Re: Social Security

good question harv - it's actually an automatic kick-in :

verbose answer

the legislation - The Act is formally cited as the Social Security Act, ch. 531, 49 Stat. 620, now codified as 42 U.S.C. ch.7

'federal insurance contributions act' aka FICA calls for

the tax deposits to be entrusted to:
federal old-age and survivors insurance trust fund, or
federal disability insurance trust fund,
federal hospital insurance trust fund or
the federal supplementary medical insurance trust fund.

historically, this benefit program was intended as a method of enforced savings - this savings account, or annuity, is accomplished thru the device of automatic collections - via the internal revenue service


iirc, there have been 46 amendments in total from the 1930's through the 1980's]

we're talking about the primary program: OASDI (old age, survivors, and disability insurance) or RSDI (retirement, survivors, and disability insurance) administered under the social security administration

with the sec. of the treasury being the managing trustee - and a non-partian advisory group: The National Commission on Social Security Reform (NCSSR) providing studies and recommendations

the actual financing works like this:

"From the point of view of the Social Security trust funds, the holdings of "special" government bonds are an investment that returned 5.5% to the trust funds in 2005. , pp 4-5 The trust funds cannot resell these "special" government bonds on the secondary bond market, although the interest rate is determined based on market interest rates. Instead, the "specials" can be sold back to the government at face value, which is an advantage when interest rates are rising.

To escape paying either principal or interest on the "special" bonds held by the trust funds, the government would have to default on these obligations. This cannot be done by executive order. The Congress would have to pass legislation to repudiate these particular government bonds. This action by Congress could involve some political risk and, because it involves the financial security of older Americans, seems unlikely."

now as to your query, cola adjustments are calculated [on an ongoing, annualized basis, by an actuarial panel within s.s. admin. as mandated by the existing legislation.


specifically:

"In June 1972, both houses of the United States Congress approved by overwhelming majorities 20% increases in benefits for 27.8 million Americans. The average payment per month rose from $133 to $166. The bill also set up a cost-of-living adjustment (COLA) to take effect in 1975. This adjustment would be made on a yearly basis if the Consumer Price Index increased by 3% or more.[51] This addition was an attempt to index benefits to inflation so that benefits would rise automatically. If inflation was 5%, the goal was to automatically increase benefits by 5% so their real value didn't decline. A technical error in the formula caused these adjustments to overcompensate for inflation, a technical mistake which has been called double-indexing. The COLAs actually caused benefits to increase at twice the rate of inflation."

[this index was fixed in '77]

and:

"In October 1972, a $5 billion piece of Social Security legislation was enacted which expanded the Social Security program. For example, minimum monthly benefits of individuals employed in low income positions for at least 30 years were raised. Increases were also made to the pensions of 3.8 million widows and dependent widowers."

remember now - this is accomplished thru p/r deductions - 'our' money, 'our' taxes - which in rl are so often portrayed as needing to be cut...

the executive branch, both houses of congress, and the various non-partisan budget depts [like the cbo, etc] get periodic [monthly/qtrly] reports, so all of government is made aware

[see how far back it goes - we really have been getting more than we were aware of - but neither branch wanted to put it back on the table.
too politically risky]

what was that phrase? 'the lock box'...

unfortunately, "Under the law, the government bonds held by Social Security are backed by the full faith and credit of the U.S. government. Because the government had adopted the unified budget during the Johnson administration, this surplus offsets the total fiscal debt, making it look much smaller. There has been significant disagreement over whether the Social Security Trust Fund has been saved, or has been used to finance other government programs and other tax cuts."

both parties, both houses, each edition of the executive branch has used the 'off-budget' accounting methods to be able to have access to the s.s. funds - this means that at some point - whether anyone likes to admit it, the general tax funds are going to have to go up to redeem the u.s. bond notes being held by the s.s. admin.

society/citizens got used to a long period [of years] when everything was an uptick - and as a result came to thing that the cola was a given 'set' increase, rather than the variable that is called for in the legislation.

just a 16 months back, 'the senior advocate' was writing:
"Largest Social Security COLA Increase in Over 25 Years May Greet Senior Citizens in 2009" - a view held by so many unable to 'get it' that we were riding a bubble.

i think it useful to remember that the entire point of social security was to provide a mandated savings account for every wage earner [and with the various amendments now including the disabled, etc.] - whether they would have done so on their own or not [i.e. - a repercussion of the great depression] -

here is a comparison view:

The following two scenarios help illustrate the concept. Depending on which scenario is right, Social Security is either an accounting fiction or represents real economic savings.

Scenario 1 (Trust Fund is an accounting fiction):

* 1980: $1 payroll tax collected in 1980
* 1980: $1 lent by Social Security to the federal government
* 1980: Federal government increases spending on government programs by $1
* 2020: Federal government raises taxes by $1 plus interest to repay the loan to Social Security
* 2020: $1 plus interest transferred from Federal Government to Social Security.

Scenario 2 (Trust Fund represents real economic savings):

* 1980: $1 payroll tax collected in 1980
* 1980: $1 lent by Social Security to the federal government
* 1980: Federal government increases spending on government programs by $0
* 2020: Federal government raises taxes by $0 to repay the loan to Social Security. Any tax increases that occur in 2020 would have happened anyway without Social Security.
* 2020: $1 plus interest transferred from Federal Government to Social Security.

now, cola's were introduced to take inflation into account, but they can only be pain out 'if' there are funds to do so - with the immediate reduction in earnings [corporate and personal], devaluation of real property etc, the tax base has shrunk in an extremely precipitious way

so, like any other annuity program funded by predicated revenues - there cannot be a payout increase during a downtick 'unless' there is a commensurate 'rate' increase - i.e. specific fica tax increase.

but even then, there needs to be a roll-over period while that increase is being accumulated prior to any increased payout.

i'd like to point out what, to me, is the most pertinent cause of this cola problem - as well as a raft of other fiscal issues:

in the third quarter of last year [before the crash], this nation had the highest percentage of dollars per the gdp in 'extended credit' since...the third quarter just prior to the crash of the great depression.

in other words, credit extended [of all forms] was as great as the entire gdp of this country. we, all of us, were living at 100% beyond our means, counting on the idea that there would be no downturn. 'exactly' as it was in '29

this translates into 'savings' of all types being at an all time low - and that includes s.s. - since s.s. is a 'saved' annuity program thru taxes, with a lowered tax base, you have a problem.

the u.s.a. has the lowest rate of pure savings in the industrialized world.

note: for the first time in over 20 years republicans and democrats are saying that a plan to shift some of the fica monies over to the stock market is off the table...

hope that addresses your question! <BG>

be well

paul

Harvey R. Stone wrote:
"Paul T. Holland" <pholland@xxxxxxxxxxxxxxxx> wrote in message news:gtqfha$vh5$1@xxxxxxxxxxxxxxxxxxxxxx
while both require legislative authorization, the actual diff is significant

a cola [for a program or benefit] is a variable formula , with known parameters as to the structure. unless there is an interim legislative change, the outcome is thus known each year. paid by/though taxes.

a tax is either a fixed flat sum, or a percentage [with a ceiling]

taxes fund the programs - so when revenues are off, there cannot be an increase i.e. cola - unless the taxpayer agrees to an increased rate, or to increased borrowing [repaid by taxes at a later date]

the program beneficiary is a recipient of collected taxes, so if the revenue stream is decreased, they don't get more, but stay at the same level.



Again,,,, both come from Congress... or was this 3 year no increase done by congress or declared/done by the president???? An honest question because I do not know.
Harv


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