Tag Archives: social security

How stupid do they — or we — have to be to allow this to happen?

Europe is the birthplace of Western civilization and the source of most of the trends and bodies of knowledge that define modernity. The average European speaks several languages versus sometimes less than one for Americans. They are, in short, a well-schooled people with vast accumulated wisdom.

So how do we explain this: After World War II most European countries set up generous entitlement systems including government pensions designed to offer dignified retirements to citizens who had worked hard and paid taxes and obeyed the rules for a lifetime. BUT they didn’t bother putting anything aside for the inevitable — and mathematically predictable — retirement of the immense baby boomer generation. Here’s an excerpt from a recent Wall Street Journal article outlining the problem:

Europe Faces Pension Predicament

State-funded pensions are at the heart of Europe’s social-welfare model, insulating people from extreme poverty in old age. Most European countries have set aside almost nothing to pay these benefits, simply funding them each year out of tax revenue. Now, European countries face a demographic tsunami, in the form of a growing mismatch between low birthrates and high longevity, for which few are prepared.Europe’s population of pensioners, already the largest in the world, continues to grow. Looking at Europeans 65 or older who aren’t working, there are 42 for every 100 workers, and this will rise to 65 per 100 by 2060, the European Union’s data agency says. By comparison, the U.S. has 24 nonworking people 65 or over per 100 workers.

“Western European governments are close to bankruptcy because of the pension time bomb,” said Roy Stockell, head of asset management at Ernst & Young. “We have so many baby boomers moving into retirement [with] the expectation that the government will provide.”

The demographic squeeze could be eased by the influx of more than a million migrants in the past year. If many of them eventually join the working population, the result could be increased tax revenue to keep the pension model afloat. Before migrants are even given the right to work, however, they require housing, food, education and medical treatment. Their arrival will have effects on public finances that officials have only started to assess.

A Growing Mismatch
The pension squeeze doesn’t follow the familiar battle lines of the eurozone crisis, which pits Europe’s more prosperous north against a higher-spending, deeply indebted south. Some of the governments facing the toughest demographic challenges, such as Austria and Slovenia, have been among those most critical of Greece.

Germans, meanwhile, “are promoting fiscal rules in Spain and other countries, but we are softening the pension rules” at home, said Christoph Müller, a German academic who advises the EU on pension statistics. He pointed to a recent change allowing some workers to collect benefits two years early, at 63. A German labor ministry spokesman called that “a very limited measure.”

Europe’s state pension plans are rife with special provisions. In Germany, employees of the government make no pension contributions. In the U.K., pensioners get an extra winter payment for heating. In France, manual laborers or those who work night shifts, such as bakers, can start their benefits early without penalty.

Across Europe, the birthrate has fallen 40% since the 1960s to around 1.5 children per woman, according to the United Nations. In that time, life expectancies have risen to roughly 80 from 69.

In 2012, the Polish government launched a series of changes in its main national pension plan to make it more affordable. One was a gradual rise in the age to receive benefits. It will reach 67 by 2040, marking an increase of 12 years for women and seven for men. The changes mean the main pension plan now is financially sustainable, said Jacek Rostowski, a former finance minister and architect of the overhaul.

The party that enacted the changes lost an election in October, however, and a central promise of the winning party is to undo them. Recently, Poland’s president introduced a bill to reverse some of the measures. “You have to take care of people, of their dignity, not finances,” said Krzysztof Jurgiel, agriculture minister in the current Law & Justice Party government.

The implication is that Germany, Italy, Spain, France et al are functionally bankrupt, apparently (amazingly) by choice. They saw the avalanche coming decades ago and instead of getting out of the way or reinforcing their chalets, simply sat there watching the snow roll down the mountain. It will be arriving shortly, and they’re still debating what — if anything — to do about it.

