It's Big, But Is It Beautiful or Ugly?

Dueling political narratives have flared up with the passage of President Trump's so-called Big Beautiful Bill.  Democrats argue it doles out tax breaks for billionaires and penalizes the poor.  Republicans retort it boosts paychecks for working families and cuts waste and fraud.   

The 887-page bill hashed out between the Republican controlled House and Senate was signed into law on July 4 after days of intrigue, party in-fighting, partisan rancor, arm-twisting and all-night voting sessions. The political war of words is becoming a flashpoint for next year's mid-term elections.

Democrats have lifted the curtain on their tactic for next year's attack ads aimed at building a majority in both houses of Congress.  Here's an early preview of criticisms of the bill along with the specific provisions in the mega package: 

• The bill is just a tax break for billionaires.    Tax rates on every person--from the poorest to the richest--will remain where they are. The legislation makes the tax cuts permanent, with annual inflation adjustments for those in the 10, 12 and 22 percent tax brackets.  It also increases standard deductions from $15,000 to $15,750 for individual taxpayers and from $30,000 to $31,500 for married couples filing jointly, subject to income limits. Taxes on businesses remain at 21%.  Prior to the 2017 law businesses were taxed at 35%. There are also reduced limits on business expensing and deductions. 

• But billionaires are getting the biggest tax break.  Households making under $50,000 receive a 14.9% tax cut in the legislation.  Households earning under $100,000 got a 12% tax break.  The top 1%--the billionaires and millionaires--received a 2.4% tax cut from the rates they paid prior to 2017.  

• The bill does nothing for the middle class and poor. New deductions for tips, overtime and car loan interest support hourly workers. The new law increases the child tax credit to $2,200 from $2,000 starting in 2026. The credits are adjusted annually for inflation.  The bill will allow individuals to deduct tips on wages and overtime pay for tax years 2025 through 2028. The bill caps the deductions on tips at $25,000 per year.  Under the legislation, no taxes apply to overtime up to $12,500 per individual. The tax benefits phase out for individuals making $150,000 or more. It also allows borrowers to deduct up to $10,000 in car loan interest payments for the next four tax years, if final assembly for the car was in the U.S. Eligibility is tied to income: Those earning $100,000 or less ($200,000 for joint filers) qualify. The mortgage interest deduction remains capped at $750,000 for joint filers.   

• The law does not eliminate taxes on Social Security as promised.  Indeed, taxes on Social Security remain the same, despite the President Trump's campaign pledge.  However, the bill allows individuals 65+ with up to $150,000 in household income (joint filers) to subtract $6,000 from their income. Taxpayers earning more than $250,000 jointly or $175,000 individually are not eligible to receive the benefit. The standard deduction for Americans 65+ has been raised by $2,000 for individuals and $1,600 for households. An estimated 64% of seniors receiving Social Security will benefit from the changes.These deductions will expire at the end of 2028.The bottom 20% of taxpayers remain exempt from taxation on SS benefits. They pay no tax today.  Eliminating taxes on Social Security would have lowered federal revenues by $1.5 trillion over ten years, raising the federal debt.

• People will die because of Medicaid cuts. There are no cuts in Medicaid payments to eligible recipients. The law stipulates new requirements in 2027 for those who enroll in Medicaid.  Abled-bodied recipients will no longer be eligible unless they meet certain requirements, primarily working 20 hours a week.  The legislation exempts the disabled, pregnant women, those enrolled in school, anyone caring for a child younger than 14 or persons who volunteers at least 20 hours a week.  The Congressional Budget Office estimates there are 4.8 million of the 84.6 million people on Medicaid who will no longer qualify. Medicaid costs have spiraled out of control since 2019, rising 60%.  

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• People will go hungry without food stamps. There are 42.6 million people receiving benefits under Supplemental Nutrition Assistance Program (SNAP), formerly known as food stamps.  Despite fewer unemployed persons today, those receiving benefits remain the same as 2012. Under the Clinton Administration, there was a work requirement for food stamps.  The Biden Administration waived work requirements for able bodied people.  The new legislation adopts work requirements and requires states to contribute to SNAP benefits, which are now 100% funded by federal government. The bill specifies able-bodied adults without dependents must work 80 hours per month (or 20 hours per week) to qualify for food stamps. Exemptions are made for physically or mentally handcapped, pregnant women, those caring for young children and individuals enrolled in certain educational and training programs.  Additionally, veterans, the homeless and foster care youth under the age of 24 are exempted from work requirements. SNAP payments will continue at current levels.  It is unclear when the new work requirements will take effect.  The Agriculture Department is charged with issuing the final guidelines.                                         

