Saturday, December 18, 2010

The SSDI Scam

Here, Tad Dehaven explains the origins and present outcomes of the federal SSDI program, the disability insurance leg of what most folks just think of as Social Security.

Anyone who lives in the Virginia Highlands end of the state of Virginia, which is close to the eastern Tennessee and southeastern Kentucky borders with Virginia, knows much about the SSDI program and how flagrantly it is "gamed" by lawyers and some of the citizens of the region.  One can't travel north on highway U.S. 23 from Virginia, north through Kentucky toward Ohio without being inundated by billboards advertising the services of lawyers who specialize in securing SSDI payments for the citizenry.

Most residents of the region know at least one person drawing SSDI benefit payments.  I myself lived for 9 years next door to an SSDI recipient drawing benefits for heart problems reputed to be caused from working in the coal mines to the point of disability.  This same neighbor routinely performed all manner of physical labor in his back yard, including building an out building for his burgeoning tool collection one summer.

Entitlement programs --- Social Security, Medicare, Medicaid, and the various income support programs --- now comprise 60% of the federal budget.  That is to say, 60% of the federal budget --- a budget that requires deficit spending each and every year --- is annual transfer payments of income from those who earned it to those who did not earn it.

So what to do about it?  Whether you agree with the idea of transfer payments or not is quite beside the point.  The real issue is that the federal government has the ability and the will to spend money without limit.

Extension of the Bush era tax rates for another two years will add trillions to the already huge mountain of federal debt, which presently weighs in at about 100% of annual GDP, $14 trillion, give or take a few 100s of billions.

Federal deficit spending is without effective limit.  When the U.S. Treasury reaches the debt ceiling imposed by Congress, Congress just votes to raise the debt ceiling.  The federal government has no budget constraint like you and I.

If you or I want to spend more than our current annual income, we have to borrow or draw down previous years' saving.  But you and I can't borrow without limit, and you and I don't have an unlimited store of previous years' savings.

Uncle Sam has no previous years' savings whatsoever; the U.S. Treasury never saves.  Yes, the government reported a "budget surplus" for 1998-2001 during the second term of Bill Clinton's presidency.  But that surplus is mostly due to creative accounting with the Social Security Trust Fund.  Even during the years 1998-2001, the U.S. Treasury spent more than federal tax collections alone would have financed.  Read about it here.

So what to do about run away entitlements?  The answer is simple, really.  Give the Congress a budget constraint that can't be undone under any conditions.  I wrote about the idea here, so no need to repeat it.

To sum it up, we the people need to insist that Congress (or the legislatures of our various states --- take your pick) ratify a constitutional amendment that goes something like this:

"Congress is authorized to allocate annual spending that shall not exceed x% of the average of GDP for the most recent past three years, regardless of how that spending is financed."

As I wrote before, much debate and wrangling must precede filling in the "X" in x%, but let's get on with the debate and wrangling and then amend the constitution.  Historically, "X" has been somewhere in the neighborhood of 20 to 22.

Until we give Congress a budget constraint that Congress can't avoid, there will be no solution to the PIIGS (Portugal, Ireland, Italy, Greece, and Spain) problem down the road.  Why do I bring up the PIIGS?  Isn't that a European problem?.  Yes, it is, but we will be the PIIGS in future if we don't shut off the spigot of federal spending.

By the way, giving Congress a definite budget constraint wouldn't mean no entitlement spending.  Our hard-working members of Congress can elect to spend the federal budget on whatever they like.  That's what the Constitution says.  If Congress wants to spend 100% of the federal budget on transfer payment, it could do that, even if we amended the Constitution to give Congress a definite budget constraint.

But Congress would have to do its job instead of spending without limit.  Just like you and me.

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