Path to Liberty | Privatization or Back to the Plantation?


“Mr. President, it is natural to man to indulge in the illusions of hope. We are apt to shut our eyes against a painful truth, and listen to the song of that siren till she transforms us into beasts. Is this the part of wise men, engaged in a great and arduous struggle for liberty? Are we disposed to be of the number of those who, having eyes, see not, and, having ears, hear not, the things which so nearly concern their temporal salvation? For my part, whatever anguish of spirit it may cost, I am willing to know the whole truth; to know the worst, and to provide for it.” ~ Patrick Henry

An Accountant Explains Why the U.S. Cannot Balance its Budget

– By: Larry Walker, Jr. –

In following video (link), a former accountant who worked with budgets for over 40 years clearly explains the U.S. budget dilemma. After reviewing the facts contained therein, it should be evident that there are only two possible solutions for the survival of the United States: (1) raise taxes by 50% across the board or, (2) lower taxes and privatize entitlement programs.

Raising taxes leads to a smaller economy and larger government, with the need to eventually raise taxes again at some point. On the other hand, lowering taxes while privatizing entitlement programs leads to a larger economy and less government. Although the latter will cause some pain in the initial years, the affliction will be faced either way. However, privatization is the only path leading to the long-term sustainability of a free Republic.

While some would conclude that the solution involves a combination of increasing tax rates while cutting entitlement programs, I believe the two are mutually exclusive. That is to say, raising taxes reduces the size of the economy leading to the need for even more entitlements. Raising taxes also narrows the tax base leading to less government revenue. On the other hand, privatization requires lowering income tax rates to enable entitlement programs to go private. Cutting taxes also leads to a larger private economy, a broader tax base and increased government revenues. So the latter leads to greater economic independence for free citizens, and less reliance on government programs. This should be the goal for a free society.

Our freedoms may only be sustained by lowering income tax rates in conjunction with privatization of the major entitlement programs (i.e. Social Security, and Medicare). Although some painful days will occur during the initial years of conversion, in which the government must meet its past commitments while transitioning younger workers towards privatization, it is important to note that, “Every time in this century we’ve lowered the tax rates across the board, on employment, on saving, investment and risk-taking in this economy, revenues went up, not down.” Thus reducing income tax rates will actually increase, not decrease, federal revenues during the transition. Therefore, the tax cuts that I am speaking of should be across the board and immediate, as should the transition towards privatization.

There are really only two choices, (1) a larger private economy based on free-market principles and self-reliance, or (2) an ever increasing and invasive federal government with greater dependence on its ability to collect taxes from a shrinking base of those able to pay. The policies implemented today will determine America’s future. The alternatives are clear – live free, or become a ward of the State. There are no laurels to rest upon. Either you favor exercising your God-given right to freedom, or returning to slavery. The decision is yours. As for me, I choose freedom, by any means necessary.

“The day that the black man takes an uncompromising step and realizes that he’s within his rights, when his own freedom is being jeopardized, to use any means necessary to bring about his freedom or put a halt to that injustice, I don’t think he’ll be by himself.” ~ Malcolm X

Photo Credit: English Exercises

See Related:

Obsolete Government Programs, Part 1 | FICA – Apr 20, 2011

If we were not forced to pay this mandatory tax of 6.2% (12.4% for the self-employed) on earned income up to the limit of $106,800, we would be able to save a greater portion of our own money into the modern retirement…

Obsolete Government Programs, Part 2 | Medicare – Apr 21, 2011

Medicare is partially financed through payroll taxes imposed by the Federal Insurance Contributions Act (FICA) and the Self-Employment Contributions Act of 1954. In the case of employees, the tax is equal to 2.9% (1.45%…

Social Security: A Breach of Trust – Jan 09, 2011

As I explained in “The Social Security Bust Fund”, the federal government has summarily confiscated and spent every dime of the $2.6 trillion surplus, which would have comprised the Social Security Trust Fund, and has…

Unequally Yoked | Social Security and the Working Class – May 07, 2011

Did you know that most state and local government employees are exempt from Social Security taxes? Millions of Americans who are covered by state or local retirement plans do not pay into the Social Security system.

The Social Security Bust Fund – Jan 03, 2011

In other words, the Treasury pays interest to the Social Security Trust Fund, but not in the form of cash, rather in the form of additional special-issue securities. (Huh?) Interest is only physically paid out when money is needed…

Unequally Yoked | Social Security and the Working Class

Liberty?

Public vs. Private Sector Inequities

~ By: Larry Walker, Jr. ~

Did you know that most state and local government employees are exempt from Social Security taxes? Millions of Americans who are covered by state or local retirement plans do not pay into the Social Security system. If Social Security is such a great plan, then why are 17,738,156 [1] state and local government workers exempt? Why does the federal government continue to legally bind the rest of us to a sinking ship? This isn’t 1933 anymore. The time for change is now. Social Security is the biggest fraud in American history.

There is no retreat but in submission and slavery! Our chains are forged! ~ Patrick Henry

Teachers Retirement System of Georgia vs. Social Security

For example, teachers in the state of Georgia are covered by the Teachers Retirement System (TRS). Following are some of the differences between teachers covered by TRS and private sector workers covered by Social Security.

  1. Although Georgia teachers are required to contribute 5.0% of their pay into the TRS, the contribution is considered a pre-tax deduction. Workers covered by Social Security must contribute 6.2% of their pay on an after-tax basis.

  2. Georgia public employers pay a matching contribution of 9.24% into the TRS. Private sector employers pay a 6.2% match to the Social Security Administration (SSA).

  3. TRS contributions are invested in stocks, bonds and other liquid investments earning interest, dividends and the chance for appreciation in value. Social Security contributions are used to pay the benefits of current recipients. Any surplus is borrowed and spent by the federal government which is currently $14.3 trillion in debt.

  4. The normal retirement age for Georgia teachers is 60 years of age. Normal retirement for Social Security recipients is age 65, 66, 67 or greater.

  5. Georgia teachers may retire at any age after 25 years of service. Social Security recipients may not retire until they reach the age of 62 (with reduced benefits).