• People will lose their healthcare coverage. The legislation imposes stricter income verification requirements while enhancing premium tax credits for purchasing Obamacare (Affordable Care Act).  The credits will lower out-of-pocket costs for Americans who enroll in ACA plans, which may lead to increased enrollment, particularly among low-to-middle-income facilities. Critics claim the eligibility verification will add more red tape for enrollees, causing some to drop out of the program. A total of 6.4 million individuals were fraudulently enrolled in ACA plans in 2025 alone, costing taxpayers an estimated $27 billion. In addition, the legislation excludes illegal immigrants from enrollment.   

• Medicare benefits are at risk.  Medicare benefits and spending are not changed under the legislation. However, about 1.3 million people who qualify for both Medicare and Medicaid may have an increase in out-of-pocket costs. Some illegal immigrants may potentially lose their coverage, depending on the final rules adopted by Medicare.   

• The BBB will increase the national debt and produce budget deficits.  The Congressional Budget Office estimates the legislation will reduce tax revenues by $3.7 trillion over the 2025-2034 period, hiking the deficit by $2.4 trillion.  The estimate does not account for how the tax reduction will impact economic growth. The Tax Foundation puts the estimated federal budget deficits at $2.9 trillion covering the years 2025 through 2034.

• The bill negatively impacts the environment and eduction.  The bill ends the $7,500 tax credit for electric vehicles on September 30.  It maintains tax credits for hydrogen, carbon capture, nuclear energy, geothermal energy and boosts oil drilling. Individual tax credits for residential energy projects, such as solar panels, expire after 2025. Tax credits for commercial wind and solar projects will continue as long as construction begins by June 2025 and facilities are placed in service by 2027. College endowments with more than $2 million in assets per student will pay an 8% tax on investment income. Institutions with fewer than 3,000 tuition paying students are exempt.  Under the legislation, student loan interest payments will resume this year after being suspended by the Biden Administration under a loan forgiveness program that was blocked by a federal appeals court. 

Social Security Running Out of Money & Solutions

• Social Security is the single largest expenditure of the federal government: $2.01 trillion
• The 86-year-old program currently consumes 22.6% of the federal budget
• Inflation is driving up funding because of cost-of-living-adjustments (COLA)
• Social Security trustees project the program will be insolvent in 13 years

The contentious issue of Social Security burst into the spotlight after the State of the Union address when President Biden accused Republicans of wanting to pull the plug on the program. His partisanship may be a stumbling block for an overdue overhaul of the the 86-year old government benefit plan.

Social Security has a looming financial shortfall that threatens the program's solvency by 2035, according to Social Security's trustees. Even the prospect of an impending crisis is not likely to produce more than political lip service because no lawmaker wants to rile the 65.9 million beneficiaries. 

Nothing irritates seniors more than Washington crying wolf about Social Security running out of money or facing Draconian cuts.  You never hear lawmakers raising the alarm about the prospect that congressional pensions or welfare programs will have to be cut because of rising costs.  

Although Social Security has undergone a plethora of changes since its inception in 1937, little has been done to address the fundamental tenants of the program.  Inaction is unconscionable because Social Security consumes 22.6% of the federal government's annual budget and keeps sopping up more money.

In 2022, the federal government paid $2.01 trillion in Social Security benefits, primarily to retired workers and dependents.  The program also includes payments to survivors and disabled workers and their dependents.  It is the largest single item in the federal government's fiscal budget. 

In addition, this year's budget includes $13.3 billion in funding for administration of the program.  That represents a $785 million increase from the previous year.  The Social Security Administration employs about 64,000 workers. By comparison, the average Fortune 500 firm employs 60,629 workers.    

Since 1970 the number of beneficiaries has more than doubled and the program's costs have soared by 10,234% or more than 10 fold, The data for this and the other numbers cited above comes from the federal government and the Social Security Administration.  

Three Congressional acts are responsible for the ballooning costs, including: In 1950, lawmakers doubled the value of benefits; In 1975, Congress enacted legislation approving cost-of-living adjustments (COLA). In 1983, Congress approved borrowing from the program's trust funds.

