Social Security Reform
By Harris Sherline
October 29, 2009
The assumptions used in preparing projections are not facts. They're guesses: Sometimes right on, sometimes way off or somewhere in between. But when it comes to Social Security, regardless of the accuracy of the assumptions used in making various forecasts, the reality is that the system is going broke. The question is not "if" but "when."
Start with the fact that the Social Security administration does not have any funds in trust or investment accounts, such as stocks, bonds, savings accounts. The entire system is actually a giant Ponzi-type pay-as-you-go scheme that takes the payroll taxes of those who are still working and distributes it to retirees. Individuals who hustle similar dishonest "investments" are sent directly to jail without passing "Go," but it's OK for Congress.
"Any surplus is not saved or invested for pensioners. Those funds are borrowed by the federal government to pay current operating expenses and replaced with government bonds.....the federal government lends itself the excess in return for an interest-paying bond, an IOU that it issues to itself......The funds are not invested for the benefit of present or future retirees." (Source: Retiring With Dignity: Social Security vs. Private Markets, William G. Shipman, The CATO Project, August 14, 1995).
What a brilliant idea, having the government borrow money from itself and issue IOUs to itself, promising to pay it back later. But wait, doesn't the money all come from the same pocket, the taxpayers, right? If you're confused by this, don't fret, you're not alone. The entire setup is nothing more than a giant shell game: now you see the money, now you don't, which shell is it under?
Our Social Security program has worked to this point because money has been coming in faster than it has been going out. But that's about to end. Charles Krauthammer, writing in the Washington Post (2005), noted that in 2018 the "pay-as-you-go system starts paying out more (in Social Security benefits) than goes in (in payroll taxes)...But because the population is aging, in 13 years [now 9 years] the system begins to go into the red." At that point, Social Security will only be able to pay 73% of "promised benefits" to retirees.
If you're not yet convinced that Social Security is going broke, here are some stats worth considering (Source: Retiring With Dignity: Social Security vs. Private Markets, William G. Shipman, The CATO Project, August 14, 1995):
In 1935, when the Social Security Act was adopted, life expectancy at birth was 64 years; in 1995 it was 75.8; today it's over 78.
The birth rate was 3.56 in 1950, 2.0 in 1995 and is currently something less than 2.0.
There were 16 workers for every Social Security recipient in 1950; 3.3 in 1995, and the ratio has been projected at less than 2.0 in 2030.
In 1937, the maximum Social Security Tax was $60 on $3,000 of income. Today, it's $6,621 on $106,800 of income, over a 10,000% increase. (NOTE: Remember, the employer matches the employee's contribution).
These numbers clearly demonstrate why Social Security is going under: people are living (read collecting benefits) longer, and there are fewer workers paying into the system to support each retiree. In about 20 years, less than two workers are expected to be paying into the system to support each beneficiary, compared to 16 in 1950.
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