These programs have caused a massive diversion of savings into government consumption, not only by diverting taxes into current government spending, but also by undermining one of the most important motivations for private saving and investment.
FULL ARTICLE by George Reisman
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How the United States Can Avoid an Economic Collapse
by
Robert Pike
January 30, 2011
If these United States wants to avoid an economic collapse the fastest and most effective way for Congress to deal with the national annual deficit and out year debt problem is for them to comply with the powers enumerated to them in the Constitution of the United States of America and legislation they penned and passed.
Article 1: Section 8: Clauses 12, 13, 15 & 16 specifically limits the powers of Congress to raise and fund a standing Army for a term not to exceed two years and permits Congress only the power to raise and maintain both the Navy and Marine Corps. Consequently, the U.S. Defense Budget should be cut from the $1.31 trillion in 2010 down to $179 billion, the cost of maintaining the Navy and Marine Corps.(1)
The Militia referred to in Clauses 15 & 16 is to be raised from both the organized and unorganized Militia’s defined in US Code: Title 10: Subtitle A: Part I: Chapter 13 : Section 311. Militia: composition and classes. (2)
(a) The militia of the United States consists of all able-bodied males at least 17 years of age and, except as provided in section 313 of title 32, under 45 years of age who are, or who have made a declaration of intention to become, citizens of the United States and of female citizens of the United States who are members of the National Guard.
(b) The classes of the militia are:
(1) the organized militia, which consists of the National Guard and the Naval Militia; and
(2) the unorganized militia, which consists of the members of the militia who are not members of the National Guard or the Naval Militia
Clause 15, of Article 1: Section 8 of the Constitution clearly defines the causes for which the Militias are to be called into duty: They are:
“To provide for calling forth the Militia to execute the Laws of the Union, suppress Insurrections and repel Invasions”
So, corporate financed Tea Party and cousin puppet Republicans, Democrats and Independents, if you really support and defend the Constitution of the United States, you will advocate and lobby for ending all wars the U.S. is engaged in, because they were not declared as Article 1: Section 8, mandates, close all foreign bases, bring home all troops from overseas, shut down any and all domestic military bases save for those of the Navy and Marine Corps, disband those forces, close down the Defense Department and Pentagon and covert all land into a national park after the buildings are torn down.
Additionally, all pensions for citizens who served in the U.S. Army, Air Force, and Coast Guard since World War II should be cancelled as those forces funding were in direct defiance of the Constitution, and the military actions they were involved in were also illegal as war was not declared by Congress.
Advocating for any deviation of the specific meaning of the Constitution, means you are not real patriots but anti constitutional radicals who want to destroy the nation our founding fathers rebelled against British empire, to establish. Your actions and advocacy have assisted in turning these United States into a mirror image of the England we revolted from.
Absent compliance with the specific powers enumerated to Congress regarding the military, you are all not just advocates of violating the Constitution but are contributing to bankrupting the U.S.
“On every question of construction (of the Constitution) let us carry ourselves back to the time when the Constitution was adopted, recollect the spirit manifested in the debates, and instead of trying what meaning may be squeezed out of the text, or invented against it, conform to the probable one in which it was passed.”
Thomas Jefferson In an 1823 letter to William Johnson
(1). Military Budget of the United States. http://en.wikipedia.org/wiki/Military_budget_of_the_United_States
(2). Cornell University Law School: Legal Information Institute: U.S. Code. http://www.law.cornell.edu/uscode/html/uscode10/usc_sec_10_00000311—-000-.html
The Constitution doesn’t provide provisions to create national parks. Such facilities should be auctioned off.
In sum, eliminate the 2/3 of the federal government that exists ultra vires. This means the minimum wage goes in the trash too, so all the bureaucrats can find employment at their actual market value.
Misleading. Let’s not mind for now the fact that you just fished that number, 2/3, out of your tailpipe on a whim. There’s no such thing as a government that exists with authority in the sense that you mean “government”. There are governments with power, obviously, but not with authority.
You are as benighted as ever, but this fact is not surprising given your unintentionally ironic moniker. So, what’s next, AG? Gonna go hide in a another sockpuppet? How about “Anti-Dhimmi”?
Hey asshole in lakeview. Ultra vires is a legal term of art with a specific meaning you apparently don’t comprehend.
