There's been a lot of talk recently about Social Security lately, and, as always, the talk includes a LOT of misinformation. People argue that Social Security is “broke”, that it is a “pyramid or Ponzi scheme”, that it’s “doomed to fail”, that it's "too expensive", and that people get back more than they have paid in. None of these arguments against Social Security are true. Before commenting on Social Security and how it's broken, or how it should be fixed or eliminated, it might be good to find out whether or not you actually know what you are talking about. Here's some information that will help you make up your own mind.
Social Security is not “broke” [though creative accounting by the federal government would have you believe otherwise] nor is it a “pyramid scheme”. Pyramid and Ponzi schemes have an element of inherent fraud and secrecy, and ARE "doomed to fail". They promise incredible, too-good-to-be-true financial returns to investors that will eventually be impossible to meet, because the number of potential investors is limited. The people who benefit most from Ponzi and pyramid schemes are the creators of the scheme and the early investors, because they receive the promised incredible financial gains, which are paid to them using the money invested by later investors. This is necessary, because the creator of the scheme needs to be able to show later investors "proof" of financial gain in order to convince them to invest and unknowingly keep the scheme going. Investors are not aware of the structure of the scheme.
Social Security lacks the secrecy and the element of fraud. It doesn't promise fantastic financial gain; it merely guarantees modest, regular financial assistance in retirement or disability for those who participate. Our payroll deductions are used to cover benefit payments for those who are eligible to receive them, and any amount that exceeds current benefit payments is added to the Social Security trust funds, to be used during the periods of time when benefits exceed contributions. [Yes, when the Baby Boomers all begin collecting, Social Security will start having to pay out more than they collect, but the trust funds have that covered.] Current payments to Social Security more than cover current payments to beneficiaries, and the Social Security trust funds boast a surplus of more than 2.5 trillion dollars. Social Security isn’t “doomed to fail”, either. Since most people have to work to survive, there's no lack of "investors", and if benefit payments exceed contributions for an extended period of time, payroll contributions can be adjusted to fit the situation. Simple adjustments are all that is necessary to ensure that everyone who pays into Social Security will benefit from it.
By law, some of SS’s $2.5-trillion-plus surplus has been loaned to the federal government, who then gets to use that money to make it look as thought our national deficit is much higher than it actually is. The government also includes our contributions to SS in the federal budget to make it look as though they have more income in the General Fund than they actually do, and makes required SS payments to beneficiaries look like additional debt from the General Fund. This allows the federal government, lobbyists and political pundits to claim that Social Security is "too expensive".
Social Security should simply be separated from the rest of the federal income and obligations, since SS pays for itself through our payroll contributions, but it’s beneficial for the government to use SS as a budget expenditure, because people see how much SS costs without realizing that the money to pay SS benefits has already been collected from our paychecks for that specific purpose. Eventually, the federal government will have to pay the money they borrowed back to SS, along with additional funds calculated at the prevailing market interest, when SS finally needs to dip into these funds, and that's not something the government really wants to do.
Loaning money to the federal government is a very bad idea, as the only money the federal government has comes from the taxpayers. When the government borrows money from the taxpayers, the only way they have to pay us back is to get even more money from us. We will essentially be paying ourselves back. The federal government can only raise money by raising our taxes or by borrowing money, which requires the taxpayers to pay back the amount of the loan, plus interest. Either way, the taxpayer will still be paying for their SS benefits twice over or more.
Unless, of course, Congress can convince us that Social Security is too expensive, and should be eliminated or significantly changed. They’d really like to do that, because the money in the $2.5-plus-trillion-dollar trust funds would be up for grabs. To many in the government, getting their fat, greedy hands on our money is much preferrable to the alternative. When SS needs to dip into the trust funds to pay beneficiaries, Congress will have to come up with additional income from the taxpayers to repay the loan they borrowed from SS, and both that expenditure and the income will have to be added into the annual budget.