The trust funds are under increasing  pressure now because of COLA, which usually runs 1.7% or less.  But during the hyper-inflation of the last two years annual increases were 5.9% in 2022 and 8.7% this year, the highest in 40 years.  The last time it was higher was in 1981when the increase was 11.2%.

Borrowing from Social Security began when it ran a surplus from 1984 through 2009. That money was borrowed and spent by the government to pay for other programs.  In exchange, the the Social Security trust funds were issued special Treasury bonds to redeem in the future.  

Since 2010, Social Security has been running an annual deficit, meaning it has been collecting less than it has paid out, according to the Urban-Brookings Tax Policy Center.  Social Security trust funds currently total $2.9 trillion, enough to cover about one year's worth of benefits.    

The trust funds collect money raised from a 6.2% Social Security tax on wages for employees and a matching amount (6.2%) is  paid by employers. Beneficiaries also pay taxes on their Social Security income. However, the total of all these taxes is insufficient to pay for current benefits. 

Fixing Social Security won't be easy because Congress has too long neglected the crisis, preferring to kick the proverbial can down the road.  Just raising the age for benefits is a band-aid solution. Here are some modest proposals to begin to realign Social Security to deal with the rising costs of the program

• Eliminate the wage base limit for the Social Security tax.Currently, no taxes are collected on income above $160,200. There's no wage base limit for the Medicare tax.
• Exclude COLA adjustments on Social Security benefits for single people making over $100,000 and couples earning more than $200,000.
• Reduce, but do not eliminate, benefits to the top 20% of earners receiving Social Security checks.

Changes also need to be made to the current CPI formula used to calculate the COLA adjustment.  The most controversial move would be to invest Social Security trust funds in equities and bonds to mimic other public pension plans. Currently, funds are invested in U.S. Treasuries, which historically have returned 1%.

Even these proposals may not be enough to insure Social Security's long term future. With more Baby Boomers retiring, the number of beneficiaries will continue to escalate through 2030.  At the same time, the ratio of the number of workers-to-beneficiaries is declining.

The Social Security trustees estimate the ratio of workers-to beneficiaries will drop from the current 2.8-to-every beneficiary to 2.1-to-one by 2035.  Unless the ratio improves, the program will be on life support, requiring steep tax hikes or harsh cuts in benefits. 

In light of these serious issues, the current Congress will be derelict if it does not begin taking steps to put Social Security on firm financial footing.  It will take more political courage than currently exists in Washington,  Therefore, lawmakers likely will do what they always do. Posture and little else.    

The Issue No Candidate Wants To Discuss

There is one topic every presidential candidate has paid lip service to but offered little else.  The incendiary issue threatens the nation's financial security. A former Federal Reserve chairman calls it an "extremely dangerous" risk that could undermine the U.S. economy.

The concern is the unparalleled rise in entitlement costs.  Federal budget expenditures for Medicaid, Medicare, Social Security and food assistance programs were 19.2 percent of the country's Gross Domestic Product (GDP) last year.  In 2005, entitlements accounted for 15.5 percent

Spending on entitlements in the 2015 budget is projected at $2.45 trillion.  That is 65 percent of the federal budget.  Entitlements are categorized as mandatory spending, since the government is obligated to fund the programs.  So-called discretionary spending comprises 29 percent of the budget.

Spending levels for mandatory programs are determined by eligibility rules.  Once Congress sets those guidelines, the amount of money allocated from the federal budget is driven by estimates on how many people are expected to enroll in the programs.  No cuts or increases are allowed.  

Former Fed chairman Alan Greenspan bluntly assessed the issue in a recent interview.  "To me the discussion today shouldn't even be on monetary policy, it should be on how we constrain this extraordinary rise in entitlements."  Greenspan headed the Fed from 1987 to 2006.

In 2014, the government had to borrow $39 billion just to cover the deficit in the Social Security program, the most costly federal entitlement.  And the yawning gap between Social Security taxes and benefit payments is estimated to widen in coming years as more people reach retirement age.

The federal government lumps Social Security with Disability Insurance in the budget.  The two entitlement programs combined are projected to reach $1.1 trillion in unfunded liabilities in the next ten years.  By 2033, 18 years from now, government trustees estimate the programs will be insolvent.

For clarification purposes, an unfunded liability can be a confusing accounting term.  It simply means that the programs will owe more money to current and estimated future beneficiaries than it has funds to pay for those benefits.

