Wintery Knight

…integrating Christian faith and knowledge in the public square

CBO report: Social Security to be bankrupt by 2030

From Investors Business Daily.

Full text, because this matters:

The $2.8 trillion Social Security Trust Fund is on track to be totally spent by 2030, the Congressional Budget Office said Tuesday.

That’s one year earlier than projected in 2013 and a decade earlier than the CBO estimated as recently as 2011.

The CBO delivered the warning in a gloomy long-term budget outlook that shows federal debt reaching 106% of GDP in 25 years, up from 74% now.

The rising debt would come despite revenue rising by 1.8 percent as share of GDP (from 17.6% to 19.4%)from 2014 to 2039 and despite spending other than health entitlements, Social Security and debt service shrinking by 2.5% of GDP (9.3% to 6.8%).

The challenge: Health care spending will rise by 3.1 percent of GDP (4.9% to 8%) and Social Security 1.4 points of GDP (4.9% to 6.3%), which will in turn push interest on the debt up to 4.7% of GDP from 1.3%.

Social Security’s cliff, now just 16 years away, is one that Washington would be crazy to approach. At that point, incoming revenue would be enough to pay less than 75% of scheduled benefits for all beneficiaries, whether just reaching retirement or 100 years old.

Up until the point of exhaustion, the trust fund provides legal authority — though no resources — for the government to pay all benefits despite Social Security’s burgeoning cash-flow deficit, which the CBO expects to reach $320 billion in 2024 alone.

The rapid deterioration in Social Security’s finances has a number of contributing factors. The drawn-out recovery from the deep recession and the extended period of low interest rates have sapped revenue and lowered the interest that Treasury pays to the trust fund based on program surpluses from 1984 to 2009.

On top of that, the CBO expects the underinvestment and long-term unemployment associated with the less-than-stellar recovery to have a lasting impact, boosting the natural rate of unemployment.

In February, the CBO significantly reined in its economic optimism, slashing its projection of the total amount of wages and salaries over the 2015-2023 period by about $3.2 trillion, or 3.6%.

Among the factors that the budget scorekeeper cited was ObamaCare’s work-diminishing effect, which the CBO now estimates to be three times as large as it supposed in 2010.

The CBO said that ObamaCare would reduce employment by 2 million full-time-equivalent workers in 2017, rising to 2.5 million in 2014.

This reduction would result in a decline in aggregate employee compensation averaging 1% from 2017 through 2024, or $1.05 trillion.

An IBD analysis pegged the revenue hit to Social Security from ObamaCare work disincentives at about $120 billion through 2024.

The reduced payroll-tax contributions into Social Security would, over time, result in modestly lower benefits for those who choose less work, but the cost savings from reduced benefits would offset only a portion of the lost revenue.

The nature of Affordable Care Act subsidies — they rise as income falls and decline as income rises — will make work “less attractive” by “creating an implicit tax on additional earnings,” the CBO said.

The work disincentive will lead some people to choose to work less, in part because subsidized health care will enable them to get by with less work.

In addition, the CBO expects ObamaCare to depress wages for lower earners when employers, over time, pass along the cost of the law’s employer-insurance mandate by holding back on wage increases. Lower wages, in turn, will provide another reason for some people to opt for less work, the CBO says.

While the CBO expects compensation to be lower “almost entirely” because people will choose to supply less work, the CBO also expects that some employers “will respond to the penalty by hiring fewer people at or just above the minimum wage.”

Another important factor clouding Social Security’s future: A greater share of earnings goes to those with income above the maximum subject to payroll taxes ($117,000 in 2014).

As a result, while rising longevity and the retirement of baby boomers will make benefits grow faster than the economy, Social Security’s tax revenue is expected only to keep pace with economic growth.

Look. I think there’s practical wisdom in this CBO report for Christians. We have to take into account data like this when making our life plans. And it’s not only Social Security we need to be scared of, Medicare is even MORE insolvent than Social Security. If you are under 40, these programs are not going to be there for you. You have to make other plans. You can’t be running your life plan as if these threats do not exist, because they do. Now I want to talk about how a defensive plan can be better than an offensive plan.