Next, getting more back from Social Security than we put in is a fallacy. SS is taxed at 6.20% from employee AND employer, for a total of 12.40%. The median American income is around $45K, and we'll say that people work around 45 years, on average [start work at 20 and retire at 65]. So, around $5580 annually in combined individual and employer contributions is paid to Social Security on each working person's behalf, which totals $251100 over 45 years, not including interest. The average SS payment is around $1000, which means that our contributions cover us for around 21 years. That brings us up to age 86. The life expectancy for women in the U.S. is around 81 years; for men, it's only around 77 years, according to the most recent available U.S. Census figures. So, essentially, women are leaving about 5 years worth of contributions, or $27,900 in the trust fund, while men leave behind about 9 years of contributions, or $50, 220. Sure, some people live longer [and some are on disability, some get dependent/survivor benefits] but some people die a lot sooner, too. We’re not taking out more than we put in. We didn't even account for all the accrued interest.
[Here's the math: 12.4% x $45,000 = $5580 annual contributions; $5580 x 45 years = $251100 total lifetime contributions; $251100/$1000 average monthly payment = 251.1 payments; 251.1/12 months =
20.925 years; 65 years + 21 years = 86 years; 86 - 81 female years = 5 years of contributions; $5580 annual contributions x 5 years = $27,900; 86 - 77 male years = 9 years of contributions; $5580 annual contributions x 9 years = $50, 220.]
Fixing SS is simple. We can even use this opportunity to stimulate the economy by implementing my simple, four-step ISEE solution.
1.] Increase payroll contributions by 1%;
2.] Stop loaning the money from the SS trust funds to the government;
3.] Establish small business/alternative energy investment program, loaning to creditworthy, low-risk small-business and alternative energy technologies borrowers instead;
4.] Eliminate the tax cap on earnings.
ISEE will stabilize Social Security for the long haul, and allows an increase in benefit payments from around 1/3 earnings to 50% earnings. This increase provides a regular, dependable source of funds for beneficiaries, many of whom are low-income and tend to spend extra funds rather than save them. The extra money spent stimulates the economy by increasing demand for goods and services, which creates jobs. Job creation puts even more money into the hands of even more people who will spend it, creating even more demand, and as a result, more jobs. Additionally, loaning excess SS funds to credit-worthy, low-risk small business owners and those developing promising alternative energy technologies [and promising business plans] will also stimulate the economy, as the owners will use the loans to start or expand their businesses, creating jobs.
Elimination of the SS tax cap on earnings is often controversial, but it's necessary. Social Security is an entitlement program; it's not means-tested. This means that wealthy people who have reached retirement age receive Social Security payments, too. The poor and middle class making up to $106,000 annually pay Social Security tax on their entire incomes; in other words, 100% of their income is taxed for Social Security purposes. These are people that must often spend 100% of their incomes to provide for their basic needs. In comparison, someone making $1 million is only taxed on about 10% of their income for Social Security.
Some argue that the wealthy don't need Social Security, and shouldn't have to pay SS tax. But they can and do collect it anyway, despite not needing it. Social Security is meant to be a safety net. If a wealthy person loses all his money in a stock market crash, Social Security will be there for him, too. Ensuring the wellbeing of our elder citizens is part of what makes America great. American citizenship provides great opportunity, and opportunity costs. Part of that cost is doing our part to ensure the wellbeing of our seniors and disabled citizens. The poor and middle class do it; the wealthy should, too. They can certainly better afford to do it than the poor and middle class: the wealthiest 20% of Americans control 85% of America's wealth, leaving 80% of America to share the remaining 15%. Fair taxation? Perhaps we should tax based on wealth rather than just income; I'm sure a lot of people could get behind that.
Social Security is absolutely necessary, preventing an estimated 40% of senior citizens from living a life of poverty. Social Security is intended to act as a safety net, to assist seniors and the disabled with their financial needs in concert with retirement funds and investments. But for many, their Social Security checks all that keeps them from living on the streets. Many people struggle just to make enough money to pay all their basic bills every month; there isn't any money left to save for retirement. These aren’t lazy people. They work hard, but some people will just never make the money one needs to cover all the expenses we face these days. Some people did save for retirement, but lost it through bad investments, unpredictable market events, expensive illnesses, disasters or fraudsters. Charities and churches can help, but charities and churches are funded through the generosity of citizens. When times are tough, citizens have less money to give, and churches and charities have less resources to provide help.
Politicians LOVE it when we don't take the time to arm ourselves with facts; they prefer that we remain ignorant, and believe what the people on the "news" tell us to believe. Don't be a sheep; be a leader. Doesn't take long to get the facts; let's arm ourselves and spread the word. The slimy politicians [and the wealthy special interests who buy them] won't be able to get away with nearly as much in an informed society.