In fact the only thing that can be reasonably described as preparation is the decision to ramp up immigration. This might have worked if Europe had chosen more compatible immigrants, but that’s a subject for a different column. For now let’s focus on insanely stupid choice number one, which is to offer entitlements with no funding mechanism other than future tax revenue. If an insurance company or corporate pension plan did something like that its executives would be led away in handcuffs — rightfully so, since the essence of such deferred-payout entities is an account that starts small and grows to sufficient size as its beneficiaries begin to need it.

So what the Europeans have aren’t actually pensions, but a form of election fraud designed to give an entire generation of politicians the ability to offer free money to voters without consequence.

Soon, a whole continent will be left with no choice but to devalue its currency to hide the magnitude of its mismanagement. The math will work like this: devalue the euro by 50% while raising pension payouts by 20%, thus cutting the real burden significantly — while taking credit for the nominal benefit increase at election time. It might work, based on the level of voter credulity displayed so far.

Now here’s where it gets really interesting. The US “trust funds” that have been created to guarantee Social Security and Medicare are full of Treasury bonds, the interest on which is paid from — you guessed it — taxes levied each year on US citizens. So the only real difference between the European pay-as-you-go and US trust fund models is that the former is more honest.

This is why gold bugs and other sound money people are so certain that precious metals will soon be a lot more valuable. The pension numbers are catastrophic everywhere and the reckoning that was once merely inevitable is now imminent. Europe is a little further along demographically and so might have to devalue its currency first, but $80 trillion in unfunded Medicare liabilities can’t be denied.

The US will be following along shortly.


[by John Rubino, writing for DOLLARCOLLAPSE.COM]




As always, posted for your edification and enlightenment by

NORM ‘n’ AL, Minneapolis




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Five Obama tax proposals that make absolutely no sense to anybody else…

 ObamaObama’s fiscal 2016 budget would raise government revenues as a share of gross domestic product steadily over the next decade, and make the tax code far more complex.

By now, everyone has heard of the increase in capital-gains tax rates (yielding $208 billion over 10 years), the 19% tax rate on foreign earnings ($206 billion), and limits on individual itemized deductions together with a 30% tax rate for millionaires ($638 billion).

But what about the tax changes that almost everyone has overlooked? Here are five little-discussed new tax proposals.

1. Forget deductions for charitable contributions linked to college sports ticket purchases. Few provisions will cause more of an uproar than this: a contribution to the alma mater is not counted as a charitable contribution if it entitles donors to buy advance tickets for sporting events. It will not even sit well with the president’s liberal ivory tower supporters. Today, if donations entitle alumni to advance ticket purchases, they can deduct 80% of the donation. Come Jan. 1, 2016, none of the contribution would be deductible. This goes to the heart of alumni contributions to Ole Miss and the Crimson Tide.

The White House estimates that this change would bring in $2.5 billion over 10 years. But colleges and universities will not give in so easily. It is far more likely that universities will move to an informal donation system, one that is not traceable by the Internal Revenue Service.

2. Stop saving, stupid. Many say that Social Security is going broke, people are living longer, and that we are not saving enough for retirement. But Obama thinks Americans are saving too much. His budget wants to limit retirement savings to an amount sufficient to generate an annuity of $210,000 beginning at age 62. No matter that this is hard to estimate, even for actuaries. Too bad for you if you live in New York City or San Francisco, where $210,000 might not be enough to pay the rent, go out to dinner and make occasional trips to see the grandchildren. This provision would generate $26 billion over 10 years.

3. Force independent contractors to become employees. Many workers prefer to operate as independent contractors. It suits them because they can work for a variety of employers and get higher cash wages, skipping the benefits. But unions, a key part of the administration’s base, want to count independent contractors as employees whenever possible, so they can be forced to participate in elections for union representation. An independent contractor is not a potential member of the International Association of Machinists & Aerospace Workers or the Service Employees International Union.