The neutral zone trap

Think of ice hockey and the neutral zone trap defense:

The defending team sets up so four players-usually both wings and both defense-remain in the neutral zone, while the center forechecks into the offensive zone. The center’s job is to block the passing lanes from the puck carrier, forcing him to carry the puck forward into the neutral zone. Once the puck carrier reaches the neutral zone, the center stays toward the center of the ice, forcing the puck carrier along the boards. Two of the other defending team’s players collapse in on the puck carrier, forcing him to dump the puck into their zone, forcing a turnover.

This plan allowed the New Jersey Devils to win the Stanley Cup against the high-powered Detroit Red Wings in 1995:

The following season, shortened by 34 games because of a lockout ordered by NHL owners, the Devils entered the playoffs as the No. 8 seed in the conference, with only a 22-18-8 record. In the West, the Detroit Red Wings looked invincible, cruising to the Stanley Cup Finals behind a galaxy of offensive stars.

But that’s when Lemaire went to work, putting his Devils through daily lessons in the trap, preaching constantly about being in the right defensive position at all times. It was hard, but it worked. The Devils upset three higher seeded Eastern teams to get to the Stanley Cup Finals, but remained prohibitive underdogs against the Red Wings.

Many predicted a sweep – and that’s what happened. What nobody predicted was that it would be the Devils who did the sweeping, thanks to a stifling trap that limited Detroit to seven goals in four games.

“They frustrated the heck out of us,” former Red Wings defenseman Mike Ramsey told the St. Paul (Minn.) Pioneer Press. “You weren’t trying to beat one guy. You were trying to beat four. They had enough talent and size where they didn’t have to play that way. But they knew what they were doing. Every player was on the same page.”

When coaches across the NHL saw how Lemaire was able to totally shut down such a great offensive team, the trap began to be copied by almost everyone. Roger Neilson had implemented a form of the trap with the expansion Florida Panthers from 1993-95, and his successor, Doug MacLean, took it even further. The neutral zone became almost impossible to navigate against the Panthers in the 1996 playoffs, and Florida suddenly found itself in the Stanley Cup Finals against the offensive-minded Avalanche. Criticized by the media about the trap, MacLean responded, “I like boring”.

Yes, and he likes winning,too. Sometimes people who appear to be risk-averse seem “scared” to others… but what matters is the scoreboard.

I hate to see young people making life plans while ignoring real life obstacles. The national debt, the demographic crisis, fertility (for women), etc. are real problems. Let’s take these threats into account when we are planning our lives. It’s just unwise to think that we can do whatever we want and then count on God to bail us out. We need to be practical. We live in challenging times, and we need to have prosperity and stability in order to protect our faith from external threats which are so often the root of despair and apostasy. The score on the scoreboard is not related to who took the biggest chances and felt the most excitement, it’s related to who actually scored. I feel excited when I win.

Filed under: News, , , , , , , , , ,

CBO report: Obama’s proposed minimum-wage increase could kill 500,000 jobs

Three stories from Investors Business Daily, and one of them is about the dreaded stagflation.

First one, on the CBO report.

Excerpt:

On Tuesday, the Congressional Budget Office made another blockbuster pronouncement, this one concluding that the White House minimum wage hike to $10.10 an hour really does kill jobs.

The $10.10 option, when fully implemented, “would reduce total employment by about 500,000 workers, or 0.3%,” CBO says. Job losses could be as high as 1 million.

This followed last week’s CBO calculation that the impact of ObamaCare on the labor market will be about 2 million fewer workers over time, due to higher costs on employers and employees of mandated coverage and the availability of subsidized insurance to nonworkers.

 

Second article, about how the Democrats seem to be trying to create dependency in order to buy votes from people who cannot pay their own way.

Excerpt:

January’s labor report confirmed yet another month with over 100 million Americans not working. In fact, more than 100 million Americans have not been working in Obama’s workers’ paradise for all of 2012 and 2013, a unique achievement in American history.

[...]How has Obama managed to “liberate” so many workers from work? Through Social Security disability, which has increased by more than 21%, extending “unemployment” benefits to two years and by eliminating work requirements as a condition of receiving federal benefits.

The number of Americans on food stamps has soared by 50% under Obama to close to 50 million, largely because work requirements, asset checks and other restraints on abuse have been relaxed. Indeed, more than twice as many more Americans have gotten food stamps under Obama than have gotten jobs. Under ObamaCare, the same transformation is now under way for Medicaid.

