Blue Wave Does Not Change Do-Nothing Consensus

The 2018 Congressional elections have been dubbed by some as “the most important mid-term elections in history,” but that’s mostly partisan blather. Democrats did indeed re-take control of the House of Representatives. But two more years of hyper-partisan gridlock will not change the nation’s perilous fiscal trajectory.

While many bemoan the lack of consensus in Washington, there is in fact a consensus — a consensus to ignore growing deficits and the surge in the national debt, except as a club to be wielded hypocritically against the other party. No one wants to touch entitlements. No one is serious about cutting discretionary domestic spending. And no one has articulated a scaled-back foreign policy that would permit a prudent shrinking of military spending.

As Trump and his antagonists mud-wrestle one another and the news media focus on political spectacle to the exclusion of all else, deficits will continue to climb, the national debt will continue piling up, un-cuttable interest on the national debt will consume an ever-increasing share of spending, and the Medicare and Social Security trust funds will get two years closer to depletion. The Medicare Hospital Insurance trust fund is scheduled to run out in eight years, Social Security’s Old Age and Survivors fund in 16 years. If you think politics are ugly now, just wait.

I would say that Americans are like ostriches with our heads stuck in the sand — but that would be an insult to ostriches.

Meanwhile, back at the ranch… Insofar as the 2018 elections can be said to have been a blue wave, the epicenter of that wave was Virginia. The switch of three congressional seats from red to blue portend gathering strength for the Democratic Party in the Old Dominion. If the electoral trends of the past two years continue — and there is no sign that they won’t — Democrats will take control of the General Assembly in 2019, seize the machinery of redistricting, and ensconce themselves in power for the next generation.

For the moment at least, the Republican Party is in no condition to resist the blue tsunami. Corey Stewart was an unmitigated electoral disaster. Being Trumpier than Trump is not a winning electoral formula in Virginia. But pursuing a moderate, technocratic formula didn’t work much better for Ed Gillespie in the 2017 gubernatorial race. The GOP has roped itself to the shrinking demographic base of rural/small town Virginia. It has no coherent message. It is floundering.

A blue Virginia portends a more activist government, more spending on “social justice” priorities, and higher taxes. Steve Haner’s recent piece, “Taxaginia,” lays out where we’re heading in 2019. Admittedly, the blue wave this year was propelled in great measure by culture-war issues — in particular the #MeToo movement and suburban women’s revulsion against Donald Grab-Them-By-the-Pussy Trump. But if you think the electorate will exercise a moderating influence on the tax-and-spend proclivities of the political class, just consider the referendum on Question No. 1.

Seventy-one percent of Virginians voted in favor of a constitutional amendment that would subsidize continued building in flood-prone areas. Given all the other fiscal challenges Virginia faces — unfunded pensions, under-funded capital spending, budgeting sleight-of-hand, and all the rest chronicled on this blog — the vote was utter folly. Virginians are in fiscal denial. I once thought of state/local government as the bulwark against federal collapse. I’m no longer so hopeful.

Update: Looks like John Rubino at Dollarcollapse.com and I are in sync on our appraisal of the national election. Writes John today:

As contentious as the US midterm elections were, there was never a scenario in which they mattered. Any possible configuration of Republicans and Democrats in the House and Senate would have yielded pretty much the same set of economic policies going forward: Ever-higher debt, upward trending interest rates and (through the combination of those two) rising volatility. … The system is on autopilot and it matters exactly not at all which party or which configuration of parties is running the asylum.

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36 responses to “Blue Wave Does Not Change Do-Nothing Consensus

  1. Oh I’ve seen a lot of that here in Chesapeake. Wish we could have some articles about it. I’ve certainly seen the VP hide enough stuff to wonder about “partiality”.
    I’ve got the documentation.

  2. re: ” Seventy-one percent of Virginians voted in favor of a constitutional amendment that would subsidize continued building in flood-prone areas. ”

    Yup. I live in a red-red county that voted

    Corey A. Stewart Republican 26,462 50.97%
    Timothy M. Kaine Democratic 24,484 47.16%

    and…….. voted:

    Proposed Constitutional Amendment Question 1

    Response Votes Percent
    Yes 32,116 62.69%
    No 19,114 37.31%

    Now the one thing that drives GOP votes in our county is the one
    portrayed in the TV ADs and that is that “liberals” will tax and spend.

    but what does it mean in a County that votes heavily for the likes of Corey Stewart also loves the idea of subsidizing property owners?