So the president proposes to raise $10 billion over the next decade by allowing the Internal Revenue Service to reclassify independent contractors as employees. The budget states: “New enforcement activity would focus mainly on obtaining the proper worker classification prospectively, since in many cases the proper classification of workers may not be clear.” Quite. It is too much, naturally, to expect the administration to allow workers to decide by themselves whether they want to be independent contractors or employees.

 4. Return of a repealed Obamacare provision. In a blast from the past, businesses that purchase more than $600 worth of goods or services from a contractor would have to get that contractor’s Taxpayer Identification Number and check that TIN with the Internal Revenue Service. If the IRS does not certify the TIN as valid, the business is required to withhold a portion of the payments, either 15%, 25%, 30% or 35%, and presumably send the amount to the IRS. The provision is supposed to raise $831 million over 10 years.This is similar to an Affordable Care Act provision, repealed by Congress in 2011, that would have required businesses to send a Form 1099 to any supplier from which they purchased $600 or more in goods and services. It was deemed overly complex and impractical. A taxi company would have to keep track of all gas purchased from different gas stations, for instance, and people might be purchasing from the same supplier operating under different names and unintentionally violating the law.

The same difficulties would apply to the new proposal. It takes real audacity for the president to propose a tax that was signed into law and repealed a little over a year later. (NORM ‘n’ AL Note: Our emphasis. And the word  we’re thinking of is not “audacity.”)

5. Expand electric-car tax credits to more worthy vehicles. President Obama wanted a million electric cars by 2015, but, according to the Electric Drive Transportation Association, there were only 174,000 battery-powered and hybrid plug-in vehicles on the nation’s roads in 2013.

The administration now wants to replace the electric-vehicle credit with credits worth $3.3 billion over 10 years for “advanced technology vehicles.” Passenger vehicles, which would get $2.9 billion of the credits, qualify if they “operate primarily on an alternative to petroleum” and “there are few vehicles in operation in the United States using the same technology as such vehicle.” This raises the possibility of credits for natural-gas vehicles, the closest substitute for the gasoline-powered engine. People could get tax credits of $10,000 per vehicle ($7,500 if the car costs more than $45,000.)

The problem is that the $3.3 billion could be better spent. Awarding tax credits for particular technologies puts the government in the dangerous role of picking winners and losers. Natural gas is inexpensive and plentiful, and these cars would likely be chosen by consumers without the credit. They are popular in many parts of the world. Natural gas is already used to power fleets of buses and trucks, which can be charged overnight. These funds are a waste of taxpayer dollars because the technology will likely be adopted anyway. And if it isn’t, it probably isn’t worth the investment.

With a Republican Congress that was elected on a platform of lowering taxes, none of these proposed tax changes are likely to become law.

[by Diana Furchtgott-Roth, former chief economist at the US Dept. of Labor, writing for MARKETWATCH]

As always, posted for your edification and enlightenment by

NORM ‘n’ AL, Minneapolis



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US incomes are really much lower than you think…

US incomes substantially lower than we think...

The recently released Census Bureau publication Income and Poverty in the United States: 2013 confirmed the dismal picture presented in the Federal Reserve’s Survey of Consumer Finances that median household income has not recovered from the financial crisis and the Great Recession. The publication also contains fascinating information on the level and distribution of income. The numbers go to the heart of conversations about the “middle class” and the “rich.”

The headline news associated with the release of the new Census data was that poverty had declined. Indeed, the decline in the poverty rate was statistically significant and occurred primarily among children. Not to rain on that parade, but the poverty rate remained 2.0 percentage points higher than in 2007.

Median family income in 2013 according to the Census was $51,939, compared to $56,436 in 2007. The median means that half of households had higher incomes and half had lower ones. The table above presents the thresholds for being in different parts of the income distribution. For example, a household with an income of $150,000 is at the 90th percentile point, or in the top 10% of the income distribution. Even more amazing, a household with an income of $196,000 is at the 95th percentile, or in the top 5%.

