When Math Meets Hope


President Obama has laid out his latest and greatest job saving plan that is sure to be even better than the last two.  Part of that plan is an extension and expansion of the current payroll tax cuts which will divert around $240B from the Social Security Trust fund into his $450B proposal.

An obvious question is whether or not the Social Security Trust Fund is an appropriate source of funding.  The short answer is no…hell no, but these are tax cuts not actual borrowing, right?  That’s the first failure in this predictably vague proposal.  The cuts are speculative in that nobody has seen an actual bill. They are gleened purely from the weakly worded but wonderfully delivered speech.  Still, let’s assume they are as predicted.

Social Security is running about $50B in the hole and is projected to level off around $20B in the red in 2012 before it goes on a terminal dive in 2015 that ends in 2036 according to the Social Security Administration Board of Trustee Report of May 2011.  The report includes projections that take into account the new Patient Protection and Affordable Care Act (ObamaCare) and also cites concerns with the viability and projections of ObamaCare (see the second to last paragraph of the summary).  So, even WITH the added magic of the $1T ObamaCare package, the SSA Trustees have downgraded the insolvency of Social Security from 2037 to 2036 and Medicare is in even worse shape.  Funny how this does not make headlines.

Let’s do some simple math and see if President Obama has finaly taken the walk into La-La land.  Social Security is going to average around $30B in red spending until 2015 before diving even further into an ever increasing annual deficit.  If we add $240B to that right off the bat we get…oh yeah, MUCH WORSE!  I can’t wait to see the Trustee’s report in 2012.  It should go something like, “Why do we even bother?”

Before any of you go into a tizzy about how Social Security has a $2.6T surplus I am already aware of it as detailed by a Huffington Post letter provided by former Democrat  Senator Don Riegle who, incidentally, was formally reprimanded during his last term for “substantially and improperly interfering” with an investigation against a financial institution that cost the government over $3B when it collapsed.  Not exactly a fiscal genius.

That the $2.6T surplus has been borrowed by the government to offset its $13T deficit is a universally accepted fact.  What Mr. Riegle proposes, though, is that the loan is in such good faith that when Social Security needs to collect on it there will simply be a check written from the government…for itself…plus interest.  In fact the Board of Trustees believe the same thing in their report.  The burning question is:  If indebtedness to Social Security (once hailed as self sustaining thus unrelated to deficit spending) is now calculated as part of the national debt, then how can that money actually be paid back…PLUS INTEREST while we are in a deficit???  That’s like seriously saying you can be broke one month, but loan yourself money for your mortgage payment after borrowing money from other people for the rest of your bills, then pay yourself back in twenty years during which your budget is expected to get worse…PLUS COLLECT INTEREST!!!

What is not so universally accepted in the letter (but is gobbled up by SSA proponents galore) highlights typical agenda driven selective reasoning.  Mr. Riegle properly cites a 2010 SSA Board of Trustee report that details a surplus in funds forever and ever.  However, Mr. Riegle provides a graph that I have not found in the report.  Furthermore, the graph appears to be compiled from data in a table on page 194 of the report.  More specifically, the data is from the column representing “Low-Cost” projections which most certainly shows increasing surplus that seem to carry on without end.  Here’s the catch:  On page 7 of the report there are 3 “alternatives” for predicting the performance of the Social Security Trust Fund:  Intermediate, Low-cost, and High-Cost.  Intermediate is based on current information and trends (and is the one that predicts insolvency by 2036) while Low-Cost and High-Cost assume best case and worse case scenarios.  The table shows all three outcomes.  Mr. Riegle conveniently uses the Low-Cost, or “Best Case”, scenario to support his claim that Social Security is simply not in trouble and does not disclose that bit of information.  It is the only prediction that shows a sustainable surplus.

BTW, here’s a CBO report that shows transfers from the General Fund into Social Security through 2020.  They are called Intergovernmental Transfers to Trust Funds.  Even by 2020 they do not even closely match what is being loaned.  Also, Medicare has been and is projected to continue running increasingly in the red, which offsets the annual increases of the Transfers that might actually make a difference if we were just talking about Social Security.  This shows that Medicare is an inseparable problem with Social Security that is like an anchor that weighs more than the ship.  If I read the SSA Trustee report correctly ObamaCare is expected to create only a 25% improvement in Medicare fund performance (through decreased payment schedules for medical care) over a finite period of time.  Again, the projected decline in Medicare includes whatever benefits are assumed from ObamaCare.

I don’t think anyone with any economic sense believes best case scenarios are ever the ones to base economic policy on.  That is, of course, unless you campaign on “Hope”.  Welcome to La-La land.

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