Entitlement Reform With Sen. Cassidy

Trump and Biden “demagoguing” the issue.

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Louisiana Sen. Bill Cassidy joins Sarah and Steve to talk debt and entitlements. The doctor gives a deadly prognosis for the country’s economic (and moral?) trajectory and breaks down what his office is proposing to do about it.

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  1. Avatar photo
    The Stray Goose

    This all seems half baked. I'm not buying it.

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  2. MathewA

    This $1.5 trillion would have to come from borrowing. So basically it would earn the spread between US treasuries, and the stock market.

    That could work, but we've also seen how often public pensions tend to overestimate returns and underestimate payments.

    I still think the better solution is a combination of higher payroll taxes with reduced benefits. Raise the retirement age and index it to life expectancy to finally fix this problem

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    1. Avatar photo
      Slp

      Every time I see the suggestion to raise the retirement age I think of all the late middle-aged people I see working in the grocery store at the checkout stands. It's a hard job but not the hardest by far and people's bodies get old and hurt.

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      1. MathewA

        I'm fine with earlier retirement for people that simply can't work (SS disability fund).

        But that's what SS was really created for. For people that can't work. The average life expectancy was below the SS retirement age when SS was started. The idea that people would be able to retire for 10, 15 or 20+ years is a new invention. And one that probably isn't sustainable given stable or declining populations.

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        1. Avatar photo
          Slp

          Well it's not sustainable under the current plan. Those oldsters at the checkout counter aren't earning enough to save for retirement no matter how long they work. Means testing seems like a good way to go but I understand that there are lots of people who don't want to contribute to something that they don't get a piece of.

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  3. Robmickler

    I enjoyed the podcast. My one comment, however, is that it will be interesting to see what the plan is to dump 1.5 trillion into the market without seriously disrupting the supply and demand dynamics of stock prices.

    That, and I guess I have a second comment, that the control and command of who will decide which companies to invest in also is fraught with potential conflict of interest, if not managed carefully

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    1. MathewA

      I think you would really want to do it over a period of a couple of years.

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  4. Slowdave1

    Sorry can't let this one go. $1.5T is $5700 for each and every tax return filed in 2022. So, you gonna raise taxes on every taxpayer by $500/year for 11 or 12 years??

    Wish there had been some more meat here. Seems like the more reasonable way to fix SS is minor tax increases and reductions in the increase in SS benefits in the future. Total 2021 deficit of SSA was $56.3B. That's $214/yr/tax return. That kind of an increase seems plausible (properly apportioned) with future increases/belt-tightening in the spending side and would maintain things going forward as far as I know.

    Do that and you have the $2.8T trust fund money to move into some better investments than T-bills and this problem seems very solvable. Some combination... raise the taxes 1/2 way ($104/tax return/yr) and have most of that $2.8T to invest...

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    1. MathewA

      Agreed. Though note the problem with SS aren't as much right now, but later.

      Still, I think some tax increases with benefit cuts is the right way to do it. I think you want to raise the retirement age and index it to life expectancy

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  5. Slowdave1

    Very disappointed in this guest. Had such high hopes and expectations. And then "all you gotta do is put this $1.5T in the bank and then SS is fixed! Everyone will be happy." Come on man.

    "What's the problem in congress?"
    "Let me tell you about my resume of bills I've passed."

    Seemed more like a campaign speech than a real discussion of possible fixes to SS or anything else. I guess I should give him credit (with our bar-lowered-to-the-floor current condition) because he's not afraid to say the two words "social" and "security" right next to each other, but that's about it.

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  6. Avatar photo
    William Skiba

    Sorry Sen Cassidy, but surely you've heard of: Step 1: get $1.5T; Step 2: ???; Step 3: Social Security Solved!
    But seriously, as Kevin Williamson recently penned: "When you actually have to take on new debt to keep good on your existing debt obligations, that is when you are positively hosed, as the economists say."

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    1. Avatar photo
      Bill B

      That’s usually how Republicans do their math.

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  7. Avatar photo
    DougAz

    An Investment "trust" involving wall street? The height of insanity.

    Their is absolutely no problem with Social Security.
    A. Uncap FICA in all wages
    B. Add FICA to all Stock options, sales, grants
    C Add FICA to all short and long term capital gains.
    D. Add FICA to S-Corp revenue
    E. Their will be less beneficiaries in the future

    Ridiculous ideas sir.