  6. The amount of benefits received by Georgia teachers is based on the two highest years of compensation. The benefits paid by Social Security are based on the average amount of earnings over a 35 year period.

  7. Georgia teachers become vested in their retirement benefits after 10 years of service. Upon separation from service they may either take a lump-sum distribution or rollover their contributions into an IRA. After the vesting period, Georgia Teachers may also take a lump-sum distribution or rollover the employer contributions into an IRA. Social Security recipients are vested after working 40 quarters, or 10 years, but have no rights to lump-sum distributions or rollovers.

  8. Upon separation of service or retirement, Georgia teachers may either take a lump-sum distribution or rollover their benefits into an IRA account. Georgia teachers may also elect to have their remaining benefits paid to their beneficiaries. Social Security recipients do not have any contractual right to take lump-sum distributions, make rollovers, or to pass benefits on to their heirs.

  9. The maximum amount of annual retirement benefits paid to Georgia teachers is determined by multiplying the average of their top two years’ salary by the number of years of service, and then by 2%. Thus an employee who earned $50,000 in their top two years, with 30 years of service, would receive an annual pension of $30,000 per year, or $2,500 per month [50,000 * (.02 * 30)]. The average amount of benefits paid to Social Security recipients is $14,088 per year, or $1,174 per month. The maximum Social Security benefit for a worker retiring in 2011 is $28,392 or $2,366 per month based on earnings at the maximum taxable amount for every year after the age of 21. The maximum taxable amount of Social Security wages in 2009/2010 is $106,800. [2,3]

Wisconsin Retirement System vs. Social Security

As a second example, teachers in the state of Wisconsin are covered by the Wisconsin Retirement System (WRS). Following are some of the differences between teachers covered by WRS and private sector workers covered by Social Security.

  1. Although Wisconsin teachers are supposed to contribute 5.0% of their pay into the WRS, the contribution is actually paid by their employer (i.e. amounts designated as employee contributions for accounting purposes are actually paid by the employer). [1 (pages 15-17)] WRS employees may also make additional tax deferred contributions to their WRS accounts. Workers covered by Social Security must contribute 6.2% of their pay on an after-tax basis.

  2. Wisconsin public employers pay a matching contribution of 4.5% into the WRS, but since they also pay the employees portion, their total contribution is 9.5%. Private sector employers pay a 6.2% match to the Social Security Administration (SSA).

  3. WRS contributions are invested in stocks, bonds and other liquid investments earning interest, dividends and the chance for appreciation in value. Social Security contributions are used to pay the benefits of current recipients. Any surplus is borrowed and spent by the federal government which is currently $14.3 trillion in debt.

  4. The normal retirement age for Wisconsin teachers is 65 years of age, or 57 with 30 years of service. Normal retirement for Social Security recipients is age 65, 66, 67 or greater.

  5. Wisconsin teachers may retire as early as the age of 55 (with reduced benefits). Social Security recipients may not retire until they reach the age of 62 (with reduced benefits).

  6. The amount of benefits received by Wisconsin teachers is based on an average of the three highest years of compensation. The benefits paid by Social Security are based on the average amount of earnings over a 35 year period.

  7. Wisconsin teachers become vested in their retirement benefits immediately and may either take a lump-sum distribution or rollover the employer contributions into an IRA upon separation. Social Security recipients are vested after working 40 quarters, or 10 years, but have no rights to lump-sum distributions or rollovers.

  8. Upon separation of service or retirement, Wisconsin teachers may either take a lump-sum distribution or rollover their benefits into an IRA account. Wisconsin teachers may also elect to have their remaining benefits paid to their beneficiaries. Social Security recipients do not have any contractual right to take lump-sum distributions, make rollovers, or to pass benefits on to their heirs.

  9. The maximum amount of annual retirement benefits paid to Wisconsin teachers is determined by multiplying the average of their top three years’ salary by the number of years of service, and then by 1.6%. Thus an employee who earned $50,000 in their top three years, with 30 years of service, would receive an annual pension of $24,000 per year, or $2,000 per month [50,000 * (.016 * 30)]. The average amount of benefits paid to Social Security recipients is $14,088 per year, or $1,174 per month. The maximum Social Security benefit for a worker retiring in 2011 is $28,392 or $2,366 per month, based on earnings at the maximum taxable amount for every year after the age of 21. The maximum taxable amount of Social Security wages in 2009/2010 is $106,800. [2,3]

Unequally Yoked

When it comes to retirement, not all Americans are treated equally. State and local government workers have great advantages over private sector employees. Not only does the private sector pay the salaries of state and local government workers through income and property taxes, and not only do we contribute towards their retirement, but we allow them to have better retirement plans than ourselves. As most of us sit, chained to the broken and antiquated Social Security system, state and local government employees continually bargain for more and more. Here are the major inequities in a nutshell.

  • Most state and local government employees contribute less towards their retirement plans than those covered by Social Security but receive back more in benefits. Wisconsin public employees contribute nothing towards their retirement yet receive back more in benefits than comparable working class peons.

  • State and local government employees have portable retirement accounts which actually exist. Americans who are covered by Social Security don’t have any portability of savings, nor have their funds been set aside or invested in any manner.

  • State and local workers have greater options for early retirement based on age and the number of years of service, while Social Security patrons must wait until the age of 62 to receive a reduced amount of benefits.

  • The age of full retirement for those covered by Social Security continues to be pushed back due to the lack of funds, while state and local employees are allowed to quit their jobs and take their savings with them at any time.

  • State and local employees are paid retirement benefits based on an average of their top 2 or 3 years of earnings, while Social Security benefits are calculated using an average of 35 years of earnings.

  • Social Security benefits are limited to $28,392 per year, in 2011, no matter how much is earned in a lifetime. The benefits paid to most state and local plan recipients are for the most part unlimited.

