The Economists Who Missed the Housing Bubble Are Coming After Your Social Security! (TPM)

The Economists Who Missed the Housing Bubble Are Coming After Your Social Security
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By Dean Baker - February 13, 2009, 4:13PM

Word has it that President Obama intends to appoint a task force the week after next which will be charged with "reforming" Social Security. According to inside gossip, the task force will be led entirely by economists who were not able to see the $8 trillion housing bubble, the collapse of which is giving the country its sharpest downturn since the Great Depression.

This effort is bizarre for several reasons. First, the economy is sinking rapidly. While President Obama's stimulus package is a good first step towards counteracting the decline, there is probably not a single economists in the country who believes that is adequate to the task. President Obama would be advised to focus his attention on getting the economy back in order instead of attacking the country's most important social program.

The second reason why this task force is strange is that Social Security doesn't need reforming. According to the Congressional Budget Office, it can pay all scheduled benefits for the next 40 years with no changes whatsoever.

The third reason that this effort is pernicious is that this talk of reform is occurring with the baby boomers just as the cusp of retirement. Due to the reckless policies of the Rubin-Greenspan-Bush clique, this cohort has just seen their housing equity wiped out with the collapse of the housing bubble. Tens of millions of baby boomers who might have felt reasonably secure three years ago are now approaching retirement with little or no equity in their homes.

Similarly, if they had been fortunate enough to accumulate any substantial amount of savings in a 401(k) account, they just saw much of this wealth vanish with the plunge in the stock market. The median late baby boomer household (ages 45-54) has a net worth of just over $80,000 including the equity in their home. This means that if they took all of their savings, they would have less than half of their home (assuming a median price $175,000) paid off, and nothing else.

The median household among older baby boomers would be doing a bit better. With a net worth of $143,000, this household could have most of their home paid off, but nothing else. And of course, half of the population has wealth less than the median, so they would be less well-prepared for retirement.

In short, the vast majority of baby boomers will be approaching retirement with little other than their Social Security and Medicare to support them. And now President Obama is apparently prepared to appoint a commission that will attack these only remaining pillars of support.

It is especially infuriating that this task force is likely to headed up by economists who somehow could not see an $8 trillion housing bubble. The incompetence of such economists has inflicted enormous pain on billions of people around the world. However, unlike people who fail in other professions, economists who mess up on the job just get promoted so that they can do even more harm.

My guess is that this task force will not be very popular except at the Washington Post and on Wall Street.

Dean Baker at TPM......

http://tpmcafe.talkingpointsmemo.com/2009/02/13/the_economists_who_missed_the_housing_bubble_are_c/

TIA!

After you made 85,000 they stopped taking out money for SS.

It's $106K in 2009.

Billionaires who earn $106,000 in a day or even in an hour have met their obligation for the year and I believe they should pay their 7.5% for all the wages they earn in a year. Why is it that only the working class shlub gets to shoulder most of the taxes?

& the wage income they do get they can easily adjust to receive in other ways.

The people who will be hit are the upper middle, high-earning professionals & less well-connected business people. And the current distribution of income being what it is, that 10% of wage earners will wind up funding 50% of SS & getting comparatively little in return, unless you increase the payout. But that wouldn't save you any money.

This will be a political wedge, & it *will* be used to destroy the program. Which is exactly what the people proposing this "solution" to a non-existent "problem" want. The strategy for taking down SS is well-thought-out, well-funded, & has proceeded step by step over decades: Read the 1983 Cato paper, "Achieving a Leninist Strategy."

The other reason the cap shouldn't be raised is it would just give the thieves in Congress *more* excess SS money to borrow into the general budget to keep taxes on corps & billionaires low - cap gains, dividends, income tax etc. - the taxes that actually *affect* the billionaires you say you'd like to target.

Leave SS alone or reduce FICA, & rescind the Bush tax cuts on the top 1-5%. That more than covers the entire SS Trust Fund over 10 years.

Social Security doesn't have a funding problem. It's over-funded, & FICA should be reduced by about 1% currently.

Don't buy into the bi-partisan "crisis" meme. It's bullshit, & if you take the trouble to go through the models & look at the assumptions they're based on, you'll know it.

The crisis is for the owning class, who might have to take less profit increases. They want to take more, & you to take less, that's all.

And billionaire CEOs, should it become inconvenient to do so, don't have to take their income in wages.

