Your Pensions, Social Security, and the Sequester

And can the White House and Congress be trusted?

With the upcoming "sequester" in two weeks, there will be major cuts to our safety nets. Howard Dean, the Democratic Party leader who once ran for president, says the sequester is a "good thing", because for the first time in a very long time, it also allows us to cut defense spending. (Try telling that to the poor, disabled and elderly.)

Will food stamps be traded for submarines? Will Medicaid be traded for the massive layoff of military personal? And even despite the fact that the most vulnerable among us would be brutally harmed by these cuts? The CEOs in the defense industry won't suffer much...if at all.

The Federal Times reported that an analysis by the Project on Government Oversight found that the average compensation package of a CEO for the top five Pentagon contractors is about $21.5 million. What "shared sacrifice" will they have to make when millions of Americans are laid off from their jobs?

Most voters across the entire political spectrum oppose cuts to Medicare, Medicaid, and Social Security benefits. All polls show this. Obama ran on this. And all the Democrats in congress claimed they would protect these programs...that is, before the last election

President Obama just said in his State of the Union address, "We reject the belief that America must choose between caring for the generation that built this country and investing in the generation that will build its future." But yet he also believes that COLAS for Social Security and disability recipients should also be on the table?

When Obama won re-election, it was because of his promises not to cut Medicare, Medicaid, or Social Security benefits -- including raising the retirement age -- or cutting the cost of living adjustments. Over a million more voters than Mitt Romney had agreed with President Obama, and that's why they just voted for him.

Now our newly re-elected president sounds like he's caving. I've been getting petitions in my IN box every day, asking Obama and the Democrats to NOT compromise with the Republicans on ANY cuts to Medicare, Medicaid, and Social Security --- especially for those who have already made the most "shared sacrifices" during the Great Recession.

Show me the money!

As of two years ago, the Social Security Trust Fund was supposed to have $2.6 trillion, according to the Social Security trustees. So why is there an immediate plan to start cutting here? The trustees also said that the combined assets of the Old-Age & Survivors Insurance and the Disability Insurance Trust Funds (OASDI) will be exhausted by 2033 (a conflicting report says Social Security retirement benefits could be exhausted by 2025.)

President Obama’s budget director at the time, Jack Lew, had explained in USA Today that “Social Security benefits are entirely self-financing. They are paid for with payroll taxes collected from workers and their employers throughout their careers. These taxes are placed in a trust fund dedicated to paying benefits owed to current and future beneficiaries."

He said that "even though Social Security began collecting less in taxes than it paid in benefits in 2010, the trust fund will continue to accrue interest and grow until 2025, and will have adequate resources to pay full benefits for the next 26 years.”

But for me, this is the most immediate and most disturbing: The trustees also projected the exhaustion of the Disability Insurance program in 2016. The trustees say that "the DI program faces the most immediate financing shortfall of any of the separate Social Security trust funds; thus lawmakers need to act soon to avoid reduced payments to DI."

With an aging population, the spike in disability claims is something that must be addressed very soon, or many of the Baby Boomers will be SOL.

Jack Lew explains that "for years, the surpluses in the Social Security trust fund have helped to mask our deficits elsewhere. Now that we are paying Social Security back, the problem is not with Social Security, but with the rest of the budget."

In 2001 and 2003 we had the Bush tax cuts for the wealthiest Americans; and later Medicare was expanded without paying for it. Not to mention two unpaid wars that accomplished...
what?

Lew said that "blaming Social Security for our fiscal woes is like blaming you for not saving enough in your checking account because the bank lost all depositors' money. The problem is not Social Security; the problem is the mismatch between outlays and revenues in the rest of the budget. Closing that gap and paying down our debt will take tough choices, and the president's budget makes them. Strengthening Social Security is an important, but parallel, issue that needs to be addressed as quickly as possible. But let's not confuse it as either the cause of or a solution to our short-term fiscal problems."

