E-Newsletter No. 17
May 2015
If not us, who?________If not now, when?

In this month’s newsletter, we share some additional excerpts from Don Watkins’ book entitled RooseveltCare (How Social Security is Sabotaging the Land of Self-Reliance) –

Self-reliant Americans eagerly pursued their own interest in concert with others by means of each person’s voluntary participation in families, communities, schools, and civic organizations. The American soul was a mixture of self-reliance and selfless service to others. America had an abundant system of private charity. [Unfortunately, this has now been replaced by the Entitlement State].

The century leading up to the passage of Social Security in 1935 would do more to relieve poverty and increase life’s security than any prior century in human history.

Social Security does not just “redistribute” wealth, it drastically reduces how much wealth is produced in the first place. It is not zero-sum – – it is negative-sum. When welfare state spending took off during the late 1960s, this is when America’s poverty rate stopped declining. This shouldn’t come as a surprise. When the welfare state transfers money away from the people who create it, it undermines how much wealth gets produced in the first place. The Entitlement State did not end poverty – it reduced prosperity. Poverty is not a distribution problem, it is a production problem. The Entitlement State has made each of us far poorer than we would otherwise be.

The best analogy for Social Security’s Trust Fund is to think of parents who set aside their child’s college fund in a jar, but who periodically “borrow” from the jar whenever they want to go on vacation, etc, and replace the cash with an IOU. By the time the child is ready to go to college, the jar is full of IOUs, which will not do a thing to help the parents pay for their child’s schooling.

The government can print green pieces of paper at will. But it cannot bring new wealth into existence by fiat.

In July 2013, rock singer Bono made headlines when he said, “Aid is just a stop-gap. Commerce and entrepreneurial capitalism take more people out of poverty than aid.”

The self-reliant person views productive work, not as a dreary duty, but as an avenue for prosperity, creativity, growth, fulfillment, pride, and joy. He / she does not envy the fact that others may achieve more than they do. His / her chief financial goal is independence.

The Founding Fathers took a crucial leap forward, by declaring that the collective has no claim on you; that the government exists only to protect your right to live your own life.

A self-reliant society nurtures freedom, justice, opportunity and prosperity. We must drop the platitude that the goals of the Entitlement State are “noble” – – those goals are un-American.

I am not my grandfather’s keeper. Parents do not steal from their children.

– – – – –

Mr. Watkins ends his book with a chapter on how we can abolish the Entitlement State. He encourages us to distribute his book to our friends and family. He asks “What are our chances of success? And on what time scale? If you know that a course of action is right, and there is a chance you can win, then you fight, regardless of the odds, and regardless of how long it will take.” Our Editorial Board whole-heartedly agrees.

US Debt Clock – – April 1st – $56,674 per citizen / May 1st – $56,725

E-Newsletter No. 16
April 2015
If not us, who?________If not now, when?

As we noted last month, in February 2014 the US House of Representatives and US Senate passed legislation to suspend the country’s debt ceiling until March 15, 2015. Unfortunately, our elected officials chose to not deal with this new deadline. Treasury Secretary Jacob Lew wrote a letter to Congress, asking for an increase to the country’s debt ceiling, however, because the country’s legislators have not acted to raise the limit, the Treasury Department is implementing “extraordinary measures” to keep the federal government from defaulting on its debt. Some of these measures include putting a stop to contributions into certain federal employees’ pension funds, drawing down on other funds, and imposing moratoriums on payments to state and local governments. It is anticipated that these measures will enable the US government to push the problem off until September or October. Our Editorial Board has been disappointed (yet again) by our elected officials. President Obama’s fiscal 2016 budget proposal shows continued (growing) annual deficits out through the year 2025. There does not appear to be any serious discussions about fixing the country’s growing debt problem.

Last month, we began a discussion of Don Watkins’ book entitled RooseveltCare (How Social Security is Sabotaging the Land of Self-Reliance). In this month’s newsletter, we share some excerpts about the creation of Social Security and the beginnings of the Entitlement State – –

It is time to put the myths about Social Security to rest, and replace them with the truth: Social Security is an un-American program.

Now is the time, not to save Social Security and the Entitlement State, but to dismantle it.
– – – – – –
In next month’s newsletter, we will share some additional excerpts on how we can transform Social Security and begin to re-establish a Self-Reliant Society.

US Debt Clock – – March 1st – $56,615 per citizen / April 1st – $56,674

E-Newsletter No. 15
March 2015
If not us, who?______If not now, when?