Today, federal and state taxpayers pay a trillion dollars every year to the lowest 20% on the income ladder basically not to work. Under Obama total welfare spending has doubled since 2008. (Note that the administration is suing the state of Louisiana to turn over the names of everyone on welfare, precisely for Obama’s voter-turnout database.)

[...]CBO estimates that the slower economic growth from this reduced labor supply will mean $1.4 trillion less in federal tax revenue over the next 10 years. So ObamaCare will increase the deficit after all.

Third article, explaining that the failed policies of the Democrats have been tried before – by Carter.

Excerpt:

Since the Obama “recovery” started 4-1/2 years ago, inflation appears to have been relatively tame, with core prices climbing just 7% from June 2009 to December 2013.

But as CBS News discovered when it looked a little closer, the overall number is deceptive. In fact, it found food prices soaring.

The official inflation data confirm this. Overall, food prices are up 9% since June 2009, according to the Bureau of Labor Statistics. And the cost of many staples is skyrocketing. Pork prices have climbed 14%; poultry is up 12%; eggs, 27%; milk, 20%.

Meanwhile, energy prices have climbed 18% during the recovery, and the price of gasoline is up a whopping 31.5%. Then there’s college tuition, up 23%.

At the same time, wages aren’t budging. In fact, measured in real terms, the median household income is 4% below where it was four-1/2 years ago. And while the official unemployment rate is down, that’s due to millions quitting the workforce altogether.

Yes, the economy has created 6.6 million jobs since June 2009. But the ranks of those not in the labor force climbed nearly 11 million, driving the labor force participation rate down from 65.7% to today’s 63% — a level not seen since 1978.

You might remember from the Carter era that stagflation was the name given to describe a period of slow or stagnant economic growth, low labor force participation and high prices (inflation). The only solution to this is to raise interest rates, which is very painful. But the longer we keep interest rates low, and keep government spending high, and keep taxing and regulating businesses into oblivion, the worst the medicine is going to be when we are forced to take it.

Filed under: News, , , , , , , , , , , ,

New CBO study: top 40% of earners paid 106.2% of net income taxes collected

CNS News reports on a new study by the Congressional Budget Office (CBO).

Excerpt:

The top 40 percent of households by before-tax income actually paid 106.2 percent of the nation’s net income taxes in 2010, according to a new study by the Congressional Budget Office.

At the same time, households in the bottom 40 percent took in an average of $18,950 in what the CBO called “government transfers” in 2010.

Taxpayers in the top 40 percent of households were able to pay more than 100 percent of net federal income taxes in 2010 because Americans in the bottom 40 percent actually paid negative income taxes, according to the CBO study entitled, “The Distribution of Household Income and Federal Taxes, 2010.

[...]When the the negative 9.1 percent in federal income taxes paid by those in the bottom 40 percent is subtracted from the 109.1 percent paid by those in the top 60 percent, federal tax revenues net out to an even 100 percent.

[...]The households in the bottom 40 percent of income—which on average paid negative federal income taxes—were on average receiving many thousands of dollars in what the report calls “government transfers.” These transfers included, among other things, benefits from unemployment insurance, Medicare and Social Security, as well as from means-tested programs such as the Supplemental Nutrition Assistance Program (food stamps), and Medicaid.

“Government transfers increase income in all groups, but those increases, both in dollars and as a percentage of market income, are larger for groups with lower market income,” says the report.

According to the CBO, households in the bottom quintile received an average of $22,700 in government transfers in 2010 (including $14,300 in payments from Medicare and Social Security and $8,500 in payments from other government programs); and households in the second quintile received an average of $15,200 in government transfers (including $10,300 in payments from Medicare and Social Security and $4,900 from other government programs).

Now I have been reading articles like this one in National Review by James Pethokoukis, which talk about Obama’s rhetoric about “income inequality”. And I think that when the President goes on a rant about how much he wants to fix “income inequality”, you have to keep in mind what he is actually fixing. He thinks the people who earn the most need to be taxed more and he thinks that the people who earn the least need to be given more benefits. That’s what he is trying to fix.

Filed under: News, , , , , , , , , ,

Let the grown-ups lead: Paul Ryan describes his proposal to balance the budget

Paul Ryan's Balanced Budget Proposal

Paul Ryan’s Balanced Budget Proposal

In the Wall Street Journal.