    Hey… but it’s the very same group that loves the deficit-funded tax cuts so what can you say?

    By I disagree about Social Security and Medicare (Part A) because the trust fund is not the primary source of funding – FICA taxes are. The trust funds are basically the surplus fund that has been built up since the last time the FICA tax was increased. What will happen if no action is taken is that the money coming in right now from FICA will not be enough to pay full benefits because of more people retiring , people living longer and take more benefits. Social Security, like most annuities is based on actuarials – and as actuarials change – adjustments have to be made periodically to maintain fiscal balance. VRS has had to do that by requiring higher contributions and I heard reported earlier than a long term care insurance increased it’s premiums.

    • Fair point about the constituents of your county. Of course, Trump never really pretended to be a fiscal conservative.

      As for the SS trust fund, you make this point in response to every mention of the impending depletion of the trust fund. When the trust fund runs out, payouts will be limited to revenues from FICA taxes — about 75% of the current level. That will be a political catastrophe. I am baffled why you deny such an obvious and irrefutable point.

      • Well, no, it’s NOT a political catastrophe and it’s certainly not like the fund is “out of money” as is implied.

        Over time – any insurance or annuity or pension plan has to be adjusted in response to changing actuarials. Social Security is no different. The VRS “unfunded liabilities” required added contributions or it would ALSO been not able to pay full benefits. You yourself, had to increase the premium you paid for long term care insurance – for the same reason.

        The point here is that you compare these actuarial issues with deficit spending and ever increasing debt – and the two are different and it’s just plain wrong to link the two and so…every time the claim is made, I correct it, yes.

        • “The point here is that you compare these actuarial issues with deficit spending and ever increasing debt – and the two are different and it’s just plain wrong to link the two and so…every time the claim is made, I correct it, yes.”

          Larry (again for the umpteenth time), the SSA reports themselves describe how the depletion of the Trust fund impacts the budget and unified budget deficits:

          In 2018, the projected difference between Social Security’s expenditures and non-interest income is $85 billion. The Trustees anticipate a deficit of $12 billion in non-interest income for the HI program.3 The projected general revenue demands of SMI are $319 billion. Thus, the total general revenue requirements for Social Security and Medicare in 2018 are $416 billion, or 2.0 percent of GDP. Redemption of trust fund bonds, interest paid on those bonds, and general revenue transfers provide no new net income to the Treasury. When the unified budget is not in surplus, these payments are made through some combination of increased taxation, reductions in other government spending, or additional borrowing from the public.

          Each of these trust funds’ operations will contribute increasing amounts to Federal unified budget deficits in future years as trust fund bonds are redeemed. Until 2026, interest earnings and asset redemptions, financed from general revenues, will cover the shortfall of HI tax and premium revenues relative to expenditures. In addition, general revenues must cover similar payments as a result of growing OASDI bond redemption and interest payments through 2034 as the trust funds are drawn down.

          https://www.ssa.gov/oact/TRSUM/

          And I agree with Jim that a system that pays out only 75% of promised benefits is not politically sustainable as it will lose the support of taxpayers.

          • @Izzo – and for the umpteenth time REMEMBER those “supluses” were GENERATED by FICA TAXES not general revenues.

            And remember this also – 90+% of social security comes from FICA TAXES not the “surplus”. In other words, the surplus money came from FICA taxes originally – borrowed and now has to be paid back.

            The vast majority of actual funding of SS comes from a steady stream of revenues from FICA taxes collected every day:

            Take a look at this and you’ll see that FICA taxes collected and distributed as social security is very close to what is generated by income taxes:

            This stream of income is not going away and this is NOT borrowed money contributing to the deficit and debt.

            I don’t disagree that 75% is a problem but that number is being demoinzed by the zealots because that number is years away and happens ONLY if we do not make necessary actuarial adjustments JUST AS other pensions like VRS have to do!

            The problems with SS are not “over spending” that is contributing to deficit/debt. The problems with SS are the very same problems that ANY pension fund encounters over time – actuarials – primarily people living longer while Social Security actually pays Colas that are too high and that also need to be adjusted.

            but SS is basically self-funded, pay-as-you-go like a lot of pensions and annuities are and they too have “unfunded liabilities”. but most folks don’t understand what that really means.