But since there's no problem with Social Security funding, & there IS a problem with funding the general budget & the state governments, I'm not sure why you're focused on lifting the cap on FICA to throw more unneeded money into a slush fund that allows the truly rich to dodge taxes, rather than addressing the actually existing problems by raising the capital gains tax, corporate income tax, & the like.

from the payroll taxes and partly because of semi-privatizing it through Medicare Advantage plans, Medicare disAdvantage would be a better description. We could extend an improved Medicare for all by lifting the caps alone. I'm all for raising capital gains tax, corporate income tax, especially and taxing assets, however, so far it seems pigs are going to fly, so I don't get it that you don't want to get taxes from the one place it's most possible to do so and where it will be targeted for a specific use, Social Security and health care instead of being dumped in the general fund for the corporate thieves to raid for their own profits.

If we had universal health care funded from progressive taxes on ALL income (not just wages), it would be a better solution.

"I don't get it that you don't want to get taxes from the one place it's most possible to do so and where it will be targeted for a specific use,"

Why do you think it's "most possible" to uncap payroll taxes on wage income?

Why do you think those taxes are "targeted"? Last year SS collected 187 BILLION more than it needed to pay current beneficiaries. The gov't borrowed the money, wrote IOU's for it, & spent it on war. Meanwhile, the excess SS collected on income from wage workers making under $100K made it possible for people making over $100K to pay LESS INCOME TAX on ALL their income: including capital gains.

The excess in SS collections is ALREADY funding low income taxes for the super-rich, & you want to give them more. It's senseless for many, many reasons.

Raise income taxes at the top. If you ever want to see the SS money in the trust fund returned, it will have to happen. Do it now, don't let them "borrow" more.

PR tax is partly diverted to Medicare. One of the reason SS has been collected in excess was a deliberate effort to be able to pay for the baby boomers who are now retiring. It's not a state secret that this was what was done. If that excess is funding taxes for the super rich that means the trust has been raided and that needs to be fixed by this new administration. Remember Al Gore and his talk of a "locked box" for these programs? This is what he was referring to. Well, IMHO eventually the super rich are going to have to give us back the $1.3 trillion in tax cuts they have received to put our economy right again besides anything else they have stolen. I still don't understand why taking money from them is giving them more? Your example of them raiding the trust funds is simply piracy that needs to end.

are levied separately, & the forecasts are projected separately. SS taxes DON'T go to Medicare unless formally borrowed, & vice-versa.

It's you who's doing the "blurring." SS & Medicare are two separate programs.


"If that excess is funding taxes for the super rich that means the trust has been raided and that needs to be fixed by this new administration. Remember Al Gore and his talk of a "locked box" for these programs? This is what he was referring to."

The "lockbox" talk was always a fraud. Here's the history.

In 1982, there was a looming shortfall in SS collections v. expected payments out. The gap could have been closed by a small increase in the SS tax rate.

Instead, the bipartisan panel Reagan appointed (led by alan greenspan) chose to raise rates enough to generate continually increasing surpluses. They sold this by saying the boomers would be "pre-funding" their own SS. They also started taxing part of SS & instituted a gradural increase in the retirement age.

But the "pre-funding" bit was a fraud: people were led to believe the SSA was putting their money into something like an interest-bearing safety deposit box, not spending it. But the government is the creator & guarantor of "money." It doesn't/can't "save" in that manner, like a private citizen does in a bank. The government doesn't save its money in private banks, it just creates, destroys, collects, spends. (Not to mention why you can't "pre-fund" SS, but i won't go into that).

The folks who created the reagan fix KNEW they were going to spend the excess, everyone in Congress knew too, because:

The 1937 SS law REQUIRES all excess SS collections be borrowed by Treasury in exchange for Treasury securities. The excess money goes into the general budget & is SPENT. The interest on the borrowed $ & principle is paid from future earnings, i.e. future income taxes - hopefully from a more productive, richer future economy.

So the excess SS collections Reagan started just provided a new funding stream for the general budget. That money was taken from the bottom 90% of wage workers.

But at the same time, Reagan cut INCOME TAXES on ALL income, with most of the benefit going to the top 10%, & especially the top 1%. These folks get most of their income from capital gains, rents & dividends, not wages.

I totally agree with you: the borrowed money needs to be paid back.

But right now, SS IS STILL collecting more in taxes than it spends, & is scheduled to KEEP COLLECTING MORE for (at least) the next 10 years or so.