Excerpt:

America’s national debt is over $16 trillion. Yet Washington can’t figure out how to cut $85 billion—or just 2% of the federal budget—without resorting to arbitrary, across-the-board cuts. Clearly, the budget process is broken. In four of the past five years, the president has missed his budget deadline. Senate Democrats haven’t passed a budget in over 1,400 days. By refusing to tackle the drivers of the nation’s debt—or simply to write a budget—Washington lurches from crisis to crisis.

House Republicans have a plan to change course. On Tuesday, we’re introducing a budget that balances in 10 years—without raising taxes. How do we do it? We stop spending money the government doesn’t have. Historically, Americans have paid a little less than one-fifth of their income in taxes to the federal government each year. But the government has spent more.

So our budget matches spending with income. Under our proposal, the government spends no more than it collects in revenue—or 19.1% of gross domestic product each year. As a result, we’ll spend $4.6 trillion less over the next decade.

Our opponents will shout austerity, but let’s put this in perspective. On the current path, we’ll spend $46 trillion over the next 10 years. Under our proposal, we’ll spend $41 trillion. On the current path, spending will increase by 5% each year. Under our proposal, it will increase by 3.4%. Because the U.S. economy will grow faster than spending, the budget will balance by 2023, and debt held by the public will drop to just over half the size of the economy.

Yet the most important question isn’t how we balance the budget. It’s why. A budget is a means to an end, and the end isn’t a neat and tidy spreadsheet. It’s the well-being of all Americans. By giving families stability and protecting them from tax hikes, our budget will promote a healthier economy and help create jobs. Most important, our budget will reignite the American Dream, the idea that anyone can make it in this country.

The truth is, the nation’s debt is a sign of overreach. Government is trying to do too much, and when government does too much, it doesn’t do anything well. So a balanced budget is a reasonable goal, because it returns government to its proper limits and focus. By curbing government’s overreach, our budget will give families the space they need to thrive.

Since Obama was elected, he’s added over $5.5 trillion to the national debt. This is not sustainable. We cannot continue to pass on enormous levels of debt to our children so that 30-year-old students can have free condoms bought for them. It is immoral to spend trillions of dollars and then pass the bill to the next generation. Democrats like to talk about helping the children, but really they just want to force them to pay for their wasteful spending. It’s got to stop.

Filed under: News, , , , , , , , , , , , , , ,

Fiscal cliff deal raises taxes by $600 billion, increases spending $330 billion

The Heritage Foundation explains.

Excerpt:

The Congressional Budget Office (CBO) just now released its score of the bill the Senate passed early this morning while everyone was celebrating the beginning of the New Year. Despite knowing for a long time that taxes would go up on all Americans today, the Senate waited until we technically went over the cliff to act. Washington’s dysfunction was even fodder for New Year’s revelers in Times Square.

Going over the cliff allows Congress to technically say that it isn’t raising taxes, but is cutting them instead. CBO’s score backs them up on this by scoring the Senate bill as a $3.6 trillion tax cut. No one should fall for this. The Senate bill is a tax hike because it allows taxes to go up from 2012 to 2013. The tax increases in the bill will reportedly raise about $600 billion over the next 10 years.

Also of note in the CBO score is that the Senate bill increases spending by around $330 billion by extending expanded unemployment benefits, a temporary “doc fix” patch to prevent cuts to Medicare, and extension of the agriculture programs.

There was some good in the Senate bill — the harmful defense sequester cuts were postponed and most tax hikes were avoided. But there was bad — tax hikes that will hurt the economy and do little to tame the deficit, especially factoring in the spending in the bill.

As I noted before, the CBO has predicted that the bill will add $4 trillion to the national debt, taking us over the $20 trillion mark.

Bloomberg:

The budget deal passed by the U.S. Senate today would raise taxes on 77.1 percent of U.S. households, mostly because of the expiration of a payroll tax cut, according to preliminary estimates from the nonpartisan Tax Policy Center in Washington.

More than 80 percent of households with incomes between $50,000 and $200,000 would pay higher taxes. Among the households facing higher taxes, the average increase would be $1,635, the policy center said. A 2 percent payroll tax cut, enacted during the economic slowdown, is being allowed to expire as of yesterday.

According to the CBO, the deal would raise taxes by $41 for every $1 cut from the budget. Have we really dodged a fiscal cliff?

 

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