Golly. Why don’t we eliminate wages altogether? While the constitution belatedly prohibited slavery, I don’t think it forbids indentured servitude. That’s a real money-maker. And why don’t we eliminate those forever failing public schools along with school attendance requirements and child labor laws? Parents should be free to do what they want with their kids, including placing them in indentured servitude for an agreed-upon feel
Susan, what you are arguing with is a group of people who aren’t present here. Simply because I don’t believe in minimum wage doesn’t mean I believe in “indentured servitude.” Neither does my belief that compulsory schooling is wrong necessitate that I must believe parents are ok to mistreat their children.
If you are going to argue with other people at all you should listen to them first and not assume what they think.
On the matter of minimum wage have you considered that someone might be willing to work for less than that wage? Have you considered that having a minimum wage tells some people that are willing to work for less that they can’t work at all?
On the matter of compulsory schooling, why do you think it’s acceptable to throw children into rooms to listen to teachers lecture for 45 minutes 8 times a day against their will?
And why must they go to specific schools nearby them (or be bussed to a designated school for their area) and not have free choice to go wherever they may choose?
One immediate way to reduce Social Security expenditures is to means-test recipients, and remove 5% from the list of recipients.
Social Security and Medicare have an offensive moral component by placing an obligation on generations without their consent, such as my son.
So, anyone who was responsible in their lifetime, and actually saved something for retirement instead of squandering it, get’s shafted, while those who spent it all, they get a check?
I think Harry Browne had a decent plan. Auction off everything the feds own that is not constitutional and buy private annuities for those on the government dole and let everyone under the age of 50 out of the plan and they pay no more SS taxes. 50-65 year olds would get out proportionately. I wonder how much we could get for the Federal Reserves Buildings. We could sell the Grand Canyon to Disney or whoever would promise not to destroy it.
Of course, we must end the empire and bring all the troops home.
But this is all talk, because nothing is going to change until the country collapses from hyperinflation. Then maybe something will be done – probably for the worse, as happened in Germany with Hilter.
Reisman’s plan is fine for you desk jockeys. What about people who actually do work in a physical sense? Physical ability can drop fast when one approaches 70. You all want 70 year old bus drivers and carpenters?
People who work in physically demanding jobs should save their money so that they will not have to work past 70. They managed it before social security and the average productivity of labor is much higher now.
This presupposes, or course, that the government allows people to save their money… with low interest rates and high inflation (both entirely cause by government interventions) it is very difficult to effectively save for retirement.
You’re getting the shaft when you retire aren’t you, bw?
That brings me some satisfaction. You’ll probably not learn, because you’re such a stubborn sob, but at least you’ll
get your commeaupancesuffer the consequences of your follyMr. Reisman, excellent article given that virtually all the nations have foolishly established “social security” and “medicare” systems. I hope your ideas will generate some intelligent debate and hopefully free some nations from these destructive systems. To little effort has been put into planning the transition from socialism to the free market both from a political economic and political perspective. Since socialists have the advantages of appealing to envy, relying on economic ignorance among the populace, and relying on their powerful political allies; careful planning is of extreme importance for those fighting for political economic liberty in nations around the world.
Great article…
You say: “As of December 2009, [there were] 33.5 million people receiving Social Security retirement benefits. [An] aggregate Social Security retirement benefits of $468.2 billion were paid in 2009.”
Please help me figure this out. The total federal expenditures in 2009 were 1.2 trillion dollars. That makes Social Security about 25% of the federal budget. Military expenditures that year were over 700 billion dollars, so we need to cut social security?
As with all government insurance schemes it is much easier to collect premiums than pay benefits. The same hold true for government debt. It is much easier to spend money than repay debt.
Your social security elimation scheme sounded pretty complicated to me. Why not just return everyone’s tax payments, close it down, and apoligize for the social security failure.
A much simpler plan would be to change the SS/Medicare age to 70, effective 1/1/2015. Every 10 years after that increase the retirement age by five.
That is what I sent to congressman Eric Cantor. It was ignored.
