Should Social Security benefits be abolished?

No

1 of 60

by Chris Messner

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The basic premise of America's Social Security program is a sound one. Under Franklin D. Roosevelt, the federal government began deducting payroll taxes from most workers to fund an insurance program to provide a little something for people and their families after retirement.

When first implemented, in 1935, Social Security was a "fully funded" program, meaning the deducted money was set aside in an actual account for the individual taxpayer. In other words, even though there wasn't then, and never has been, a statutory requirement for the government to segregate Social Security revenue from income tax revenue, Uncle Sam set up an account for John Doe, gave it an identifying 9-digit account number, kept the money it took from him in that account, and used the money to send Mr. Doe a monthly check after he retired at age 65.

What a great idea! America was slowly emerging from the Great Depression, during which millions had suffered greatly through job loss. Older Americans who had retired and did not have a pension, or lost their jobs, were basically destitute, so the concept and implementation of a national insurance program to provide retired folks with a basic standard of living met with general public approval.

Back then, this was a no-brainer. It was both an easy way to help old folks and an easy way for Uncle Sam to get his hands on more money, eventually much, much more money.

There were at least a couple of cases which made it to the United States Supreme Court in 1937, challenging the constitutionality of Social Security, and the law's failure to provide for the segregation of Social Security payroll taxes from income tax revenue.

We all know, of course, that these challenges were dismissed by the Court.

So, where did the program go wrong? Well, it didn't happen all at once, but, gradually, the government made additions and changes to the program which greatly increased its number of beneficiaries and, therefore, required lots more money to administer.

But the big blow came in 1939. That's when the government abandoned the "fully funded" system and changed it to the current "pay-as-you-go" system. This meant that Mr. Doe's payroll taxes were no longer held in an account for him alone. Instead, that money was used to pay current beneficiaries, and any surplus would be placed into the Social Security Trust Fund to be used for payments to future beneficiaries.

Sounds great, right? It made sense for the times and for decades thereafter. But a couple of things came together since then to transform Social Security from a successful program which was pretty easy on taxpayers, to the monster bankrupt pyramid scheme it is today.

No doubt, you've heard that in the early "pay-as-you-go" days of Social Security, there were 16 payroll taxpayers supporting just 1 Social Security beneficiary. Program costs were low and the Social Security Trust Fund was filling up with surplus payroll taxes.

But now, 70 years later, there are less than 3 payroll taxpayers supporting each Social Security beneficiary. In our nation of about 300 million people, with about 140 million taxpayers supporting the program, there are about 50 million beneficiaries. That means 1 of every 6 Americans is receiving some Social Security benefits, but only 2.8 payroll taxpayers are supporting 1 Social Security beneficiary. As the Social Security beneficiary rolls continue to swell, the number of taxpayers supporting each beneficiary will continue to shrink.

Early Social Security was meant to support retired oldsters. Since then, the program was expanded to provide benefits to families that lost their breadwinner to death or injury, and the Supplemental Security Income (SSI) branch of Social Security was set up to support incapacitated people who couldnt or wouldnt work, even if they were incapacitated through their own fault.

Obviously, expanded Social Security coverage meant the program needed a lot more money to survive. So the tax structure that supported Social Security has needed many, many adjustments over the years.

There has always been a ceiling on the amount of earnings a taxpayer had to pay Social Security taxes on. For example, in 2008, the cap was $102,000. That means any earnings over that amount were free of payroll taxes. But, in order to extend the solvency of the program without raising the payroll tax rate, Congress is considering removing the ceiling and making all earnings subject to the payroll tax. In any case, the ceiling increases each year as provided for by federal law.

Since I began contributing payroll taxes in 1968, the payroll tax rate has been increased 12 times. Although government officials acknowledge the program needs to be changed in order to survive, increasing the tax rate would be an unpopular, politically dangerous thing to do.

Our government readily acknowledges that, by 2041, without changes to the program, payroll taxes will be able to provide only about 75 percent of scheduled benefits.

The other thing that undermined the foundation of Social Security and made the program a gargantuan taxpayer rip-off is something mentioned previously: There has never been a legal requirement for the government to keep Social Security revenue separate from income tax revenue. All the money goes, together, into the government's so-called "general fund".

That means that Congress and the President can spend it all, on anything, and they do. For example, let's say the government takes in $100 in Social Security revenue and $100 in income tax revenue this month. That $200 goes into the general fund. Let's say the government's Social Security obligation for this month is $60. So, the government pays out the $60 to Social Security beneficiaries, spends the $100 income tax revenue on other government obligations, but has $40 in Social Security revenue left over.