Not all workers in the United States are covered by Social Security, so why don’t the rest of us have a choice? Since state and local retirement plans are required to invest contributions in a fiduciary capacity, why doesn’t Social Security? What makes state and local government employees better than the average American? Wouldn’t privately owned and managed retirement accounts be an improvement for all Americans? It’s time to end Social Security. It’s time for all American workers to be treated equally. The ‘Nanny State’ has failed. The era of big government is over. Give me liberty, or give me death!

Sources:

[1] WISCONSIN LEGISLATIVE COUNCIL – 2006 COMPARATIVE STUDY OF MAJOR PUBLIC EMPLOYEE RETIREMENT SYSTEMS

[2] Social Security Administration – Answers

[3] Your Retirement Benefit: How It Is Figured

Other References:

Teachers Retirement System of Georgia – 2010 Annual Financial Report

Wisconsin Department of Employee Trust Funds – 2009 Annual Financial Report

Wisconsin Retirement System (WRS) Benefit Summary

Links:

Chile's Private Accounts Turn 30 – Investors.com

Bill Baar's West Side: NBC LA: A New Party Within a Party? Labor-Skeptic Democrats

Obsolete Government Programs, Part 2 | Medicare

Personal Responsibility

You Paid How Much For Medicare?

~ By: Larry Walker, Jr. ~

Medicare is a social insurance program administered by the United States government, providing health insurance coverage to people who are aged 65 and over, or who meet other special criteria. Some say that Medicare operates similar to a single-payer health care system, but with one key exception: Medicare Part A, the part that we pay for all of our working lives, only provides hospital insurance, and it doesn’t kick in until after the age of 65. Thus, Medicare is more akin to an excessively expensive, mandatory, long-term health care plan than anything else. Although there is a health insurance aspect to Medicare, known as Part B, it’s not free either. Medicare Part B requires the payment of additional monthly premiums upon retirement of between $96.40 and 308.30 per month, depending on the recipient’s level of income at the time.

Medicare is partially financed through payroll taxes imposed by the Federal Insurance Contributions Act (FICA) and the Self-Employment Contributions Act of 1954. In the case of employees, the tax is equal to 2.9% (1.45% withheld from the worker and a matching 1.45% paid by the employer) of the wages, salaries and other compensation in connection with employment. Until December 31, 1993, the law provided a maximum amount of compensation on which the Medicare tax could be imposed each year. But, beginning January 1, 1994, the compensation limit was removed. A self-employed individual must pay the entire 2.9% tax on self employed net earnings, but may deduct half of the tax from income in calculating income tax. Beginning in 2013, the 2.9% hospital insurance tax rises to 3.8% on earned income exceeding $200,000 for individuals and $250,000 for married couples filing jointly. [1]

Times Have Changed: Medicare is Obsolete

In the 1960s, Medicare was introduced to rectify the following problems: health care for the elderly and health care for the non-elderly with pre-existing conditions. The FICA tax was increased in order to pay for this expense. Both problems are listed below, followed by modern day private-sector solutions meant to address the same.

  • The U.S. had no federal-government-mandated health insurance for the elderly; consequently, for many people, the end of their work careers was the end of their ability to pay for medical care.

  • The U.S. had no federal-government-mandated health insurance for all those who are not elderly; consequently, many people, especially those with pre-existing conditions, have no ability to pay for medical care.

Most Americans would be able to afford real health insurance, or better plans, were we not forced to pay huge sums out of our current pay, for benefits that some will never see. For example, Barack Obama paid a total of $48,496.29 in Medicare taxes in 2010 alone. This means he paid $4,041.36 per month for long-term hospital insurance benefits that he won’t realize until he turns 65. A portion of the $48,496.29, namely $5,730.23 was actually paid by his employer, which would be you and I. Could Mr. Obama perhaps find a better deal in the private-sector? I would hope so. Would you pay $4,041.36 per month for long-term hospital insurance coverage if you had a choice? “AFLAC… AFLAC… AFLAC”!

Obama's Medicare Tab

Medicare Benefits

Medicare has four parts: Part A is Hospital Insurance. Part B is Medical Insurance. Medicare Part D covers prescription drugs. Medicare Advantage plans, also known as Medicare Part C, are another way for beneficiaries to receive their Part A, B and D benefits. All Medicare benefits are subject to medical necessity. The original program was only Parts A and B. Part D was new in January 2006; before that, Parts A and B covered prescription drugs in only a few special cases.

Medicare Premiums

Most Medicare enrollees do not pay a monthly Part A premium, because they (or a spouse) have had 40 or more 3-month quarters in which they paid Federal Insurance Contributions Act taxes. Medicare-eligible persons who do not have 40 or more quarters of Medicare-covered employment may purchase Part A for a monthly premium of:

  • $248.00 per month (in 2011) for those with 30-39 quarters of Medicare-covered employment, or

  • $450.00 per month (in 2011) for those with less than 30 quarters of Medicare-covered employment and who are not otherwise eligible for premium-free Part A coverage.

All Medicare Part B enrollees pay an insurance premium for this coverage; the standard Part B premium for 2009 is $96.40 per month. A new income-based premium schema has been in effect since 2007, wherein Part B premiums are higher for beneficiaries with incomes exceeding $85,000 for individuals, or $170,000 for married couples. Depending on the extent to which beneficiary earnings exceed the base income, these higher Part B premiums are $134.90, $192.70, $250.50, or $308.30 for 2009, with the highest premium paid by individuals earning more than $213,000, or married couples earning more than $426,000. In September 2008, CMS announced that Part B premiums would be unchanged ($96.40 per month) in 2009 for 95 percent of Medicare beneficiaries. This would be only the sixth year without a premium increase since Medicare was established in 1965.

Medicare Part B premiums are commonly deducted automatically from beneficiaries’ monthly Social Security checks. Part C and D plans may or may not charge premiums, at the programs’ discretion. Part C plans may also choose to rebate a portion of the Part B premium to the member. While private-sector health insurance premiums are deducted from employees’ paychecks on a pre-tax basis, Medicare taxes are confiscated from employees on an after-tax basis. Is that fair? Upon retirement, if one wishes to pay for Medicare Part B, the premiums are conveniently deducted from retirees Social Security checks on an after-tax basis. Is that fair?

