Whew! I'll miss that one. Hardly ever is it a good thing to be considered old, but today's report favors us aging baby boomers. If you want to collect your Social Security check Uncle Sam has promised you, you were given a 1-year repreive, but you better do it sooner than later.
Today, the Trustees of the Social Security Administration released their annual report about the condition of the "so-called" Trust Fund and Medicare. The report said that the Social Security fund will begin to pay out more money than it takes in by the year 2017. That's 10 years folks. And, it will become completely broke by the year 2041. This is one year later than the group predicted in last year's report.
The Medicare fund will be completely broke by the year 2019. That's 12 years from now. That was also 1 year later than the group predicted in last year's report.
I plan to not help the situation by getting sick before Medicare goes broke, recovering around 2018, then drawing my social security benefits when I turn 70, 3 years after I'm eligible. That means the government will be paying me even more money every month as I live to 125!
Seriously, these are major problems that aren't going away. So, how can EconomindZers help. By solving the issues. Give us your WILD solutions!
Social Security is currently funded by 6.2% of your salary being taken as taxes. Your employer adds another 6.2% on top of that to get the 12.4%.
So, let's look at some of the solutions:
1) Extend the benefits-receiving age. Currently it's 67 for those born after 1960. Raise that by just a little bit every year, a sort-of indexing, if you will. Life expectancies are longer now than they were when SS was established. It's only common sense that this should be reflective of society. This is a solution that's already been implemented. For example, if you were born in 1937 or earlier, you can collect benefits at age 65.
2) Raise the 12.4% tax. Not likely as everyone hates higher taxes. Plus, this would be primarly borne by lower-income wage earners.
3) Raise the maximum wage amount. Probably the best solution. Currently, 12.4% of your wages are taxed up to $90,000. This means that all of low-wage earner's wages are taxed at the 12.4% rate, while the so-called "wealthy Americans" don't have to pay anything on wages above the $90K threshold. This would be the most politically-supportive solution (especially for the Democrats who fervently believe wealthy Americans don't pay any taxes, or at least their fair share). If my calculator serves me correctly, the maximum wage amount would have to rise to around $92,000. I got that be saying that $90k of wages delivers $11,160 of taxes at 12.4%. If the taxes needed were 1.89% higher {see next paragraph} to solve the problem, that would require $11,371 of taxes from every average American. Dividing the $11,371 by 12.4%, gives a higer wage amount of $91,701 taxed at 12.4% to solve the issue.
Outside of other solutions, this is the one I'd support of those listed here, as the Trustees project that it would only take an extra increase of 1.89%, to a full level of 14.29% for the Social Security fund to be fully in the black, given that 78 million aging Baby Boomers are soon on their way to receiving benefits. I believe this is one solution that if explained to the American public, they'd support fully as a fix to the SS problem.
4) Tax income above $90K. A variant of the last solution. This wouldn't have to be at the full 12.4% rate. It could be for say, 2-3% of all wages between $90K and $150K, for example.
5) Cut benefits. Not gonna happen as it'll hurt 2 of the 3 most sacred issues in American politics (women, children and farmers).
So, here are some possible solutions to this mega-problem.
Give us your own....before it's too late!
Tuesday, April 24, 2007
Wednesday, April 18, 2007
Is a Declining US $ a Protectionist Policy?
This week, the US $ fell to a level of just over $2 per British Pound. In fact the US $ has been falling against a number of world currencies over the past few years. Under a falling $, US exports become more competitive in world markets. As Secretary of Treasury Paulson hasn't done much to stop its fall, many investors are starting to believe that a declining $ is now policy.
Is it a reaction to other world economies having greater GDP growth than the US? Is it a policy being implemented to decrease the size of imports coming into the US?
No matter your view on those questions, the simple fact is that a lower US $ is not a good thing when you consider the nation's sizeable trade and budget deficits, that are being largely financed with other nation's investments. As the US $ continues to fall, if these deficits aren't reduced, interest rates will be forced to rise in order to continue to attract those foreign countries that have now become America's banker.
Is it a reaction to other world economies having greater GDP growth than the US? Is it a policy being implemented to decrease the size of imports coming into the US?
No matter your view on those questions, the simple fact is that a lower US $ is not a good thing when you consider the nation's sizeable trade and budget deficits, that are being largely financed with other nation's investments. As the US $ continues to fall, if these deficits aren't reduced, interest rates will be forced to rise in order to continue to attract those foreign countries that have now become America's banker.
Tuesday, April 17, 2007
EconomindZ Question of the Day: Should Sallie Mae be allowed to go private?
I agree with Ted Kennedy!
