While it comes as no surprise, both Medicare and Social Security are financial disasters waiting to happen. In a report issued today by trustees of these two large government programs, while the dates of bankruptcy are unchanged, the date of the programs being cash flow negative have moved up to a date closer than was previously thought.

According to an AP report: " The first year that payments will exceed income for Social Security will occur in 2017, just nine years from now, reflecting growing demands from the retirement of 78 million baby boomers. Medicare is projected to pay out more than it receives in income starting this year.

"The financial difficulties facing Social Security and Medicare pose enormous challenges," the trustees said in their report. "The sooner these challenges are addressed, the more varied and less disruptive their solutions can be."

Continue reading If you are under 40 forget about getting Social Security

If you are under 40 forget about getting Social Security originally appeared on BloggingStocks on Tue, 25 Mar 2008 18:24:00 EST. Please see our terms for use of feeds.

Long hailed by free market economists as the model for how to create a pension system, news out of Chile that it plans on making payouts to low income seniors, has government interventionists jumping for joy.

The new $2 billion-a-year program will expand public pensions to groups left out by private pensions - the poor and self-employed, housewives, street vendors and farmers who saved little for retirement - granting about a quarter of the nation's work force public pensions by 2012.

The fact is that this move is the way that governments should generally function. Stay out of things unless there is a real need to do something. No one is of the opinion that low income seniors should be thrown out into the street. Of course they should be helped. I would rather see the community take care of them and set up a network of charity, but if that doesn't work, then the government should step in.

What government interventionists miss is just how successful the 1981 pension reform has been.

Continue reading Should the U.S. adopt the Chilean pension system?

Should the U.S. adopt the Chilean pension system? originally appeared on BloggingStocks on Mon, 10 Mar 2008 15:08:00 EST. Please see our terms for use of feeds.

Social Security's future is in trouble? Yeah, and Yogi played baseball. originally appeared on BloggingStocks on Tue, 16 Oct 2007 18:47:00 EST. Please see our terms for use of feeds.

USA Today writes about the first baby boomers retiring next year at a rate of 365 an hour. The articles goes on to use terms for the fix that feed into the fears the current Administration is raising about the event. But is the crisis truly that bad? Yes it's true a fix is needed for Social Security, but if you look closely at the numbers used even in the USA Today you'll see that the fix is not that drastic. As long as we take it seriously and do something.

In the story USA Today states the fix would need to be a 16% increase in the existing payroll tax or a 13% cut in benefits. First let's look at that 16% in actual tax rates. The current tax rate for Social Security is 15.3%, which is 7.65% paid by the employee and 7.65% paid by the employer. Were the Congress to decide to fix the system solely by using tax increases then the increase would be 2.448% or 1.224% for the employer and the employee. That added would move the total tax collected to 17.748% (or 8.874% from one's paycheck). When a cut in benefits is discussed options always look at future promised benefits. The cut would not impact those currently collecting Social Security, but may include a number of different things such as increasing the age for retirement, reducing the COLA increase, or some other combination of benefit changes.

The fairest way to fix the problem would be a combination of tax increases and cuts in promised benefits. Let's say we cut responsibility for the fix in half - an 8% increase in tax rates or 1.224% shared equally between employer and employee: each paying 0.612% more in taxes. Would you be willing to pay that to secure Social Security for at least 75 years? A cut of 6.5% in promised future benefits would be necessary if the fix is to be shared by all.

Continue reading Social Security: Scare tactics or true crisis?

Social Security: Scare tactics or true crisis? originally appeared on BloggingStocks on Mon, 15 Oct 2007 19:31:00 EST. Please see our terms for use of feeds.

USA Today reports that at age 62, America's first baby boomer opted into Social Security today. The question for America is whether the 80 million people born between 1946 and 1964 will bankrupt Social Security by the time all of them are receiving their payments.

The caseload for so-called entitlements -- Social Security and Medicare -- is going to explode in the next 23 years. By 2030, Social Security's caseload will be 84 million people, up from 50 million today. Medicare will go from 44 million beneficiaries to 79 million. That will leave about two workers paying payroll taxes for every retiree. The tab is estimated at $50 trillion in future obligations over the next 75 years. Social Security will rise from 4% to 6% of the GDP, and Medicare will go from 3% to 11%.

The options are not good. Fixing Social Security solely with higher taxes or cuts in spending would mean a 16% increase in the payroll tax or a 13% cut in benefits. Medicare's needs would be far greater: a 122% payroll tax hike or a 51% reduction in spending, just for hospital care. Unfortunately, the longer we wait to fix the problem, the more it will cost.

However, if history is any guide, we'll wait until a crisis before we find the will to act. And that crisis will fall on the shoulders of the baby boomers' children and grandchildren -- not much of a legacy.

Peter Cohan is president of Peter S. Cohan & Associates. He also teaches management at Babson College and edits The Cohan Letter.

Will baby boomers bankrupt social security? originally appeared on BloggingStocks on Mon, 15 Oct 2007 15:11:00 EST. Please see our terms for use of feeds.

Some BloggingStocks readers have been kind enough to comment on my blog post regarding the tax protest undertaken by Mr. and Mrs. Brown of New Hampshire. It seems to me that in light of the many ways in which our government has mishandled issues with its citizen over the last several decades, the issue of taxation should be taking more of a front seat. Not a one of us enjoys paying taxes, but most all of us agree that they are a necessary evil. Many of us see serious inequities and abuses in the system. I'll clarify some of my positions on the subject and I'll certainly provide some fuel for debate.

I don't disagree that the Browns have a right to protest their taxes in their own way, but what they are doing is, in my opinion, selfish, short sighted, ill-thought-out, and probably illegal. They are acting like the little child who hurls insults at the boogie man from under the covers. They buttress their actions by claiming that the system is so completely broken that any attempt to work with it is useless. Therein lies my reason for suggesting they should go elsewhere. There are a hundred ways that the Browns could stage an open, effective, and legal protest. They, however, have chosen to hide themselves in protest. In my opinion, they are shameful, loud-mouthed cowards.

Does our government overtax us? You damn bet they do. When hard-working citizens reach a certain income level, their governmental tax load is between 30% and 40% of their income. It approaches 50% if you add in all the permits, licenses, user fees, and a host of other city, county, and state hidden payouts. To me this is completely unacceptable. I've been saying for quite some time that, if you consider that our incomes start with a finite 100% and the governments keep taking one additional percent after another, how long will it be before we no longer have the funds to effectively operate as a public? Even more upsetting to me than the amounts of the funds taken is the fact that we have little to no say in how that money is spent. Taxation without (effective) representation? It wouldn't be too hard to argue that such is the case.

Continue reading Continuing the tax protest dialogue

Continuing the tax protest dialogue originally appeared on BloggingStocks on Sun, 29 Apr 2007 10:40:00 EST. Please see our terms for use of feeds.