Still Clueless?

Three-quarters of all taxpayers pay more in payroll taxes than income taxes. Do you get it now? It’s time for this to change. It’s time to stop confiscating money from today’s payroll checks to cover tomorrow’s health care needs. It’s time to give American citizens more of our own money so that we may provide for our current needs. All that we ever hear from the Democrats is how many Americans can’t afford health insurance. Did it ever dawn on any of them that maybe the reason we can’t afford health insurance is because we are being robbed blind by a 15.3% payroll tax? Out of every American paycheck, 15.3% is being literally looted and squandered by the federal government. We are being robbed by a 1933 law which has outlived its usefulness. It’s time to end Medicare and Social Security. All past obligations of Medicare must be immediately privatized through legitimate private-sector insurance companies.

References:

[1] http://www.ssa.gov/OACT/ProgData/taxRates.html

http://en.wikipedia.org/wiki/Medicare_(United_States)

Obsolete Government Programs, Part 1 | FICA

My Roots, circa 1918

“Free at last! Free at last! Thank God Almighty, we are free at last!” ~ MLK, Jr.

~ By: Larry Walker, Jr. ~

Are Social Security Benefits an Inalienable Right? ~

The Federal Insurance Contributions Act (FICA) is codified at Title 26, Subtitle C, Chapter 21 of the United States Code. The FICA tax is a United States payroll (or employment) tax imposed by the federal government on both employees and employers to fund Social Security and Medicare —federal programs that provide benefits for retirees, the disabled, and children of deceased workers. Social Security benefits include old-age, survivors, and disability insurance (OASDI); Medicare provides hospital insurance benefits. The amount that one pays in payroll taxes throughout one’s working career is indirectly tied to the social security benefits annuity that one receives as a retiree. Some folks claim that the payroll tax is not a tax because its collection is tied to a benefit. The United States Supreme Court decided in Flemming v. Nestor (1960) that no one has an accrued property right to benefits from Social Security. [1]

There has been a temptation throughout the program’s history for some people to suppose that their FICA payroll taxes entitle them to a benefit in a legal, contractual sense. That is to say, if a person makes FICA contributions over a number of years, Congress cannot, according to this reasoning, change the rules in such a way that deprives a contributor of a promised future benefit. Under this reasoning, benefits under Social Security could probably only be increased, never decreased, if the Act could be amended at all. Congress clearly had no such limitation in mind when crafting the law. Section 1104 of the 1935 Act, entitled “RESERVATION OF POWER,” specifically said: “The right to alter, amend, or repeal any provision of this Act is hereby reserved to the Congress.” Even so, some have thought that this reservation was in some way unconstitutional. This is the issue finally settled by Flemming v. Nestor. [1]

In this 1960 Supreme Court decision Nestor’s denial of benefits was upheld even though he had contributed to the program for 19 years and was already receiving benefits. Under a 1954 law, Social Security benefits were denied to persons deported for, among other things, having been a member of the Communist party. Accordingly, Mr. Nestor’s benefits were terminated. He appealed the termination arguing, among other claims, that promised Social Security benefits were a contract and that Congress could not renege on that contract. In its ruling, the Court rejected this argument and established the principle that entitlement to Social Security benefits is not a contractual right. [1]

So did you think that Social Security Benefits were an inalienable right? Think again.

Times Have Changed: Social Security is Obsolete

The Center on Budget and Policy Priorities states that three-quarters of taxpayers pay more in payroll taxes than they do in income taxes. The FICA tax is considered a regressive tax on income (with no standard deduction or personal exemption deduction) and is imposed (for the years 2009 and 2010) only on the first $106,800 of gross wages. The tax is not imposed on investment income (such as rents, interest and dividends). As a side note, the Earned Income Credit was enacted in 1975 to “offset the burden of social security taxes and to provide an incentive to work”. More recently the Making Work Pay Credit of 2010 and the 2% Payroll Tax Cut of 2011 were enacted with a redundant goal: “to offset the burden of social security taxes”. Why are Social Security taxes deemed to be so over-burdensome?

Perhaps Social Security has outlived its usefulness. In the 1930s, the New Deal introduced Social Security to rectify the following three problems: retirement, injury-induced disability, or congenital disability. It introduced the FICA tax as the means to pay for Social Security. Following are some of the difficulties that existed for working-class Americans prior to the Great Depression, countered with modern day private-sector innovations meant to address the same.

  • The U.S. had no federal-government-mandated retirement savings; consequently, for those people who had not voluntarily saved money throughout their working lives, the end of their work careers was the end of all income.

But times have changed. Prior to the Great Depression there weren’t many incentives in place to encourage saving towards retirement, nor were there as many options available as there are today. Nowadays employers, employees and the self-employed can choose between numerous retirement plans not limited to the following:

  1. Defined-Benefit Plans

  2. Defined-Contributions Plans

  3. 401(k) Plans

  4. 403(b) Plans

  5. Individual Retirement Accounts (IRAs)

  6. Roth IRAs

  7. Qualified Insurance Annuities

  8. Simplified Employee Pension’s (SEP)

  9. Savings Incentive Match Plan for Employees (SIMPLE)

This isn’t 1933 anymore. The time to end Social Security is now. Since we are able to choose between so many pre-tax options which result in the deferral of income taxes until the funds are withdrawn, why are we still stuck on pouring good money down a bad hole? By now, everyone knows that any surplus once heralded by the Social Security Trust Fund has been confiscated and comingled into the government’s general fund. And we all know that the government’s general fund is more than a whopping $14 trillion in the hole. If working folks and their employers weren’t chained by the bonds of mandatory contributions to Social Security we would be living on easy street.