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    1. MathewA

      So your solution is to transform SS into a full on welfare program, and of course taxes, taxes, taxes.

      And you'll get that through how?

      Any real reform MUST be bi-partisan otherwise it will never happen. That means compromise legislation, that means tax increases AND benefit cuts.

      The tax increase should come from raising the rates, not the cap (unless you are lifting the cap on benefits too). And the benefit cuts should largely come from raising the retirement age and indexing it to life expectancy.

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      1. Avatar photo
        DougAz

        No.
        A. Uncap FICA on all income and stock
        B. Benefits are capped already if you still work
        C. If not working cap at current max around $2800 - $3,000/month
        D. Do not raise retirement age. Lower retirement age to 60 from 62 with lower benefits

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        1. MathewA

          I will oppose that and anyone that votes for it.

          It would be a fiscal ans economic disaster

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          1. Avatar photo
            DougAz

            As is your right.

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    2. Rblik

      There is no problem a liberal can't fix without another sweet tax on corporations and high earners. Sure beats scary "Wall street", huh. Democrats should get right on these easy tax hikes to solve "absolutely no problem"

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  8. Jim S

    So who on Wall Street gets rich when this 1.5 trillion hits the private sector and who are they donating to?

    It’s politics, you can always just follow the money.

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  9. Sean Smith

    So how does creating a $1.5 trillion investment fund and sequestering it for 75 years address the currently impending Social Security solvency problem? Will only the gains from that fund be used to supplement Social Security while the corpus/principal is left alone? There's a big piece of the puzzle missing that I don't think was ever gotten to in the podcast.

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  10. Mkliegman

    Good interview. Would have been better if Sarah and Steve had stayed on for some post-interview discussion. Also, question to have asked: What result if you just took that $1.5 trillion and added it to trust fund instead of investing it? (Probably less effective, but he knows the answer to that and would
    be good to have heard his answer).

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    1. EireExpat

      The math is simple - there is only a “trust fund” in that for a number of years you and your kids contributed more in taxes than were paid out to your parents/grandparents. Now the “fund” is being depleted because for example in 2022 tax intake was $1.1T and benefits were $1.15T (i believe I have the zeros correct but the sums are huge). As mentioned earlier the demographics mean the $50B annual shortfall will grow and drain the previous excess. It’s also not grown as by law all the excess can hold is short term treasuries which haven’t generated much income due to near zero rates.

      Taxes have been flat forever at 11-13% of total payroll income while beneficiaries are soaring as Boomers retire (and live longer) from below 10% (surplus) to 14% now to 18% in a few years (insolvent). So either tax take has to rise to meet the 18% or benefits fall to 13% to be sustainable or some combination.

      Senator Cassidy's $1.5T solution reminds me of the old Steve Martin joke about how to have $1 million and pay no taxes!!! Answer: First, get a million dollars…then

      I’ll never forget my Dad telling me when I got my first full time job “start your own pension because Social Security isn’t gonna make it - I will have withdrawn every tax dollar I put in plus interest if I live past 75!”. He lived to almost 100…

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      1. Mkliegman

        Thank you. Is there no growth/IRR in the trust fund? Taxes have come into it and implicitly at least “loaned” to the general budget, should be getting some “interest” into the trust fund.

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        1. MathewA

          The "trust fund" is used to invest in US treasuries. The interest you get is whatever the rate is from those treasuries. Usually not much.

          Of course the interest is fictional anyway, because you are paying money from one pocket to another.

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        2. EireExpat

          I believe the interest on treasury lending the surplus earns is lower than the growth in benefits, both demographics (numbers adding to the benefit rolls each year) and COLA increases to existing members (so last years benefit increase was about 9% due to inflation but they earned less than 3% on balances). The surplus "earned" about $60B last year versus forecast outflows of $1.2T this year and insolvency is forecast in 2033 because outlays are expected to more than double to $2.3T! due to the demographic waves. The surplus was never enough (i.e., taxes were too low for too long) to build enough of a surplus to deal with demographic pressures, that's why its not a pension trust fund, but instead a pay as you go with a relatively small surplus.

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          1. Mkliegman

            So the difference is really between getting an actual market investment IRR versus the current statutorily low notional IRR.

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