BBO Discussion Forums: The budget battles - BBO Discussion Forums

luke warm, on 2011-September-09, 07:14, said:

A friend called about fifteen minutes into it. i wasn't finding the speech so riveting that I didn't pick up the phone. That's in contrast to a recent call while I was playing a hand of bridge. I answered that one briefly and said I would call him back.

He pushed the view that I am comfortable with, that government actually can do and has done useful things. Whoever came up with the references to Lincoln should be getting a big bonus. I know more than a few people who are never short of criticism of government who really benefit quite a bit from programs. I do not claim hypocrisy, we live in the world as it is and if there are benefits to be had then take them even if you oppose the program. But when people speak as if government just has never done anything for them at all I think they need to examine their life more closely.

I am not prepared to do a financial analysis on all the programs.

I think that perhaps our fundamental problem is a lack of realism. This applies to everyone, including myself. Saying that we cannot afford everything that our entitlements have promised is a start. However I am not at all sure that I and others of the old/comfortable/ not rich should be exempt from sacrifice here, but it has to be shared.

luke warm, on 2011-September-09, 07:14, said:

Speeches don't mean jack *****.

The interesting question is whether

1. Obama can get anything through congress
2. If not, he's actually willing to come out swinging and use this to hang the *****ers

luke warm, on 2011-September-09, 07:14, said:

I give Obama good marks for presentation and for offering noncontroversial, bipartisan proposals. As to the actual plan, I'd like to have seen more direct job creation -- infrastructure improvement, putting teachers and first responders back to work, etc. -- and less cutting of taxes for those of us already working. I do like the idea of coupling training with unemployment benefits.

Next up is Obama's plan to get the deficit under control and I look forward to seeing that in a few days.

This just in from the Pot Calling the Kettle Black Department: Obama rallies Richmond students to tell Congress to act on jobs plan

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Yes, after all of the republicans' mighty efforts at bipartisanship, Obama still refuses to compromise. No wonder nothing gets done...

Eric Cantor thinks we should all come together???? Some things can still leave me speechless. Got to be a joker he just do what he please.

luke warm, on 2011-September-09, 07:14, said:

I think Obama would like to be the President his speech inferred, but he has too little political capital to make it happen. The opposition knows who won the midterms and can see the Presidential approval ratings, and Obama wasn't in the senate long enough to know where all the bodies are buried, as did LBJ.

So all he can do is growl a little while being ignored. Obama wanted to be President, forgetting that sometimes you get what you wish for.

To understand the possibilities of how the budget might be trimmed, one need only adhere to the advice of Deep Throat given to Woodward and Bernstein: Follow the money.

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The article in Alter Net uses a figure of $8 trillion spent on security since 2001 - I wish a breakdown of expenditures had been provided. Still, with corporate America so interwoven with defense spending and the halls of Congress, to think anything other than further elimination of social welfare projects will occur is to be naive.

Class warfare is over - the upper class won.

I have a comparatively simple minded question, namely I want to check to see if I correctly understand what is meant by extension of the payroll tax cut.

Workers get a paycheck of gross pay minus a number of deductions. One of the deductions is FICA. Under the payroll tax cut, the FICA rate is lowered, but other deductions such as withholding are unchanged, is that right? As a result, the amount of money going in to the Social Security Trust Fund, if that is the right name, is lowered by however much the cut is, is that right? I am not arguing for it or against it, I am at the more preliminary stage of trying to understand just what is being called a payroll tax cut.

Ken,

It appears as if you are not the only one confused.

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Winstonm, on 2011-September-11, 07:29, said:

Huh! The fact that I am confused on such an elementary matter falls into the "And so what else is new" category. A professional writer for Forbes being confused is more surprising. I was going to read the full article but I see I have to subscribe. Fair enough, perhaps I will.


I would like to see what he means. As I understand it, FICA is the source of funds for Social Security, at least in a bookkeeping sense. This bookkeeping sense is of some importance, at least psychologically. Saying that Social Security has to be cut because the books don't balance is one thing, but it is distinct from saying that Social Security has to be cut because there is enough money on the books but it has been spent already on something else. So I would not be very enthusiastic about any thinking that separates the FICA deduction from Social Security funding.