If we were not forced to pay this mandatory tax of 6.2% (12.4% for the self-employed) on earned income up to the limit of $106,800, we would be able to save a greater portion of our own money into the modern retirement vehicles mentioned above. Loosing employers from burdensome payroll taxes will likewise allow them to provide a greater portion of benefits to employees. However, with government-run Social Security literally robbing us of our retirement savings, and ‘investing’ it in the abyss of debt and irresponsibility, known as Washington, DC, there is little leftover for most Americans to save. In fact, if every dollar of Social Security tax paid on my behalf since I began working had instead been invested in the S&P 500 Index; I would now be a millionaire. But since I haven’t had any choice in the matter, I may just have to settle for the paltry poverty level rations offered by Social Security. What’s worse is that thanks to Social Security, on the day that I die the government-squandered fruit of my labors will go with me.

  • The U.S. had no federal-government-mandated disability income insurance to provide for citizens disabled by injuries (of any kind—work-related or non-work-related); consequently, for most people, a disabling injury meant no more income (since most people had little to no income except earned income from work).

Nowadays, most employers offer mandatory and voluntary disability insurance plans through legitimate insurance companies. Likewise, all employers are required to provide Workers Compensation. Many of us would be able to afford our own portable disability insurance plans were we loosed from the bands of the FICA Act.

  • There was no federal-government-mandated disability income insurance to provide for people unable to ever work during their lives, such as anyone born with severe mental retardation.

Nor is there any such government-mandated disability income insurance today, the key word being insurance. Who in their right mind believes that the federal government provides insurance? If the federal government wants to provide real insurance for persons in need, then the responsible thing to do would be to pay for private-sector insurance policies, on behalf of those in need.

Social Security is an idea that has outlived its usefulness. It’s time for the United States to begin weaning itself off of Social Security. Let’s stop pretending that we are living in 1933. We have options in the 21st Century that didn’t exist in the 20th, but our options are severely constrained by the bonds of old stale ideas. Although it’s doubtful whether Social Security ever served its original purpose, it is indisputable that times have changed. In the 1930’s Americans had no safety net, today we know that we must provide for our own retirement security. However, the amount we are able to save is limited by the amount of money being confiscated from our earnings to cover past obligations. Get a clue. Three-quarters of all taxpayers pay more in payroll taxes than income taxes. Do you get it? It’s time for this to change. It’s time to phaseout Social Security. The age of federal government mandated retirement looting is over.

References:

[1] http://www.ssa.gov/history/nestor.html

http://en.wikipedia.org/wiki/Federal_Insurance_Contributions_Act_tax#cite_note-4

Amtrak: A Lesson in Government Takeovers

Poison Pill

– By: Larry Walker, Jr. –

The Quest for Affordability

“They say it’s a government takeover of health care, a big lie just like Goebbels. You say it enough, you repeat the lie, you repeat the lie, you repeat the lie, and eventually, people believe it.” ~ Rep. Steve Cohen (A Government Employed Psychotic)

“If it ain’t broke, break it, and then when it’s broke, nationalize it.” ~ A Wayward Progressive

When facing a régime hell-bent on government takeovers, one must first understand exactly what a government takeover is, how one occurs, and whether or not a takeover is good for the nation. Once we understand what a government takeover is, how one occurs, and how it will end; and once convinced that a takeover is indeed occurring, we can make up our own minds about how to handle it. Of course, proponents of government takeovers will always deny that one is occurring. Such denial is generally accompanied by calling anyone who would so hint a liar, or Nazi propagandist.

According to advocates of government takeovers, any private entity which makes a profit is bad and worthy of increased regulation, and once bankrupted, in certain cases, worthy of takeover. Under the rules for government takeovers, the objective is government control of everything, from private industry to personal lives, and everyone is a loser. The only thing that matters for most politicians is that they keep their own government backed jobs, retirement security, and benefits; and the best way for them to ensure this is through increased government control.

The Government Takeover of Passenger Railroads

For example, before the National Railroad Passenger Corporation (a.k.a. AmTrak) existed, there was a profitable private passenger rail industry. But profits being deemed a bad thing by both big government and unions, meant that its days were numbered. “Bring them down”, they decried. “Top down, bottom up, inside out.” While unions pushed for higher pay, greater retirement security, and more benefits, big government tightened regulations — limiting the amount railroads could charge for their services. The attack came by big government from the top, and unions from the bottom. The only thing lacking was a thrust from the inside out.

The first line of attack would come from the Interstate Commerce Commission which prevented increases in the amounts that privately owned railroads could charge both shippers and passengers. This meant that the only way in which railroads could become more profitable was through cost-cutting. But the ability to slash costs was greatly hampered by agreements with aggressive employee unions. Eventually, the railroads turned to mergers as the only way of escape. What else can an industry do once it has been obstructed from responding to changing market conditions?

In 1968, the New York Central and Pennsylvania railroads merged creating Penn Central, which would result in a virtual monopoly within the U.S. passenger rail industry. But the nation would be shocked when only two years later, in June of 1970, Penn Central declared bankruptcy. At the time, it was the largest corporate bankruptcy in American history. But this was only the beginning. Behind the scenes a government takeover was being staged from the inside out.

In May of 1967, the National Association of Railroad Passengers (NARP) was founded to lobby for the continuation of passenger trains in the United States. Imagine that, a few months before the railroads were forced to merge, and just three years before they would go bust; a government takeover was already in the works. This was the missing link, an attack from the inside out. It was big government from the top, employee unions from the bottom, and now passengers themselves (at least in name) were demanding continued services, profitability be damned. The man-made crisis was complete and there was now enough force to justify a full blown government takeover.

The NARP’s lobbying efforts were successful at dividing both political parties. The Democratic Party was opposed to any sort of subsidies to privately-owned railroads, and the Republican Party feigned opposition to the nationalization of the industry. Sound familiar? But in the end, both Democrats and Republicans would compromise for fear of being responsible for the extinction of passenger trains. So what did big government do? What they always do, they agreed to both subsidize and nationalize the passenger rail industry.