The thresholds must be interpreted with caution because households include old and young, urban and rural, coastal and midland, and small and large. Yet, many of those with $150,000 of household income would be quite surprised to know that they are among the richest 10%.

These thresholds come into play in general conversation and in policy debates. When people refer to the middle class, are they really thinking of households with incomes of $51,939? When financial service providers characterize their target market as the mass affluent, are they referring to the 20% of households with incomes over $105,910 or are they thinking of a much smaller portion of the population?

In terms of the Social Security debate, many proposals suggest reducing benefits for the “affluent.” Since the maximum taxable earnings level for 2014 is $117,000, presumably such reductions would kick in for those with household incomes between the median and the 90th percentile. Do we really believe that households with incomes below $150,000 are so rich that they don’t need current levels of Social Security benefits?

Regardless of where people stand on the policy issues, they should cut out this little table so that when they talk about the rich, the middle class, and the poor they have a common household income figure in mind.

[by Alicia H. Munnell, writing for MARKETWATCH]


NORM ‘n’ AL Note:  While you’re making a copy of the graphic above, make a full copy of this entire post to send it to the White House. Mr. O needs to know that his “of course you’re better off now than when I took office” fluff is just that, more marshmallow messiness from a president who was once sure he had all the answers and didn’t hesitate to tell that to America and any other country who might listen. What arrogance! Even worse, it was uninformed arrogance. Next time you hear him tell you how great things are in the land of the free and the home of the brave, send him another copy of his own government’s facts. He tends to be pretty insulated from reality, which in politics can be a fatal disease.



As always, posted for your edification and enlightenment by

NORM ‘n’ AL, Minneapolis


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How to fix Washington gridlock and the US economy at the same time…

Here’s what billionaire Warren Buffett suggested to cure the economy and end government gridlock, during an interview on CNBC:

Buffet told CNBC, “I could end the deficit in 5 minutes.  You just pass a law that says that anytime there is a deficit of more than 3% of GDP, all sitting members of Congress are ineligible for re-election.”

The 26th amendment (granting the right to vote for 18 year-olds) took only 3 months and 8 days to be ratified! Why? Simple! The people demanded it. That was in 1971…before computers, e-mail, cell phones, etc.

Of the 27 amendments to the Constitution, seven (7) took 1 year or less to become the law of the land…all because of public pressure.

Forward this as an email or as a link to this blog post.  Send it to a minimum of twenty people on your address list and in turn ask each of those to do likewise.

In three days, most people in the entire USA will have the message. This is one idea that really should be passed around. The results would be increased opportunity and the possibility of a higher standard of living for people today and in the generations that follow.

Remember the opening words of the US Constitution? “WE THE PEOPLE.”  Our elected government officials somehow got the impression it says “You the people and We the elected fat cats.”


Salary of retired US Presidents . . . . . . . . . .. . $180,000 FOR LIFE

Salary of House/Senate members . . . . . . . . $174,000 FOR LIFE

Salary of Speaker of the House . . . . . . . . . . $223,500 FOR LIFE

Salary of Majority/Minority Leaders . . . . . . . . $193,400 FOR LIFE

Average salary of a teacher . . . . . . . . . . . . . .. $40,065

Average salary of a deployed soldier . . . . . .. . $38,000

(Now you know where some immediate cuts should be made!)


Let’s get this passed…The Congressional Reform Act of 2014

1. No Tenure / No Pension.  A Congressman/woman collects a salary while in office and receives no overly-generous retirement pay when they’re out of office. No government pension simply for being elected. This should apply to the president and all elected government officials. (Bill Clinton is out hustling speaking dates for himself; he charges more for EACH speaking date than his entire annual pension! You think he needs his paltry pension? He was impeached, for crying out loud, because he repeatedly lied while in office! And “we the people” continue to pay him!)