Last year, the US House of Representatives and US Senate approved legislation to suspend any limitation on the US debt until March 15, 2015. In effect, they wrote themselves a blank check to continue to borrow and spend funds over and above the amount that the government collects in taxes. Our Editorial Board is not very optimistic that any meaningful long-term fix to the country’s growing debt problem will be implemented within the next few weeks (but maybe we will be pleasantly surprised for a change).

Last month, we talked about the growth of the Entitlement State and the need to re-establish a Self-Reliant Society. These terms come from a book by Don Watkins, who is an author, columnist and professional speaker. The title of his book is RooseveltCare, and the subtitle is How Social Security is Sabotaging the Land of Self-Reliance. Mr. Watkins makes a compelling case for eliminating all entitlement programs, starting with Social Security. However, he acknowledges that accomplishing this goal is probably not politically possible, because according to a 2011 national poll, eight out of ten Americans responded that “Social Security has been good for the country”. However, keep in mind that this result is primarily due to the fact that politicians have bribed us – – not with our own money, but with the money of future generations.

RooseveltCare does not include any graphs or complicated accounting concepts. It merely tells the story of the role that Social Security and other entitlement programs have played in eroding the eagerness, energy, and optimism that once defined our country. Mr. Watkins makes the case that the Entitlement State is robbing his daughter’s generation of many of her hopes and dreams. One of his most pointed assertions is “I am not my grandfather’s keeper”. Flipping this around, our Editorial Board believes that more than eight out of ten people would be appalled by the thought of stealing money from our children and grandkids. But in effect, this is exactly what is happening. There is no money in the Social Security Trust Fund (or in the Medicare Trust Fund). The only “assets” in the Trusts are “intergenerational wealth transfer arrangements” (i.e., US debt). Every dollar that is spent today to provide these benefits comes directly from current employees’ paychecks. Each year, the shortfall between these cash outflows and the payroll taxes collected by the government is simply added to the country’s growing debt problem. And the amounts are projected to worsen each year because the number of active employees supporting the Baby Boom generation is now down to less than three workers for each retiree.

We will provide excerpts from Mr. Watkins’ book in next month’s newsletter. In the meantime, please note that RooseveltCare is available in PDF format over the internet. Mr. Watkins is providing this book for “free” (truly) because he feels that the current Entitlement State is unsustainable, and it is time for the country – its citizens and politicians – to finally address the reality that Social Security is a financial black hole, and begin to make the necessary changes.

US Debt Clock – – February 1st – $56,533 per citizen / March 1st – $56,615

E-Newsletter No. 14
February 2015
If not us, who?______If not now, when?

Our Editorial Board recently ran across an interesting article. For the past several months, consumer debt has been increasing, as American households have become somewhat more confident about the state of the economy. The consumer debt amount that was reported in the article excludes real estate loans, which is probably appropriate, because that type of debt is backed by the associated asset being financed. Consumer debt includes credit card debt, auto loans, student loans, etc, and represents the personal decisions made by American families. This amount has recently risen to a “record level” of $3.3 trillion. Now… contrast that “record” amount with the $18 trillion that has been borrowed on our collective behalf by our elected officials.

So, how did we get to this $18 trillion record amount? As we noted last month, and as shown in the table below, the growth in the US debt represents a collective failure of both the legislative branch and the executive branch, and by the politicians in both political parties –

Jimmy Carter (1976-1980)_________$.6T to $.9T – An increase of $.3 trillion
Ronald Reagan (1980-1988) _______$.9T to $2.6T – An increase of $1.7 trillion
George H.W. Bush (1988-1992)_____$2.6T to $4.1T – An increase of $1.5 trillion
Bill Clinton (1992-2000)_________$4.1T to $5.7T – An increase of $1.6 trillion
George W. Bush (2000-2008)_______$5.7T to $10.0T – An increase of $4.3 trillion
Barack Obama (2008-2015 so far)__$10.0T to $18.0T – An increase of $8.0 trillion (so far)

As we have noted in previous newsletters, the primary driver of the annual deficit and our growing debt problem continues to be the country’s “entitlement” programs. Starting with FDR’s Social Security initiative during the 1930s, the executive branch has played a significant role in transforming the country into what has been termed an “Entitlement State”. Additional entitlement programs were established during the 1960s by LBJ’s Great Society initiative and the War on Poverty, which brought us Medicare / Medicaid and a number of new welfare programs. The Entitlement State has grown even larger in recent years with the Affordable Care Act (Obamacare), and during the president’s most recent State of the Union speech, he proposed that we should establish even more entitlement programs, such as “free” college education.