In 1971, the federal government stepped in and created Amtrak, a virtual government agency, which began to operate a skeleton service on the tracks of Penn Central and other U.S. railroads. Today, the federal government owns all of the preferred stock in AmTrak, has invested $32.4 billion of taxpayer’s money into the government owned corporation over the past 40 years, and in return, AmTrak has netted total losses of $27.1 billion. In fiscal year 2010, the federal government pumped in an additional $2.4 billion, and AmTrak promptly lost $1.4 billion of it, before the red ink dried. Besides the federal government, the only other shareholders in AmTrak are the old railroad companies themselves, which are now consolidated into other private companies.

The Fate of Shareholders

AmTrak initially issued 10,000,000 shares of common stock, with a par value of $10 per share, to the bankrupt railroads in exchange for their assets. In fact, American Financial Group (AFG) still owns 5.2 million shares which were acquired directly from Penn Central. Although Congress, in 1997, ordered AmTrak to buy back all of its common shares by the year 2002, AmTrak has yet to have the funds, and has in fact been totally dependent on additional government subsidies just to remain viable.

In 2002, AFG filed suit against AmTrak seeking $52 million, plus interest (5.2 million shares @ $10). Two years prior, AmTrak had offered to buy back all of its common shares for a measly three cents per share. Of course none of the common stock holders accepted such a ridiculous offer. Who in their right mind would settle for $156,000 in return for a $52 million investment made some 40 years prior? This is a fine example of what private stock and bond investors may expect in the wake of a government takeover. The original stockholders would have gotten a better deal through normal bankruptcy proceedings, but because of the government’s takeover, everyone got screwed, including generations of unborn taxpayers. It would be wise to remember this as the government attempts to takeover the health care industry.

The Government Takeover of Health Care

And that brings us to the main point of this post, the government’s attempted takeover of the health care industry. The only difference between what I will call AmHeal, and AmTrak, is that the health care industry isn’t broke (yet). But regulations are coming which will attempt to restrict the amount that health insurance and health care providers may charge their customers, while increasing the burden of services they must provide. These regulations will naturally cripple the industry from the top down and from the bottom up.

Health care insurers and providers will quickly realize that the only way they can remain profitable is through cost-cutting, yet their ability to cut costs will be restricted by the increased amount of services they will be required to provide. With millions more customers having been mandated by the federal government, and with restrictions on the amount which may be charged, companies will begin to consolidate in order to achieve economies of scale. But just like the railroads, their attempts will fail. In the meantime, labor unions and progressive community organizers are seeking to stir up public support by way of demanding that health insurers and providers do more with less, profitability be damned. In the end, we will wind up with government run health care, just like many have warned all along.

Unless a poison pill strategy is implemented to derail this insidious disaster, we will soon see the AmTrak of health care, AmHeal. And AmHeal will be just as disastrous as AmTrak in every way. Over time, AmHeal will not only lose billions of dollars per year, but potentially trillions, and will eventually bankrupt the United States of America. Investors in health care companies will be among the first to get burned, as health care companies begin filing for bankruptcy. This will be the final blow to the $2.3 trillion health care industry, and the end of 1/6 of our free market economy.

So how do we derail AmHeal before it reaches the tarmac? In dealing with a government takeover, a poison pill must be taken from within the government itself. We must takeover the government with a top down, bottom up, and inside out approach. We the people must elect politicians dedicated to defunding all regulatory aspects of the affordable health proposal, and then put pressure on the political system from the bottom up. Then all private industry must place additional pressure on the government by requesting waivers, thereby opting out of the government’s proposed mandates. Tea Party advocates, moderates, centrists, conservatives, State governments, lobbyists, and proponents of the free-market must band together. We know that we must stop the government takeover of health care, and that is precisely what we are doing, and what we will accomplish.

References:

Penn Central Transportation

National Association of Railroad Passengers

Major Acts of Congress – Rail Passenger Service Act

AMTRAK REFORM AND ACCOUNTABILITY ACT OF 1997

History of U.S. Gov’t Bailouts

Amtrak management = worthless Amtrak stock

RAILROADS: Perils of Penn Central

Social Security: A Breach of Trust

Reviewed

– By: Larry Walker, Jr. –

Notes on 2010 Financial Statements of the U.S. Government

“I am a firm believer in the people. If given the truth, they can be depended upon to meet any national crisis. The great point is to bring them the real facts.” ~ Abraham Lincoln

“The ignorance of one voter in a democracy impairs the security of all.” ~ John F. Kennedy

Proponents of a bankrupt federal government continually proclaim that Social Security is solvent. They boast in the Trust Fund’s fictitious surplus balance of $2.6 trillion as proof. But even Note 24, of the United States Government’s Notes to the Financial Statements, for the year ended September 30, 2010 states that while, “In the private sector the term “trust fund” refers to funds of one party held and managed by a second party (the trustee) in a fiduciary capacity” that, “In the Federal budget, the term “trust fund” means only that the law requires a particular fund be accounted for separately, not that funds are actually set aside.” It further states that, “…as far as the federal government is concerned, earmarked funds, including the Social Security Trust Fund are the property of the federal government.”

In other words, as far as the government is concerned, any money it receives on our behalf may be spent in any way it desires, as long as an appropriate book entry is made. The money we have been paying in towards retirement security has already been spent. Note 24 goes on to verify this by stating that, “The government does not set aside assets to pay future benefits or other expenditures associated with earmarked funds (i.e. Social Security).” And further that, “The cash receipts collected from the public for an earmarked fund (i.e. Social Security) are deposited in the U.S. Treasury, which uses the cash for general Government purposes.”

As I explained in “The Social Security Bust Fund”, the federal government has summarily confiscated and spent every dime of the $2.6 trillion surplus, which would have comprised the Social Security Trust Fund, and has replaced it with non-marketable, special-issue, Treasury securities. Since these special-issue securities are an asset to the Trust Fund and a liability to the U.S. Treasury, they therefore cancel each other out and, according to Note 14, “are eliminated in the consolidation of these financial statements”. However, as we shall see later, they actually do appear on the financial statements and are detailed in Note 24.