2. Congress (past, present & future) participates in Social Security.   All funds in the Congressional retirement fund move to the Social Security system immediately. Any future such funds flow into the Social Security system, and Congress participates in Social Security along with the American people. Social Security funds may not be used for any other purpose.

3. Congress can purchase their own retirement plan, just as all Americans do.

4. Congress will no longer vote themselves a pay raise. Congressional pay will rise by the lower of CPI or 3%.

5. Congress loses their current gold-plated health care system and participates in the same health care program as the American people.

6. Congress must equally abide by all laws they impose on the American people.

7. All contracts with past and present Congressional members are void effective 1/1/15. The American people did not make these contracts with members of Congress.  Congress made all these beneficial contracts for themselves. Serving in Congress is an honor, not a career, and it certainly should not be a means to a guaranteed fat government retirement check. The Founding Fathers envisioned citizen legislators, so ours should serve their term(s) then go home and go back to work.

Send this to somebody already, will ya?
As always, posted for your edification and enlightenment by
NORM ‘n’ AL, Minneapolis

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Today’s economic picture, Part 2… or, How Ready Are You For Retirement?

Retirees need more savings and assets than in the past, but average household wealth has stayed flat or fallen.

Call me paranoid, but it seems like the financial-services industry has undertaken a concerted effort to show that the U.S. does not have a retirement-income problem – that most people will have all the money they need in retirement. Indeed, some sophisticated economic modelling does suggest that people may be saving optimally. But the basic data say otherwise.

Where will the retirement money come from?

The Federal Reserve’s triennial Survey of Consumer Finances (SCF) shows that the ratio of wealth to income, a good indicator of the extent to which people can replace their earnings in retirement, has remained virtually unchanged at each age from 1983 through 2010.  In these ratios, wealth includes all financial assets, 401(k) accumulations, and real estate, less any outstanding debt, and income includes earnings and returns on financial assets; importantly, wealth excludes the present expected value of income that the household will eventually receive from defined benefit pension plans and Social Security.

(The exact definition of income in the SCF includes wages, investment income, interest and dividend income, capital gains or losses, unemployment payments, alimony, welfare, pension income and some other less common income; it is essentially all pre-tax income that comes into a household in a given year.)

As shown in the table above, the ratios at each age for each survey lie virtually on top of one another. The only outlier is 2010, where the ratios are substantially below those in the other surveys at every age.

The stability of the ratio reveals a significant decline in retirement preparedness, given that five major developments should have led to higher ratios of wealth to income.

  • First, life expectancy has increased.  Between 1983 and 2010, life expectancy at age 65 rose by 3.8 years for men and 2.3 years for women.  As a result, for any given level of income, one would have expected workers to accumulate more wealth in order to support themselves over their longer period in retirement.
  • Second, Social Security replacement rates have been declining as the full retirement age moves from 65 to 67 and the actuarial reduction on benefits claimed early increases.  Moreover, the growing prevalence of two-earner couples means that fewer households receive the spousal benefit.
  • Third, the nature of retirement plans has shifted from defined benefit to 401(k), and whereas accruals of future benefits under defined benefit plans are not included in wealth, assets in 401(k) plans are included.  The shift from unreported to reported retirement assets would have been expected to increase the wealth-to-income ratio.
  • Fourth, health-care costs have risen substantially and show signs of further increase.     The rising cost of health-care should have led to higher wealth-to-income ratios today than in the past.
  • Finally, real interest rates have fallen significantly since 1983, so a given amount of wealth now produces less retirement income.  If people were interested in generating a given stream of income, the significant decline in interest rates would have been expected to boost wealth accumulations.

The stability of wealth-to-income ratios over the SCF surveys between 1983 and 2010 – in the face of these five significant developments – indicates that people are less well prepared for retirement than in the past.

