“Key lawmakers from both parties (but one generation) have held tentative talks about overhauling the Social Security system,” the Washington Post reported. A likely plan would “include lower benefits for wealthy Americans, a higher retirement age and additional revenues.” Action is needed because “projections show that the system, which has brought in more money than it pays out, will begin to need at least small infusions of cash from the rest of the government.” And those in power presumably want Social Security to continue to bring in more that it pays out, so the money can be used to cut other taxes and increase spending elsewhere, as it has been since the last deal to “Save Social Security” in 1983.
Now I’m a realist about this. I know that no matter what the numbers are in the Social Security “trust fund” all the additional dollars collected in the past have been spent in the past, that older generations have made out on the deal (some more than others), and that younger generations are screwed, and something must be done. The details are summarized here. But the attitude of those planning to repeat the 1983 generational betrayal is galling nonetheless. Americans, Senator Lindsay Graham said, “are ready to make some hard decisions for the benefit of future generations." For the benefit of future generations! Almost makes it sound like current generations, older generations, are going to the ones making the sacrifices, doesn’t it?
What would constitute “hard decisions for the benefit of future generations?” Well, for one thing the current $20,000 exemption of Social Security income from taxable income under the income tax could be eliminated, with the proceeds used “for the benefit of future generations.” And cuts in benefit levels “for wealthy Americans” could apply to those already retired and about to retire, with the proceeds used for the benefit of future generations. And the retirement age could be raised immediately, postponing retirement for those in their 50s and early 60s, for the benefit of future generations. All this would be an acknowledgement by older generations that younger generations are going to have to pay more for less, and an attempt to pay some of it back. But we know that none of this is likely to occur.
What is likely to happen is that as in 1983 those still working would be forced to pay higher payroll taxes, while the retirement income of those who already left the workforce, and the investment income of the rich, would continue be exempt from taxes for Social Security. And those younger than the majority of those now in Congress would have their retirement age increased, but those “at or near retirement” in President Bush’s words would not. Again. The third suggestion, means testing Social Security, is hardly a surprise, as I suggested it as a scenario in this post more than two years ago. I recommend re-reading that entire post. It will lead you to one of two conclusions — I’m a genius who talks with God and is told the future (wrong) or what is happening and will happen is obvious to anyone paying attention, and the rest are being victimized by something close to a massive fraud.
So all the sacrifices required to keep Social Security solvent in the future, and perhaps a little more, would fall on younger generations. Nothing would be done for their benefit by anyone else. The sacrifices and promises of 1983 would be repeated, but there would once again be no guarantees. But you aren’t likely to hear members of Congress announce “in your face losers, we’re sticking you with the deal you deserve.” What you are likely to hear is that older generations have once again sacrificed and made hard choices “for the benefit of future generations.” Generations who despite all those “sacrifices” somehow face a massive federal debt, receive no defined benefit pensions, are increasingly losing their health insurance, are paid less on average at every age than those who came before, and will have use of a degraded infrastructure, all while paying higher taxes.
Too see what is coming, consider the state of the Illinois Teacher Retirement fund. Illinois is one of the states with the least money set aside relative to benefits promised, and is heading for certain disaster, due to the usual combination of not paying enough in (tax cuts!) and promising enhanced benefits public employees neither worked nor bargained for (union campaign contributions)!
Facing the abyss, new Governor Quinn suggested that perhaps today’s workers might contribute more to their pension funds, to offset some of the sweeteners they retroactively received. He had proposed that public employees contribute 2 percent of their salaries to the pension plans. Speaking to a meeting of 3,000 teachers, according to the Chicago Tribune, he was therefore booed. “Illinois Education Association member Jenny Barrett was firing up the crowd, wanting to know why Quinn has proposed changing her pension plan.” Somehow the general public is not entitled to ask in advance why pension plans are being retroactively changed at their expense, as those deals are generally sealed secretly. But the Governor had good news — the proposal would be withdrawn. “I believe in democracy.”
So he is going to modestly disappoint those union members by drastically cutting retirement benefits for future employees instead. “The dropping of the 2 percent does not diminish at all our opposition to the two-tier proposal,” one union leader said. In exchange for their “sacrifice,” in other words, older workers will almost certainly want something in exchange, based on what happens over and over and over. Perhaps an early retirement incentive for those close to retirement age? The politicians and unions would agree to describe it as costing nothing, due to high investment returns, with later tax increases and service cuts described as the result of “uncontrollable costs.” Do that and lower wages and benefits for future employees would, regrettably, be accepted. Again. After some posturing associated with the engineering of consent, by those who will be forced to pay dues to the public employee unions that screwed them (with some passed on to politicians in the form of political support) whether they like it or not.
And that is what we are likely to get for Social Security as well. “Shared sacrifice” means those with power share, and those coming after them sacrifice, over and over again.
Uncertain from the sketchy outline released by the Washington Post is which generations of “wealthy” Americans would see their Social Security benefits cut, and how the “wealthy” would be identified. Let’s say you have two families. One sacrifices and saves for retirement and the other, despite earning somewhat more, spends it all and goes into debt. Will the former family see its Social Security benefit cut because it was stupid enough to save and is thus “wealthy” in old age, while the latter (which on a total lifetime bases spent more) receives more benefits because it was “in need?” It doesn’t have to be that way, because the Social Security Administration has records of how much Americans earned (in wage and self-employment income at least) in the past, and could have saved in the past. I will bet, however, that those who lived modestly and saved will once again be punished for it. But not as much as the majority of younger American workers, who had diminished wages in the past and will have no retirement savings at all, relying on what is left of Social Security alone after the “hard choices” have been made.