During any fiscal year, when a trust fund’s disbursements exceed its receipts, then these special-issue securities require redemption. Note 24 warns us that, “Redeeming these securities will increase the Government’s financing needs and require more borrowing from the public (or less repayment of debt), or will result in higher taxes than otherwise would have been needed, or less spending on other programs than otherwise would have occurred, or some combination thereof.” Since less repayment of debt is a non-issue, the only options the government has in order to pay back what it has stolen from the Trust Fund are to borrow more from the public (i.e. increase the debt ceiling indefinitely), raise taxes, or cut spending on other programs.

In effect, there is no Trust Fund. The total amount of Social Security taxes collected within each fiscal year is spent on that year’s benefit payments. If the total receipts exceed the amount of benefit payments, then the surplus is taken by the Treasury and spent on general expenses. However, if the amount of benefit payments exceeds receipts, such as happened in 2010, then the Treasury must borrow more from the public in order to reimburse the Trust Fund. In the fiscal year ended September 30, 2010, the government collected a total of $552.8 billion in Social Security taxes, and paid out $574.9 billion in benefits. The difference was made up by the Treasury paying out some of the accrued interest that it owes on past borrowings. Of course, the interest which was paid out had to be borrowed from the public because, the government has been running trillion-dollar plus budget deficits for the past two years.

You should review the financial statements of the United States Government for the fiscal year ended September 30, 2010 for yourself, and draw your own conclusions. I have and I am sad to report that the Social Security Trust Fund is nothing more than an empty promise. Let’s check the balance sheet.

As of the close of fiscal year 2010, the federal government had total assets of just $2.9 trillion. As you can see above, there is no account named the “Social Security Trust Fund” which contains a balance of $2.6 trillion. The sad truth is that the federal government would have to liquidate nearly all of its assets including property, plant and equipment in order to raise the $2.6 trillion which it owes to the Social Security Trust Fund. So where’s the money, you ask? Like I said from the beginning, “It has already been spent.”

Among the government’s assets, only $428.6 billion was classified as “cash and other monetary assets”. Digging down into Note 2 of the financial statements, we discovered that the actual amount of cash was just $332.0 billion. Further, we discovered that out of this $332.0 billion, only $112.6 billion (103.6 + 9.0) was actually “unrestricted”, meaning available for use on government operating expenses. The remainder, which was listed as “restricted”, included $200 billion which was held by the Federal Reserve in the Supplementary Financing Program (SFP*), $18.6 billion held by the Foreign Military Sales program, and another $0.8 billion which was curiously omitted from explanation.

The other monetary assets listed were International Monetary Assets of $70.4 billion, Gold of $11.1 billion, and Foreign Currency of $15.1 billion. (It’s interesting to note that the government owns 261,498,900 troy ounces of gold, and that its book value is listed at $11.1 billion, or at the statutory value of just $42.22 per ounce. If valued at the fair market value of $1,307 per troy ounce on 9/30/2010, then the value would actually have been $341.8 billion.) A detailed explanation of cash and other monetary assets may be found in the narrative section of Note 2.

The Supplementary Financing Program (SFP)*

It’s worthy of noting that the SFP is a temporary program that deposits cash with the Federal Reserve to support Federal Reserve initiatives aimed at addressing the ongoing crisis in financial markets. It’s interesting to note that the Federal Reserve has control of more of the government’s cash assets than the U.S. Treasury, and that the crisis in the financial markets is deemed to be “ongoing”. Following is a more detailed explanation of the SFP as reported by Bloomberg, on February 25, 2010:

“The Supplementary Financing Program, in which the Treasury Department sells bills and places the proceeds in a Fed account, will be part of the Fed’s strategy for rolling back its extraordinary assistance to the economy and financial markets, the central bank said in its monetary policy report to Congress yesterday. The report also said the program was temporary and wasn’t an essential element of the Fed’s toolkit.”

“The program helped the Fed manage the more than doubling of its balance sheet as it battled the financial crisis and will be part of the central bank’s eventual efforts to withdraw more than $1 trillion in excess bank reserves.”

“The Treasury said the decision to move to $200 billion reflects the program’s outstanding balance between February and September 2009, before concerns about the debt ceiling forced the government to shrink the program. President Barack Obama this month signed a $1.9 trillion increase in the limit to $14.3 trillion.”

Show Me the Trust Funds

Where is the Social Security Trust Fund shown on the government’s financial statements? As you should understand by now, the government borrowed and spent all of the money and owes it back to the Trust Fund, however, you won’t find an entry matching $2.6 trillion on the balance sheet. Per Note 14, “Intragovernmental debt holdings represent the portion of the gross Federal debt held as investments by Government entities such as trust funds, revolving funds, and special funds. This includes trust funds that are earmarked funds. For more information on earmarked funds, see Note 24─Earmarked Funds. These intragovernmental debt holdings are eliminated in the consolidation of these financial statements.” However, the net amount of all of the government’s sacred trust funds does appear in the Net Position section as Earmarked Funds in the amount of $646.9 billion. What this means is that when all of the government’s various trust funds are netted together, the $2.6 trillion Social Security Trust Fund is reduced to a surplus of just $646.9 billion.

I created the following condensed table based on the one shown in Note 24 (the original is too large to be shown here). As you can see, when the $2.6 trillion surplus balances of the Federal Old-Age and Survivors Insurance Trust Fund, and the Federal Disability Insurance Trust Fund are netted against a $941.0 billion deficit in the Military Retirement Fund, a $765.6 billion deficit in the Civil Service Retirement and Disability Fund, a $406.9 billion deficit in the Medicare-Eligible Retiree Health Care Fund, and the rest of the trust funds, the net balance is just $646.9 billion. This is shown as the amount of “Earmarked Funds” which the government owes to itself out of its $14.1 trillion of accumulated deficits. In financial terms, the federal government has accumulated losses of $14.1 trillion since its inception. It may also be the only entity on earth with the audacity to proclaim that the $2.6 trillion, which it borrowed from funds which were supposed to have been held in trust, is somehow secured by its $14.1 trillion in accumulated losses. In reality, both the Federal Government, and the Social Security Trust Fund are insolvent.

