No trust for Social Security

Fortune Magazine’s senior editor-at-large, Allan Sloan writes that the Social Security trust fund is a trap and a fantasy, and in no way a solid basis for the Social Security program.

From CNN.com:

The trust fund is nothing more than a trap and a fantasy for those who think it's a solid foundation for Social Security.

I used to joke about the government "solving" Social Security's long-term problems by creating Treasury IOUs out of thin air and sticking them in the program's trust fund. My point, of course, was to show that no matter how many Treasury securities there are in the trust fund -- currently, around $2.6 trillion -- the fund is merely an accounting fiction that has no economic value when it comes to protecting Social Security beneficiaries.

Now, with last week's passage of the much-ballyhooed tax deal between President Obama and Republican lawmakers, my sarcastic joke has become public policy. It all has to do with the provision cutting payroll taxes in 2011.

Let me show you how this works. Next year, as you probably know, workers subject to Social Security taxes will pay only 4.2% of their "covered wages" -- wages up to $106,800 -- rather than the normal 6.2%. This will reduce Social Security's cash proceeds by $112 billion, according to Congress' Joint Committee on Taxation.

What impact will this cash shortfall have on the Social Security trust fund? None. Zero. Zip.

How can a $112 billion cut in Social Security revenues not affect the trust fund? Because the Treasury will give the trust fund the same amount of bonds it would have gotten if the two-percentage-point tax holiday didn't exist.

In other words, the Treasury isn't selling bonds to Social Security, it's creating bonds out of thin air and putting them into the trust fund. The missing cash? Uncle Sam will just borrow $112 billion from somewhere.

Continue reading at CNN.com

Dems: Tax Cut Package Will Kill Social Security

Is the tax deal the beginning of the end of Social Security? Some Democrats in Congress sure think so.

The Hill.com reports:

Rep. Peter DeFazio (D-Ore.), who voted against the legislation, said on Thursday that “this [vote] is the beginning of the end of Social Security.”

“Next year Republicans are going to want to continue to undermine Social Security, and we are not going to be in any position to borrow the money under whatever new rules the Republicans adopt to make it whole,” he said.

Rep. Jim McDermott (D-Wash.) told The Hill that the tax bill -- which passed the lower chamber on Thursday night -- is a “trojan horse” designed to kill the Social Security program.

“My view is this is like the magician. He has got people looking at the estate tax. Meanwhile, he is putting his hand in your pocket and taking your Social Security,” McDermott said.

In the tax bill that the White House hailed on Friday as a "big win," workers will get a two-percent tax break for one year on their payroll taxes -- a tax that funds Social Security. The cut will leave Social Security with a $112 billion short fall. To make up the difference, the government will need to borrow the money.

Proponents of the bill contend the payroll tax holiday will provide a significant boost to the economy.

Read more here

`Invalid' Forms by Supposed Billionaires Skew U.S. Wage Figures

From Bloomberg.com:

The Social Security Administration asked its inspector general to investigate how a $32.3 billion mistake skewed its statistics on 2009 wages in the U.S.

Two people were found to have filed multiple W-2 forms that made them into multibillionaires, an agency official said yesterday. Those reports threw statistical wage tables out of whack and, in figures released Oct. 15, made it appear that top U.S. earners had seen their pay quintuple in 2009 to an average of $519 million.

The agency yesterday released corrected tables that showed the average incomes of the top earners, in fact, declined 7.7 percent to $84 million each.

Social Security spokesman Mark Lassiter provided few details about the W-2 forms and declined to answer questions about how they were filed, how many were filed by the same two people, or if a hoax was suspected. “We call it erroneous, you call it fictitious. It’s the same thing,” Lassiter said. “There were some invalid, I guess is the best way to put it, W- 2s.”

The W-2 is a tax form on which employers report their workers’ compensation. Taxpayers must provide a copy when they file tax returns.

Lassiter said this is the first time Social Security statistics have been affected by erroneous filings. A written request detailing concerns about the data was sent yesterday to the Office of the Inspector General, he said.