So there's currently no logic in raising SS taxes to create EVEN MORE SURPLUS SS money. It will just be borrowed into the general budget. BY LAW, it MUST be borrowed into the general buget.

The rich to get a tax hike on ALL their income: especially rent, capital gain & dividend income.

Those new income taxes will pay off the Trust Fund, & all's well until at least 2041.

Rescinding Bush's tax cuts JUST ON THE TOP 5% will pay off the entire Trust Fund in less than 10 years.

Unfortunately, Obama is still giving away tax cuts & saying SS needs fixing. I suspect he's going to pull the same kind of bait & switch they've been pulling since the 80's: Raise SS taxes on wage workers to keep taxes on owners/capital low.

But raising the cap on the upper-middle-class (who already pay a huge chunk of both income & FICA) without raising their SS benefits is going to drive a wedge in the support for the SS program.

This is the goal, IMO.

I hope I've written this so it's comprehensible. I've spent a long time researching it, I've read the history, the legislation, the yearly Trustees' Reports, & the background assumptions for all the three yearly forecasts the SSA makes. We're being scammed big time, & Gore's "lockbox" talk is part of the scam. The only way to have a lockbox is not to create the surplus taxation in the first place.


SS used to be pay-as-you-go. Each generation of workers was taxed just enough to pay the current beneficiaries, plus a little extra to maintain a minimal level of Trust Fund reserves equal to about 1 year's payout.

Reagan changed that, & all our troubles stem from that change.

When it becomes a wedge issue, it is in trouble. Best to separate social programs from insurance programs.

The only big trouble with social security is that there isn't an actual "trust fund" being built up separate from the budget.

The trust funds are called OASI (Old Age and Survivors Insurance) and DI (Disability Insurance, establshed in 1957) and they've been growing steadily from 1937, when OASI reported a $766 million surplus, to last year, when together they reported a $2,418,658 million surplus.

Old-Age, Survivors, and Disability Insurance Trust Funds, 1957-2008:
http://www.ssa.gov/OACT/STATS/table4a3.html

Old-Age and Survivors Insurance Trust Fund, 1937-2008:
http://www.ssa.gov/OACT/STATS/table4a1.html

There's been an unbelievable amount of disinformation propagated by our own government about the SSA but according to these records they haven't reported a substantial payment from the General Treasury since 1985, the year after they started taxing benefits. They do, however, show several substantial payments TO the Treasury including $2,864 million in 1990, $836 million in 2000, and $350 million in 2005. Evidently the Bushlers just can't stop themselves from stealing our money.

For thirty-five years, labor (the "bottom 90%" of the working class) has been increasingly short-changed. The Gini Index tells the story. As the "bottom 90%" receive a diminishing share of the income pie, the payroll taxes on that "bottom 90%" ALSO fade in sustaining the Social Security system.

The 'problem' with the Social Security Fund projections are based on the impoverishment of the working class -- the "class war" that has been enriching the rich and raping payroll workers. The Social Security system has always been based on ensuring that LABOR is fairly compensated, not only in the current generation but in future generations. Health, education, fair labor laws ... all are essential to ensuring that succeeding generations are equipped to provide "safety net" retirement income for their parents. It's a system that makes us a National Family -- instead of a collection of isolated third world families that give birth to several children in the hopes that one of more might survive to care for the parents.

The OASDI funding shortfall projections are based on the continued impoverishment (of banana republic scale) of the working class. IT MUST STOP!

Social Security, as it's designed, is like a canary in the coal mine. You cannot fix the 'problem' by relocating the canary to the bosses offices!!

Living Wage. Honor Labor.

I'd FAR prefer a 1/2% sales tax on the sale or exchange of corporate stock (and derivatives) as a supplement to Social Security than rasing the "cap" ... since the "cap" delineates the benefit amount a recipient receives. By raising the "cap" you ALSO reduce proportional benefits given to lower paid workers. (It's part of how maximum benefits are calculated.) That would be INTOLERABLE.

I find there's an ethical basis for taxing the sale or exchange of corporate equities (stock) as a supplement to Social Security - a "safety net" for retired workers. It is this. The sole basis upon which the "means of production" can have ANY value is due to the very existence of a labor force itself. Without workers, the "means of production" produces nothing ... and is of no value. Indeed, "productivity" (and associated profitability) is the core determinant of the value of an enterprise and it's stock. Labor has a stake in the very value of the business, even when they're surplussed (unemployed). That stake is worth a tax.