          • re: ” Each of these trust funds’ operations will contribute increasing amounts to Federal unified budget deficits in future years as trust fund bonds are redeemed. Until 2026, interest earnings and asset redemptions, financed from general revenues, will cover the shortfall of HI tax and premium revenues relative to expenditures. ”

            and one more time – EVERY PENNY of those Trust Funds was created originally from FICA taxes collected from workers and it is OWED to them!!

            You’re blaming Social Security because the govt spent those FICA taxes they borrowed and now have to be paid back. You’re using that as a false claim that Social Security is failing. It’s not – it works just fine if it kept actuarially sound – just like all pensions and annuities that are subject to the very same actuarials.

            Over a trillion dollars a year is collected in FICA taxes – separate and apart from the “trust fund” and it will continue to provide benefits – albeit at a reduced rate (eventually at 75%) if necessary actuarial changes are not made – changes we’ve known about for quite a while.

            Izzo – you keep supplying the Trustees Report which is good. But have you seen this one also – which is the one never shown by the
            critics of the program but it shows quite clearly that we do KNOW how to fix it and the problem is no political will to do it – in part because some folks just oppose the concept itself and want it to fail:

            Summary of Provisions that Would Change the Social Security Program

            http://www.ssa.gov/oact/solvency/provisions/summary.pdf

          • I don’t disagree that 75% is a problem but that number is being demoinzed by the zealots because that number is years away and happens ONLY if we do not make necessary actuarial adjustments JUST AS other pensions like VRS have to do!

            That’s the whole point, Larry. A Social Security program with only 75% of revenue needed to sustain benefits would be a massive problem. True, it could be solved if we made the necessary adjustments — slightly higher FICA contributions here, a little delayed retirement there, a revised COLA adjustment over there — which could add up over the years. That’s exactly what I argued when I wrote Boomergeddon eight years ago.

            However, with each year of delay, the number of years available to make up the difference shrinks. Nothing has been done over the past eight years, there is ZERO chance that any changes will be made over the next two years, and there is no assurance that anyone will have the appetite to make the needed changes then. With each year that passes, the requisite adjustments get more painful, making it even more difficult to muster the political will to do anything.

          • Larry,

            Geez, we just go round-and-round on this issue. Everyone understands the points you make that are fact based, but you avoid the obvious implications. You, on the other hand, always fail to acknowledge the factual points of others or acknowledge their implications moving forward.

            “This stream of income is not going away and this is NOT borrowed money contributing to the deficit and debt.”

            Regarding deficit and debt, the CBO, SSA, economists and everyone else recognizes that GOING FORWARD, redeeming trust fund bonds will contribute increasing amounts to Federal unified budget deficits (see the quote I provided). That deficit will have to be serviced by current taxpayers and future taxpaying generations, who also have to pay their FICA. This is the reality of pay-as-you go. This is clearly stated in CBO and SSA publications, and you should recognize it as fact because it is already starting to have a huge budget impact.

            Regarding the stream from FICA taxes not going away, everyone recognizes that. What Jim said and I agree with is that if you get to the point where the system is only paying out 75% of the benefits people thought they would get it would 1) have a major impact on retirees who planned on that benefit (60%+ get over half of retirement income from SS) 2) undermine the trust foundation of the system because the current taxpayers will believe they are going to get the shaft in retirement and 3) it will be even more difficult to solve from a political standpoint.

            “You’re blaming Social Security because the govt spent those FICA taxes they borrowed and now have to be paid back. You’re using that as a false claim that Social Security is failing.”

            You are blatantly misstating what I and other have said. I don’t blame Social Security, it is a program. I am calling out legislators and administrations for not acting on the obvious issues it faces. This is precisely what Jim commented on above. The potential fixes are well known, but action is lacking and the clock is ticking. You again repeat this canard that any critical comments from anyone you consider to be on the right is in fact a ploy to kill Social Security. As poll results show (e.g. Pew Research), and as Steve pointed out based on his involvement in Republican politics, this is not true. They don’t call it the third rail for nothing.

  3. No question, the issue is settled: Virginia is the southernmost Northern State, not the northernmost Southern State. The wave that hit Virginia is slow and is all demographics, and will simply be reinforced by the Arlington location of the left-coast behemoth Amazon. Being Trumpier than Trump actually worked fairly well for Stewart, and his 41 percent was higher than I would have predicted 60 days ago (pre-Kavanaugh), but Trump will not carry Virginia in 2020 (that election started today) and it is hard to imagine the current Virginia GOP nominating (key word) any successful statewide candidate in the near future. It is more the Trump GOP today than it was on Monday.