New Figures Detail Depth Of Unemployment Misery

According to data from a new Social Security report one out of every 34 Americans that earned wages in 2008, had no income whatsoever in 2009. Although the report came out earlier in the month, this article on Tax.com has brought the data back into the spotlight.

Huffington Post.com reports:

It's not just every 34th earner whose financial situation has been upended by the financial crisis. Average wages, median wages, and total wages have all declined -- except at the very top, where they leaped dramatically, increasing five-fold.

Johnston writes that while the number of Americans earning more than $50 million fell from 131 in 2008 to 74 in 2009, those that remained at the top increased their income from an average of $91.2 million in 2008 to almost $519 million.

The wealth is astounding, says Johnston. "That's nearly $10 million in weekly pay!... These 74 people made as much as the 19 million lowest-paid people in America, who constitute one in every eight workers."

Read more here

Social Security: No 2011 Increase

On Friday, the Federal Government announced that there would be no rise in Social Security benefits next year. This will mark the second year in a row nearly 60 million senior citizens will not receive an inflation adjustment on their payments. According to CNNMoney.com, inflation has been low in the past two years and the Bureau of Labor Statistics reported on Friday that prices were up only slightly over last year. The article continues:

The last Social Security inflation adjustment was in 2009: Beneficiaries got a higher-than-normal 5.8% increase because of a temporary spike in energy prices in the third quarter of 2008.

Soon after, however, energy prices plummeted. Then the bottom fell out of the economy and by the third quarter of 2009 overall price levels had fallen 2.1% from the same period a year earlier. That meant no increase in 2010 Social Security benefit checks.

This year, while there has been some inflation, prices remain lower than they were in the third quarter of 2008 -- and that's the quarter that counts.

No Cost-Of-Living Raise This Year For Seniors

Although the Social Security Administration has informed Congress that they will not make an official announcement about cost of living increases until later this week, experts are widely expecting the agency not to recommend any adjustment to benefits. The administration has to wait until after October 15th to make a final decision so they can review the September Consumer Price Index (CPI).

According to Huffington Post.com, the CPI would have to show a remarkable uptick in price to effect the SSA's decision not to provide the annual cost of living adjustment (COLA) which, by statute, is based on the rate of inflation.

If there is no measurable increase in the cost of living, then there is no adjustment, a rationale that unsurprisingly placates roughly zero beneficiaries.

Social Security recipients eagerly anticipate the annual increase. Touching a senior's COLA is a political third rail. Florida GOP challenger Dan Webster found that out the hard way when he suggested the federal government "take back some of the COLAs for the entitlement programs." Under withering fire from the elderly, he quickly backed off the suggestion, saying that he meant his comments to apply to federal workers -- who, of course, are not paid by "entitlement programs."

The backtracking largely got him out of the jam, but Democrats will be in their own fix when the announcement is made public. The COLA announcement will come as little surprise, since inflation has remained relatively low all year as a result of Federal Reserve efforts.

US Supreme Court To Consider Tax Rule On Medical Residents

Yesterday, the U.S Supreme Court decided they would hear a case regarding the payment of social security taxes for students of medical colleges and teaching hospitals. As the Wall Street Journal explains, the law being challenged is an old Treasury Department rule asserting that medical residents and other "full-time employees" cannot qualify for the general student exemption from Social Security taxes.

At stake is the tax treatment of medical residents nationwide, of which there are currently about 100,000, and $700 million in annual revenue to the federal government, according to court papers.

The Mayo Clinic and the University of Minnesota challenged the Treasury ruling and have also sought refunds for Social Security taxes they already paid on behalf of medical residents.

The St. Louis-based 8th U.S. Circuit Court of Appeals sided with the IRS in a ruling last June.

In their petition to the Supreme Court, the Mayo Clinic and University of Minnesota said four other federal appeals courts have sided with hospitals against the government on the issue. That leaves medical residents in the 8th Circuit--which covers Arkansas, Iowa, Minnesota, Missouri, Nebraska, North Dakota and South Dakota--subject to taxes that their peers elsewhere in the U.S. do not have to pay, they argued.