George Reisman’s article is spot on and excellently laid out. What he advocates I have been advocating for over 30 years. The only problem is most people refuse to listen. Most people live in the Public School,Mainstream Media La La land of dumbed down sound bites. Any individual,with a mind of his own,would realize that Social Security was one of the biggest cons ever put on in history. Social Security is nothing but a tax masquerading as a retirement plan. However,it goes further than that.The Social Security System has over 100 benefits besides Social Security,Medicaid and Medicare. When the average American “voluntarily” gets their SS Number they are placing a ball and chain around their leg and a lifetime of dependency and tax paying,in other words a lifetime of serfdom. However,if you do any research,you can rescind your SS number and live dependency free. The only problem is, that it is very difficult to operate in today’s modern society without that ID number,but it can legally be done. As far as the future is concerned, the laws of economics may finally catch up with the Social Security Ponzi scheme and it will either be obsoleted or morph into something else. But, in the meantime most of us will be forced into a serfdom where everyone will be fighting over fewer and fewer of the scraps that the elitists will throw out to us. In the end,the self reliant Middle Class as we have known it will no longer exist.
@Libertarian Jerry,
I agree that the Social Security shut down. As you say that you can opt out of getting a SS number, but you still have to pay into SS. I would think that people would get tired of paying into something that they receive no benefit. Think of all the parents that pay into public schools that send their children to private schools. Think of all the people that don’t have any children that pay into public schooling.
I hope sometime in the future that the law of economics will eliminate this ponzi scheme. The problem is that capitalism is so dynamic and wealth generating the socialists will be able to live off of this largesse for years. They really don’t want to kill the hen that lays the golden eggs.
They really don’t want to kill the hen that lays the golden eggs.
That was true for the Clinton/Bush wing of the government. They wanted to milk the system for their own aggrandizement. But the current group of True Believers in the Obama administration do want to kill the hen.
Any plan that involves convincing the government to restrain or dismantle itself is futile. The interests of the people in government are not aligned with the interests of the people who would benefit from the abolition of medicare and SS. Instead of getting rid of the programs, they are more likely to debase the currency until SS payments can be met, and debase the medical system until everyone is “covered” by medicare (in the same sense that everyone in Cuba is “covered” by free medical care). The official existence of these abominable sham programs will not end until the entity that created them no longer exists.
Instead of making plans in case of the contingency that people in government will cease to use power for their own benefit, it would be more practical to assist ordinary people in making plans to secede from, nullify and evade the theft and murder associated with the government.
One objection that many people raise regarding the current Social Security system applies with even more force to any increase in the retirement age. That objection is that the system is racist because it discriminates against African Americans. The argument goes that since African Americans in general have shorter life spans, they are less likely to live long enough to receive retirement benefits. That argument overlooks what Social Security (originally sold as an insurance program) was supposed to “insure” against, which is living long enough to outlast one’s financial resources.
@Michael,
For the same reason why the lib’s want people to quit smoking is beyond me. Just think of all the people who paid into SS and died before receiving a dime? Just think of all the taxes cigarettes have provided for whatever government program. Just think, if the government had a program where they supported and marketed cigarettes they would come out ahead on monies received and also not spent by the participants on entitlements.
Awesome article. By far the most reasonable proposal I’ve read for getting entitlement spending under control. Which probably means it’s about as likely as the abolition of the Department of Defense.
A fine article by a fine economist, particularly in pointing out the devastating consequences to the nation’s general welfare and the immorality of the SS and Medicare programs. However, if an action is immoral, it is bound to have negative consequences to the actor. Therefore, I do not concur in his solution. Furthermore, I would point out that the abolition of slavery was not the objective of the U.S.federal government (the North) in declaring war against the rebellious states. Emancipation only came later, more as a tactical military maneuver than the moral imperative it should have been after so many decades of federal-government support for slavery.
But if an insufficient number of Americans can be convinced of the great moral and economic benefits that would accrue from the immediate demise of SS and M to bring that about, there is nevertheless no reason why those who truly understand the negative consequences of participating in immorality cannot immediately stop, if they haven’t already, accepting or planning to accept SS or Medicare benefits. (See the essay, “I’m Spartacus,” [http://www.thornwalker.com/ditch/spartacus.htm] by Ron Neff, and join the “cult” of the truly free.) And for those who are dedicated to being free at any cost, the payments that individuals make to Medicare and SS are, in the final analysis, voluntary. For no one can be made to work for an employer who withholds money from one’s paycheck to pay for SS and M taxes, and no one can be made to otherwise incur a liability to pay SS and M taxes.