    An interesting day in the poll where I checked in voters yesterday. Say what you will about President Trump, he does boost turnout across the board.

    I’d say 95 percent of the votes cast on those amendments were cast in ignorance. I watched hundreds try to absorb that flyer with the background information, standing around before checking in to vote. People resent being asked to vote on something they do not understand, but their default position is “yes”. Perhaps requiring a $1 million information campaign to go along with each proposal would put a brake on them.

    • And BTW I did look it up, and the flood-related language was sponsored by Senator Lynwood Lewis, D-Eastern Shore, who must have the greatest amount of shoreline of any state senate district. It is purely local option, and the counties or cities that vote will understand (I hope) that the tax break they give one homeowner will merely raise taxes on the others, unless they also cut spending at the same time…..It may never actually be done.

    • Is the Amazon-Arlington decision final? I’ll be a little shocked, but it woud be good for NoVA.

  4. Re don’t tax me, I’m flooding. Never underestimate the stupidity of a NoVA voter. Common sense would have lead environmentally conscious people to say “No, we shouldn’t be subsidizing people who build in flood plains, especially if we think the water levels will rise.”

    I agree VA is the southern most Northeastern state. It will stay that way until voters, mainly, but not exclusively, male get tired of being mugged by tax-happy liberals. Exposure to wasteful, ineffective programs and ever-increasing taxes tends to move a person to the right fiscally. One begins to feel like a source of funding. Many people resent it and start voting their economic interest.

    I don’t think the descendants of immigrants will be immune, especially as they succeed financially and socially. Look at the “Catholic” vote, especially Irish, Italian, German and Eastern European. It was reliably Democratic for decades. It isn’t anymore. In a generation, we’ll see fiscally conservative Asians and Hispanics. Their vote will not be uniform as it is today.

  5. here’s something interesting:

    Corey Stewart got 1.36M votes, about 200K more than Ed Gillespie got in the governor’s race last year.

    White Supremacy is alive and well in the Old Dominion.

    re: tax-happy liberals. compare to Conservatives who give tax cuts that are paid for by selling treasury notes…

    The thing is that the GOP owns rural Virginia which totally sucks for economic development which the GOP claims is it’s advantage over the Dems, and those rural localities depend on lefty liberal NoVa to pay them subsidies cuz their GOP economies suck. Even TMT says that!! He pays high taxes so they can be sent to rural Va because the GOP in Richmond wants that money sent to their rural counties… but he blames the libs!!! lordy!!!

  6. That’s the thing the Va. GOP has been running the state how the rural localities would like. Just saw California voted for yet another statewide gasoline tax hike 12 cents, for roads. What did we do in Va.? We said even a modest gasoline tax hurts rural counties, and so we got the road money by raising sales tax in NoVA etc. Quite wild and crazy approach.

    • http://www.losangelesgasprices.com/GasPriceSearch.aspx

      Had a neighbor just back say he actually saw $5 a gallon in places…..low gas tax not an issue in CA. But Virginia could certainly raise its a bit….

      • In addition to the gasoline taxes at the pump, Calfiornia also sends a bill for the carbon taxes to the gasoline manufacturers. So the price at the pump in Ca. is higher by that hidden amount, whatever it is.

        • Virginia actually has increased it’s gas taxes but higher gasoline taxes don’t generate higher revenues because people keep switching to more and more efficient cars and soon electric.

          So there needs to be other means and they would be tolls or by-the-mile.

          Tolls are very effective and they are used in the places where there actually are a lot of traffic and people and leaves rural Virginia alone – which if you think about it – because they are so lightly populated, you’d not raise much money anyhow. The bulk of the congestion and traffic is where there are lots of people and tolling not only gets the money for roads but can and is used to manage peak demand – much the same way that prices for gasoline and airline tickets also vary by demand.

          Tolls are super easy to do these days because there are no toll booths just electronics and cameras.

  7. Winning position for the RPV …

    Our platform includes the legalization of recreational marijuana use in Virginia.

    Sooner or later it will happen anyway. People care. Despite being written on Sept 17 or later the two most viewed columns on Bacons Rebellion for the last 365 days have both been about marijuana reform in Virginia.

    Alternately …

    We will drastically limit campaign contributions from individuals, companies and unions, take the money out of Virginia politics

    The RPV needs a single, high profile issue for 2019.

