The Lost Decade: Born from 1960-1970, Part I

Ironically, and completely unintended, I post this blog on the Ides of March; a time known as the assassination of Julius Caesar and synonymous with a "time of foreboding."

The following essay is broken down into two parts because it is very important and there is a lot of information to put out. The first part of the article addresses the current “tax holiday” and some historical perspective and referencing regarding social security, which the media often overlooks when it does not meet their agenda or narrative. This bleeds into my overall theme of the title The Lost Decade: Born from 1960-1970. it is my view that this particular decade of babies will be affected by the Baby Boomers that will dominate the retirement landscape very soon and the Gen Xers that followed will rely heavily on Millenials and Gen Zers for their retirement, but I digress.

As most of you are aware we are now in the second year of a “tax holiday” that was only supposed to last one year, but since the economy has been so slow to recover – I wonder why – the “tax holiday” was extended for another year.

Side note: We were hit on 9.11.2001, one of the worst economic attacks on this nation. We had to reconfigure our whole security structure in the United States. Companies, businesses, states, our Federal government all had to be reconfigured to meet current and future physical security threats. States’ revenues plummeted due to fears and lack of travel/tourism, and to all the costs incurred by security spending either in technology or manpower. Not to mention, we had that little squabble in Afghanistan that we were dealing with, but by 2003 we were back on our feet kicking ass once again.

This current so called economic disaster began in 2008, admittedly by both parties. A different dynamic choked the economy, and one I felt was improperly dealt with. It is now 2012 and there is no real end on the horizon for this economy to bounce back as robust as it was from 2003-2007. Experts still do not know if we have bottomed out on the real estate bubble. My point is, the government tried to infuse hundreds of billions of dollars to save us from deeper depression. We bailed out companies on the verge of collapse, then there was the stimulus, TARP (Bush’s greatest mistake) and yet we are still mired in a sluggish recovery. The administration levied some of the harshest regulations on ALL banks that they could not loan money. What man in their right mind would do such a thing, knowing it would stifle growth and/or recovery? Add insult to misery, our debt has only worsened and threatens the very future of our financial solvency, power, and influence, yet the man gets a virtual pass. I don’t get it.

What should have been done, and I am a simple man folks, is that the government should have immediately enacted business tax cuts, because after all, small businesses are not Wall Street, they’re Main Street remember, the one’s so many politicians love to tout. Also, the government could have made a deal with the banks to immediately reduce mortgage rates for every homeowner, not just those about to slide to “under water” status. I have argued this point since 2009. Yes, that would have placed a temporary burden on banks accounting sheets, but the government could have guaranteed a recoup, if not total pay out recovery for the banks burdens. Look what they did for the heavy handed auto industry. Hmm? Which, by the way, how many small dealerships did we see go out of business during this process? A lot.

The Liberals seem to care more about social engineering than they do about our financial influence around the world. As a weird analogy, steroids will only get you so far, and this administration’s policies seem to hinge on then candidate Obama’s motto: Hope and Change. If we pump (steroids) the economy will bounce back quickly, but again the short sightedness of this administration surely knows you cannot manipulate a naturally occurring event. Hence, the “natural” economy thus far has fiercely rejected the notion it can be manipulated, but with businesses “naturally” being proactive and entrepreneurial, the economy is beginning to “naturally” rebound, which Obama is “Hoping” for. Did I use enough quotation marks there to drive home my point? This is a whole other argument so I will stop there.

Back to the social security/”tax holiday” issue: In a December 15, 2011 New York Times article, Disagreement Over Payroll Tax Cut’s Impact on Social Security, Jackie Calmes states,
Social Security is essentially a pay-as-you-go system, with payroll taxes from workers flowing back out to retirees, survivors and the disabled. Last year, before the tax cut, the system for the first time since 1983 collected less in taxes than it paid out to 55 million beneficiaries — $49 billion less.

The program’s operating deficits will grow as more of the 78 million baby boomers become eligible. But trust fund reserves built up over years of annual surpluses will not run out until 2036, when tax revenues will cover three-quarters of benefits, trustees project.

55 million retirees to a high of 78 million is surely a worrisome figure.

To the naked eye this sounds okay, and the liberals are so happy to provide this “tax holiday” to the middle and lower class. This is a temporary band-aid to a deep wound that will be social security in about 20 years, but there is a segment of Congress that does not worry about that because you can always tax the rich and create that revenue. Now that’s real vision there. The facts state there are less workers kicking into the social security fund these days and therefore revenues will be significantly reduced over the next two decades. And these happy go lucky liberals want to create a more dependent society? Where is all the money going to come from? It’s a double edge sword. If there are less workers and you are creating more government dependency, who in the world is going to pay for all of this? The picture is getting clearer isn’t it? However, and cleverly disguised, this puts the Republicans in a tricky situation. If they disagree with the tax holiday they will be seen as being against the middle class, meanwhile opposing taxes for the upper class, they will be seen as anti-middle/lower class. You see the plan? I knew you would.