[by Alicia H. Munnell, writing for MARKETWATCH]


As always, posted for your edification and enlightenment by

NORM ‘n’ AL, Minneapolis


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Retirement readiness: 36% of current workers have saved $1000 or less…

The widely watched annual Retirement Confidence Survey was released yesterday, and one particularly confidence-eroding number has been capturing a lot of attention. According to the Employee Benefits Research Institute (EBRI), which conducts the survey, 36% of current workers say they’ve saved $1,000 or less for retirement. But as grim as that number is, it also merits some broader context. A deeper dive into the numbers suggests that it tells a story about the struggles of the young and underpaid, rather than the irresponsible savings habits of the middle-aged.

The first big issue to consider is the plight of the under-35 workforce. The slow economy has been particularly tough on younger workers, thanks to the lethal combination of high unemployment and soaring student debt. One piece of data in the EBRI survey shows the impact of this trend particularly dramatically: In 2004, 63% of workers ages 25 to 34 said they started saving for retirement; by this year, that figure had dropped to 48%.

It’s not coincidental, then, that about half of people in this age group have less than $1,000 in savings, according to this supplemental EBRI fact sheet. That number steadily declines as survey respondents age (though of course it’s undesirably high for any age group). Among savers over 55, only 24% have saved less than $1,000; in contrast, 42% of workers over 55 say they’ve saved at least $100,000, and 23% have saved at least $250,000.

The second issue has to do with retirement plan access: People who have access to a 401(k) or similar plan tend to use it; those who don’t are likely to save relatively little. And having a retirement plan is often a proxy for economic stability—if you’ve got a 401(k), chances are that you have full-time rather than part-time work, and that you’re at a stable larger firm rather than a riskier small business. And sure enough: Among people with no workplace plan, a whopping 73% had saved $1,000 or less, according to EBRI; among those who had one, the figure was only 11%.

Another issue: Savings aren’t a retiree’s only asset. EBRI’s survey doesn’t track the value of Social Security, home equity or defined-benefit pensions, but plenty of people still rely heavily on those sources to fund retirement. About 30% of retirees say they have less than $1,000 in savings. But the poverty rate among the elderly is only about 9%: other income sources are clearly sustaining some retirees. (EBRI doesn’t track how much money these retirees had when they started retirement, by the way—only how much they have now.)

Last but not least: Do you have to be a bleeding heart to believe that it’s hard to save money when you aren’t making money? Among survey respondents who earned less than $35,000 a year, EBRI says, 68% had saved less than $1,000. It’s tough, but not impossible, to sock a lot of money away on a salary that amounts to less than $700 a week before taxes. But if you’re a wage earner, there’s one retirement system that you’re paying into with every paycheck: That would be Social Security.

[by Matthew Heimer, writing for MARKET WATCH]


As always, posted for your edification and enlightenment by

NORM ‘n’ AL, Minneapolis


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A short letter from the Boomers to the Millennials…

Dear Millennials,

Well, time for an end-of-year update…

We’ve nearly doubled the national debt over the last five years, and it looks like we are now officially leaving you with the $17 trillion tab.

We will have exhausted Social Security and Medicare by the time you’re eligible.

We know you are deeply in debt from college expenses, but college (like a lot of other things) is expensive because we have flooded the economy with money.

You can’t find jobs because the economy has stagnated under the weight of regulation and social experiments.

Even if you have a job, chances are it’s part-time so the pay doesn’t allow you to support a family.

Taxes are up and it’s even harder now to put any money away.

If immigration “reform” passes, millions of new workers will depress the pay at entry-level positions.

The defined-benefit plans are all gone; looks like we saw to that, too.

But based on the last two presidential elections, it looks like you voted overwhelmingly for all this. At least the liberal education establishment still works.

So here’s where we are right at present: Now that you’re just about finished fighting our wars for us, if it’s not too much trouble, would you all please sign up for Obamacare so you could subsidize us going forward from here?

Thanks much,


[from a letter to the editor of the St. Paul Pioneer Press daily newspaper]


As always, posted for your edification and enlightenment by

NORM ‘n’ AL, Minneapolis

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