I enjoyed the article, but I think the problem with this plan is that it relies on achieving a political consensus that the government is not the appropriate source of sustenance for the elderly. Support for eliminating SS and Medicare is rather sparse in both the over-55 crowd and anyone somewhat left-leaning, leaving maybe 25% of the population that would be in favor of this? I suggest phasing these programs out as part of a massive reduction in government, and here is how I would do it:
Spend less time and political capital trying to reduce spending. Instead, rank appropriations into tiered categories, where those programs and pork projects ranked at the top are funded first. Those at the bottom are funded if money is available. Seems innocuous enough, and probably something everyone would prefer compared to actively cutting the budget. The key here is your agreeing to passive budget cuts in the future instead of active budget cuts now. Phase 2: form a “debt repudiation caucus” that openly encourages the government to default on its debt. Such a group would be small, and the chance of it achieving a majority slim. However, it would spook bond-holders and make government borrowing far more expensive. I’m not a finance person, but it seems like the perceived chance of debt repudiation in a given year would result in an equal risk premium demanded by purchasers of the debt. So if the chance of repudiation is assumed to be 3% , and the bond purchasers would otherwise have demanded a 2% return, the government would have to pay 5% on the bond to find a buyer. With less money flowing into the treasury, those lower-tier budget items would be passively de-funded, reducing the size of government. Watching the parties argue between whether guns or butter are the higher priority would be fun knowing there would be less of both over time. As the government gradually reneges on promises, there would be more pressure from citizens to be able to opt-out of programs such as SS, medicare, and unemployment benefits. Perhaps opting-out would be conditional on having assets equivalent to the length of time the government would have paid benefits. If so, that would certainly improve the savings rate in the US.
I used to be bothered by the idea of government defaulting on debt. I was quite impressionable during the 1992 presidential campaign (elementary school), and remember Ross Perot’s fancy graphs showing how the national debt could be paid off in x number of years. It wasn’t until reading Rothbard that I considered the moral implications of collecting taxes to try paying it off (essentially theft on a scale so large as to constitute slavery, with the burden falling most heavily on the more productive members of society). I’m now quite comfortable with the idea that the people and institutions who voluntarily gave money to the government to conduct warfare and welfare in exchange for the promise to pay them back with principle and interest won’t receive a dime. I know this has been long-winded, but hopefully enjoyable for all.
Social Security is biased against men who live shorter lives than women, and especially men who work in hard jobs like timber, mining, construction, commercial fishing, oil and gas, etc. Many of those guys are dead long before 66 – my grandpa was a steel worker and died at 61. Not everyone can be an economist or professor. Don’t get me wrong I don’t think social security should exist in the first place.
The social security tax is biased against anybody that still works for a living.
The benefits you will receive from social security in retirement are tiny compared to the financial loss you receive by the taxes required to support the system.
What the author has overlooked is that SS would be solvent if the federal government had not looted it, and they will continue to loot it. The federal government has discovered the accounting method of spend spend spend, and print money print money print money to cover debits. Somehow, I predict that the system won’t be fixed in a rational beneficial manner for the recipients, but will only look good on paper: e.g. payemtns to recipients for only the amount you paid into it. I bet some Congressman is already looking at that, too. Seniors: we lose!
Any sort of promise of a ‘SS’ being some sort of ‘lockbox’ or ‘retirement plan’ was a lie from day 1. It’s a tax and always was a tax. It goes into paying for wars or bail outs or anything like that just like any other tax.
Then nature of tax revenue (money, being fungible) really means that would of been stupid to consider Social Security tax as being separate from any other source of tax revenue. It all goes into the same pile… trying to really create a separate ‘lockbox’ for social security would just make the problem worse.
What really does make it worse, however, is that only 50% of your tax burden shows up as deducted from your paycheck. That is when you look at your W2 tax forms at the end of the year you need to multiply the numbers for Social Security by a factor of two to get a idea of how much of a real financial burden is placed on you.
SS is a scam. It was a scam originally, it’s a scam now, and it will be a scam in the future. In reality it exists in two forms:
1. A payroll tax, of which 50% is hidden from you.
2. Welfare benefts for old people.
The really are unrelated except for the fact that all your taxes go into paying the various government expenditures. There is no real or logical boundaries that are placed on what tax gets paid were. The fact that you bring up the ‘insolvency’ of Social Security just means that you’ve been deluded by politician lies.
That’s all it is. It was intended to be this and designed that way from day 1. The rest is all just dress up and to make a payroll tax acceptable for the unwashed masses.