Earmarked Funds (click to enlarge)

In conclusion, the only options that the government has of recovering the $2.6 trillion surplus, which our generation has dutifully paid into Social Security, are to either; (1) borrow more money from the public, (2) increase taxes, or (3) reduce spending on other programs.

  1. Borrowing more from the public, in order to pay back that which has already been borrowed from the government, could put the nation’s credit rating at risk, thus jeopardizing not only Social Security, but our National Security.
  2. Increasing taxes on the public in order to make up for what we have already paid in taxes, which should have been set aside for our welfare instead of having been squandered, is not acceptable.
  3. The only viable option is for the federal government to fundamentally restructure, privatize, or discontinue every governmental agency, program, subsidy, enterprise, and special project which does not take in more money than it spends. This includes all Government Sponsored Enterprises, the Postal Service, and Amtrak. If it’s not making money, then it must either be restructured in a way so as to become profitable, sold to the private sector, or terminated. After that comes the selling off of government owned property, plant and equipment, gold and any other non-productive asset held by the federal government.

References:

Financial Statements of the United States Government for the Years Ended September 30, 2010, and 2009 – http://www.fms.treas.gov/fr/10frusg/10stmt.pdf

United States Government Notes to the Financial Statements for the Years Ended September 30, 2010, and 2009 – http://www.fms.treas.gov/fr/10frusg/10notes.pdf

Current Report: Financial Report of the United States – www.fms.treas.gov/fr/index.html

Fed Says Treasury’s SFP Bills Advance Monetary-Policy Goals – http://www.businessweek.com/news/2010-02-25/fed-says-treasury-s-sfp-bills-advance-monetary-policy-goals.html

The Social Security Bust Fund

Privatization

Opt Me Out

– by: Larry Walker, Jr. –

If it sounds too good to be true, it usually is” was a catchphrase used by the Better Business Bureau to alert the public to shady business practices. The phrase was in use since at least 1954. In 1962, the BBB produced a short film titled, “Too Good to Be True”. – The Big Apple

The assets of the Old-Age, Survivors, and Disability Insurance Trust Funds represent the accumulation over time of the difference between income and outgo. The growth of the assets from the end of December 1986 through the end of September 2010 is shown below by calendar quarter.

Assets grew from about $47 billion at the end of December 1986 to about $2,585 billion ($2.6 trillion) by the end of September 2010.

So where’s the money, you ask? Well, to be blunt, there is none. You see, by law, the trust funds are not allowed to hold cash. Instead, they must invest their money into what are known as, non-marketable, special issue (SI), government securities. That’s right! The whole $2.6 trillion “surplus” has been mandatorily invested in the U.S. Treasury. That would be the same Treasury which is currently $14,025,215,218,708.50 in debt. Through 12/31/2010, the Treasury owed a total of $9,390,476,088,043.35 on marketable public securities, and another $4,634,739,130,665.17 on intergovernmental debt (including the amount owed to Social Security). In other words, the government owes the Social Security Trust Fund $2.6 trillion, other governmental agencies $2.0 trillion, and the public another $9.4 trillion.

So where’s the money, you ask? As I said before, there is none; it has already been spent. Yet these special-issue securities are miraculously able to both earn and pay interest at the same time; that is if you can call issuing new debt to the public “earnings”, and paying with IOU’s “interest income”. Interest on these non-marketable special-issue investments is paid (i.e. accrued) semi-annually, at the end of June and the end of December. “Because the trust funds hold no cash, investments are redeemed each month to pay for benefits and administrative expenses. When investments are redeemed, interest is paid. The amount of interest paid is used to offset the amount of investment redemptions.”

In other words, the Treasury pays interest to the Social Security Trust Fund, but not in the form of cash, rather in the form of additional special-issue securities. (Huh?) Interest is only physically paid out when money is needed for benefits and other costs.” And where does the money come from to pay the interest? You guessed it! It comes from income taxes, which you also pay. That’s right! The government requires you to pay 6.2% of your wages into a mandatory retirement plan, and then taxes you on the same income again to pay the interest which your investment is earning. Does this sound like a shady business practice yet?

For example, let’s say that John Q is 50 years old and has $250,000 in a 401K plan. Now let’s say that he devises a scheme whereby he is able to borrow and spend the entire $250,000, and pay it back with interest over time. Let’s also say that he is allowed to pay back simple interest of 2.8%, by merely issuing additional promissory notes. By the time John Q retires at age 65, he will have amassed a retirement fortune of $355,000 (on paper that is). As far as where his first retirement check will come from, why that would be from himself. As John Q’s retirement plan begins to make payments it will need to redeem a portion of the promissory notes issued by John Q. Since John Q is no longer working, and no longer has income with which to pay the debt, he’s out of luck. Perhaps John Q would have been better off by investing real money into a legitimate investment vehicle.

Why in God’s name would anyone make an investment which required them to cover the return on the same out of their own pocket? And worse yet, why would anyone do this when the initial investment and earnings are used to pay for other people’s retirement first? Won’t the “fund” be broke by the time you retire? Yeah, that’s the point. And to make matters worse, our return on investment appears to be crashing; which is good in the sense that we are the ones paying the interest, and bad in the sense that the return on our retirement savings is plummeting. (Huh?)

Diversification 101“Never put all your eggs in one basket.” It looks like the federal government has violated this rule in requiring that federal agencies invest only in federal government securities (special ones at that). The federal government can’t even balance a budget, let alone return a surplus; so why in the world would anyone invest their sacred retirement money in an entity which is currently $14 trillion in debt, and will not be able to earn a surplus, let alone breakeven for the foreseeable future? The truth is that if given a choice, most American’s wouldn’t. The problem is that we don’t think that we have a choice. Why don’t we have a choice? Who does this country belong to? Whose money is at stake? Perhaps it’s time to revisit privatization?

Photo Credit: http://www.johncrabtreephotography.com/

References:

http://www.ssa.gov/oact/ProgData/newIssueRates.html

http://www.treasurydirect.gov/NP/BPDLogin?application=np

http://www.ssa.gov/cgi-bin/transactions.cgi