Moving back to public employees and their pensions, this time closer to home, you may recall my writing that if New York’s public employees were to treat the serfs leniently (though not necessarily fairly), the government contribution to their pension plans would be limited to 8 percent for most workers, 12 percent for those required to lift heavy loads and/or work outdoors in all weathers, and 15 percent for public safety workers such as police and fire. The employees themselves would pay any additional contributions required, including those caused by all past and present pension enhancements. That still would be vastly more than virtually anyone else gets — just compare it with your employer’s contribution to your retirement fund, if you even have one.
Well this week I read that in the New York State pension system, which covers local government employees outside New York City, “school districts this year paid the equivalent of 8.73 percent of their payroll costs to the teacher-retirement fund,” compared with 8.5 percent of the payroll of most workers, and 15.7 percent for police and firefighters. What a coincidence! (Not). So there isn’t a problem.
Or is there? Those contribution percentages, like all pension assumptions, are a fraud, based on an expected future return of 8 percent on more assets than the pension funds actually have, for a shorter lifespan than today’s workers are likely to achieve, absent an “obesity savings” that would be entirely offset by higher retiree health care costs. I recently read that over a century the total return on stocks has been 3 percent more than inflation, with the return on other assets somewhat less. That, an expert said, is all that anyone planning for retirement should expect. The current inflation rate is zero, and even if inflation rises, that would also inflate the benefits workers are due. Someone should be paying more. My view is that the employees should be paying more. In New York, unlike in most states, new hires pay but those with seniority do not, under the retroactive deal passed (and described as costing nothing) in 2000.
Then there is the question of New York City’s public employee pensions, a separate system than that of the rest of the state. According to the Mayor’s budget, New York City taxpayers have been forced to pay 23.6% of teachers’ payroll into the teacher pension fund, not 8.73% as in the rest of the state. For most workers the New York City contribution rate is 13.5%, and for sanitation workers it is 28.7%, not 8.5% as in the rest of the state. For police officers New York City pays in 51.2% of wages into the pension fund, and for firefighters 62.9%, not 15.7% as in the rest of the state. For New York City Transit workers, the employer (ie. farepayer) pension costs equaled 22.8% of wages this year, according to the latest MTA budget documents. Of course may of those receiving expensive pensions paid for by New York City taxpayers live in the rest of the state, where they are represented by state legislators who seek to get them more pay and benefits in exchange for inferior public services.
Why are New York City’s pension costs so much higher? Those who know do not say, but it has always been the case as far back as the data I compile goes. It would be nice if some journalist or think tank would break the taboo find out and publicly report the answer. In any event, compare those percentages with your employer’s contribution level to your retirement, and you’ll see how much richer today’s public employees are in hidden income relative to you. In New York City, the difference is so far from fair it’s cruel. And every year, more the New York State legislature makes those pensions richer and richer — followed by public service cuts, tax increases, and lower wages and benefits for future public employees due to “uncontrollable costs.”
Meanwhile, according to the Wall Street Journal citing Census Bureau data, the average pay of recent college graduates fell 4.5% behind inflation for men and 4.8% for women from 2002 to 2007 — before the recession, with its cycle of pay cuts and freezes, even started. Non-graduates continue to fare worse. Inflation adjusted wages are well below the level of 30 years ago for young people. Only top executives and today’s senior citizens, particularly retired public employees, have come out ahead. So New York will have to capture a higher and higher share of workers’ shrinking income in taxes just to allow today’s retired to go on living in the way in which they are accustomed. A cycle that goes on and on.
One more point from the Washington Post article on Social Security. “With the stock market devastated by the recession, the traditional Republican option of diverting Social Security taxes to new private retirement accounts is, he said, ‘off the table.’” What does that mean to you? This is what it means to me. When you purchase an asset, financial or otherwise, you are purchasing the right to a stream of future income. And the most important factor in your future rate of return, and whether you make a profit or a loss, is how much you pay for that asset to start with. So if those putting the investment of Social Security funds in stocks and bonds were actually concerned with the well being of future Social Security recipients, doing so would go “on the table” when stock prices were low and bond interest rates high, and come off the table when stock prices were high and interest rates were low. How does that compare with the history?
Those who sold stocks (through bogus IPOs or otherwise) at the peak of the 2000 dot.com bubble made out like bandits, while those who bought at those prices will be lucky to break even if they hold their investments for 20 years, let alone make money. At the time, investing Social Security in stocks was “on the table,” because the rich people who held them wanted a greater fool to buy them at those inflated prices, and future Social Security recipients would have been the greatest fool of all.
Then the stock bubble burst, and stock prices fell low enough that investing Social Security in stocks might have paid off, but those who control both stocks and our government had no incentive to sell at fair prices, and doing so was “off the table.”
Then the bubble re-inflated, having pumped the rich wanted a place to dump, and dumping overpriced stocks on Social Security was put back on the table by President Bush.
But now that prices are lower, it is back off the table — at those prices the wealthy might as well keep their stocks rather than sell them.
If stock prices continue to reflate, expect having Social Security buy them to come back on the table. Until there is no more excess Social Security money left to invest.
For those who have read my posts over three years this is a little repetitive. You’re bored, and so am I. But I’m going to keep writing it until I start reading it, instead of reading propaganda, somewhere else. If not in the mainstream media that does not wish to offend its aging remaining customers, then perhaps in the clueless channels from which the clueless young get their new. Without the truth about the past you never get fairness in the future. Just more Generational Betrayal.