The Social Security tax represents 12.4% of wages. Half of the tax is paid by the employer and half by the employee. For a medical resident earning a $50,000 stipend, that represents $3,100 paid by the resident and $3,100 paid by the hospital.

Continue reading at Wall Street Journal.com…

Social Security, Defense Top List of Debt Panel's Targets

The bipartisan fiscal commission has been working on a plan to reduce the national debt, and Social Security and Pentagon expenses are at the top of their list of major federal expenses. The commission has yet to propose tactics to reduce these expenses, but they are already being confronted with major opposition. Check out the following story on this new development—courtesy of USA Today.

Social Security and the Pentagon are among the early targets of the bipartisan fiscal commission established by President Obama to address the USA's spiraling national debt.

The panel, which held its second public meeting today, barely mentioned the biggest reason for the $13 trillion debt and annual $1.5 trillion budget deficits: health care. The president recently signed an overhaul that's projected to save $143 billion over 10 years, but that won't be nearly enough to reverse the tide of red ink.

What's emerging on the 18-member panel is a split between a majority favoring tough action to tame the debt and a minority, led by House Speaker Nancy Pelosi's appointees, who appear more concerned about today's economy and jobs picture.

"Cutting now would be a mistake," said Rep. Jan Schakowsky, D-Ill. -- despite the fact that cutting spending and/or increasing taxes is the presumed goal of the panel. Her colleague, Rep. Xavier Becerra, D-Calif., raised one of Congress' sacred cows -- treating wounded war veterans -- as but one reason to avoid too much deficit reduction.

On the other side were panel chairmen Erskine Bowles, a North Carolina Democrat, and Alan Simpson, a Wyoming Republican; several powerful Democrats who long have favored deficit reduction; and most of the commission's Republicans.

Continue reading at USA Today.com…

Hire this Summer and Get a Tax Break

If you are an employer, you don’t want to overlook the HIRE Act tax benefits. If you are looking to hire some new employees, college students are a great idea for a summer position. This is exactly what Congress is trying to encourage people to do, hire an employee who hasn’t worked more than 40 hours in the last 60 days before getting hired, and you may qualify for a temporary tax break. Passed in March, the Hiring Incentives to Restore Employment (HIRE) Act would allow an employer with any qualified hire after February 3rd to skip paying the 6.2% Social Security taxes on the worker’s wages from March 19 through the rest of the year. This would save an employer nearly $2500 on $40,000 of pay.

A qualified hire would be someone who is unemployed this year (after February 3, 2010 and before Jan 1, 2011) and has not worked over 40 hours in the last 60 days.

The law is most useful to large corporations where they can use the HIRE provisions to save millions of dollars, but the law is also useful to small businesses. For example, these tax breaks work for businesses this summer who want to hire kids on summer break to help with paperwork or businesses that want to hire college students who haven’t worked elsewhere in the last 60 days and therefore, would be considered a “qualified employee.”

Get the most from your Social Security

The Social Security system has been on the minds of many people these days. It has been speculated, for many years now, that Social Security won’t last. With an estimated 77 million Baby Boomers on their way to retirement, something simply has to be done to ensure that those that have contributed to social security receive their share in full.

Social Security is a mandated supplemental retirement system in the Unites States that was established in 1934 as a part of Roosevelt’s New Deal. The intent of the program is to ensure a threshold sustenance level to senior citizens who previously faired way below poverty during the Great Depression. (http://www.wisegeek.com/what-is-social-security.htm).

See six tips from WalletPop.com that can help get you more from Social Security when you retire.

Will a fix to Social Security cure our country’s long-term fiscal problems?

Social Security reform has been a hot topic for some time now. Many people are worried that there won’t be any money in Social Security retirement benefits by the time they are old enough to retire. Health care reform passed, great. Will the issue of Social Security be next on the Obama agenda?