Oh and a good first step to fixing it is by getting rid of the lies and revoking the payroll tax completely.
The next step would involve cutting government spending in other areas to cover the loss of tax income.
The Golden Goose is now laying lead eggs. The reason the Social Security scam is under fire now is that it no longer provides the extra tax funds for congress to spend. When OASDI taxes exceeded the payouts, it was just wonderful. But now that it looks like it will actually cost money instead of supplying funds, they’re looking to get rid of it ASAP.
See for yourself the real wording of the Social Security Act at http://www.ssa.gov/history/35act.html .
To see how most of the taxes collected are legally diverted to non-social security uses see http://www.ssa.gov/history/35actii.html#Old-Age .
I doubt that politicians can follow this sort of painful, scheduled phase-out over a period of forty years. People near retirement age have a big interest in voting for whoever promises them the most money in the nearest future.
I suspect that nothing will be done until payouts exceed receipts. At that point, the solution will be: print money.
The real problem is deeper and harder with which to deal.
The government shackles we find ourselves in arrived as the baggage of political striving. No program is ever put forward bragging that, in essence, you will pay more so that others are not compelled to do likewise.
The American suckers, us, are told that others will pay more so that we can pay less. The failure of the majority of us to understand this has our Congress populated with “deficits no matter” mentalities which eventually will destroy the country.
Until enough voters become enlightened, and vote against the election and reelection of such persons, there is no hope for our future. Unfortunately, until such time, all the great arguments for sanity of government will be to no avail. But we have to keep trying, and this piece is enormously helpful.
I only read half of it, because something really frustrated me. Imagine that when Madoff was discovered, they said, well lets slowly phase out his ponzi scheme so as to minimize the disruption. Hell no, that’s insane. They did exactly the right thing. They seized any of his assets they could, they tossed his ass in jail, and are working out the liabilities as we speak. Any other alternative would have forced people to continue ruining themselves and participating in a lie and a fraud. Any other alternative, would have rewarded Madoff and the liars instead of brought justice.
Well the same is true with the government. Forget the special place in hell for them, it’s a lie and moral and intellectual cowardice to expect them to be immune from justice. We need to treat them, their employees, and the rest of the federal government just like any other ponzi scheme operation. We need to put their asses in jail, and seize their and the government’s assets to the greatest extent possible, and distribute it among the people who they took the money from.
Best of all, with a just solution, the younger generation would be spared the fraud and robbery.
Of course, maybe the government has too many thugs and frauds, to be overcome. Maybe it’s bought too much silence. Well, freaking hell, does that mean we all need to become liars, bow our heads, and shut up about the just and intellectually honest solution so as to “work something out”. Bullshit, anything other than demanding a real shutdown, and real justice is unacceptable.
@David,
I agree with the Madoff seizure of assets. I do see a difference between Madoff and the government. Madoff was a good snake oil salesman. He tricked a lot of wealthy people to invest in his schemes. The people who invested did it voluntarily. For whatever reason they did not do due dilegence. When you get investment statements over a long period of time showing a consistent rate of return then you should be buyer beware. Especially when your returns are higher than the market average.
Now the government is another story. They have a monopoly on force.
It is always amusing when the biggest snake oil salesman (government) goes after a private snake oil salesman. How dare Madoff get in our business. The government does not like competition.
This article does not consider all factors. Many workers are physically unable to work to age 70 or beyond. They also do not have sufficient income to save adequately for retirement. With smaller families, it’s harder on children to have to support their elderly parents. To maintain maximal control over private employers’ decisions, government should not interfere with their personnel decisions, which often include laying off people after the age of 50. These people usually have to take part-time and/or low paid jobs thereafter, so they can’t save for any retirement at all. All this will lead to a lot of old folks dependent on either charity or general government welfare schemes unless the writer plans to eliminate those, too. If that’s the case, we will have a society that makes the immoral choice to abandon the old once they are no longer useful. That won’t happen, so the whole scheme the author proposes is unworkable for all practical purposes.
The factors you mention are in many cases outside the scope of the article itself. What you have brought up is not in conflict with eliminating social security and medicare.
Furthermore, implicit in your argument is the assumption that the current system actually will work and continue to work, something that is impossible. This is an empirical argument, and you can certainly make the case for how we can continue to budget for these programs at current ages in perpetuity, but you will fail.