  8. Corey Stewart represents, in my view, a significant proportion of RPV these days. They sure voted that way and they seem to be happy with Trump and the base he cultivates.

    The REAL Republican party – the one that is actually fiscally conservative AND tolerant of people of all races and cultures is no more or it has been submerged into an almost invisible group who won’t even stand up for their principles.

    It’s pretty sad. The majority of the GOP these days – sleeps with those dogs that have fleas.

  9. Huh? Trying to pour cold water on the Democrats’ win?

    Actually, a Democratic House could have altered Trump’s tax cuts that will cost maybe $7 trillion over a decade by some estimates.

    They also could move to a more sensible immigration policy and not one based on fear and racism, among other things.

    • True, Dems would have altered the tax cuts, if they could have. But they would have ramped up entitlement spending, too. Free college tuition, anyone? Universal Medicare?

      • Universal Medicare would be cheaper than the current if you take into account all the current govt subsidies for employer-provided and then added what people actually pay in addition.

        35 other countries do Universal Medicare and they do it for 1/2 what we do and we continue to pretend otherwise because we’re not “socialist” – which is just a total crock. What are public roads and public education? We just use a bomb-throwing word to totally mess up any reasonable debate on the merits.

    • Peter – what is your proposal for immigration reform? And how do we avoid repeating the failure of Reagan’s immigration reform to stop further large-scale illegal immigration? How can we grant long-term illegal immigrants who have paid taxes and obeyed the laws legal status without encouraging more illegal immigration?

  10. TMT – you won’t get there by demonizing people.

    • Who am I demonizing? Are people who cross the border without permission legal immigrants? If you can hire people who aren’t authorized to work, why do I have to pay taxes? Why can’t a judge refuse to convict a person who steals from a construction site of a company that hires people to work without authorization? Why do I have to follow the speed limits? If having less money than someone else means one can ignore laws, there are a helluva lot of people who make more than I do. Can I ignore laws?

      Either we are a nation of laws or we aren’t.

      And you notice, Peter did not respond. Many Democrats want open borders but won’t say it publicly. Peter writes racism. You accuse people of demonizing illegal immigrants.

  11. re: Bacon and Izzo:

    That’s the whole point, Larry. A Social Security program with only 75% of revenue needed to sustain benefits would be a massive problem. True, it could be solved if we made the necessary adjustments — slightly higher FICA contributions here, a little delayed retirement there, a revised COLA adjustment over there — which could add up over the years. That’s exactly what I argued when I wrote Boomergeddon eight years ago.

    However, with each year of delay, the number of years available to make up the difference shrinks. Nothing has been done over the past eight years, there is ZERO chance that any changes will be made over the next two years, and there is no assurance that anyone will have the appetite to make the needed changes then. With each year that passes, the requisite adjustments get more painful, making it even more difficult to muster the political will to do anything.

    it’s really no different than what the VA GA had to do with VRS pensions and it’s not the same and deficit/debt at all…

    Izzo | November 8, 2018 at 3:29 pm |
    Larry,

    Geez, we just go round-and-round on this issue. Everyone understands the points you make that are fact based, but you avoid the obvious implications. You, on the other hand, always fail to acknowledge the factual points of others or acknowledge their implications moving forward.

    nope. 1. – people do not know these points – they believe that Social Security is “going broke” because the Trust Fund is running out of money.

    and I DO acknowledge the factual points guy… point for point.

    “Regarding deficit and debt, the CBO, SSA, economists and everyone else recognizes that GOING FORWARD, redeeming trust fund bonds will contribute increasing amounts to Federal unified budget deficits (see the quote I provided). That deficit will have to be serviced by current taxpayers and future taxpaying generations, who also have to pay their FICA. This is the reality of pay-as-you go. This is clearly stated in CBO and SSA publications, and you should recognize it as fact because it is already starting to have a huge budget impact.”

    and I HAVE responded to that by pointing out that the money in the Trust Fund got in there from FICA taxes collected. What happened next is NOT because of the way that Social Security is designed. Social Security, as designed, “works”… but over time, like pensions, it’s needs to be actuarially adjusted.

    “Regarding the stream from FICA taxes not going away, everyone recognizes that.”

    No they do not. They “hear” that the Trust fund is going broke and they equate that with SS going broke which is totally not true.