What did he mean by "tough choices"? For who? What did he mean "strengthening" Social Security? That sounds like something right out of the Republican play book.

The Republican rebuttal to Lew

Fox News' Charles Krauthammer strongly disagreed with Lew and said, "The Social Security trust fund is a fiction. In other words, the Social Security trust fund contains nothing.”

Krauthammer asserts that "when your FICA tax is taken out of your paycheck, it does not get squirreled away in some lockbox in West Virginia where it's kept until you and your contemporaries retire. Most goes out immediately to pay current retirees, and the rest goes to the U.S. Treasury and is spent --- on roads, bridges, national defense, public television, whatever --- spent, gone."

He says those promises are like worthless pieces of paper, like I.O.U.s, and are nothing more than "claims on the Treasury" --- and that current Social Security benefits come from taxes and borrowing during the fiscal year.

So who do we believe? Supposedly the Social Security Trustees (under all political administrations) have all been telling us the same thing...that there's a lock box somewhere (just like there's still gold in Fort Knox).

But even so, Social Security revenues have declined during the economic downturn, because fewer people were working; so the government has been paying out more in benefits than it has been taking in, and hence needing additional federal revenues.

Forbes agrees with Krauthammer, and says "the federal government has borrowed all of that trust fund money and spent it, exactly as Krauthammer asserted. And the only way the trust fund can get some cash to pay Social Security benefits is if the federal government draws it from general revenues --- or borrows the money --- which, of course, it can’t do because of the debt ceiling."

Forbes also says that "if the budget crisis has done nothing else, it has exposed the decades-long lie about the solvency of the Social Security trust fund. The trust fund may be backed by the 'full faith and credit of the federal government', but did not hold any real assets."

Is this why the Republicans want more cuts to Social Security, and why Obama and the Democrats just "appear" to want to save it?

The Social Security Administration says that "over the 75-year period, the Trust Funds would require additional revenue equivalent to $6.5 trillion in present value dollars to pay for all scheduled benefits." That would equate to $90.2 billion a year for the next 75 years.

A fair remedy

Currently, there is a staggering $1 trillion in personal income that escapes Social Security taxes every year, partly because of the $113,000 "cap" on someone's annual income. Maybe if members of congress eliminated the $113,000 "cap" on Social Security taxes for the very wealthy, and then just tax everyone 6.2 percent on 100% of their total annual income, we wouldn't be having this discussion about shortfalls in the Social Security Trust Fund.

Instead of allowing for more tax evasion with Swiss bank accounts and dummy corporations in the Cayman Islands, and members of congress caving in to the interests of big business through lobbyists who advocate against a fair minimum wage, and allowing for the ridiculously low tax rates on capital gains --- maybe then congress could fairly tax the wealthy to fully fund the Social Security Trust Fund.

Also, if people earned better wages, they could also pay more into the Social Security Trust Fund. Obama wants to raise the federal minimum wage to $9 per hour and peg it to inflation. John Boehner says, "When you raise the price of employment, guess what happens? You get less of it." (Although 20 years of studies by various economists have never made that correlation.)

Boehner and the Republicans also likes to parrot, "We don't have a revenue problem, we have a spending problem." He and all the Republicans have always thought that spending on Medicare, Medicaid, and Social Security was "a problem".

What probably concerns House Republicans, as well as the business lobby, most about Obama's proposal is not just the nominal minimum wage hike. It's the inclusion of a cost-of-living adjustment, which would tweak the minimum wage each year to adjust for inflation. This would guarantee that workers on the lowest rung of the economic ladder don't lose purchasing power. It would also mean fast-food companies like McDonalds and other low-wage employers like Walmart would have to pay higher wages every year if there's higher inflation.

And with a raise, these American workers would also be paying more in federal and Medicare taxes too. That's why off-shoring jobs to places like China, to pay people in China, only enriches the Chinese economy and China's national treasury at the expense of ours.