According to CNN Money, a March report from the Congressional Budget Office estimated that starting this year, Social Security will, for the first time; take in less revenue than it has to pay out in benefits. However, when the Social Security system gets strained by the large baby-boomer population all hitting retirement age, then Social Security will be taking in less than it has promised to pay out, and the government will need to make up the difference. How? By paying back the surplus revenue that has been paid into Social Security over the years. That surplus revenue, including the interest owed will allow the system to continue paying out 100% of benefits promised until around 2037. After that, the program would only be able to pay out 76% of promised benefits …if we don’t do something. Experts agree Social Security reform will be less painful if it is implemented gradually.

Here are the options according to CNNMoney.com:

Increase the retirement age: One option that gets a lot of buy-in from policy experts is a slow increase in the retirement age at which one may collect full Social Security benefits. Today, it's 66, and it is scheduled to increase to 67 by 2027.

But Social Security experts say that won't keep pace with increases in life expectancy, meaning retirees are likely to be collecting benefits for longer than the system can support.
Increasing the retirement age by just one month every two years starting in the 2020s could fix 20% of the program's shortfall, said Ron Gebhardtsbauer, who teaches actuarial science at Pennsylvania State University and is on the board of the American Academy of Actuaries. It could cure 30% of the shortfall if, in addition, the retirement age were accelerated to 67 over the next six years, he added.

Reducing growth in benefit levels: Another measure that has gotten a lot of attention is "progressive indexing." Such a measure would not affect the promised benefits for lower income workers but would lower future benefits for middle- and high- income workers relative to what is currently promised.

Under progressive indexing, the Social Security benefits of higher-income workers would be indexed to inflation rather than to wages, as is currently the case. That would have the effect of reducing benefits from their current promised levels because inflation tends to grow more slowly than wages.

Raising the payroll tax: There is also the option of increasing the Social Security payroll tax rate on wages or raising the cap on how much of wages is subject to the payroll tax (currently it's the first $106,800).

More than likely, a combination of these measures would be proposed.

While answers have long been listed on the Social Security quiz sheet, the political will to implement them has been missing, Bixby said. "Everyone knows what needs to be done, but no one wants to do it."

Yet faced with mounting challenges on the federal balance sheet and a dicey debt environment, that all may change soon enough.

Obama Calls for $250 Payments to Seniors

President Barack Obama is asking congress to pass a new plan to give senior citizens $250 payments next year to compensate for not receiving any increase in their social security payments. For the first time since 1975, there will be no increase to the amount recipients of social security checks receive since it is pegged to the inflation rate, which was negative this year.

"Even as we seek to bring about recovery, we must act on behalf of those hardest hit by this recession," Obama said in a statement. "This additional assistance will be especially important in the coming months, as countless seniors and others have seen their retirement accounts and home values decline as a result of this economic crisis."

Obama's proposal is similar to several bills in Congress. The $250 payments would also go to those receiving veterans benefits, disability benefits, railroad retirees and retired public employees who don't receive Social Security. Recipients would be limited to one payment, even if they qualified for more.

The White House put the cost at $13 billion. Obama said he would not allow the payments to come out of the Social Security trust funds, further eroding the finances of the retirement program. Social Security already is projected to pay out more in benefits than it collects in taxes in each of the next two years.

Continue reading at APnew.MyWay.com…

Recession Hurts Medicare and Social Security

From Reuters.com:

The U.S. Social Security and Medicare retirement and health programs for the elderly will run short of funds sooner than previously thought because the recession has taken a toll on tax revenues, a government report released on Tuesday showed.

The Social Security trust fund will be exhausted by 2037, four years earlier than previously estimated, and the Medicare hospital trust fund will become insolvent by 2017, two years earlier than estimated, said a report by the trustees of the two popular programs.

Labor Secretary Hilda Solis said that "the dual effect of the economy and unemployment has produced a downward pressure on the financial security" of the Social Security program.

The latest report said Medicare's financial problems are more severe than those facing Social Security because of rapidly rising health-care costs.

Treasury Secretary Timothy Geithner said the report shows the urgency for the government to overhaul the two programs to help contain rising costs as the baby boom generation begins to retire and draw on benefits.