    “What Jim said and I agree with is that if you get to the point where the system is only paying out 75% of the benefits people thought they would get it would 1) have a major impact on retirees who planned on that benefit (60%+ get over half of retirement income from SS) 2) undermine the trust foundation of the system because the current taxpayers will believe they are going to get the shaft in retirement and 3) it will be even more difficult to solve from a political standpoint.”

    That is really NO DIFFERENT than what happens to VRS if you don’t require higher contributions form workers.. it’s the same problem!

    ” “You’re blaming Social Security because the govt spent those FICA taxes they borrowed and now have to be paid back. You’re using that as a false claim that Social Security is failing.”

    You are blatantly misstating what I and other have said. I don’t blame Social Security, it is a program. I am calling out legislators and administrations for not acting on the obvious issues it faces. This is precisely what Jim commented on above. The potential fixes are well known, but action is lacking and the clock is ticking. You again repeat this canard that any critical comments from anyone you consider to be on the right is in fact a ploy to kill Social Security. As poll results show (e.g. Pew Research), and as Steve pointed out based on his involvement in Republican politics, this is not true. They don’t call it the third rail for nothing.”

    I think ya’ll are basically implying that Social Security is not sustainable and is doomed to fail and you cite the Trust Fund going broke to make your point INSTEAD of actually explaining the difference between the Trust Fund and the FICA TAX funding stream and the fact that SS itself does not add to the deficit and debt because every penny they pay out in benefits comes form FICA taxes. The SS Trustees, in additon to being fully transparent on a 75-year basis – also generate reports that show what must be done to get SS back into actuarial balance. None of that is found in most of you or Jims comments – basically both of you point to the Trust Fund “going broke”which is totally misleading in my view and I come back and make those points.

    Social Security is like most other pensions and annuities that have “unfunded liabilities” except that SS looks at a 75-year horizon and most pensions like VRS look at 30 year horizions. 75 years is a long time and it gives sufficient time to actually make adjustments. Similar adjustments have been made to VRS to keep it “solvent”.

    I’ve asked here several times what “unfunded liabilities” actually means if VRS pays out every penny promised every year -why exactly is “unfunded”?

    You can say the sky is falling if VRS has “unfunded liabilities” the same way you can say the sky is falling if Social Security only pays out 75% but the reality is – it’s the same problem with both SS and VRS and it involves periodics actuarial adjustments that need to be made to keep them fiscally sound.

    It’s an important issue but it’s no where near the problem of 20 trillion in debt and adding more to it every year.

    • Larry, you wrote (or copied) 19 paragraphs to scold and/or lecture us based on your misapprehension that we don’t understand that periodic adjustments are needed to Social Security. I would point out to you that Jim’s second sentence in his response to you was “it could be solved if we made the necessary adjustments — slightly higher FICA contributions here, a little delayed retirement there, a revised COLA adjustment over there — which could add up over the years.” The “Do-Nothing Consensus” in the title expressed his concern for continued inaction.

      You are ceaselessly tilting at windmills.

  12. Lets make one thing crystal clear here. A REAL threat to the budget/deficit/debt … IS Medicare, not Part A but Part B and Medicare Advantage. They’re different and you need to understand the difference if you are to really understand the issue.

    Medicare Part A is pre-paid by workers through their FICA taxes and it too will require cuts to reimbursements unless actuarial changes are made.

    Medicare Part B is not prepaid from FICA and DOES add to the deficit/debt every year because only 1/4 of the cost is paid for with premiums and 3/4 is paid from the General Fund. Premiums for Medicare Part B is $134 a month for most seniors who make less than 80K a year in retirement income. It costs about a thousand dollars a month for that coverage.

    The chart below shows where the money comes from for the various flavors of Medicare. Note that Medicare Part A is not funded from general revenues:

  13. This is a pretty fair and objective explanation of the trust funds – which do
    support the points that Izzo is making (and I acknowledge them):

    WHAT ARE FEDERAL TRUST FUNDS?

    https://www.pgpf.org/budget-basics/budget-explainer-what-are-federal-trust-funds

    • Ah Pete Peterson. There used to be some fiscally conservative Republicans like him and even some Blue Dog Democrats. I wonder where they went.

      • Izzo – set aside FICA/SS for the time being and look at how gas taxes or how the Feds pay pensions to Civilian and Military. There are no set-aside funds that they accumulate and pay out of. It’s primarily pay-as-you-go.

        Gas taxes are earmarked on collection but then spent immediately in the general fund – which allows them to not borrow more money – at that time.

