Putting the Security Back in Social Security

May 4, 2010

AOLNews.com

by Robert P. Murphy

Social Security needs fixing, most analysts agree, but supposedly we had a few more years to work out the details. Now the crisis is upon us. This year, Social Security will pay out more in benefits than it collects in employer and employee contributions, but the problems don’t stop there.

If the economy suffers a “double dip” — meaning the current recovery soon turns into recession — Social Security may never return to the black. Worse still, the “trust fund” is an accounting gimmick and doesn’t represent a genuine pool of savings. On top of all the other bleak news, Americans need to accept that Social Security is already broke.

Analysts have been warning that the annual surpluses — the difference between how much the government collects for the Social Security component of FICA versus the total benefits paid out in any given year — would gradually shrink to zero. It was inevitable that Social Security would eventually slide into deficit, because of the underlying demographics and because it was a Ponzi scheme from the beginning.

The first Social Security retirees collected benefits far in excess of what they paid in during their last working years. Over the decades, the chain-letter process continued: Current workers would pay for current retirees, and the only way to keep the system going was to hope that a new crop of young workers would arise to fund the next batch of retirees as they in turn started collecting checks.

Relatively fewer workers now support the population of retirees. The officially estimated year at which the system would go permanently into the red has bounced around, but the depth of the current recession took analysts by surprise. Because of high unemployment and early retirement, this year the system is already in deficit.

The Congressional Budget Office now estimates that Social Security will briefly return to the black in 2014 and 2015, before plunging — permanently — back into the red. Yet even this projection assumes that we will avoid another downturn.

Defenders of the current system argue that Social Security is still solvent, because of the $2.5 trillion “trust fund.” They argue that there is no emergency, because the system can draw down these savings to fund the annual deficits between payout and pay-in, allowing the system to stay afloat until 2037. Yet this is an illusion.

In past years, the Social Security system typically took in more revenues than it paid out. If the trustees had used those annual surpluses to buy, say, shares of mutual funds or bonds issued by foreign governments, then the accumulated $2.5 trillion in the trust fund would indeed provide a large cushion during which the system could be reformed.

Instead, the federal government raided the surplus and took that extra money and spent it. Of course, Uncle Sam is “good for it”; the Social Security trustees have $2.5 trillion worth of IOUs issued by the Treasury, and they will cover their annual deficits (at first) by selling off these assets.

Yet from the point of view of the taxpayer, the Social Security trust fund is an accounting gimmick. If an intern accidentally dropped the entire contents of the trust fund into a paper shredder, the taxpayer would be unaffected. Either way, taxpayers are on the hook for paying all the Social Security benefits.

In 2010, the crisis is upon us and we are still in search of a solution. Ultimately, the only way to fix the actuarial insolvency of Social Security will be to increase taxes, cut benefits or both.

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Can Your Pet Save You on Your Taxes?

October 14, 2009

ABC News

By Rick Klein and Huma Khan

Will Max be a tax break? Can Fido help with FICA?

A bill making the rounds on Capitol Hill marries two feel-good propositions — tax cuts and pet ownership — to generate a novel idea: A tax break of up to $3,500 per person for pet care expenses.

The measure is a legislative long shot. But it’s been championed by a veteran Hollywood tough guy and by a conservative Michigan congressman, and has drawn the enthusiastic support of animal rights groups eager to promote pet ownership during economic down times.

“We think this is as much a health care bill as any,” said Nancy Perry, vice president of government affairs at the Humane Society of the United States. “It’s a human health issue to ensure that pets are provided with better care because of the role they play in our families.”

The measure even has a snappy acronym: the HAPPY Act, as in Humanity and Pets Partnered Through the Years.

“What a pro-active way to be able to help the economy and change the culture in this country around animals,” Robert Davi, a veteran actor (“The Goonies,” “Die Hard,” “License to Kill”) who was a main force behind the bill’s introduction, told ABCNews.com in a telephone interview.

“This money goes back into the economy, and it encourages people to understand the social responsibilities we have toward animals,” Davi said.

Betsy Dribben, vice president of government relations for the American Society for the Prevention of Cruelty to Animals, is realistic about the bill’s prospects. Her group is supporting the bill but taking a wait-and-see attitude before pressing members of Congress.

But with more attention being paid to the fate of pets whose owners lose their homes, she said interest is growing on Capitol Hill and beyond about how the government can respond.

“There is a move afoot. There is a general acknowledgement that people really care about their pets,” Dribben said. “Taking care of pets does cost money, and during the dramatic decline of people’s income and the shaky economy, any possibility of assisting people in meeting those costs should be looked at.”

Tax Breaks for Pets?

The Humane Society estimates that 39 percent of U.S. households own at least one dog, while 38 percent own at least one cat. About 62 percent of American households own a pet.

The tax break would apply to more exotic pets as well, so long as they’re being owned within the bounds of the law. Any “legally owned, domesticated, live animal” would qualify, under the terms of the bill.

According to the ASPCA, a cat costs about $670 a year on average to take care of, while dogs are about $200 a year more expensive. The tax break would be capped at $3,500 per person, regardless of how many animals a taxpayer owned.

Davi, the owner of four dogs and a cat, said the concept of using the tax code to promote pet ownership occurred to him a few months ago, in thinking about the stimulus package passed by Democrats in Congress — a package, he said, that he opposed.

Davi’s cousin runs a prominent California animal rescue foundation, D.E.L.T.A. Rescue, and is always looking for ideas that would get more pets adopted, he said. Why not let people deduct expenses like pet food and veterinarian bills from their taxes, like child care expenses or mortgage interest can help reduce your tax burden?

So, Davi reached out to Rep. Thaddeus McCotter, R-Mich., whom Davi had befriended after watching his work against the stimulus package. McCotter was intrigued enough by the concept to craft it into legislation he offered this summer.

The bill seems unlikely to advance very far. Both Republican and Democratic aides say it hasn’t risen near the top of anyone’s priority list, given the other huge challenges confronting lawmakers these days.

And reactions among conservatives are mixed at best.

Ed Morrissey, writing for HotAir.com, pointed out that carving out new tax deductions works against efforts to simplify the tax code.

“I like both Davi and McCotter, but this seems rather misguided, especially for a conservative Republican like McCotter,” Morrissey wrote. “Republicans have been demanding tax simplification, not further complication, for the last few years, and for good reasons. The problem with the current tax code is precisely that ‘using the tax code to encourage positive behavior is common practice.’ Congress and presidents routinely press for tax breaks for their ideas of social engineering, which is why we now spend hundreds of billions of dollars in tax compliance.”

Proponents of the HAPPY Act say pets are worth it.

“Pets release stress, give comfort, partnership in these hard times — that’s invaluable. They help people stay active. They teach compassion. In an unpredictable world, pets are consistent. They’re really a part of the fabric of life,” said Dribben. “This legislation is helping people so that they can keep the pets that they love.”

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