Where is Esurance Beatrice When You Need Her?

View this article online at https://www.fedsmith.com/2017/01/31/where-is-esurance-beatrice-when-you-need-her/ and visit FedSmith.com to sign up for free news updates
By on January 31, 2017 in Retirement with 0 Comments
Congressman Mick Mulvaney (R-SC)

Congressman Mick Mulvaney (R-SC)

Years back, E.B. was the star of the ad campaign, “That’s Not How This Works”.  The actress parlayed that 2 second phrase into a brief bout with fame.

Beatrice came to mind as I watched the confirmation hearings of Rep. Mick Mulvaney (R-SC) for the director of the Office of Management and Budget. The exchanges between the nominee and his inquisitors left me thinking that I had strayed into an updated ESurance commercial, and I waited patiently for Senator Beatrice to say, “That’s not how this works.  That is not how any of this works.”

Unfortunately instead of a commercial, it was the real life testimony of a real person under real consideration for the top budget job of nation. While his message seemed intended to shock his colleagues about the nation’s finances, the questions and answers create a more disturbing picture of just how far our leaders have drifted from reality.

That is not how this works. It is not how any of this works.

Senator Lindsey Graham (R-SC) asked, “What drives the debt?,” to which, Rep. Mulvaney responded, “The entitlement programs Medicare, Medicaid, and Social Security.”

Social Security is the largest of these programs. According to the Trustees of the Social Security Trust Fund, the system’s direct contribution to the debt was $31.6 billion in 2015. The actual budget deficit was more than 10 times that amount over that period of time.

In his testimony, Rep. Mulvaney conflated the issue of debt with the issue of spending as though spending by itself creates debt.  In fact, debt is the accumulation of spending – in excess of income. Looking at spending by itself is no more informative than looking at half of a football score.

Alabama 23.

Social Security spends a lot.  It also generates a lot of money.  Yes, Social Security has a dedicated stream of income that by law cannot be spent on anything except benefits and expenses of the program. This source of income generated so much money in the past, that the system set-aside past revenue to cover future expenses.

It cannot possibly be any clearer.  Social Security cannot borrow money. The spending of Social Security is bounded by its revenue. Thus it cannot “drive” the nation’s debt.

It is possible that Rep. Mulvaney sees one tax as the same as the next.  In a flat world, he could easily substitute the use of one tax for the other. Under current law, however, payroll taxes aren’t fungible. Even if they were, the actual problem of Social Security will grow much larger if the nation diverted payroll taxes from the retirement of senior to the retirement of debt.

The nominee for the top-budget job in the nation seems completely out of touch with the actual problem facing Social Security – the “shortfall”.  This figure is the amount of money that the program will NOT spend. The impact of this issue is expected to arrive in the lifetime of people turning 69 over the coming year.

In one exchange, he indicated that asking someone who is 59 to wait 2 additional months would help “fix this.”  I have no idea what policy option related to retirement age that he believes would accomplish this lofty goal.  The only thing that I do know is the Social Security Administration does not even track it.

The most aggressive change to retirement age would raise the retirement of people who are 59 now by a year as part of raising the retirement age past 71 for someone in their 30s.  This action does not fix the program. It does not even get us half way to kicking the can again.

The implication that gradually changing the retirement age will contribute, much less solve, the financing gap is disconnected from reality. The standard meaning for gradual is 1 month every 2 years, meaning it will take more 25 years to raise the retirement age to 68. By that time, the system would have been paying depleted benefits for more than a decade.

He assured those that are on Social Security that they do not have anything to fear. There isn’t a single projection for Social Security in which the solvency of the program outlasts existing retirees.

The Congressional Budget Office believes about half of those people turning 75 this year will be around when the system starts paying depleted benefits. The Social Security Administration believes that there is about a 50 percent chance that people between the ages of 69 and 75 today will live long enough feel the effects of insolvency.

The most worrisome insight into the mind of Rep. Mulvaney and his colleagues played out over revenue. They agreed that the revenue collected by the government was the highest at any time over the last 50 years by every measure.

Hold the applause. Not all tax dollars are created equal. When I pay a dollar of income taxes, I get nothing directly in exchange. For each dollar of payroll tax collected, the system generates an off-balance sheet promise of roughly a dollar in benefits. Looking at these dollars of revenue as the same thing is frightfully misguided.

In his testimony of the man gunning for top-budget man, I see no evidence that he understands the mechanics of the program much less its financing problems. I do not see that he has a grasp on the efficacy of the policy options of that he is proposing or even the reasoning for them.

Rep. Mulvaney’s testimony is meaningful only in a bizarro-universe where Congress can repurpose the payroll tax without consequence. Imagine the voters’ reaction to legislation that says we are going to continue to collect the payroll tax, but we are going to provide less of it to Social Security as benefit cuts grow.

Americans should be less worried about the connection Social Security and the debt, and more worried about our leaders’ indifference to the connection between a crisis Social Security and us.

Any opinions expressed are those of the author alone.

© 2017 Brenton Smith. All rights reserved. This article may not be reproduced without express written consent from Brenton Smith.

Tags:

About the Author

Brenton Smith (A.K.A. Joe The Economist) writes nationally on the issue of Social Security reform with work appearing in Forbes, FedSmith.com, MarketWatch, TheHill.com, and regional media like The Denver Post.

Top