Four Points Highlight The Needed Change In Mindset

 

As a result of our IL subscriber's note last week where she was feeling down after watching the FL debate I called Jim DeMint's office on Friday & spoke to a member of his staff.  I told him of the many messages & recent blog postings asking for help from Senator DeMint – the blog itself is written @ the suggestion of Jim DeMint.  I asked the aide to let Senator DeMint know that many of us would like the senator to run for President.  I don't know exactly how Senator DeMint enters the race now.  I emphasized that I did not mean people like Jim DeMint but specifically Jim DeMint.  The young man will deliver the message to our best hope.

 

So what is it we are looking for & certainly have not found in the leading presidential candidates that will ensure America's prosperity?

 

The real solution requires a candidate who will promote a change in mindset from a "you deserve, you're entitled to" mindset to one of (even limited) personal responsibility – especially for Medicare & Social Security which are on track to overwhelm the federal budget in the not too distant future.  I present below four points that will help in this regard.  Please send me others.

 

1.  The Paul Ryan (R, WI) solution for Medicare of subsidized "premium support" will preserve Medicare for decades.  If today's seniors 55 and over will dare great enough to chance premium support will not affect them & people under 55 will start to adapt to the new system we have a chance to solve the current seemingly intractable healthcare entitlement problem that by itself will doom America if nothing is done to correct it.

 

Please look @ the above graph – it shows a decline in dependence on government under even the timid Ryan price indexing plan (bottom curve).  We can't afford not to do this.   People erroneously feel that they are entitled to Social Security & Medicare benefits just because they had money withheld (e.g., – "I've been paying for it all my working life") from their paychecks when they were working or because they are now paying premiums, deductibles, & coinsurance in the case of Medicare.  Exacerbating the situation are internet pieces taking offense @ the word "entitlement" & believe that employers paid an equal share of the payroll taxes for both these programs.

 

The reality is that all of the proceeds collected from people make up about 25% of the cost of Medicare Parts B & D – this is why they are going broke & also why senior citizens like the programs so much.  This is the mindset that a presidential candidate worth voting for needs to change.

 

2. The fix for Social Security is even easier.  Currently, the initial Social Security benefit – a person's monthly benefit when they start getting checks - is based on the average real wage growth of their earnings over their working lifetime. Real earnings growth is greater than inflation measures such as the Consumer Price Index (CPI) so in essence the government is guaranteeing a real positive return on Social Security tax withheld for the average person – a guarantee no other investor has. Just reducing this initial benefit so that it is calculated based on the CPI rate solves the Social Security problem – see Susan Lee column in the WSJ dated November 23, 2004 entitled All You Need To Know About Social Security.

 

Social Security benefits are not guaranteed.  Just like all entitlement programs, they can - & have been – changed by Congress. The Social Security administration itself says so & so did the Supreme Court when it ruled, in Fleming v. Nestor, that workers & retirees have no legal claim to benefits, regardless of how much in taxes they have paid into the system. For example, people who found their benefits taxed in 1983 & those who had those taxes raised in 1994 can not feel that there is a guaranteed benefit amount.

 

Also we should dispel the illusion that companies pay half of our Social Security & Medicare costs. If employees' productivity did not cover these costs the company would go out of business in direct proportion to the size of their workforce. Each of us pays the full 15.3% of payroll taxes – half out of our salaries & the other half out of our productivity. The companies pay nothing.

 

A Ponzi scheme is an operation that pays returns to its contributors by subsequent contributors (if any - or certainly less contributors in the case of Social Security), rather than from any actual profit earned. Such a scheme is destined to collapse because the cash flow, if any, becomes less than the payments of the original contributors. This is the standard definition of a Ponzi Scheme & it defines Social Security to a tee. Further, when Social Security began in the 1930s life expectancy was 64 years – meaning that someone in their twenties, thirties, or forties who originally paid into the system to help the elderly would actuarially not live to collect any benefits themselves. This not only takes the term "Ponzi Scheme" to another level but shows the fraudulent premise this government program was founded upon.

 

It is important for seniors to understand what is happening to their Social Security & Medicare benefits. Finding & voting for the right presidential candidate in 2012 could not be more important if you are totally dependent on these programs which far too many seniors are – 18% of seniors' only source of income is Social Security.

 

We need a president and Congress who will champion this change of mindset so that our founding principles of limited government, personal responsibility, and free enterprise will be restored. This is the return to excellence we need.

 

I am still hoping a presidential candidate will emerge who will clearly lead on this most needed mindset change.

 

3.  To specifically combat the debt limit problem Ken Blackwell & others have proposed a "cut, cap, & balance" plan in which federal spending would be controlled so that projected borrowing is cut in half next year (not 10 years from now), spending would be capped @ 18% of GDP (it's 24% now & going higher under BO), & under a balanced-budget amendment the president would be required to submit a balanced budget within the foregoing guidelines that call for super congressional majorities to raise future debt limits or tax rates.

 

Admittedly the "cut, cap, & balance" plan has a more immediate impact than the Medicare & Social Security fixes & has more things that can go wrong (thanks to politicians) – but all three plans present some ideas for solving America's economic problems if we are serious. Seniors have to trust that they will not be thrown off the cliff & younger people will have plenty of time to adjust. The main problem is that all of these solutions – especially the Medicare & Social Security solutions - will take time & are therefore subject to change under socialist statist influence in which case we are gone anyway.

 

Virtually none of the above problems or solutions follow our founding principles – but they do describe the mess we are in. The most effective way (& to take politicians up on their constant claim to make tough decisions) to solve the debt ceiling problem is to decide who we won't pay based on any shortfalls in actual revenue collected versus promises made – the only legal obligation is interest on Treasury securities & redeeming bonds @ maturity @ face value.. Even Social Security benefits are not guaranteed – again see above Susan Lee column for Supreme Court decisions.

 

Students of economics know that the budget is always in balance from an accounting standpoint – there is no such thing as a federal budget deficit. The staggering numbers of the so-called deficits & national debt really mean that there is a less robust economy for future generations – exactly what BO plans.

 

Ann Coulter wrote that in order to start to re-uphold the Constitution we should eliminate the Departments of Health & Human Services, Education, Commerce, Agriculture, Transportation, HUD, the EPA, the National Endowment of the Arts, the National Endowment of Humanities, & of course the progressive income tax system - I advocate replacing it with the FairTax.

 

4. The fourth point we need is a presidential candidate described by a subscriber to ReturnToExcellence.net who has the best & quite possibly the last answer for us re this mess, if we are to come out of it any time soon, when he responded to a recent posting re the high percentage of the working population who are employed by the state in the Middle East & North African countries that are undergoing so much protest & turmoil:

 

"Doug - Thanks for passing along this article. This has clearly pointed out to me one obvious omission I have made in discussing the need for money to come in to an economy from outside its economic sphere. What I had said, I guess, sort of implies that government workers paying taxes to employ other government workers certainly does not build an economy any more than us serving one another hamburgers and selling one another products made in China.

 

"This article only goes to further fuel my fire to champion our last hope for saving the American economy and the American dream, and that is the FairTax."