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Tipping Point for SS and Healthcare?



December 30, 2011 – Comments (4)

Board: Macro Economics

Author: WatchingTheHerd

A common theme of posts over the past 2-3 weeks involves the changing tax based to support current government programs and the macro impact of continued crushing debt loads imposed by continuing those programs.

It really is worthwhile to step back and carefully review the differences between the mental shorthand we use in our head for terms like "unfunded liabilities" and what the law and politics (lower case "p" -- no partisan point being made here) actually require.

Are the "unfunded future liabilities of Social Security" a threat to financial growth? They are if one assumes that the fact your parents may have retired at age X and collected Y years of payments based upon Z years of "contributions" creates an actual LEGAL obligation for future generations to do the same when YOU retire.

It doesn't.

If people wake up and realize any one of the following changes could be made to drastically alter the funding / drain balance of the program,

* eliminate yearly SS tax cap on income above $106,800
* limit payment eligibility to whatever yearly tax cap is used (if you aren't taxed for income above $106,800 then your benefits should be calculated with yearly incomes no higher than $106,800)
* means testing payments for wealthy elderly

Then the future burden on the overall economy as the demographics shift would look NOTHING like it does from extrapolating current behavior. If one assumes elderly voting blocks would never allow such changes at the polls, one has to hope that the 18-35 generation doesn't suddenly realize they better get their butts to the polls to represent THEIR generational interests. That might not happen in a booming economy where every 20-something has enough money to hit the clubs every night instead of paying attention to politics and economic trends. It DEFINITELY might happen when an entire generation of 20-somethings is living in their parent's home working at minimum wage and realize their primary political choice is to alter social security eligibility rules so money can go directly to their generation or continue having it flow through their parents while they live in the basement.

Will spiraling Medicare costs pose an equally existential risk to future economic growth and prosperity? They certainly will if millions of families learn NOTHING from watching "heroic" medical efforts burn through a lifetime of savings in a few short months while adding nothing to the quality of life.

Is that likely?

I'm not sure but I would lean towards many people learning the difference between quantity and quality of life and updating their own directives to avoid some of the more extreme scenarios that cost so much money.

Will spiraling healthcare costs for the rest of us continue to weigh down the economy? They could if one assumes healthcare and pharmaceutical companies have our government in a headlock to prevent changes to the insurance models in place and the actual delivery practices in place for healthcare. It certainly SEEMS like they do have our government in a headlock but there's a catch.

That headlock can only last as those firms stay in business. They're a business just like anyone else and their primary customers are businesses -- our employers. If our employers are crippled by higher healthcare costs and cut staff or go out of business entirely, guess what? Those insurance companies, pharma companies and hospitals lose customers as well. Lose enough and they're no longer enough of a lobbying threat to a politician to block changes that tip the balance back towards individuals.

There ARE such things as points of economic discontinuity -- points where one or two inputs to a larger set of macro decisions reach values that trigger huge changes in MANY other decision variables, not just incremental changes in one or two. We may be very near one or more of those points right now. Extrapolating beyond those points using current behavior is almost pointless to the point of comedy.


4 Comments – Post Your Own

#1) On December 30, 2011 at 12:53 PM, outoffocus (22.84) wrote:

...In other words, we need to initiate the change or the change will happen for us...Brilliant!

+1 from me if not anyone else.

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#2) On December 30, 2011 at 2:42 PM, russiangambit (28.78) wrote:

>  limit payment eligibility to whatever yearly tax cap is used (if you aren't taxed for income above $106,800 then your benefits should be calculated with yearly incomes no higher than $106,800)

You are not taking inflation into account 100K today will be 200K 30 years from now.

I would be more agreeable to a cap where you can't get more in benefits than you contributed with 5-7% compounding, to account for inflation. If you hit the cap, then you get a minimum for the rest of your life after that point.

However, the discussion of SS and Medicare liabilities is useless without acknowledging that US can simply print money  , i.e. run deficits indefinitely to finance such programs without many adverse effects, unless benefits are increased much more beyond what they are today and cause inflation.

We never put military spending on the balance sheet, yet it uses real resources but nobody talks about it . Why? Because again, US can print as much money as it is authorized by Congress. The social programs are no different from military spending. They could be run smarter , yes? But they have been scrutinized so much more than the military that I truly believe it is military where the real waste is.

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#3) On December 30, 2011 at 3:13 PM, wolfman225 (45.55) wrote:

I don't agree with "means testing for wealthy elderly" as the determinant for whether, when, and how much they could receive in SS benefits; absent a mechanism for "opting out" it would be little more than confiscation and redistribution.

While I agree that it seems that someone bringing in 6-figures in investment income may not "need" that $1500 check, as a participant in the "Social Compact", the government has an obligation to issue the check.  This obligation is particularly acute in light of the fact that participation in SS in compulsory.

Eliminate the limit on income subject to FICA, by all means, but as long as people have no choice about contributing, it would be wrong to prevent them from participating based on some arbitrary income limit in retirement.

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#4) On December 30, 2011 at 6:16 PM, awallejr (37.84) wrote:

There really is nothing wrong with Soc Sec.  It is actually extremely transparent.  Everyone gets a yearly statement showing exactly what they paid in, the average salary scale, with estimated monthly benefits.  The money contributed is not lost, it is basically "ledger" moved into the general budget with basically IOUs issued back.

The thing people do not seem to consider is the fact that once a person dies, that person's account is closed after a miniscule burial payment is made.  In all candor the best way to deal with the increasing payments to retiree's IS to kick the can down the road, since in about 40 years most if not all the boomers will have passed on relieving the budget by a tremendous amount and probably create a large over funding in light of the decreased payout obligations.

Of greater concern really is the medicare/medicaid entitlement.  The problem is the lack of control on the cost side.  While Kudlow and others like to stress how Free markets are the best path to prosperity, it isn't so for the elderly because it is that so called "free market" that keeps jacking up costs.

While I rarely ever agree with Russiangambit he is right that the military budget contains incredible waste.  Republicans were so adamant about lowevering the deficit and agreed to a supercommittee to come up with a plan or automatic across the board 10% cuts will take place.  When they failed, as everyone knew they would, those Republicans are now scrambling on a way to weasel out of the defense cuts.

What really needs to be addressed in the end about Healthcare is the cost side.  Leave SS alone.  If there is to be a generation of 20somethings living in their parent's home working for minimum wage, that has absolutely nothing to do with SS.  That has more to do with the obscene robbery of wealth by a small percentage of people over the masses, the so called free market at work.

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