The Truth about Social Security

Townhall.com ^ | April 4, 2011 | Bruce Bialosky

[Kaslin]

It should be obvious to every American that our entitlement programs – Social Security, Medicare and Medicaid – now represent the lion’s share of the Federal budget, and are growing at an unsustainable rate. Unfortunately, no realistic solution to this fiscal disaster has ever been seriously evaluated by Congress. Worse, no effort has ever been made by our leaders to honestly inform Americans of the dire severity – and ominous consequences – of our current predicament. Even when President Bush attempted to confront the issue of Social Security – for which he was mercilessly demonized by Democrats and their media partners – he never actually communicated the simple truth to the nation. This was profoundly regrettable, principally because strong public sentiment to reform these programs will only occur when Americans realize the full dimension and gravity of the dilemma that confronts us.

Occasionally, Americans are provided some facts that help explain the problem. We know, for example, that while there used to be eleven workers paying into the Social Security Trust Fund (SSTF) for each beneficiary, soon there will only two. We also know that when the program started in 1935, the average lifespan of Americans was less than 65 years old – the designated retirement age; today, 76 years later, we live on the average 18 years longer, to about the age of 80.

Most of the time, however, what we hear from our leaders are just flat-out lies. Senate Majority Leader Harry Reid recently stated in a television interview that Social Security is solvent for the next forty years. This claim is being echoed by Jacob Lew, the Director of the Office of Management and Budget even though he says it is not a problem for 20 years. This is a preposterous claim that we’ve heard before, specifically when Ronald Reagan and Tip O’Neill forged their grand compromise in 1983. Surprisingly, the leader who came closest to uttering the actual truth was Al Gore, when he spoke of the Social Security lock box. But because it was the annoying Al Gore, he was skewered in a skit on Saturday Night Live.

So here is the clear unvarnished truth that every American needs to hear and understand: There is no money. It has all been spent, every last dime. In fact, 2011 is a momentous year for the SSTF, because it is the first year in which payments to beneficiaries exceed the “contributions” from taxpayers. This year $45 billion more will be paid to recipients than will be collected from the paychecks of American workers. The money will come from the general tax fund – or more accurately, borrowed from China as new government debt. Unless the Social Security system is reformed, we will never again see a year in which Fund income exceeds benefit payments.

Here’s another truth: From this point forward, Americans who receive Social Security benefits have to realize who is paying those benefits to them – their children. If they want increased benefits, they will be taking them directly out of the paychecks of their kids. If you don’t have working children, you are taking the money from someone else’s kids.

You ask what happened to the money. The government (both Democrats and Republicans) took the excess money in the SSTF and spent it on the general needs of the government, such as defense, the EPA, and the Interior Department. Instead of collecting more taxes, cutting government, or borrowing the money (just like they’ve done to create our $14 trillion debt), they just took the money from the Social Security honey pot. Every year, our leaders would take out a piece of paper and write “I owe you $37 billion,” or whatever was the difference that year between what they collected in FICA taxes and what they paid out in Social Security benefits. Americans now have a little folder with a bunch of IOUs that are worth………zero, zilch, nothing.

So now what can we do? One suggestion – which has been successfully implemented in Chile – has been to have young workers put their Social Security payments into private accounts, where they could invest the money. The Left goes apoplectic about this because to them, the only thing more evil than Hitler is Wall Street. Could someone please explain how Wall Street could possibly do worse than our government, which has left us nothing for our retirement despite all the money we paid? Restrictions could be placed on private accounts that would only permit investments in money market accounts, government bonds, or AAA-rated corporate bonds. Any way you look at it, Wall Street couldn’t do any worse than our elected officials and the government bureaucrats who spent it and then lie to us that it stills exists.

That debate will go on for a long time, but here are some changes that we could enact quickly and easily to improve this disastrous situation:

1. Increase the retirement age immediately – and not over a 40-year period (which is the current policy). By the time the retirement age is increased by two years, our lifespan will increase by five years -- making the whole plan silly. We need to make regular reviews and increase the eligibility threshold every five years, if necessary.

2. Stop paying money out to people who do not need it. The biggest stumbling block here is that Democrats refuse to stop calling this a retirement program. We should immediately redefine Social Security as a government benefit program – from which you only receive money if you’re eligible. One of my CPA friends has a client who has reached retirement age and receives Social Security, despite having an annual income that exceeds $500,000. If we were truthful about the program, we could tell this person “Yes, you paid in and yes, you are not getting any benefits – sorry. Be happy you don’t need it.” In exchange for that we would stop the continuous increases in amounts they pay into the fund.