Absent some reforms in eligibility requirements, the federal government will be faced with Draconian choices.  It can slice benefits to those receiving Social Security and Disability Insurance by 23 percent across the board or raise taxes by that amount.  Neither choice has political appeal.  

Soaring entitlement costs have increased pressure on the government to keep raising the nation's debt ceiling.  At the end of July, the federal debt had climbed to a staggering $18.649 trillion.  The interest on that debt, $229 billion this year, chews up 6 percent of all federal spending.

In 2015, the government expects to use its credit card to rack up another $583 billion in debt.  The borrowed money pays for 16 percent of the government's budget expenditures.  Despite all the claims to the contrary, Washington continues to spend money it does not have.

This year's $3.8 trillion federal budget is the largest in American history. And no one believes it will ever be lower or remain at the current level. In fact, the Congressional Budget Office (CBO) estimates the country will return to trillion dollar annual deficits by 2025.

The reason for the projection is the aging of the population.  As the Baby Boom generation retires, more people will be tapping into Social Security and other entitlements.  Despite the inevitability, no one currently inside the Beltway or presidential candidate seems willing to offer solutions.

One reason for the do-nothing sentiment is the federal government has benefited from historically low interest rates. That explains why the country has added trillions in debt without wrecking the economy. When rates rise as expected, the interest on the nation's debt will explode.

Ballooning interest payments will consume a larger and larger chunk of the federal budget.  That will make borrowing more money to cover deficits an even riskier proposition.  Each dollar borrowed will become more expensive for the federal government.

Since 72 cents of every dollar collected by the government comes from individual taxpayers, this is an issue that impacts almost every American.  For that reason, those running for president should be required to offer solutions, not just lip service, to the impending entitlement crisis.

Social Insecurity: Coming Up Empty At Retirement

For the first time ever, Social Security is running a cash flow deficit, doling out more money to retirees than it confiscates in payroll taxes from the nation's 160 million workers.  As the ratio between workers and retirees shrinks, the financial chasm becomes wider over the next two decades until the program plummets into insolvency.

That dire forecast is written on page nine of the 2011 annual report of the Board of Trustees of the Federal Old Age and Survivors Insurance Trust Funds.  The trustees estimated that the fund will be exhausted by 2036.  By law, retiree benefits will have to be pared by approximately 24 percent.

Despite the gloomy outlook, Congress and President Obama are content to twiddle their thumbs.  In fact, the two branches of government have conspired to exacerbate the crisis.  They recently hammered out a deal to extend a two percentage point reduction in Social Security payroll taxes.

The agreement, coupled with an extension of unemployment benefits, will add $100 billion to the federal deficit and will deepen the financial sink hole within the Society Security trust fund.  That portends a financial train wreck of epic proportions that will extinguish the retirement hopes of future generations.

Despite repeated government assurances to the contrary, the Social Security trust fund has no cash.  It consists only of government bonds that will have to be repaid by taxpayers. Congress has annually raided the fund, depleting its surplus to pay for other government obligations.

As more people file for benefits, unfunded liabilities are mushrooming.  Benefits to be paid to current retirees are underfunded to the tune of $21 trillion.  These future payments have already been earned by the nation's 51 million Social Security pensioners, yet there are no real economic assets in the fund that can be used to pay these benefits.

Many Americans still cling to the notion that the payroll taxes they send into the program during their working years guarantees retirement income.  The unfortunate truth is that the government is under no obligation to pay any benefits.  The entire system rests on the continued benevolence of politicians, who can change Social Security eligibility rules and benefits at their whim.

That cannot be comforting news for today's workers.

Even worse, the choices are limited for salvaging Social Security. Either taxes have to be raised by double-digits or benefits must be significantly reduced or the government has to borrow massive amounts of money to cover the ballooning liability.  There are no magic bullets.

However, there is an alternative solution to provide retirement income for today's workers.  Let them invest their own money in a personal retirement account.

A worker who had invested in S&P 500  stocks over the past 40 years would have earned an average yearly return of 6.85 percent.  Corporate bonds would have generated a 3.46 percent yield over the same period.  Even safe, low-earning government bonds would have delivered a 2.44 percent yearly gain.

Social Security's rate-of-return for the same period is a paltry 2.2 percent.  There would be zero return had it not been for cost-of-living increases over the years.

