Social Security Reforms [Are You Paying Attention Yet?]

  • The Social Security hearings in D.C. the media wouldn’t tell you about
  • Could Social Security become a pure income-redistribution scheme?
  • A bullish market on “triple witching Friday”
  • Gold at the mercy of Brexit
  • Ill omen for manufacturing (but it’s not panic time)
  • Greenwich Mean Time for everyone… “self-defeating” minimum wage increases… and more!

time stamp Congress held crucial hearings this week that could alter the course of Social Security forever. Not that you’d know it from following either establishment or alternative media.

In early February, we spotlighted the Social Security 2100 Act. Its author is Rep. John Larson (D-Connecticut). Larson also happens to be chairman of the House Subcommittee on Social Security, which held those hearings this week. Topic: The Social Security 2100 Act. (Funny how that works, huh?)

The media coverage was almost nonexistent — perhaps because reporters and editors think any Social Security legislation authored by Democrats is dead in the water as long as Donald Trump is in the White House.

But buried in a Forbes article — on the somewhat obscure topic of raising the Social Security widow’s benefit — was this nugget…

“On the second of two days of the subcommittee’s initial hearings this year to reform Social Security, Chair Larson repeated his optimism that an overhaul can happen with the same political dynamics that were in place the last time it occurred in 1983: a Republican president, Republican control of the Senate and Democratic control of the House.”

Gee, what were we saying in early February?

time stamp The broad outlines of Social Security reform are coming into view, even if The 5 stands nearly alone in taking notice.

For years, Republicans have suggested shoring up Social Security’s finances by once again raising the retirement age — which was one of the major reforms introduced in 1983.

Now Democrats are stepping up with Larson’s bill, which takes a different approach to shoring up Social Security’s finances — raising not the retirement age but instead raising taxes.

Tax increases came with the 1983 reforms as well. Social Security benefits were subject to income tax for the first time.


Bipartisanship: Ronald Reagan signs the 1983 Social Security Amendments. Directly behind him on the right is House Speaker Tip O’Neill (D-Massachusetts).
[Ronald Reagan Presidential Library photo]

By the time the legislative sausage-making is all done, we’ll probably end up with some combination of both higher taxes and a higher retirement age — as happened in 83.

time stamp In other words, we might end up with the “worst” of both worlds.

On the surface it might make sense to raise full retirement age from the current 67 (for people born in 1960 or later) to, say, 69. People are living longer, after all. Well, those who don’t kill themselves or overdose in middle age, but that’s a story for another day…

“But that argument sidesteps the fact that a higher retirement age is a benefit cut,” writes Reuters columnist Mark Miller. “That’s because it raises the bar on how long workers must wait to receive 100% of their benefits. Moreover, gains in longevity are not being distributed evenly across the population, and higher retirement ages would hit some much harder than others.”

On the other hand, the tax increases in Larson’s bill are also hard to swallow. For instance, the payroll tax would rise slowly over 25 years from 12.4% to 14.8%.

time stamp But the most disturbing tax increase in Larson’s bill is the one that changes the program from its original concept of “social insurance” into a straight-up wealth transfer.

As you might be aware, the feds stop collecting payroll tax once your income exceeds a certain level. This year it’s $132,900. It rises each year with inflation. Larson proposes keeping that threshold intact, but then resuming payroll tax collection at $400,000 and higher.

If you’re reading carefully, two questions probably spring to mind…

  • Question: “Wait a minute — you said that $132,900 rises with inflation every year. Doesn’t that mean eventually the ‘doughnut hole’ goes away and all income would be subject to payroll tax?”

Answer: Yes.

  • Question: “OK, so would those higher payroll tax contributions translate to higher benefits in retirement?”

Answer: No. (Really, was there any doubt?)

That’s a sea change from what Social Security’s architects envisioned in the 1930s.

“The Social Security program is intended to be primarily a required-savings program and not primarily an income-redistribution program,” says William Reichenstein, business professor emeritus at Baylor. “In a required-savings program, there is a reasonably close relationship between taxes paid and benefits received, while in an income-redistribution program this relationship is not close.”

Reichenstein has run the numbers on Larson’s bill: Someone with a $500,000 income would pay $6,200 more in taxes every year. But in retirement that translates to only an additional $156 in lifetime benefits.

time stampOK, you get the idea. Changes of some sort are coming. And while The 5 can deliver early warning, we’re not equipped to walk you through all the ins and outs of the system — before or after any changes.

Fortunately, we know of someone who is. And he has the lowdown on everything you can do right now to maximize your benefits under the current system. Better yet, he’s assembled a FREE “Retirement Box” we have ready to ship to your door. In this box you’ll learn how to…

✓ Add “five words” to your Social Security application form and get up to an extra $1,000 every month. Over and above what the SSA will send you! (Page 68)

✓ Use a little-known “loophole” to legally collect a portion of your Social Security even before you retire. (Page 108)

✓ Beat the Social Security roulette’s “96:1 odds” so that you or your spouse do not get the short end of the stick… and more!