Another friend of mine had a client who had a child late in life and passed away when the child was still in his teens. The child inherited a large income (from cash-producing investments), and his mother took over the substantial estate. Despite that, the child started receiving Social Security benefits. That is just nonsense.

3. Stop placing ridiculous restrictions on pension plan contributions. People need to save as much as they can for retirement, and imposing self-righteous constraints based on income limitations is counterproductive. If you are in a 401(k) program and other people in your company choose not to contribute, why should your savings be limited? We also need to raise ridiculously low contribution limits put on various pension plans, such as $5,000 on IRAs. We need to do whatever we can to encourage Americans to save for retirement. Above all, we need to get the message out that you cannot count on Social Security as your sole means of support when you are too old to work.

That is the truth. There won’t be enough when you retire, so you’d better start saving more now. But this is the government and most politicians – and almost all of the media – will not tell people the truth. Fortunately, there are a few new people in office who are willing to confront the problems we face, and openly discuss the difficult choices ahead. Now that you know there is no money set aside for you, what are you going to do about it?

[SkyPilot]

I have come to the conclusion that most Americans and politicians will never, ever do anything about our "entitlement" problem until the whole shebang of the US economy and US dollar collapses. By collapses, I mean utterly collapses - to the point where the dollar is worthless, savings are wiped out, and foreign banks and governments have us by the short hairs. We would have to experience food riots, gas shortages, hyperinflation, and the like - before Americans start shouting "DO SOMETHING!"

Unfortunately, I predict that "something" will be a new one world currency, and political tyranny in what was once the United States of America.

In God we Trust (ed).

[ilgipper]

Disagree completely on #2. If a person paid in, they need to get the payout. It was a contract, and that wealth was confiscated from them based on a contract. Raising the age should be fine because it is fair for all that paid in.

[mountainlion]

The article is too long for may ADD. I would ask that the congress pay back the money they stole out of the SSN fund and stop blaming baby boomers for the deficit when it was congress that misappropriated the money.

[Aevery_Freeman]

ping

[Aevery_Freeman]

ping

[RC2]

All federal programs are mismanaged, be it stupidity or graft. If you want the programs to continue, put it in the hands of the private sector and audit them every six months, with stiff penalties for fraud. Not a slap on the hand.

[glorgau]

Americans now have a little folder with a bunch of IOUs that are worth………zero, zilch, nothing.

I beg to differ. It is filled with the full faith and credit of our Federal government.

[ilgipper]

I am feeling the same way. If the next round of elections causes a backlash against the GOP for actually trying to solve the problem, we are literally going to have to watch the ship go down and hope to hell we can rebuild into some assemblance of what we have had in the past.

[businessprofessor]

“Disagree completely on #2. If a person paid in, they need to get the payout. It was a contract, and that wealth was confiscated from them based on a contract. Raising the age should be fine because it is fair for all that paid in.”

Are you proposing that current workers pay much higher payroll taxes? How do you propose to fund the benefits?

Unfortunately Social Security is not a contract. The USSC has definitively ruled that individuals have no property rights in SS benefits. I am as unhappy as anyone about the situation. I have long known about the situation but politicians (mostly Democrats) have used entitlement spending to win elections. No one can win an election speaking the truth about entitlements.

I think the SS accounting is deliberately deceptive. SS has counted phony interest payments as part of its surplus. Without the phony government accounting, SS was running a deficit in prior years.

Happy talk about slowly increasing the retirement age is nonsense. Benefit reductions need to be made now for the retirement age and COLA. The COLA (CPI-W) is especially troubling. We look headed for a period of sustained inflation. The COLA will break the federal budget for SS and federal pensions (CPI-W - 1). Like the author, I favor incentives for individual to renounce or delay benefits. I will renounce all benefits in exchange for substantially lower payroll taxes. I am 56 so this deal is only in my interest because the alternative (collapse of the dollar) will wipe away my savings.

[Mr Ramsbotham]

We would have to experience food riots, gas shortages, hyperinflation, and the like - before Americans start shouting "DO SOMETHING!"

Not to be pessimistic, but in my experience "do something" usually means some kind of government action--creating a new entitlement, for example.

[Reddy]

OK. Get ready for the posters calling anyone who thinks they are entitled to get any money back that they paid into SS, “thieving geezers who steal money from children”.

ITA with the article, except for #2. Means testing simply turns SS into ANOTHER entitlement for people who sat around on their fat butts and did nothing about their future. And it penalizes anyone who did save at all.