So, I say "NO!" to raising the "cap" -- it's the WRONG answer.

The only meaningful reform would be to remove the caps of contributions in order to shore up the fund and I believe that this is something Pres Obama has discussed openly.

Meaning: ALERT...ALERT...ALERT...!

I say put me where I have nothing left to lose and it will be time for a pitchfork and torch.

of the richest Republican I can find around here. I'm sure I can get a lot of people like myself to join me. They can try to remove me but I'll keep coming back.

ignored the rest of the shit he pulled but messing with social security got their attention.

and we the people will do NOTHING to stop them...

:wtf:?

Told you so?

My neighbor and I foresaw this crisis years ago when the housing prices in our working class neighborhood went up so much faster than people's incomes. I do not believe that any economist missed the impending housing crisis. I believe they just refused to acknowledge it because it did not support the economic theology they learned from Freidman. They were afraid to speak up.

I want to know who these economists are -- I want to know their names. I want Obama to keep those greedy conservatives away from my Social Security. They have already grabbed enough.

Obama needs to take note that retired people have the time and the spirit to make his time in office very difficult if he messes with Social Security.

Surprising gossip.

1 AND THEN WE'RE GOING TO HAVE
2 A DISCUSSION ABOUT ENTITLEMENTS AND HOW WE GET A
3 GRASP ON THOSE.
4 AND, YOU KNOW, I THINK EVERYBODY HERE
5 IS FAMILIAR ENOUGH WITH THE BUDGET PROBLEMS TO
6 KNOW THAT AS BAD AS THESE DEFICITS THAT WE'RE
7 RUNNING UP OVER THE NEXT -- THAT HAVE ALREADY
8 BEEN RUN UP HAVE BEEN, AND DESPITE THE COST OF
9 BOTH TARP AND THE STIMULUS, THE REAL PROBLEM
10 WITH OUR LONG-TERM DEFICIT ACTUALLY HAS TO DO
11 WITH OUR ENTITLEMENT OBLIGATIONS AND THE FACT
12 THAT HISTORICALLY IF OUR REVENUES RANGE BETWEEN
13 18 AND 20 PERCENT OF GVP, THEY ARE NOW AT 16, IT
14 IS JUST NOT SUSTAINABLE.

15 SO WE'RE GOING TO HAVE TO CRAFT WHAT
16 GEORGE STEPHANOPOULOS CALLED A GRAND BARGAIN. I
17 TRY NOT TO USE THE WORD GRAND IN ANYTHING THAT I
18 SAY, BUT WE'RE GOING TO HAVE TO SHAPE A BARGAIN.

19 THIS, BY THE WAY, IS WHERE THERE ARE GOING TO BE
20 SOME VERY DIFFICULT CHOICES, AND ISSUES OF
21 SACRIFICE AND RESPONSIBILITY AND DUTY ARE GOING
22 TO COME IN, BECAUSE WHAT WE HAVE DONE IS KICKED
1 THIS CAN DOWN THE ROAD. WE'RE NOW AT THE END OF
2 THE ROAD.

http://media.washingtonpost.com/wp-srv/politics/documents/obama_011509.pdf?sid=ST2009011504146
..............

No, President Obama, the problem is not "entitlements," and definitely not Social Security, which reported a $2.4 TRILLION surplus in 2008. The problem is defense spending which consumes over half the federal budget if reported accurately:



Maybe it's time to let Halliburton, Boeing, Exxon and the rest of the looters share in some of that "sacrifice and responsibility," for once?!?!

The only real danger to Social Security is those who say they want to save it.

The Social Security Game

http://www.actuary.org/pdf/socialsecurity/reform_07.pdf


Kind of gives the term "trust" fund a bit of an ironic twist, doesn't it?

:(

Where I live, developers have been builings homes that are overly large with prices beginning "in the low $180's" or whatever. Who can afford that? With well paying jobs disappearing and only telemarketing and retail jobs readily available, few people make the kind of wages to afford those mortgages. (In our area, firefighters, police officers and teachers cannot afford to live in the communities they serve.) And yet they kept building and the houses sat. New commercial developments, a.k.a. little strip malls, have appeared seemingly everywhere and sit vacant two years after completion.

Yeah. Something has been wrong for a long time. Why did the developers keep building?