It should be noted that the US House of Representatives and US Senate are also partly to blame, because our elected representatives are responsible for approving and funding these programs. Our country’s financial future has been put at risk by politicians who want to continue to provide generous gifts from the public treasury.

Our Foundation’s objective is to promote personal responsibility (rather than a constantly expanding set of costly government programs). Our primary agenda item is to re-establish fiscal responsibility by the federal government. We seek to (significantly) reduce the size of the Entitlement State, and re-establish a Self-Reliant Society. Because career politicians have found out that they can stay in office by pandering to special interest groups, and by bribing the citizenry with their own money (and with future generations’ money), our Editorial Board believes that one of the best ways to re-establish fiscal responsibility is to implement Term Limits for members of the US House of Representatives and US Senate.

US Debt Clock – – January 1st – $56,356 per citizen / February 1st – $56,533

E-Newsletter No. 13
January 2015
If not us, who?_____If not now, when?

As we anticipated in last month’s newsletter, the US House of Representatives and US Senate recently passed “Continuing Resolution” legislation that funds most of the departments of the federal government through the end of the government’s fiscal year on September 30, 2015. While this legislation helped to prevent another government shutdown, the country is virtually guaranteed to incur another deficit this year.

In President Obama’s 2015 budget, payroll tax receipts for Social Security are expected to be $756 billion, and spending will be $896 billion, for a deficit of $140 billion. Medicare payroll tax receipts are expected to be $231 billion, and the outflows for Medicare/Medicaid are budgeted to be $860 billion.

We are also sorry to report that the country passed another new milestone this past month – – the cumulative US debt has now risen above $18 trillion.

Thomas Jefferson once wrote – I wish it were possible to obtain a single amendment to our constitution; I would be willing to depend on that alone for the reduction of the administration of our government to the genuine principles of its constitution; I mean an additional article taking from the federal government the power of borrowing.

There is another quote that is often attributed to either Alexis de Tocqueville (1805-1859, a French historian most famous for his work Democracy in America) or to Alexander Fraser Tytler (1747-1813, a Scottish history professor at the University of Edinburgh) – A democracy will continue to exist up until the time that voters discover that they can vote themselves generous gifts from the public treasury. Another variant of this quote is – The American Republic will endure until politicians realize that they can bribe the people with their own money.

Margaret Thatcher (the Prime Minister of the United Kingdom from 1979-1990) gave us her own perspective on the issue – The trouble with Socialism is that eventually you run out of other people’s money.

The link between all three of these quotes is that there has been a collective failure of our country’s elected officials, who have chosen to ignore the advice of one of our country’s Founders. Instead, they have pushed a huge financial burden onto future generations.

As we noted in our inaugural newsletter a year ago, David Walker, the former Comptroller General of the US Government, put it this way – This is not just a financial issue. This is not just an economic issue. This is an ethical and moral issue… We are mortgaging the future of our kids and grandkids at record rates… and it must stop.

The next key date occurs in March, when the country’s debt ceiling needs to be addressed by our elected “leaders”. We will keep you posted….

US Debt Clock – – December 1st – $56,266 per citizen / January 1st – $56,356

E-Newsletter No. 12
December 2014
If not us, who? _______ If not now, when?

OK, so the November elections are over – Now what? The newly elected Senators and members of the House of Representatives take office on January 3, 2015. But before then, the existing “Continuing Resolution” that funds the federal government expires on December 11th. Therefore, sometime during the next few weeks Congress must pass an appropriations bill to keep the federal government operating. A Continuing Resolution doesn’t make any changes to the country’s spending levels, but merely continues the pre-existing appropriations at the same level as the previous fiscal year. As we noted in our May newsletter, the president’s proposed budget for the current fiscal year anticipates an additional deficit of $564 billion, which will further add to the cumulative US debt.

The next key date in 2015 is March 16th, when the country’s debt ceiling is re-instated. As we noted last February, the US Senate and House of Representatives “kicked the can down the road” to the new Congress and suspended any limitations on the US debt until March 2015. In effect, they wrote themselves a blank check that has allowed the federal government to continue borrowing money at the expense of future generations. It is our Editorial Board’s hope that the new Congress will begin to make the difficult decisions that need to be made, to begin curtailing the size and spending of the federal government and begin repaying the cumulative US debt.

US Debt Clock – – November 1st – $56,065 per citizen / December 1st – $56,266

E-Newsletter No. 11
November 2014
If not us, who?_______If not now, when?

