the obamacare lockbox

When you hear people talk about Social Security going broke, you often hear two dates discussed.  Some people say Social Security will run out of money around 2017, while others say it will happen around 2042.  Understanding the dates, and the difference between them, is helpful to understanding the accounting tricks currently being used to advance healthcare reform through the Senate.

Historically, Social Security has run "a surplus."  Over time the program has taken in about $2 trillion more than it's paid out.  Now, liberals would like you to believe that means there's a bunch of money in some account somewhere that the government can use to pay for Social Security in the lean times ahead.  Enough, in fact, to last until 2042.

But the truth is that the government spent that money.  On pork.  Every single penny.  In return, they issued bonds to Social Security, suggesting that the government "has to pay it back someday."  That day starts when changing demographics result in greater Social Security benefits than revenues.  Projecting forward with current policies and the existing US workforce (which considers who will be of working age and who will be retiring), that date is around 2017.

At that time, benefits for an ever-increasing number of retiring baby boomers will overwhelm payroll tax revenues contributed by the shrinking workforce they'll be retiring from, and Social Security will begin to redeem its bonds.  And the money to repay those bonds will have to come from the general budget -- your taxes.  If everything goes as projected, the bonds will hold out until 2042.

So, if you want to understand how long Congress has to come up with a plan to provide Social Security benefits in a reality where retirees permanently outnumber workers, that date is 2042.  But if you want to know when, as a taxpayer, you become responsible for paying extra taxes to make up for the fact that retirees permanently outnumber workers, then that date is 2017.

The only difference between 2042 and 2017 is that for the first 25 years of permanent Social Security shortfalls, the government already has a plan -- an excuse to put off dealing with reality: Taxing you.  (That "plan," by the way -- in the form of $2 trillion in bonds -- is regularly hailed by liberals as proof of Social Security's fiscal responsibility and actuarial soundness.)

In the unlikely event that you didn't already know all this, I should mention that Medicare is even worse off.  Congress used the same gimmick over there, and at least some of Medicare's various accounts are already drawing against the general budget, redeeming bonds to cover benefits.  When Obama talks about Medicare sustainability, and the need for healthcare reform before it bankrupts America, he's talking about the political impossibility of paying back those bonds.

Which brings us to healthcare reform. 

As I've pointed out before, there are two problems with Harry Reid's current plan.  First -- and this one gets mentioned everywhere -- Reid's $849 billion cost projection is achieved by collecting new taxes over ten years, while only providing benefits for six.  

Reid also relies on a $247 billion "doctor fix," raising Medicare reimbursements.  The $849B number was arrived at after removing this $247B from the larger bill and putting it in another one, where it's apparently hoped you won't notice that it, too, is not paid for.  Nobody knows where that money's going to come from.

All told, the cost of actually running Reid's plan over ten years -- when you actually compare what it plans to take in and what it plans to spend -- is about $2 trillion.  More than twice the $849 billion you're being told.  And even that figure is somewhat static in the sense that everything else calculated this way has still gone on to cost way more than projected.  That is, if we account for all the smoke and mirrors, we get a ten-year starting point of $2 trillion using a model which consistently underestimates costs.  By a lot.

So while we're talking about all this, I want to call your attention to the ten-year-tax/six-year-benefit aspect.  What Reid is proposing to do is to collect a surplus of taxes for about four years, and then hit the ground running with some sort of cash reserve to help cover the first six years of benefits.

First, this isn't even an attempt to fool anyone.  It's simple structuring, in order to get the numbers to fit into a purely political footprint.  The bottom line is that everybody knows what this is going to cost, and liberals are simply willing to pay that price.  All this accounting does is create the appearance that they've thought it out.  And believe me, they've been thinking about this for a long time, which is why they had to settle for a way of making it look affordable.

But the real trick here, the not-quite-as-easy-to-see fraud, is the idea that the government will actually "save" the proceeds from those first four years of taxes.  You see, the technical term for the state this money will be bankrolled in, while the benefits of socialized medicine are waiting to kick in, is "pork."

Look back to Social Security and Medicare.  The government is incapable of "accumulating" money.  It spends what it has, and then it runs a tab of what it "owes" whatever special interest the money was originally collected for.  This isn't just some one-time gimmick used for Social Security and Medicare -- it's how the government actually does its accounting.

So when you think you see through Harry Reid's scam by noticing that he intends to collect a half trillion dollars before his healthcare plan even goes into effect, you're only seeing part of the fraud.  The real theft is about what happens to that money between the time he collects it and the time the first benefit is paid: Congress spends it.  Buying votes.

By the time Harry Reid's plan pays out its first nickel in benefits, it will already be "owed" $500 billion.  (And judging from Reid's latest poll numbers, by the way, he will be long gone by then.)  The first half trillion that Reid plans to tax, starting next year, will already be spent on God-knows-what, and simply running the program "on budget" will require collecting an additional $500 billion, over time, "to pay it back."  Socialized medicine springs out of the gate a half trillion dollars in the red.

That's kind of funny when you think back to Obama, telling us how this is all necessary to solve the unsustainability of Medicare. 

Because we wouldn't want Medicare making us bankrupt, huh?

Comments

[ConservativeLibertine]

Bravo! (standing and clapping)

Brilliantly put. All of it self-evident, yet completely unobserved by all.

It made me think back to those old SNL Al Gore 'lock box' routines.

http://conservativelibertine.blogspot.com/2009/11/who-is-john-galt-obamacare-lockbox.html

Well done!

[Hank Rearden]

Good post. I hereby nominate this author for the Conservative Pulitzer!! And why not? The NYT was floating the idea of a strictly conservative best seller list. Maybe we should have a Conservative Peace Prize too. Hmmm...

[Dagny Taggart]

Psh. What happened to paying for the program by eliminating waste in Medicare...

Oh and what happened to not raising taxes for 95% of us...

And great, SS will run out when I'm only 55. I was really counting on that liberal baloney to keep me out of poverty in my old age...

[Ragnar Danneskjöld]

Great post, I will make my comment short: "Would you trust a mechanic whose repairs on your brakes caused you to hit a guardrail?"

If you trust this government that is exactly what you are doing.