The article goes on to say that, “Sixty-one liberals in the House, nearly one-third of the Democrats there, wrote to Mr. Obama in July to say they were “gravely concerned that yet another, unacceptable cut to Social Security’s revenue stream appears to be on the table.”

Six years ago, Democrats successfully derailed President George W. Bush’s plan to partially privatize Social Security by letting workers divert 2 percentage points of their payroll taxes to personal retirement accounts.
Charles Blahous, Mr. Bush’s adviser on the issue, recently wrote that the payroll tax cut and the extension that Mr. Obama initially proposed would reduce revenues to Social Security more over two years than Mr. Bush’s plan would have over its first decade. The Bush plan, however, also would have reduced workers’ future benefits commensurate with the taxes they diverted to personal accounts — a feature that helped defeat the proposal.

First of all, read the last sentence again… Why would it matter if future benefits were reduced if people were able to invest and perhaps gain greater interest and/or money for those personal accounts? It’s a personal risk, and clearly up to the individual. The Democrats were basically saying we don’t trust you to make your own decision. I don’t want to make this discussion about tax cuts, and I am no financial wizard, but here is what that long quote tells me. The payroll tax was at 6.2%, meaning both employer and employee paid that amount. If you have ever owned a business, you know that paying quarterly employee taxes is required. When you get your paycheck there is a standard payroll deduction of 6.2%, and that comes out of your paycheck and the employer also pays 6.2% for each employee, so in essence the government gets two taxes for one individual. The current payroll tax cut is a benefit for both the employee and employer in that we are now paying a 4% payroll tax. However, what that creates is a void in revenue being set aside for social security.

Liberals will argue that this “tax holiday” which has now been extended to 2 years, would not really affect social security in the long run, but to rob social security of more than 100 billion dollars in the first year, and most likely the second year, you cannot tell me that does not create some issues in the overall scheme of things. Do the math, 200 plus billion added to the current revenue gaining a modest interest over a twenty year period is not significant?

Critics felt that President Bush’s social security plan of diverting 2% to individual savings accounts would rob social security of those potential revenues. What the Democrats didn’t like was that perhaps that same 2% being touted by the Left for the “tax holiday” did not want to let go of that 2% in the system creating a greater interest earnings and yet they argue that the current tax holiday will not significantly impact social security revenues. Hmm?

Okay, here’s the bottom line, if young people were able to take that 2% and divert it to a personal savings, 401, IRA, whatever, they would be able to create an avenue of building a nest egg separate of social security. The media cleverly clouded the issue by saying that what if those investments go bad and people start to lose money? It’s a good question, but the argument for long term investment is and has been good/healthy/robust, and that is why it’s called personal savings account, meaning personal responsibility and care. Conversely, this “tax holiday” does not get replaced and most people are probably bringing in an additional $30-40 a month. That is being offset by higher gas prices, grocery prices, etc. Again, critics would argue, well at least they are able to continue to buy gas or groceries. If we had created an energy plan when President Bush wanted to, maybe we wouldn’t be at the whims of this crazy market and hostage to foreign oil, or reduced domestic production.

In another article, How Payroll Tax Cut Affects Social Security’s Future, by David Welna of National Public Radio (NPR). Note the two articles I pulled this information were not from FOX news or the Wall Street Journal, but the New York Times and NPR, not exactly conservative bastions.

This particular article pointed out three facts. One: “Last year, for the first time in its 75-year history, SS took in less money than it paid out.” Two: This year, [2011] the first baby boomers reached retirement age and began collecting SS benefits. And Three: The payroll tax holiday that Congress approved a year ago reduced SS revenues by $105 billion.” This year roughly the same amount is predicted. So, that is more than 200 billion dollars not going toward SS.

I am not making this up, and do we even want to start talking about the debt? The article continued to point out that, “Obama showed no sign of being troubled by those facts at a White House press briefing by saying, ‘It will help families pay their bills, it will spur spending, it will spur hiring, and it’s the right thing to do.’”

This is a long term solvency issue, not just some hiccup along the way. I am not surprised by the President’s reaction, and the part about spurring hiring? Last year was the first year for this “tax holiday” and the unemployment rates were showing some positive signs, so let's see if they are falling as a result of this plan, or if it's just America being America with its capitalist structure that oftentimes dwells in the land of "survival" and will, at all costs, do what it can to survive.

We’re just burning facts here folks, burning the heck out of facts.
This brings to a close Part One; Part Two will deal more with how this affects the Lost Decade overall. I hope you click in to find out more.