But maybe that is not what he is referring to.

Anyway, I still am asking just what the payroll tax cut refers to. I guess it is also a cut in employer contributions to FICA?

In particular, if it really is a cut in the FICA contributions from employers and employees I would like to see it referred to as a FICA tax cut or as a cut in FICA contributions or something on that order so I know what they mean. There seems to be a trend to find cute names for things that make it as obscure as possible what is really happening.

The FICA withholding, currently down from 6.2% to 4.2%, would be cut to 3.1% under Obama's proposal. The 3.1% would apply to both workers and employers. As with the earlier cut, the social security trust fund would still be fully funded, and workers' benefits would not be affected.

The cuts in withholding will obviously add to the deficit, so Obama's plan to be released a week from Monday will have to make up at least the amount lost.

How would/was the Social Security Trust Fund be fully funded during the cuts?

Is it now a settled matter that FICA is not responsible for the funding of Social Security? When did that happen?

You can see where I am going with this: We put money into Social Security through FICA as we work. We take it out when we are old. This amounts to a government sponsored program for investing for retirement, and if we make our FICA payments we are entitled to what was promised. If instead it is just another government program that dispenses money as the fashion of the moment dictates, it is not nearly so secure.

As acknowledged, I am often confused. But the chief editor of Forbes, or whatever Lenzner's title is, is also confused? Yikes!

kenberg, on 2011-September-11, 08:35, said:

What has happened temporarily (necessarily short term) is that the funds collected by FICA do not equal the amount added to the trust fund. The government makes up the difference, which adds to the debt. Obama's September 19 plan will have to cover the shortfall for this -- and for the other job creation measures.

I'd have preferred these FICA cuts not be done. Employers and people working now should not be coddled now, in my opinion: Better to spend that money directly providing jobs for those out of work.

At some point soon, FICA collections will have to go back up to sustain the program, along with (and this has to happen) other social security adjustments. My preference would be gradual slight increases in retirement age and eliminating the cap. But I'm not a politician, and I'll be fine with any solution that does not gut the program.

What I won't be fine with is (1) no strong direct measures to get folks back to work, nor with (2) no strong measures to reduce the deficit wrt GDP.

While I agree that cutting the payroll tax is not a good idea as stimulus, it could be payed for by the simple expedient of removing the cap for FICA contributions, a cap that makes FICA a penalizing and regressive tax.

As it is now, FICA is only deducted through wages up to $108K or close to that. This means the 6% or whatever the amount is much more crippling to a worker earning $30K that one earning $150K.

The other side of this argument is that a temporary reduction in the payroll contributions from employers will stimulate hiring - I don't think so. Adding employees is a longterm commitment, so any limited stimulus is unlikely to have much impact.

It is also important to differentiate between entitlement programs, as to which ones are funded and which are not. The 1983 changes to OASDI were supposed to fund that account through 2050+. Even now, a couple earning $89K per year would receive back in lifetime benefits from OASDI about 10% less than they contributed.

OASDI may have an annual shortfall, but it is not much and could fixed by simply upping or removing the cap on FICA contributions.

Medicare, on the other hand, is a monster. The same couple who earns $89K will only contribute about 25% of the total payouts of their healthcare costs.

Once again, the monster in the closet is the US healthcare system.

I did not realize this could be done, or at least that it could happen without much ado. Do you know if this (replacing employee/employer FICA by government (paper) contributions) has been done before? For the reasons mentioned above, I think we will come to regret it.

Winstonm, on 2011-September-11, 10:50, said:

Yes, social security is easy to fix, and without raising the (before cut) FICA rates. It's important to remember that social security is not just a retirement program. The program also supports disability benefits and survivors benefits.

Healthcare is a different matter, as you say. All of the wasteful components of the US healthcare system have politically powerful constituencies. So even though it's objectively an easy problem to solve, politically it is not. Even the modest improvements made in 2010 are still under heavy attack from the free lunch crowd.

Correct me if I am wrong: Social Security was envisioned as being paid for by FICA contributions. Medicare was not envisioned as being paid for by workers medicare contributions but rather by general taxes.