[MrEdd]

By collapses, I mean utterly collapses - to the point where the dollar is worthless, savings are wiped out, and foreign banks and governments have us by the short hairs.

Foreign governments, will get squat.

The wave of economic meltdown is hitting Europe and Asia - Soviets included - before it wipes our economy out. Communism has long thought they could bring the west to this point, and that they would be lifted as saviors on the backs of a grateful populace. That has been their script since the 1920s. They have no plan B for if the populace turns on them when things go to hell.

For the last 40 years, they have worked diligently to make lists of who all their enemies are for when they come to power...and people on the right have worked diligently to make lists of who all they are in the event of war.

I expect a big mess.

My health isn't good, and I pray God calls me home before it shakes out.

[WOBBLY BOB]

LOL.

[mountn man]

Stick a fork in them all. They're all toast.

We can't afford the coming SS and Medicare liabilities. We have a $14+ TRILLION "budgeted" debt and a $100+ TRILLION unfunded debt. Complaining about SS and Medicare is like complaing about a mouse, but missing the 800 pound gorilla in the room.

[Semper911]

Disagree completely on #2. If a person paid in, they need to get the payout.

So if you paid for fire insurance and your house never burned down, you should get a payout?

Seriously, we need to start thinking of SS as an insurance policy that will pay you a little money if you are poor when you get old. As the article's author said, "Be glad you don't need it." Just like all the other insurance policies we pay for in life.

There is no contract. None of us have ever signed a SS contract with the federal government. They just started taking out SS (FICA) taxes out of our check and we heard on the news that it was for our retirement. But things have changed.

Please, I implore you, try to change your thinking on SS, and think of it as an insurance policy against the worst case scenario. Then work your ass off to make sure you never have to "file a claim" on it.

FReegards,

[Reily]

Where did you get the idea its a contract?
It's always been a rob the working Peter to pay the retired Paul type of system. It works (sort of!) as long there are a sufficient number of working people contributing to the system as opposed to those taking money out of the system.
The working population numbers and age demographics must be remain static over time and there most be constant economic growth. Also the age of mortality most stay relatively constant, preferably similar to that of 1939. Now what can kind of investment or savings system only works as long as there are a great deal more “investors” contributing then “investors” receiving? For example, Ida Mae Fuller (1st American to get a monthly benefits check!)by the time of her death collected $22,888.92 in Social Security monthly benefits, her contributions into the system were $24.75. Let me say there have been a lot of Ida Mae's since then! This type of investment scheme is great for those who received money from it in the beginning, those at the end not so good! (Let me just say its sucks to be us!)

[sickoflibs]

RE :”So here is the clear unvarnished truth that every American needs to hear and understand: There is no money. It has all been spent, every last dime. In fact, 2011 is a momentous year for the SSTF, because it is the first year in which payments to beneficiaries exceed the “contributions” from taxpayers. This year $45 billion more will be paid to recipients than will be collected from the paychecks of American workers. The money will come from the general tax fund – or more accurately, borrowed from China as new government debt. Unless the Social Security system is reformed, we will never again see a year in which Fund income exceeds benefit payments. Here’s another truth: From this point forward, Americans who receive Social Security benefits have to realize who is paying those benefits to them – their children. If they want increased benefits, they will be taking them directly out of the paychecks of their kids. If you don’t have working children, you are taking the money from someone else’s kids. “

Until Republicans get the guts to admit that there is no trust fund and never could be, there is no point in talking about reform. I certainly wont support it until they are honest with us. We certainly never want a SS payroll surplus again, a huge scam.

Video Debate fun : A Liberal Democrat explains the why the Social Security Trust Fund is safe

[WOBBLY BOB]

“Social Security is a sacred trust “

John Lewis said so !

http://johnlewis.house.gov/index.php?option=com_content&task=view&id=785&Itemid=0

[Dan Cooper]

Disagree completely on #2. If a person paid in, they need to get the payout. It was a contract, and that wealth was confiscated from them based on a contract. Raising the age should be fine because it is fair for all that paid in.

It's not a contract, it is a tax. A contract is something that both parties agree to. You have no choice but to pay social security tax. In Flemming v Nestor [ssa.gov], the USSC decided that you had no entitlement to benefit from the social security tax that you paid and that Congress could change the rules whenever they pleased. It would be a good idea to income test benefits going forward since the program needs to be cut back. That said, I've paid into SS all my life and I'm still paying without any expectation that I will ever see a dime back.