Your argument could be used against the current system, saying it doesn’t go far enough by simply changing the ages. Perhaps some workers would be physically unable to work at 20? And how do you know they are physically unable to work? What is “work”? It’s a fairly broad term that poses a variety of levels of physical and mental exertion.
Why do you assume “smaller families”? Couldn’t people using the changed incentives that would result from no medicare and social security have larger families and include friends/etc. as part of their base? This has happened in the latest financial crisis quite a bit, as those in their 20s live with their parents more now than in the past few decades. The choice and opportunity to live longer or have a smaller family are both based on relative wealth.
I don’t think anyone here is against charity, but most here are against “general government welfare schemes” for various reasons.
“Society” doesn’t exist. It can make no choices. Only individuals exist and make choices. If a person chooses to “abandon the old” you can call it immoral if you like, but I’d like to know exactly why your morality declares that someone else has a right over your own income simply because they had a set of circumstances that resulted in them not having sufficient retirement savings? I can understand why you would want to be charitable or for others to be charitable, but why do you think you have the right to demand this of others?
Your “morality” proposes that it is ok to use and threaten force against others to take wealth from them to provide for those who were perhaps unable, but in many cases simply made poor choices resulting in their having no retirement savings.
Eliminate government issued currencies, eliminate central banking, eliminate legal tender laws, eliminate sales taxes and eliminate income taxes.
Then, you can get rid of social security because people will keep enough of their hard earned money to save and invest for their future.
Eliminate doctor’s unions and associations, eliminate the FDA, eliminate the war on drugs, eliminate all the red tape concerning health care and medications.
Then you can get rid of medicare, because health care and medications will be so cheap and competitive that people, having worked and saved all their lives, while maintaining a healthy lifestyle, will have enough money to pay for their health care.
Not to mention, eliminate patent laws, so that advances in health care can be turned into a marketing and pricing race instead of a patent and FDA approval race.
Really, the problem here is government. The solution is to remove government from the way.
A friend of mine used to state, “Live by the state, die by the state.” Medicare and Social Security are certain examples.
Have no doubt whatsoever that what are being discussed as “death panels” in the USA are just an unsteady start. There is yet more to come. Eventually it won’t be considered so terribly unusual. Of course, many of those who happily accept the great lies of the welfare state are in for a terrible surprise in years to come. Soon enough the majority of elderly (and pretty much 100% of the liberal/welfarists among ‘em) will discover their termination comes by way of triage needle or a “nil-by-mouth” (no food) order or a refusal of even simple medical treatments (for exactly the reasons Prof Reisman explains in his article). I don’t think this is going to be avoided in the USA. Best policy for the not-so-elderly is going to be to do as another of my friend’s sayings went- “Get out of Dodge.”
Sione
BTW I visited Dodge and had a look around there when I was last in the USA. When we were about to leave (there were four of us), we went to a bar, had a few drinks and waited to see who’d say it first- “We’ve got to get out of Dodge.” And you’ll never guess what make of car we had….
Clue: It had a hemi.
I would have said it obviously had to be a Trabant, the socialist car that East Germany was famous for, only that was a two stroke.
Lawrence
You sure is igrint, boy.
Two-strokes are generally not referred to as hemis.
Trbants are not referred to as hemis either.
The Trabant is not legal for use on public roads in the USA. You ought to read the relevant regulations regarding collision performance, emissions, required features and dimensions etc.
Seating for four… difficult with a Trabbie.
We were in the USA. You may have heard of that country. Look it up in your daddy’s atlas. There is a car manufacturer over there which advertises a product it sells as having a “hemi” engine. That company is one of what were once referred to as “the big three”. Now it is part of FIAT. Surely that is enough clues, even for you.
You need to get out of your bedroom more.
Sione
Maybe I should have used a tongue-in-cheek alert. And maybe you should have.
Lawrence
Naaah. You’re just not clever enough to try writing comedy.
Sione
Isn’t it ironic that the government would consider the death panel yet would refuse law abiding citizens the right to terminate their own life as they see fit.
So death is only acceptable when it is ordered by the state ?
Freedom Fighter
So it would appear. But there are those who would argue that since that’s the law it must be moral…
Sione
The only reason Social Security and Medicare were not attacked earlier was the fear of working class reaction. That fear must be reintroduced.