I really would not want to see Social Security viewed as just another government handout. Every three or four weeks Robert Samuelson writes a column about how old people are bankrupting America. Krauthammer piled on a while back. As near as I could get it, his argument was that yes, FICA contributions have been adequate to fund Social Security for at least a couple of decades but golly guys the money has been spent on something else and that's the way the cookie crumbles. If Social Security is just another program, it will be vulnerable to these arguments. If it is supported by FICA contributions that I have been making since 1953, and continue to make even while collecting, then people should largely keep their hands off my money.

Don't get me wrong. I regard myself as extremely lucky to live in this country and I have no objection to needed reforms in making the books balance. But Samuelson and Krauthammer, and others, appear to think the solution is that all of us over seventy or so should have a hemlock cocktail.

Shorter version: If they have to disguise what they are doing by referring to the separation of Social Security from FICA as some sort of generic "payroll taxes", there is probably a reason why they wish to be unclear. And, as the reference to Forbes shows, they slid it past a lot of people.

kenberg, on 2011-September-11, 14:52, said:

Medicare isn't supposed to be paid for by general funds, but by payroll taxes of 1.45% (matched by the employer) and by premiums paid by recipients -- usually deducted from social security checks. The two Medicare trust funds are HI (Hospital Insurance) for Part A and SMI (Supplemental Medical Insurance) for parts B & D. The SMI fund did take a hit when part D was set up as unfunded during the Bush administration, but Obama's healthcare reform addressed that.

You can see specifics of the problems in the 2011 trustees' report: Status of the Social Security and Medicare Programs

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Concerning the report posted by PassedOut, it should be noted that in 1983 the recommendations of a panel headed by Alan Greenspan was adopted by President Reagan, and these recommendations addressed the problems of the baby boomer generation and supposedly funded OASDI through 2057 or thereabouts.

It is nothing new that baby boomer retirements have put a bulge in the payouts, a bulge that will be temporary, and I am not naive enough to think the 1983 fix was perfect - but to portray OASDI (Old Age Survivors and Disability Income) as needing massive overhauls because of a known problem that was mostly addressed is disingenuous.

The sly part of the argument is that the surplus FICA funds have been mandated to be placed in special US treasury bonds which cannot be cashed in on the open market. As the actual cash these bonds represent was used to pay for general budgetary items, the sleight-of-hand makes the bonds appear to be part of the national debt.

It very much is like giving your Uncle $10 bucks each payday to hold for you for 20 years and then when you ask for it back he tells you that you can only get 1/2 back as he lost the rest of it at the track.

On the other hand Medicare is underfunded and a real problem. I don't have any arguments about addressing Medicare problems.

But to lump Medicare and OASDI together as one entitlement that is causing our downfall is misleading and an attempt at decption, IMO.

Entitlement means that citizens are entitled to receive these promises. Again, the only descretionary spending of the big three is made up of three parts: war, security, and defense.

I view this budget challenge as very much addressing the mores and even the very moral fabric of the country itself, when career people like Gates and Penetta declare disaster if even a single sheckel of spending earmarked for Defense is whittled, while the elderly, the poor, the disabled, and the ill are asked to sacrifice in order to sustain corporate profits.

A nation's worth is not valued by how many wars it has won, but by the prosparity enjoyed by its citizens. Among the industrialized countries, we're first in wars fought, and last in about everything else.

And then we claim the moral high ground.

Incredible.

Thanks. Well, sorta thanks, now I suppose I should read the damn thing.


Indeed they deduct medicare from my Social Security check. I have never checked the figures but my impression was that it wasn't enough to cover what it pays out, and I'm healthy.

I am still a little skeptical. We hear a lot about how much of the Federal budget is taken up by Medicare, do we not? But if the costs of Medicare are paid for by employee/employer/retiree contributions then there is no immediate problem, right? Long term yes, immediate no. Are we speaking here of these contributions as theoretically covering the costs or actually covering the costs?

I am by no means saying that we do not have to address health costs. I mentioned before the rash I had where the doc examined me and asked if my insurance covered prescription drugs. Yes it does. So I got the prescription. $250 per very small tube, refillable, cost to me was zip (I also have supplemental insurance). Yeah, it worked, but really we should not be surprised that the annual health bill in the US is out of sight.