Election Day is Tuesday, November 4th. Our Editorial Board encourages you to support those candidates who are running for office to solve our country’s growing debt problem. Thomas Jefferson once wrote “If we can but prevent the government from wasting the labours of the people, under the pretence of taking care of them, they must become happy.” In the upcoming election, we have an opportunity to choose whether we want to stay on the current path of larger, ever-expanding government, or if we want to heed the advice of one of our country’s Founders.

Unfortunately, this past month (which was the first month of our federal government’s new fiscal year) our country passed a new threshold. The cumulative US debt now stands in excess of $17.8 trillion, which equates to an amount in excess of $56,000 for every man, woman, child and retiree.

Please give your support to those candidates who are more concerned about our country’s future (rather than their own future re-election chances), and who are committed to Fix the Debt, rather than push this growing problem onto future generations.

US Debt Clock – – October 1st – $55,812 per citizen / November 1st – $56,065

E-Newsletter No. 10
October 2014
If not us, who?________If not now, when?

As we have noted on our website, our Foundation supports the efforts of the Campaign to Fix the Debt. We have provided a link on our Home Page to the Campaign’s website, and we encourage all citizens to digitally sign the Petition to Fix the Debt. The Campaign has recently published a two-page summary about the Debt Threat, along with another paper that lists some of the Common Myths about the US Debt. There are several reasons why it has become critically important that our elected officials begin to fix this growing problem.

Ever-growing levels of debt threaten citizens’ and families’ economic well-being in a number of ways –

An Increased Likelihood of a Fiscal Crisis – Failure to get the national debt under control could precipitate a crisis… International examples suggest there could be large investment losses, tanking markets, sharply rising interest rates, mass unemployment, rapid inflation, and/or devastating austerity, causing sharp drops in public investment.

Some of the common myths about the growing debt problem include –

The amount of the annual deficit is falling, and therefore, debt is no longer a concern.

There is no harm in waiting to solve our debt problems.

As our country’s citizens prepare to head to the polls next month, we encourage you to download these publications from the Campaign’s website and share them with your family and friends –
The Debt Threat
http://www.fixthedebt.org/uploads/files/national%20debt%20and%20you%20final.pdf
Common Myths About the Debt
http://www.fixthedebt.org/uploads/files/Debt%20myths%20and%20facts%20final.pdf

And we encourage you to support those candidates who are campaigning to solve our country’s growing debt problem, who are more concerned about the country’s future (rather than their own future re-election chances), and who are committed to Fix the Debt, rather than push this growing problem onto future generations.

US Debt Clock – – September 1st – $55,528 per citizen / October 1st – $55,812

E-Newsletter No. 9
September 2014
If not us, who?_______If not now, when?

As we discuss on our website in the conversation piece on Universal Health Care, Medicare (like Social Security) should be viewed as being an “intergenerational social contract” – – it is not a conventional health insurance program, because the “premiums” paid by senior citizens for their coverage are not a market-based premium. In fact, the primary reason Medicare was established in 1965 is that many senior citizens were no longer able to acquire a health insurance policy at any cost. However, nothing is free, so this cost must be borne by somebody (more on that later).

Similar to Social Security, Medicare’s “trust fund assets” (i.e., employees’ Medicare payroll tax withholdings, along with their employers’ contributions) have already been paid out for past benefits, or have been “loaned” (spent) for other federal government purposes.

Medicare and Medicaid were signed into law on July 30, 1965 by President Lyndon B. Johnson, as part of LBJ’s “Great Society” domestic social programs. Medicaid is a welfare program, as there are no cash inflows into the Treasury for Medicaid, other than general tax receipts.

Information on the annual cost of the federal government’s healthcare programs can be found in President Obama’s proposed budget for fiscal 2015 (the link is in our May newsletter). For the current fiscal year ending this month of September, it is projected that the difference between the cash outflows for Medicare and Medicaid ($513 billion + $308 billion = $821 billion) will exceed the $219 billion collected via Medicare payroll taxes, for a difference (deficit) of $602 billion. Medicare/Medicaid account for nearly all of the $628 billion deficit projected for fiscal 2014.

Unless changes are made to Medicare/Medicaid, this annual deficit amount will grow over the next ten years to $1.135 trillion by 2024 – – the outflow of $947 billion in 2024 for Medicare, plus $556 billion for Medicaid equals $1.5 trillion, versus the projected Medicare payroll tax receipts of $368 billion.

