4. Lowering the stipends to match revenues

Yes, those are the same exact choices that a Republican administration would face in 2020.

Elizabeth Warren’s plan to increase Social Security payments  was dead in the water before the ink dried. It is dead in the water because the next administration – assuming Trump loses – is going to have to deal with preventing the imminent demise of the Trust Funds.

This is even more important than it seems because, as I have said before, every administration since Lyndon Johnson has been using the Social Security Trusts Funds as a piggy bank from which operating funds have been siphoned off and replaced with Treasury Bonds that cannot be sold on the open market and can only be redeemed by the Treasury Department…at its leisure. If that piggy bank is closed forever, the federal government is going to have a much more difficult time meeting its financial obligations. Result: increasing interest rate on the federal debt, increased inflation, deepening trade balance deficits, and a new financial crisis.

If Elizabeth Warren becomes president -a prospect I do not look forward to, although I will vote for her if she is the Democratic party’s candidate – one of the first items on her agenda is going to be staving off the insolvency of the Social Security Trust Fund. That doesn’t leave much room for increasing stipends,  since the same exact palliatives required to stave off Social Security’s insolvency are the ones that Warren wants to fund the stipend increases from.

You can’t squeeze the same lemon twice and expect to get the same amount of juice from a previously squeezed lemon.