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Barbara B.

Kennelly Acting Chair, Social Security Advisory Board 400 Virginia Avenue SW, Suite 625 Washington, DC 20024


The current campaign for the Republican Party Presidential nominee indicates the need for an honest discussion about Social Security. My version of an honest discussion is provided below. (1) In 1983 our Social Security Program was separated from the Federal Government Unified Budget. The Social Security Trust Fund (SSTF) represents this separation. Other programs that are separate from the Unified Budget include the Federal Government Civil Service Retirement and Disability Plan (FGCSRDP) and the Military Retirement and Health Care Funds (MRHCF). Note: see Pie Chart in enclosed Federal Debt Basics. (2) These SSTF has the standard pension plan structure. Note: Item C interest is explained in Paragraph 4. A = Contributions from individuals. D = Distributions to individuals. B = Contributions from employers. E = Administration expenses. C = Interest income. Trustees of these Programs use economic analysis to ensure fund solvency (A + B + C is adequate for D + E) for the next 20-30 years. Since Americas economy is difficult to predict, Trustees need to continually revise predictions for Items A, B, C, and D. (3) In any given year a surplus is created whenever A+ B + C is greater than D + E. The SSTF surplus has not been saved but instead has been loaned to our Federal Government where it has been spent on other Federal Government Programs. In exchange for these loans Federal Government Politicians gave the SSTF Special Issue Securities. The term Special Issue Security can create the false impression that the SSTF has Marketable Assets (MA). Special Issue Securities cannot be sold to the public but instead are used to calculate the Effective Special Interest Rate. 4) Federal Government Politicians use Deficit Spending to pay the interest on both the Special Issue Securities and the United States Treasury Bonds (USTB) held by the public. (5) Federal Government Trust Fund loans now total 4.6 trillion dollars and are distributed as follows (see enclosed Federal Debt Basics): SSTF = 57% FGCSRDP = 17% MRHCF = 9% Medicare = 8% Others = 9% Based on the enclosed Trust Fund Data, the SSTF has charged Effective Special Interest rates ranging from 11% in 1982 to 4.75% at present. This illustrates how the Effective Special Interest Rate tracks the interest rate for USTB held by the public. (6) FGCSRDP and MRHCF Distributions are directly proportional to Contributions. The more the Individual contributes, the more the Individual receives. (7) SSTF Distributions are not proportional to Contributions. This allows for the fact that life is not a level playing field. The level includes education, family stability and/or wealth, individual abilities and disabilities, employment, and unemployment. (8) State Public Employee Pension Funds (SPEPF) rely on Contributions plus income from MA (MA = USTB interest (USTBI), State and Municipal Bond Interest (SMBI), Stock Dividend Income (SDI), and Capital Gains From Stock Price Speculation (CGFSPS). (9) Since 1980 Federal Government Politicians have created an Illusion of Prosperity by directing our Federal Government to spend 13.6 trillion dollars using Deficit Spending (note-- Tax Spending prevents Illusions but does not win votes). This caused CGFSPS to produce significant Capital Gains (see enclosed Stock Indices). However, CGFSPS is now failing because the Illusion of Prosperity has grown so massive it is threatening our economy. In addition, Trustees must now start allowing for reduced Contributions due to State employee layoffs. (10) To maintain SPEPF solvency, Trustees need to reduce Distributions and/or obtain increased Contributions from both the remaining employees and their employer (also called the Taxpayer -- see POLITICO article on opposite side). Employers may resist taking responsibility for CGFSPS failure and insist that all increased Contributions be made by employees. (11) Taxpayers with declining 401-K Plans may be even more resistant to taking responsibility for CGFSPS failure by SPEPF. (12) The SSTF can be strengthened by taking the following actions regarding Americans who are still working: (a) Restore the payroll tax to the 2010 value. The Obama Administration has weakened Social Security by reducing this tax. (b) Increase the eligibility age to reflect the longer life expectancy of Americans. (c) Increase the payroll income threshold subject to the payroll tax. Note: the present threshold is $106,800/yr. (d) Make non-payroll income subject to taxation. Examples are dividends and capital gains. Items (c) and (d) will provide the Wealthy a better opportunity to increase their Contributions. (13) In my opinion strengthening the SSTF will provide Americans a secure retirement and help reduce Social Chaos. Michael F. Patterson 6115 Fairlane Drive Clarence Center, NY 14032 CC: E.J. McMahon, The Manhattan Institute U.S. Senator Bernie Sanders Philosophers Roundtable at the Wellsboro Diner Federal Reserve Board of Governors Prof. Roger Meiners, University of Texas

A. Barry Rand, CEO, AARP Albert Brooks, Author, Actor Prof. Naill Ferguson, Harvard University Harry Harrison Fan Club E.J. Dionne, Washington Post Writers Group Prof. John Taylor, Stanford University Paul Samuelson, Washington Post Writers Group Prof. Paul Krugman, Princeton University