To my many friends and acquantances that know me too well, that's a shocking statement. We card-carrying conservatives are supposed to revile, sneer and generally ignore anything that Ted Kennedy says. But, I gotta give credit where it's due, I believe ol' Ted's right this time. Ted said recently regarding Sallie Mae's proposed buyout, "The key question is not what this deal means for investors on Wall Street, but what it means for the millions of students and families on Main Street who rely on student loans to get through college."
About 10 years ago, Sallie Mae went public, denying its implied government guarantee and causing its credit ratings to fall from Triple-A to Single-A. Gone were the protections afforded bond investors, who until that time, relied on Sallie's access to the US Treasury if things went awry. At the same time, Sallie Mae decided to reduce its exposure to the government-guaranteed student loan market. So, their asset mix went from 100% government-guaranteed student loans to the current mix of 40% gov-gtd loans and 23% private student loans, with the remainder filled out by college-savings (529) plans, debt management services and other business and technical products to colleges, universities and loan guarantors.
Sallie Mae was started by the US government to develop a secondary market for student loans. Even as a die-hard capitalist, that was a good use of our tax dollars. As Sallie Mae went public, the student loan market saw a resource of funding wither (as Sallie's exposure to government-guaranteed loans fell). Gone also was the federal government's ability to do anything about it. So, the investment of our tax dollars was now benefitting private investors. Now with a $60/share buyout proposal on the table, this source of funding to the student loan market will likely get even smaller and even more expensive. The reason is that yesterday, all major credit rating agencies placed Sallie Mae's debt on watch for a downgrade. With a current Single-A rating, Sallie Mae's credit rating is expected to be slashed up to 5 notches, to below-investment-grade. That's junk folks! At 12/31/06, Sallie Mae had over $108 billion of bonds outstanding, providing funding to over $142 billion of student loans. With its debt possibly going to junk, to pay the increased funding costs, student loan rates will likely have to increase, possibly causing more harm to the student loan market than good. And, according to the College Board, students at US colleges borrow an estimated $85 billion a year to finance school costs. As a parent of a high school junior going to college in 2008, Sallie Mae's buyout offer is a potential increased cost that myself as a parent and a taxpayer would rather avoid.
So, while Wall Street looks to line its pockets with fat fees and increased access to students to sell them other services, such as credit cards and mortgages, ol' Ted's got it right this time, trying to measure this buyout proposal against what matters most - access to a college education.
To my many friends and acquantances that know me too well, that's a shocking statement. We card-carrying conservatives are supposed to revile, sneer and generally ignore anything that Ted Kennedy says. But, I gotta give credit where it's due, I believe ol' Ted's right this time. Ted said recently regarding Sallie Mae's proposed buyout, "The key question is not what this deal means for investors on Wall Street, but what it means for the millions of students and families on Main Street who rely on student loans to get through college."
About 10 years ago, Sallie Mae went public, denying its implied government guarantee and causing its credit ratings to fall from Triple-A to Single-A. Gone were the protections afforded bond investors, who until that time, relied on Sallie's access to the US Treasury if things went awry. At the same time, Sallie Mae decided to reduce its exposure to the government-guaranteed student loan market. So, their asset mix went from 100% government-guaranteed student loans to the current mix of 40% gov-gtd loans and 23% private student loans, with the remainder filled out by college-savings (529) plans, debt management services and other business and technical products to colleges, universities and loan guarantors.
Sallie Mae was started by the US government to develop a secondary market for student loans. Even as a die-hard capitalist, that was a good use of our tax dollars. As Sallie Mae went public, the student loan market saw a resource of funding wither (as Sallie's exposure to government-guaranteed loans fell). Gone also was the federal government's ability to do anything about it. So, the investment of our tax dollars was now benefitting private investors. Now with a $60/share buyout proposal on the table, this source of funding to the student loan market will likely get even smaller and even more expensive. The reason is that yesterday, all major credit rating agencies placed Sallie Mae's debt on watch for a downgrade. With a current Single-A rating, Sallie Mae's credit rating is expected to be slashed up to 5 notches, to below-investment-grade. That's junk folks! At 12/31/06, Sallie Mae had over $108 billion of bonds outstanding, providing funding to over $142 billion of student loans. With its debt possibly going to junk, to pay the increased funding costs, student loan rates will likely have to increase, possibly causing more harm to the student loan market than good. And, according to the College Board, students at US colleges borrow an estimated $85 billion a year to finance school costs. As a parent of a high school junior going to college in 2008, Sallie Mae's buyout offer is a potential increased cost that myself as a parent and a taxpayer would rather avoid.
So, while Wall Street looks to line its pockets with fat fees and increased access to students to sell them other services, such as credit cards and mortgages, ol' Ted's got it right this time, trying to measure this buyout proposal against what matters most - access to a college education.
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