To the People

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Wednesday, May 13, 2009

A Ponzi Scheme Worthy Of Bernie Madoff

It is otherwise known as "Social Security". The most recent reports on its health came out yesterday and -- shock! -- the already-unsustainable-in-the-long-run program is getting worse. Medicare ain't looking too healthy either:
Specifically, the trustees' report predicts that the trust fund from which Social Security payments are made will be unable to pay retirees full benefits by 2037, four years earlier than forecast a year ago. In particular, the trustees single out the financial weakness of the part of the program that subsidizes disabled Americans, saying that fund will run out of money in 2020.

Only three times in the past 15 years have the trustees predicted that Social Security would run out of money sooner than previously expected. Last year, they forecast no change from the 2007 prediction, and in 2007, they predicted that the fund would last a year longer than they had previously thought.
The year 2037 sounds kind of far off but the problem is that it is a bogus factoid. The trust fund doesn't really exist. It is a collection of government bonds that will have to be redeemed by ... the U.S. government. It will literally be taking from one pocket and putting it into another. The real number that matters is the date that Social Security starts paying out more to retirees than it gets in payroll taxes. That date is coming up much sooner:
Yesterday's report also said the Social Security trust fund will begin to spend more money than it takes in through tax revenue in 2016, one year sooner than predicted a year ago.

Administration officials said that if Congress were to act immediately, the impending gap could be filled three ways: by raising workers' Social Security payroll taxes by 2 percentage points, from 12.4 percent to 14.4 percent; by reducing benefits by 13 percent; or a combination of the two approaches. The officials briefed reporters on the condition of anonymity on the technical aspects of the trustees' findings.
Read the whole story here.

The Wall Street Journal reports that the administration has a spiffy way of addressing the cost problem with Medicare too:
The Obama administration has proposed several ways to control Medicare costs, including cutting payments to private insurers and allowing the government to negotiate drug prices with pharmaceutical companies.
The negotiation line is liberalspeak for "impose price controls on drug companies". I mean, do you really think the administration is going to have a polite back-and-forth with the drug makers? Or do you think it is going say, "Accept the price caps we want or we'll do to you what we're doing to Detroit"? I think the latter.

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