Similar to the Social Security Trustees’ report, the Medicare report also includes an estimate of the present value of the “off book” debt amount for Medicare (which is for Medicare only, excluding Medicaid). Please keep in mind that the current cumulative “on-book” US debt amount for our past deficit spending is $17.6 trillion. As we reported in last month’s newsletter, the present value of the “off book” debt for the Social Security benefits that have been promised is $11.1 trillion. The “off book” debt for the present value of Medicare benefits that have been promised is $28.5 trillion.

It is safe to say that unless our elected officials begin to make fundamental changes to our country’s finances to eliminate deficit spending, this debt (and more) will fall to our children and grandchildren. Our elected officials need to change their focus towards fiscal responsibility, rather than their own personal re-election concerns. Our federal government’s first step needs to be the elimination of deficit spending, and once that is accomplished, we then need to begin re-paying the “on book” debt.

US Debt Clock (the “on book” debt) – – August 1st – $55,273 per citizen / September 1st – $55,528

E-Newsletter No. 8
August 2014
If not us, who?______If not now, when?

This past month the trustees of the Social Security and Medicare “trust funds” released their annual report on the current and projected status of these federal government programs. The trustees’ Summary Annual Reports can be found at www.ssa.gov/OACT/TRSUM/index.html

In this month’s newsletter, we will focus on Social Security. (Medicare is next month). On our Foundation’s website (in the Conversation Piece about Social Security) we discuss the fact that this federal government program is not a Ponzi scheme, but it is not the same as a funded pension plan. Instead, it should be viewed as being an “intergenerational social contract”. Unfortunately, many citizens have been misled by the terminology used by our public officials, when they read about Social Security’s “trust fund assets”. They incorrectly believe that their payroll tax withholdings (along with their employer’s contributions) have been set aside in a separate investment pool that will be used to pay future benefits (to which they are “entitled”) once they retire. The inconvenient truth about Social Security is that the only “assets” owned by the trust are intergovernmental loans receivable. The payroll taxes paid into Social Security have already been paid out for past benefits, or have been “loaned” (spent) for other federal government purposes.

To make matters worse, the annual expenditures for Social Security now exceed the program’s inflows, and this adds to the cumulative US debt. In addition, based on President Obama’s 2015 budget and the projections through 2024, the annual shortfall grows and compounds each year.

So…. How did this “well intentioned” government program, which was established during the height of the Great Depression, evolve into its current state? There are two key issues – – one “actuarial” problem and one “demographics” problem. The actuarial problem is that people are living longer lives, compared to when Social Security was established in 1937. This “actuarial problem” is not unique to Social Security – it has the same, significant effect on any type of retirement/pension plan. If Social Security were to be accounted for in a manner similar to what is required for corporations’ pension plans, the estimated present value of the unfunded future benefits that have been promised is approximately $11.1 trillion. This liability for this “pay as you go” program is over and above the “on book” US debt of $17.6 trillion, which already equates to $55,273 per citizen. (And keep in mind that this amount is for Social Security benefits only – – it excludes the “off book” liability for Medicare, which is a much bigger number – – but that is the topic for next month’s newsletter).

The demographics problem is that the relative number of retirees continues to grow as the Baby Boomers move into their retirement years. Once the country got past the Great Depression and World War II, the number of workers for each retiree in 1950 was 16 workers per retiree. In 2014, that ratio is now down to approximately 3, and by 2030 will be down to approximately 2.

Here are some key passages from the trustees’ annual report –

For the past several years, the annual Trustees Reports have warned lawmakers and the public of the financing shortfalls facing the Social Security and Medicare programs, emphasizing that continued delay in legislating corrective measures is likely to make the challenge ever more difficult to resolve…

While Social Security has not been the object of significant financing reforms since 1983, its need for additional measures has been recognized for over two decades. Now, in the middle of the second decade of the 21st century, the adverse consequences of delaying necessary corrections in both programs are beginning to be realized.

Lawmakers should address the financial challenges facing Social Security as soon as possible. Taking action sooner rather than later will leave more options and more time available to phase in changes so that the public has more time to prepare.

It is interesting to note that the “average Joes” and the “average Jills” who understand these issues (and the associated math) are justifiably concerned about the status of these programs and the country’s finances. Unfortunately (as we noted in last month’s newsletter) our Editorial Board believes that because many of our elected officials are more concerned about their own re-election issues, it is easier for them to kick this can down the road to future generations (some of whom cannot even vote yet) rather than pursue the implementation of policies that they know are vitally important to the country’s future.

US Debt Clock (the “on book” debt) – – July 1st – $55,149 per citizen / August 1st – $55,273