But the Republicans may try to give Democrats some kind of wiggle room in the minimum wage debate, by "compromising" with them on the cost-of-living part of the package. But if that happens, then working Americans will only see their purchasing power declining again, year after year, just like it has for decades.

Old People

We also have to worry about how congress wants to treat our elderly with their cost-of-living adjustments to Social Security and disability benefits.

Just recently the White House press secretary said that the president would be open to reducing Social Security's benefit structure as part of a 'big deal' to avert sequestration. That proposal, known as chained CPI, would alter the annual adjustment in how benefits are paid to Social Security recipients, by using a less generous calculation of inflation.

In general, the Democrats (excluding most in the Progressive Caucus) are also now saying that by using chained CPI we are able to reduce the Social Security cost-of-living adjustments, which rises more slowly than regular CPI, because they probably think that accounts for the way our elderly switches to pet food when the price of people food rises.

Are the $174,000 annual congressional salaries also calculated in this way every year? Or did they get that fat all my themselves?

Is any 401k or pension fund really safe?

Because of the massive amounts of money allocated to pension funds, they are always a ripe target for theft. Union bosses in the 70's were caught skimming when the Mafia was once involved with the labor unions. And Bernie Madoff's Ponzi Scheme instantly comes to mind too, but there are many others. Some argue that the Social Security Trust Fund is such a scheme, but is it really? I for one certainly can't say.

The Republicans have always wanted to privatize Social Security, but most of us aren't hedge fund managers or stock brokers, and couldn't possibly know how to properly manage a stock portfolio. Most of us feel safer and more comfortable with having it automatically deducted from our paychecks...and kept in a government "lock box" called the Social Security Trust Fund (because, after all, it can be "trusted", right?)

But if our money isn't safe with the government, think again about trusting your money with a money manager.

Institutional money is deeply tied up in hedge funds, and many are tied to our pensions. But whose interests do the CEOs and other corporate directors really have at heart? How many boards do they sit on simultaneously, and do they sit alongside other directors who are also serving on the same multiple boards?

Consider the two Bear Stearns funds that collapsed in the summer of 2007 and served as harbingers of the eventual financial crisis. They shared not only the same fund managers, but also independent directors --- in this case, both professional independent directors --- meaning they were affiliated with a financial services company.

By way of the Mapping Shadow Influence Project, according to the Foundation for Fund Governance database, one of these directors from Bear Stearns currently sits on the boards of 120 other funds --- and the other sits on 38.

Both directors were cited by U.S. courts for not performing their oversight duties adequately by approving 165 trades with other Bear Stearns funds... after those trades already happened. The trades allegedly allowed the Bear Stearns fund to hide investor's losses

According to the most recent data, both directors sat on funds with U.S. public pension money invested between them and at least seven others --- including the Pennsylvania Public School Employees Retirement System, the Fairfax County Retirement System, and the California Public Employees Retirement System. The directors serve together on several of these funds.

Indeed, many independent directors hold multiple directorships, sometimes numbering in the hundreds. Moreover, many of these directors are interconnected, sitting together on multiple boards, as the Foundation database shows.

Just as many directors of the large corporations sit on each others board of directors. The big banks, hedge funds, and private equity firms are the largest institutional investors of the corporations on the S&P and Dow Jones. And through corporate raiders such as Mitt Romney, we know all too well how pension funds are treated by private equity firms.

In conclusion...

Getting back to the question: Is there is no money in the Social Security Trust Fund? And if the Wall Street bankers are still crooks, and the ultra-wealthy and large multi-national corporations are still dodging taxes, and if congress refuses to eliminate the "cap" for Social Security taxes, and if the Republicans refuse to raise the minimum wage and index it to the cost-of-living, and if congress refuses to tax capital gains as ordinary income... then what other options are left for the disabled and/or those who'll eventually need a retirement savings?

Should they start collecting aluminum cans and stash their money under an old mattress?

* Editor's Note: Also posted at the Daily Kos