Social Security or Insecurity?

There is perhaps no bigger scam in the federal budget than Social Security. Since its inception, Social Security has grown into a bigger and bigger Ponzi scheme. Take, for example, the first recipient of Social Security, Ida May Fuller of Ludlow, Vermont. She paid a total of $24.75 into the Social Security System. The first Social Security check she received was for $22.54 and after her second check, Fuller already had received more than she ever contributed. She lived to be 100 and collected a total of $22,888.92 which is approximately 92,000% more than she contributed to the Social Security trust. Any system with numbers like these is unsustainable. How did we get to this point? What can be done to rectify the horrid financial situation the United States finds itself in now?

The Social Security Act of 1935 was signed into law by President Franklin Delano Roosevelt as one of his New Deal programs. Originally, the fund was designed for only the elderly, widowed, and unemployed. As any government program evolves, more and more people want in and they begin demanding their piece of the pie- and then they demand increasingly bigger pieces of the pie, as well. Something that most people forget is that Social Security was never designed to be the sole income for retired seniors; it was to provide a safety net to assure that the elderly would not suffer in poverty while unable to work their way out of it. Whatever good intentions were there initially for the Social Security system, were lost over the years because it gave people an excuse to not properly plan for their futures, and for the government to be reckless with the taxpayers dollars. As Dinesh D’Souza writes, “The involvement of the state has utterly stripped the transaction of its moral value, even though the result is exactly the same…When the state exceeds its proper function, when it moves outside its sphere, it invades the domain of the citizens, depriving us of both freedom and responsibility.”

One important trick behind Social Security is that it is considered to be a “mandatory spending program” by the government. This is because of how the system operates: When the Social Security system was created, just two items were considered. First, who would be eligible for the benefits (which is a perpetually increasing number of people) and second, what formula would be used to calculate the amount of benefits a person would receive. From there on out, Social Security has essentially run on auto-pilot. The budget for Social Security on any given year is not up for Congressional approval (like “discretionary spending” is) because it is the nation’s demographics that determine how much money will be paid out. So, our elected officials have no power to change the system unless they enact specific legislation to do so- something which no politician has dared to do. Social Security has often been called, “The Third Rail of Politics” because attempting to do anything with it (other than increase benefits) means political suicide for any politician. But it doesn’t have to be that way. Perhaps if more Americans familiarize themselves with the facts and how dire our situation is, they will beg their elected officials to do something about the Social Security disaster before it is too late.

One fact that should concern every American is this: If we do nothing to rearrange our current entitlement system, by 2052, every single dollar of federal revenue will go towards paying out benefits for Social Security, Medicare, and Medicaid. The United States will not even be able to pay the interest on our accumulated debt much less anything else like national defense, public park system, infrastructure improvements, and so forth.

It is true that the Social Security Trust has run a surplus for many years. This is because in the beginning (1950 and earlier), there were 16 workers to support each retiree through the payroll taxes (FICA) collected. Now there are just 3 workers for each retiree, and when all of the baby boomers retire, we will be lucky to have 2 workers to each retiree. In raw numbers, the number of people receiving Social Security benefits in 1940 was 220,000 people. This increased to 47 million by 2004 and will reach an astonishing 84 million by 2030. The big problem is that in the surplus years, the excess money did not sit in a magical account, waiting for its day to be spent be the deserving people that contributed. What the government has done is something that, in the private sector, would be called downright fraud- counting money twice The technical explanation is that surplus has been invested in special series, non-marketable U.S.Government bonds, meaning that the Social Security Trust Fund indirectly finances part of the federal government’s deficit spending. Or, in simpler terms, the federal government spent the surplus and stuck a bunch of IOU’s into the Social Security Trust Fund. The brilliant, late economist Milton Friedman put the scenario into perspective quite well when he said:

“To preserve the fiction that Social Security is insurance, federal government interest-bearing bonds of a corresponding amount have been deposited in a so-called trust fund. That is, one branch of the government, the Treasury, has given an interest-bearing IOU to another branch of, the Social Security Administration. Each year thereafter, the Treasury gives the Social Security Administration additional IOUs to cover the interest due. The only way that the Treasury can redeem its debt to the Social Security Administration is to borrow the money from the public, run a surplus in its other activities or have the Federal Reserve print the money- the same alternatives that would be open to it to pay Social Security benefits if there were no trust fund. But the accounting sleight-of-hand of a bogus trust fund is counted on to conceal this fact from a gullible public.”

Using these surpluses also had the effect of making general federal debt appear “smaller” than it really was, year after year. It is estimated that Social Security only has enough assets to pay benefits through 2018. After that, either the system will be entirely bankrupt, or payroll taxes must be increased.

The wrongful assumption in the whole Social Security debate is that individual people cannot be trusted to save for their own retirement. What should be done is the complete elimination of the system for young people (say, anyone under the age of 45). Anyone who is currently receiving benefits ought not to lose them, of course. But for those of us still young enough to save for retirement, we should be allowed to opt out of the system- no money deducted from our paychecks now, so there is no obligation for the government to pay for us later. Sure there will be a few people who squander their money and do not save enough for retirement but, as Thomas Sowell says in his book, Dismantling America, “There is no reason why other people should lose the right to make decisions for themselves because some people make questionable decisions.” Those over a specified age could continue to pay into the system, if they choose, and still be able to redeem benefits.

There are a plethora of options when it comes to restructuring (or even eliminating) the Social Security Administration.  But doing nothing will absolutely lead to the financial ruin of America.  And faster than anyone realizes.

(This is the third segment from a 10 part series on my personal blog)