        Later when money is needed for a transportation project – the money is redeemed from the Treasury – who THEN has to borrow it to repay.

        Basically this is how the govt operates and has for a long time and the votes in Congress for a “Balanced Budget” are largely symbolic because no one really expects the measure to pass and so Conservatives use that vote to “burnish” their faux fiscal conservatism which their base just loves but in reality – the vast majority of Congress, the POTUS and most major economists expect the govt to continue to run a deficit and the real issue is how much of one is acceptable (or not).

        So the bottom lines is that besides Social Security – there are dozens – almost a hundred “trust funds” that are NOT “funds” in private sector sense but basically an accounting mechanism to keep track of earmarked funds that are immediately spend then re-paid when needed.

  14. Larry, you describe the mechanism accurately, and I understand it, but again, I am talking about implications (which are really pretty straight forward and spelled out in the Pete Peterson Foundation site you linked to and said you acknowledged). The key implications are: 1) these trust funds are now in the draw down phase, so redeeming the bonds is causing and will continue to cause a huge spike in public borrowing and interest payments in the budget and public debt may reach an unprecedented and unsustainable percentage of GDP 2) the longer legislators wait to address the imbalance issues, the worse the options become and the bigger the potential impacts on benefit recipients and taxpayers 3) if no action is taken and payments decline to 75% of scheduled benefits, it will a) have a major impact on the high percentage of recipients who rely on it for a substantial portion of their income and b) may call into question the political viability of the system because the current taxpayers (and voters) supporting it may see themselves as getting the raw end of the inter-generational transfer bargain.

    Your comment that these trust funds are very common is correct, but that isn’t really the point, is it? (Mortgages were pretty common in 2008, but a few things went wrong. . .) Any time you have a mechanism (trust funds) that transfer income and debt from one generation to another, it can get out of balance if not managed prudently. It is as simple as that. It doesn’t mean the concept doesn’t have merit.

    Perhaps Trump and Pelosi will create a Reagan and O’Neill type of bargain, but I’m not banking on it.

  15. Izzo – we’re finally talking AT each other and not past!!

    Here’s MY point.

    Social Security – as a concept – works just fine if done right – which includes making the actuarial adjustments to keep it fiscally sound – just as we have to do with other pensions.

    Social Security – as a concept – is not responsible for the ramifications of the Feds having to pay back the FICA money they took and spent.

    Doing anything to SS in response to that – won’t change the way the Feds do business by spending earmarked revenues and issuing redeemable bonds to be paid back later – by borrowing money.

    The 75% thing is a bugaboo just like “unfunded liabilities” are tossed around for other pension systems.

    What you’re looking at in reality is really good transparency in that no other pensions or annuity systems that I know of , actually look ahead 75 years. Most of them look ahead about 30 years. So Social Security has a much longer look ahead – basically to warn about changes needed way downstream as is exactly what has happened. They’ve been warning about this for decades now and we have political folks who oppose SS – as a concept – and refuse to actually do the quite reasonable adjustments needed.

    We could “fix” SS overnight by making some fairly easy and acceptable changes that most everyone would support to fix that problem and move on to more serious ones – like Medicare Part B.

    So the bottom line is that SS is not an impending disaster that we have no way to fix. It’s easily fixable and fixing it would assure fiscal solvency for a long time.

    So why do we group it with other issues that are not nearly so easily fixable (like deficit/debt) and advocate changes to it that would actually damage it? No matter what we do to SS – it won’t make a dent in the bigger deficit/debt issue… so why do we focus on it?

  16. Larry, nothing Jim said was wrong and his fundamental point on inaction on mounting fiscal issues is valid. What you do, over and over again for some reason, is introduce red herrings and straw man arguments that obscure those valid points. He didn’t say in this piece, as you suggest, that Social Security or other entitlement systems cannot work or need to be outright eliminated. He said these programs are out of balance and need to be addressed by government but that is not happening in the current political climate. This is correct. (Ironically, you argue a similar basic point — that they can be fixed with “actuarial adjustments” with legislative action — while erroneously criticizing him for not recognizing it.)

    And “Feds” don’t really really pay back the FICA money they took and spent in earlier budgets, as you said, do they? That burden falls to the next generation of workers and taxpayers, and shows how governments can and do use inter-generational transfer programs to shift fiscal issues into the future. Just look at the Pete Peterson Foundation graphics you cite for confirmation that those issues are piling up.

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