Follow this link to learn what more is in the box and how you can claim yours. (There’s no long video to watch.) Please be advised supplies are limited.

time stamp“After a profit-taking pullback last week, now it’s back to bullish business,” says our Alan Knuckman of this week’s stock market action.

At last check the S&P 500 is up eight points to 2,817. The 2,800 level marked “a multimonth point of resistance,” Alan explains. “If this breakout holds, then we’re looking at a target of 2,920 for the S&P — which means a full ‘V’ recovery of last week’s losses sets us up for a healthy bounce as we move into the second half of March.”

The Nasdaq is up nearly three-quarters of a percent on the day at 7,686. Only the Dow is in the red, and not by much, at 26,687.

time stamp Another bullish signpost: Today is a “triple witching day.”

“March 15,” Alan tells us, “is the first of four times in 2019 when stock options, index options and index futures all expire on the same day — the others being in June, September and December.

“Due to the simultaneous expiration of these three types of derivatives, this event is commonly referred to as a ‘triple witching day.’ As you can imagine, there is an above-average amount of money movement on these days with so many financial instruments expiring all at once.”

Historically, the week leading up to March triple witching days are positive for the major U.S. indexes — and that pattern is holding this week.

“Triple witching days,” Alan goes on, “will see a lot of traders either covering short positions left over from the December drop… or closing out successful positions and buying back into the market elsewhere. Both of which have bullish implications for equities.”

time stamp Gold has recovered the $1,300 level nearly as quickly as it was lost. At last check the bid was $1,304.

Gold usually moves inversely to the dollar… and the dollar’s been all over the place this week as the currency markets gyrate in reaction to every new “Brexit” headline from London. Now it appears Britain won’t depart the European Union on the original March 29 timetable after all, which means the tedium will drag on for at least several more weeks. Wake us when it’s over…

time stamp The major economic number of the day is a stinker.

The Federal Reserve says industrial production grew only 0.1% in February. Oops, the “expert consensus” of economists polled by Econoday was looking for a 0.4% increase.

Worse, the manufacturing component of the number fell 0.4% — against expectations of a 0.4% increase.

It’s the second straight monthly decline for manufacturing. That’s not necessarily a doomy development — it happened most recently in mid-2017 before resuming its upward trajectory — but we’ll continue to keep an eye on it.

time stampTo the mailbag, where our daylight time discussion keeps going off on interesting tangents: “With universal access to Zulu time on our cellphones, I think it makes a lot of sense to adopt that as the standard everywhere.

“We are accustomed to looking for the ‘business hours’ at all of the various offices or establishments where we choose to go. These could just as easily be posted in Zulu time as any other time. Given local conditions, any office or facility could simply modify their seasonal schedule as would best serve their customers.

“In the past, the main issue was whether school children would have to walk to or from school in darkness. In most cities, neighborhood schools within walking distance from pupils’ homes are a fond relic of the pre-school bus past. Just like local businesses, schools or school districts could be free to publish their hours of attendance as best agrees with their varying local daylight conditions. Since these vary so widely within any one of the quite large North American time zones, it does not seem to make sense to require that all of the schools in an entire time zone should have the same class hours.

“The modern availability of universal time may have brought us to a point where each town may choose its own most convenient working hours, just as they all did before the railroads came to require ‘standard’ time. Transportation schedules published in Zulu time would be even easier to use than the present ones that show local time in destinations that most frequently are in a different one of those now obsolete time ‘zones’ from which we had departed.

“Perhaps the U.S. public would be ready for this around the time that they are finally ready to adopt the metric system of measures.”

The 5: You had us until the last paragraph there…

time stamp “I appreciated your comments on the minimum wage,” writes our final correspondent. “I live and work in Washington state and I am a prior business owner here.

“I think that the voters who voted for this wage hike (and the same in the other states) didn’t look past their own selfish wants to consider what it would do to the businesses who are affected that do not have a lot of capital. The first thing that all the McDonald’s (a big chain with a lot of capital) in our town did was put in new self-serve kiosks so they could employ fewer people and thus stay in business.

“The whole thing is self-defeating for those who would supposedly benefit by it because there will be fewer jobs available and less hours for the ones left.”

The 5: I wish I could remember where I read it, but about 20 years ago someone — maybe a Cato Institute researcher? — remarked how nearly all of academia and government had undergone a transformation in thinking. They’d come to the realization that two hallmarks of 20th-century economic policy were sheer folly, inevitably counterproductive.

One was the minimum wage. The other was protectionism.

Events of the present day prove that human progress doesn’t always happen in a straight line…

Have a good weekend,

David Gonigam

Dave Gonigam
The 5 Min. Forecast

P.S. Did you know there are totally legal Social Security strategies you could use to generate an extra $340,800 for your retirement fund?

Everyone’s situation is a little different… but the number is real. And it’s one of the secrets revealed in a new “Retirement Box” we can ship direct to your address.

Curious? Check it out at this link.

Dave Gonigam

Dave Gonigam

Dave Gonigam has been managing editor of The 5 Min. Forecast since September 2010. Before joining the research and writing team at Agora Financial in 2007, he worked for 20 years as an Emmy award-winning television news producer.

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