@BillRM,
Well, sir, if I read the reports correctly,it may not be necessary for anyone to take away the Social Security Program or Medicare since some experts indicate that those programs will be bankrupt soon.
NOTE:
August 14, 2009
Why Social Security Will Go Bankrupt Sooner Than People Think
By Paul B. Matthews
On May 12, 2009, the trustees for the Social Security system released their annual report,
"The 2009 Annual Report of the Board of Trustees of the Federal Old-Age and Survivors Insurance and Federal Disability Insurance Trust Funds."
Following release of this report, many media outlets were quick to report (or should I say regurgitate) the findings sited in the trustee's executive summary -- notably that Social Security payroll tax collections would begin to exceed benefits paid in 2016, a year shorter than had been forecasted in 2008.
Although the news media were correct to convey this fact, such simplistic accounts failed to candidly state the true deterioration of the Social Security system over the past year.
For example, in their 2008 report, the Social Security trustees projected a cash surplus of $87 billion in 2009 -- a figure reduced to $19 billion this year. However, even this sharp 78% reduction in the projected Social Security cash surplus failed to illuminate the nonsensical statistical assumptions used by the trustees in the prognostications -- assumptions so unfathomable they make the 2009 trustee report virtually useless.
Employment and Wages
Social Security tax collections are dependant upon two factors: the level of employment and the level of wages. If more people are working, then naturally payroll tax collections from employees and employers are higher. Moreover, as wages increase, at least up to the OASDI cap level ($106,800 for 2009), then payroll tax collections too will increase.
However, both employment and the level of wages have declined rapidly in the United States this year. This is best signified by the current 9.4% unemployment rate (up from 7.6% in January), a headline rate that will certainly exceed 10% in the near future.
Moreover, average hourly earnings increased to just $18.56 in July, a 2.5% increase from a year ago. However, according to the Bureau of Labor Statistics (BLS), the average work week totaled 33.1 hours in July, the second lowest recorded level since the agency began publishing this statistic in 1964. (Only the June 2009 report at 33.0 hours was lower.)
So given the current state of the economy, what assumption did the trustees use as their median long-term unemployment rate? The answer: 5.5%. Moreover, the unemployment rate used by under their worst case scenario was 6.5%. Accordingly, to believe the trustee's conclusions, one must assume a scenario of virtual full employment in America over the next 75 years!
The trustees even made erroneous short-term jobless rate estimates-assuming only 8.2% of Americans would be unemployed in 2009 and that the jobless rate would reach 8.8% in 2010. Accordingly, the trustees (at a minimum) have underestimated the 2009 unemployment level by 1.2%. Hence, with just a $19 billion projected cash cushion for 2009, it does not take a lot of additional unemployment and fewer people paying payroll taxes to materially erode this small buffer.
On a similar front, the trustee's report should be criticized for their fallacious assumptions about median US wage growth rates. In fact, the trustee's median assumption predicts average annual wage rate gains of 3.9% (4.3% under their "high growth" scenario).
So this raises the question: With the average work week declining, capacity utilization at 68% (the lowest reading since the Federal Reserve began publishing this statistic in 1967), unemployment at near 10%, and consumer prices falling (June consumer prices fell by an annual rate of 1.4%), how could any econometric actuary anticipate a 3.9% increase in wage rates with so much slack present in the system?
The answer is politics.
However, economic logic would dictate the trustee's median wage growth forecast clearly overstates expected future US wage rates, and thus overstates expected future Social Security payroll tax collections.
The Making Work Pay Tax Credit
On February 17, 2009, President Barack Obama signed HR 1, also known as the President's $787 billion economic stimulus bill. Contained in this legislation was the "Making Work Pay" tax credit, a refundable tax credit equal to 6.2% of earned income up to $400 for an individual or up to $800 for a married couple. [This credit begins to be phased out starting at $75,000 for an individual filer and at $150,000 for a married couple filing jointly.]
According to the Recovery.Gov website, this tax credit will cost the US Treasury an estimated $116 billion during fiscal years 2009-2011.
However, the projected cost of this tax credit will more than offset all of the projected cash cushions for the Social Security system in each of the next three fiscal years. Specifically, the total cost of this tax credit through September 2009 (when the fiscal year ends), is forecasted to be $19.9 billion, slightly larger than the $19 billion cash surplus previously mentioned. Accordingly, one could correctly already argue that Social Security expenditures will exceed true payroll tax collections this year.
Naturally, Congress and the White House will attempt to spin these facts. Whatever they assert, the fact remains this tax credit was designed explicitly to directly offset all of the 6.2% Social Security payroll tax normally paid by individuals on their first $6,451 in earnings. In spite of this fact, it is virtually guaranteed that Congress and the Social Security trustees will continue to use phantom accounting gimmicks to suggest that this tax credit had no impact on the payroll taxes collected, and thus had no impact on the size of the "alleged" Social Security Trust fund.