CQF
Gracemere Real Estate
George Reisman appears to be getting close to a position I reached in earlier work, in an Australian context. Below, I will bring out some of the differences I see between his approach and mine (apart from ones coming from different local circumstances, e.g. for us “Social Security benefits” doesn’t just mean retirement benefits but also unemployment benefits etc.), pointing out any ramifications and potential problem areas. Two years ago, I discussed my own approach in detail in a submission to the (Australian) Henry Tax Review and in the comments to that (the submission is also here and here). This approach is also covered in a less technical way in an earlier article.
Even with “a grace period … [and] a phased increase to 70 in the age at which individuals are eligible to receive full Social Security benefits and Medicare” etc., people caught in that age range early on wouldn’t get back enough of their own resources to make other arrangements, even though they would see it coming. A later generation would, when they reached that age range, as they would by then have had the benefit/lower cost of lower contributions for longer – but not the first lot. My own approach gives this group and those just younger much lower income tax to set them up, and has a moratorium for anybody unemployed in this period so that their benefit ages don’t get pushed back so far (the Australian system is paid for through the wider tax system, not through a dedicated system like the U.S. one). I addressed unemployment issues in a later, separate submission to the Henry Tax Review, which is also here and here.
Reisman’s second stage of reform does give lower income tax to people approaching the receding benefit age. But it appears to differ from mine in two ways:-
- It only happens at the second stage. As long as reform is stalled after the first stage, people get caught with higher outgoings and lower benefits. Reisman hints at a pause like this between the stages’ implementation – but the only real gainer from that would be the government.
- It only happens to a fixed age range of those no longer getting the benefits directly, without a widening window or wedge extending – eventually – to everybody.
Reisman intends to close out the U.S. system by stopping new entrants, i.e. at the bottom of the age range. For me, this would merely be a final, formal step after the system wasn’t carrying anything any more. I would get to that by widening a window of non-contributing ages starting from the older end, so that no demographic age cohort would get caught with burdens and no or inadequate compensation. That is a serious risk area under his scheme, at any rate for individuals who didn’t find themselves with better net income from wider gains in the economy – and I wouldn’t want to base plans on any idea that those were bound to come through for everyone.
I may reply to some of the points raised in the comments on this page more directly.
This took a very long time to seep through the moderation process, so much so that I was about to break it up and try to post it with fewer links. However, that delay has meant that many readers might not spot it, so I am doing this reply so as to get it visible under the recent comments.
This proposal sounds way too involved and complicated to me. It also has a built in weakness. If an employer can hire a group of people that it doesn’t have to pay employer portion of SS for, it will disenfranchise all those that it would.
A simpler proposal (Perhaps)
Remove annual increases or decreases tied to the CPI. Watch how fast AARP becomes the enemy of the federal reserves inflationary policies.
Freeze SS benefits at their current levels for anyone who has already paid in anything. They were made a promise that should be kept.
SS would die a natural death in 50 or so years and would start diminishing as a % of the national extortion almost immediately.
Liquidate the current SS trust fund, which is an Enron like scam , and put the funding in the Fed budget where everyone can see how much we are taxed.
Oh, and get rid of employer portion of SS outright (my preference) or state it in the employee portion, which is the truth of it anyway.
About 2 months ago, I sent a similar plan to congressman Eric Cantor. It was summarily ignored.
I don’t disagree with anything Dr. Reisman wrote; in fact I wish everyone on the planet would read his article. But he begins with the statement that Social Security and Medicare “account for approximately one-third of total federal government spending.” One-third doesn’t sound so terrifying does it?
But then I look at the 2011 budget summary
http://www.whitehouse.gov/sites/default/files/omb/budget/fy2011/assets/tables.pdf
and I see that the sum of Social Security, Medicare and Medicaid is expected to be $1.49 trillion and total Federal receipts are expected to be $1.15 trillion. Anybody scared yet?
Then I look further and see that total Mandatory Spending ($2.1T) plus Net Interest ($250B) = $2.35 trillion, while as observed, receipts are one-half that. Maybe it is long past time to be terrified (no mystery in the Tea Party protests).
The upshot is that untouchable, “third-rail categories” of spending have already reached the point where we have to borrow (the entire deficit) to finance the “legitimate” functions of government – everything else.
And this before the “baby-boom” retirements really get started, not to mention the $ trillions for ObamaCare.
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