"The sooner we come together to make the difficult but achievable changes needed to strengthen the solvency of Medicare and Social Security, the more time we'll give the American people to plan and to adjust, and the sooner we'll be able to ensure that these vital programs will be as important for generations to come as they are today," Geithner, one of trustees of the two programs, said at a news conference.

For years, lawmakers have been concerned about the long term financing of the two programs as the 77 million strong baby boom generation retires.

A push by former President George W. Bush to partially privatize Social Security by creating individual investment accounts failed in the face of stiff opposition from Democrats.

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McCain Willing to Compromise on Fixing Social Security

The other day, I came across this interesting article on the Carpet Bagger Report on how McCain’s stance on Social Security has appeared to flip-flop in the past few weeks. The article was a good read, but I found the following section particularly interesting.

“It’s worth noting that McCain’s approach to a payroll tax increase seems relatively similar to Obama’s approach to increased coastal drilling — it’s an unwelcome idea that might be necessary to get opponents on board with a more comprehensive bill.

In other words, Obama doesn’t support increased coastal drilling, but if it’s the price of getting broad support for a comprehensive energy bill, so be it. And McCain doesn’t like the idea of a payroll tax increase, but if it’s part of a broader reform effort, he’s open to it (and closed to it, and open to it, and closed to it….).”

Obama’s Social Security Plan Lacks Important Details

From the Associated Press:

Barack Obama's bid to place a new Social Security tax on very high incomes is either a bold or foolhardy plan, depending on who critiques it. But its potential impact is almost impossible to gauge because he is providing few details on basic questions such as what the tax rate might be, what types of income would be taxed and how the taxpayers' benefits would be affected.

The Democratic presidential candidate says he would work with lawmakers from both parties to resolve such matters. Voters generally applaud bipartisan cooperation, but they apparently will go to the polls this fall with only a vague notion of what Obama has in mind.

Obama made headlines June 13 when he called for a Social Security payroll tax on incomes above $250,000 a year. Currently, the tax is levied only on the first $102,000 of each worker's income. That covers the entire salary of most Americans.

Obama would not apply the Social Security tax to annual incomes between $102,000 and $250,000, a move meant to avoid alienating several million upper-income voters. His proposed change would apply only to those earning more than $250,000 a year, or about 3 percent of all taxpayers.

When he outlined his idea in the battleground state of Ohio, Obama said it is unfair for middle-class earners to pay the Social Security tax ‘on every dime they make,’ while millionaires and billionaires pay it on "only a very small percentage of their income." He also said the Social Security program needs revamping to bolster its long-term viability.

With Obama offering few details, several news accounts suggested that his proposed tax on very high incomes would be applied just as the existing Social Security tax is levied on incomes up to $102,000.

All workers pay a 6.2 percent Social Security payroll tax on such income. Their employers match it, for a total tax of 12.4 percent. The tax applies only to earned income, not to passive income such as dividends and interest.

In recent weeks, Obama aides have quietly indicated that the proposed tax on incomes above $250,000 might be different in key aspects. The rate probably would be about 2 percent to 4 percent, not 6.2 percent, they said. It's also possible that it would apply to more types of income, including dividends and investments.

As for benefits, the campaign has not said how the proposed tax on very high incomes would translate into new retirement income, if any, for those who pay it.

AARP Upset Over Stimulus Package

According to Yahoo News, the AARP is speaking out against Congress’ plans for an economic stimulus package. The plan could give individual taxpayers as much as $600 in rebates, and an additional $300 per qualifying child. The rebates would phase out gradually for individuals whose adjusted gross income exceeds $75,000 and for couples with incomes above $150,000.

However, the package would exclude any one who earns less than $3,000 from earned income. Therefore about 20 million senior citizens living off Social Security would not be eligible. "Less than half of all Americans 65 and older would get it," claims AARP spokesman Jim Dau.

President Bush would like to push the plan through ASAP. "I strongly believe it would be a mistake to delay or derail this bill," Bush said. "I understand the desire to add provisions from both the right and the left," he noted. President Bush added that doing so would be in error and would delay the purchasing power boost the stimulus package is designed to create to confront a feared impending recession.