Instead of putting the $40 cash into the Social Security Trust Fund, Congress and the President spend the $40 on other government obligations. That spending is often referred to as "raiding the Social Security Trust Fund". But they need to account for the $40 to the Social Security program. So they issue $40 worth of government-use-only bonds, and put THAT into the Social Security Trust Fund.

What's the problem? It's pretty simple. If you understand how it works up to this point, you shouldn't have any trouble understanding that raiding the surplus and back-filling the Trust Fund with government debt instruments creates an additional, future obligation on taxpayers. Disingenuous government officials point to the bonds in the Trust Fund, currently about $7 trillion worth, and say, "Hey, there are boatloads of money in the Trust Fund right now, enough to pay full program benefits for several decades."

But wait! It's not "money". It's bonds. Some people claim that money and bonds are the same thing. They insist that bonds are rock-solid because they are backed by the so-called "full faith and credit of the United States Government". Those people are liars, fools, or both.

Bonds are the means by which our government borrows money. If the government issues a bond, even to itself, it means it has borrowed, and spent, the money the bond represents.

So, if we were to have a truly honest accounting about the Social Security Trust Fund from our government, it would admit that the $7 trillion value represented by the bonds in the Trust Fund means the money has been spent, that the payroll taxes accounted for by those bonds did not actually go toward Social Security, as they should have, and that, even though taxpayers paid that $7 trillion to support Social Security, they have to pay a second time to redeem those bonds. And, if the government presented it that way, it would be an honest admission that the government has robbed taxpayers on a grand scale.

Furthermore, it would have to add the value of the Trust Fund to the cumulative national debt, currently being reported as about $11 trillion. The only difference between the cumulative national debt and the Social Security Trust Fund debt is that the national debt represents money the government borrowed from "investors" (anyone who buys a government bond), while the Trust Fund debt represents money the government borrowed from itself, ripping taxpayers off in the process.

To make matters worse, all the problems about Social Security's funding and future described in this article apply fully, albeit on a smaller scale, to Medicare, which began in the mid-1960s.

Social Security benefits should not be abolished. Congress and the President simply need to screw up some political courage and make some badly-needed adjustments to it so that it will be a viable old-age insurance program long into the future.

What can be done? Well, for starters, we need a change to the law to make the Social Security surplus off-limits to big-spenders in Congress. Remember Al Gore's "lock-box" proposal? This is it. The practice of back-filling the Social Security Trust Fund with bonds must end, as soon as possible. Surplus Social Security funds must be invested conservatively in something other than United States government debt instruments. Uncle Sam is about 20 years past flat, dead broke. So why does he force taxpayers to invest with him?

This change will crimp Congress' ability to buy votes and dump taxpayer money down international black holes. I say it's a long overdue adjustment.

Next, annual cost-of-living increases in Social Security benefits must be reduced by at least 50 percent. Remember, Social Security was never, and isn't now, intended to provide for all our needs in retirement. Intelligent, resourceful, hard-working Americans are expected to provide for their retirement needs through employer pensions, 401(k) accounts, IRAs, successful investing or just plain scrimping and saving. If we are to stake a legitimate claim to the individual liberty, freedom and independence mentioned so often by conservative talking heads, we cannot concurrently behave like helpless children begging our Uncle Sam for a few more dollars each month.

Then, the SSI branch of Social Security must be re-examined. It is a scandalous program which has paid billions to drug addicts and alcoholics, knowing the money has gone to liquor stores and drug dealers to perpetuate the addictions of some SSI beneficiaries. It is long overdue for an overhaul to ensure the money isn't wasted on booze, or doesn't end up in drug dealers' wallets. In the case of illegal drugs, these payments have made all American taxpayers supporters of criminal activity. I don't know about you, but I don't call that good government.

What shouldn't be done? The tax rate should not be increased. It already takes a big enough chunk of your earnings, and, don't forget, it costs your employer an equal amount. Yeah. So, next time you're griping about not making enough, check your W-2 form, look at the Social Security and Medicare taxes, and understand that your employer had to write a check to Uncle Sam for that amount on your behalf. Figure in the employer-paid costs of your other benefits, and soon you'll understand it costs your employer much more than what you earn to keep you.

Social Security can last long into the future with some common-sense adjustments that will be relatively painless for both taxpayers and beneficiaries. If you agree, please contact your Senators and Representative as soon as possible to urge them to get cracking on these adjustments.

February 16, 2009

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