Those figures are contained in a policy analysis published by the Cato Institute on February 13.  The numbers probably come as a surprise given the volatility of the stock market over the past several years.  Conventional wisdom declares that stocks are too risky for a retirement nest egg.

In spite of the evidence, individual retirement accounts have no chance to see the light of day under President Obama and the Democrat controlled Senate.  Former House Speaker Nancy Pelosi once bellowed that if seniors' had owned personal retirement accounts they would have been wiped out by the recent market plunge.

The evidence doesn't support her chicken-little squawk.  But since when does Congress or the president put any stock in facts or data?

Both branches of government continue to bury their collective heads in the sand, hoping the Social Security crisis magically goes poof.  Neither have the political will to make the difficult decisions, especially in an election year.

Meanwhile, the clock is ticking toward a financial Armageddon that will leave today's workers empty-handed at retirement. If politicians ignore the pleas of workers and pensioners to fix Social Security, no one in Washington can pretend ignornace.

Unless, of course, they want to plead to being both politically deaf and dumb.

The Largest Ponzi Scheme in History

Your government is operating a brazen Ponzi scheme that would make even Bernie Madoff blush. Yet no Congressman will ever face prosecution. No federal bureaucrat will ever go to jail. And the current administration denies taxpayers are being scammed.

What's this scandalous fraud? Social Security. Americans have been duped into believing the money deducted from their paychecks for Social Security benefits are being deposited in a trust fund for safekeeping until they retire. It is a bald-faced lie perpetuated by the current administration.

Payroll deductions are funneled to the Social Security trust fund. However, Congress has regularly raided the fund to spend your retirement income on government largess. As a result, it is currently insolvent. If Social Security were an investment fund, the Securities and Exchange Commission would have shut it down for fraud.

How did this happen? Congress has "borrowed" from the fund for decades. When it takes Social Security dollars, it deposits a government IOU in the account. These are nothing more than useless pieces of paper that promise the government will pay back the money when you retire.

For years, the Social Security payroll deductions were more than the dollars paid out to beneficiaries. As the ratio between workers and retirees has shrunk, the situation has reversed. The government is now paying out more money than it receives through payroll deductions.

Social Security reached a tipping point last year. It ran a $37 billion deficit. The government had to borrow money to make up the difference. The money did not come from the federal budget. Because of the huge federal deficit, Social Security is actually being financed by China, Japan, Saudi Arabia and other countries that purchase our debt.

The Congressional Budget Office projects that Social Security will run a $45 billion deficit this year. Every year hereafter the red ink will gush. By 2021, the CBO estimates the deficit will balloon to $118 billion. Simply put, the Social Security fund does not have the money to meet its financial obligations.

Unfortunately, the problem will only grow worse. If nothing is done to fix Social Security, the system's trustees estimate that benefits will have to be cut by 22 percent in 2037 and more each succeeding year. These are dire predictions that have daunting consequences for Americans if Washington continues to keep its head in the sand.

Yet, here was President Obama's own budget director Jacob Lew tugging on the wool that covers Americans' eyes. He recently wrote in USA Today that the Social Security Trust fund is "solvent until 2037." Lew apparently doesn't understand the definition of the word "solvent."

Here's what makes Lew's assurances so sinister. As budget director under President Clinton, this same Lew explained in 2000 that the Social Security trust fund "balances" were nothing more than a "bookkeeping" device. In his own words: "They do not consist of real economic assets that can be drawn down in the future to fund benefits."

Lew's weasel words mean that there is no money sitting in some vault ready to be paid out. The fund is bankrupt. Each year it depends on the payroll deductions to meet current obligations. Now the obligations exceed the income.

It is time to end the lies about Social Security. President Obama and Congress need to admit the obvious and tackle the issue by raising the retirement age for future beneficiaries and changing the indexing formula that pegs benefit increases to inflation. Just those two fixes will go a long way to restoring solvency.

However, don't hold your breath waiting for that to happen. President Obama wants to use protecting Social Security entitlements as a linchpin in his 2012 election campaign. That's why he trotted out Jacob Lew to lay the groundwork with his ridiculous claim about solvency.

Bernie Madoff must be shaking his head in disbelief. He sits in prison for a scheme that bilked people out of billions of dollars. Meanwhile, the Congressmen and women who stole trillions of dollars from your Social Security trust will never face jail time.