Twenty-five years ago those running the federal government made my generation, and those after, a promise: pay a vastly higher regressive payroll tax throughout your lives and accept a later retirement age, and Social Security will be there to keep you out of poverty in your later years. That promise was made by the eight Republicans and seven Democrats, led by Alan Greenspan and appointed by President Reagan, who made up the 1982 National Commission on Social Security Reform, by the Congress that adopted its recommendations, and by the President who signed them into law in 1983. With all the extra payroll taxes since collected over and above those required to pay benefits, plus interest, the rest of the federal government owed Social Security nearly $1.9 trillion dollars as of FY 2006. And now for the two questions that cut through all the bullshit about Social Security.
Where will the rest of the federal government get the $1.9 trillion to pay back Social Security? Well, it will either have to drastically increase taxes, drastically slash other services and benefits, or drastically increase the federal budget deficit – leading to even higher taxes or even greater service and benefit cuts when those higher debts have to be paid. In other words it is those of at the back end of the baby boom, and those younger, would have to sacrifice to pay Social Security back. The federal government has no money of its own. It will have to get it from us. But wait a minute! If we have already been paying in extra for Social Security in the past, how come we will have to pay for it again in the future? Because the extra money that was collected in the past was spent in the past, and substituted for the personal income tax that was cut in the past. Not only that, but during the past 25 years the federal government borrowed even more money on top of that, and we will have to pay that back too.
As I wrote in more detail here, politically younger generations are being victimized by a double deception. Most Democrats pretend the Social Security money is actually there, as if we won’t have to pay a second time to get it back. But they won’t answer the question of where the rest of the federal government will get the money to pay Social Security back. All objective analysts know the money isn’t really there. Beginning in 2005, when President Bush said “we have a problem,” some Republicans have been willing to admit the money isn’t there. That’s what they are saying by asserting the federal government will have a problem with Social Security when it has to start paying back the trust fund, not when the trust fund is used up. But Republicans do not admit that less well off Americans have already paid for Social Security in higher payroll taxes in the past, which hit them harder. You don’t see President Bush, or any Republican, talking about where all those extra payroll taxes have gone. They pretend they didn’t exist.
The current situation is that Democrats are lying about the future, while Republicans are lying about (or at least ignoring) the past. Or, to look at it another way, their g-g-generation of leadership is collectively lying about both the past and the future. The Social Security trust fund is nothing more than a promise from our parents, having made us pay more, that we can tax our children and grandchildren into poverty.
So what do the candidates for President have to say about this? As Warner Wolf might say, let’s go to the websites and find out.
Senator Barack Obama proposes to increase the payroll tax by getting rid of the upper limit at which it is assessed, this time hitting the affluent instead of just the middle class and poor. But that would exempt retirement and investment income, and thus most senior citizens who profited from the generational betrayal, from any of the burden. And what would stop the Congress from just spending the additional money on other things (under the Democrats) or cutting the income tax again (under the Republicans) or both, benefiting people today, while placing even more IOU’s on the trust fund? Hey Senator, what about the IOUs that are already there? What every happened to “fool me once, shame on you, fool me twice, shame on me?” I had hoped for something better, especially since Obama is reaching out to the young, and is the only candidate personally on the wrong end of the deal based on his age. He is, however, the only candidate whose statements or lack thereof on the subject of Social Security aren’t a total joke.
Senator Hilary Clinton says nothing about Social Security, which is scary. Perhaps she favors the current non-plan – wait until all the members of her g-g-generation are collecting Social Security, then admit there is no money to pay for it, and raise taxes on and cut benefits for those younger again, especially those who were not “at or over 55” in 2005, in President George W. Bush’s memorable phrase. That won’t cut it. The way we are going, Senator Clinton’s generation gets everything, those coming after pay and get far less. And if you don’t say anything, you approve.
Senator John Edwards also says nothing. Hey Senator Edwards, since your generation signed the multi-tier contracts that preserved and enriched pensions and retirement benefits for itself while taking away defined benefit pensions for future hires, my generation and those after have had nothing but 401Ks or, more likely, nothing but Social Security to look forward to. Can’t you say anything about this? How come this “defender of the working man” somehow doesn’t bring up the greatest heist against working people in a half century, the shift from a progressive income tax to a regressive payroll tax falsely sold as a way to “save Social Security?” Is it because, like most Democrats and Republicans (and public employee unions), he is really most concerned about the “working people” currently not working, enjoying a retirement those coming after are paying for it will never see?
Senator John McCain promises to cut taxes – I guess younger generations can pay the money back – and put Social Security money in private accounts to “make sure” people get their promised benefits. What McCain’s generation proposes to do, under his proposal, is substitute a lottery ticket for the money they have taken from us. And if we hit the lottery, we break even. Hey Senator McCain, haven’t state and local governments already shifted a huge tax burden to younger generations by “assuming” a high rate of return in their public employee pension funds? Are you aware of this? What has the actual return across asset classes been in the past, or, seven or eight years? Keep asking him that question during the year, because it’s bound to be changing, and in the wrong direction.
“No problem is in more need of honesty than the looming financial challenges of entitlement programs. Americans have the right to know the truth,” he says. OK, tell me right now. We paid in an extra $1.9 trillion. Where is it? Everyone who knows anything about the games and assumptions behind the privitization plans know they are either a hoax to prefer there is no problem until the future (when the returns are inadequate), or a way to concentrate the losses on those at the bottom. I’ve got a suggestion for Senator McCain for New Jersey. Just go there and tell folks that your assumed rate of return for private accounts is so high, not only will all the benefits be paid, but you can borrow against a projected surplus and cut taxes, just like Christie Whitman! Yes sir, just promise a Christie Whitman policy for the future of America, and see how many votes you get.
Former Governor Mike Huckabee wants to eliminate the Social Security payroll tax, but says nothing about Social Security. Nothing at all. Possibly because he knows nothing about it. Nothing at all.
Former Governor Mitt Romney doesn’t mention Social Security either. But he does promise that “in a forthright and bipartisan manner, as President, Governor Romney will work with Congress to address the looming budget crisis caused by increasing entitlement spending.” Ahem, does the Governor mean he will see an “everyone is covered” deal with fellow members of his generation to cut benefits for those born after 1959, those who weren’t “at or over 55” in 2005? Hey Romney, which is there a “looming budget crisis caused by increasing entitlement spending” when younger working people have paid an extra $1.9 billion since 1983 to fund it? And by the way, how does the “looming budget crisis caused by increasing entitlement spending” compared with the current budget crisis at the Metropolitan Bay Transportation Authority in Massachusetts, which (in order to be popular in the short run) you saddled with the highest debts of any transport agency in the nation?
Nothing from former Mayor Giuliani on Social Security either. We do know his record as Mayor, when he agreed to early retirements and pensions enhancements over and above those dumped by the state, and ran up debts, which were followed by much lower wages for new public employees when the economy tanked and the bills came due. Again. Rudy promises to cut income taxes and investment income taxes, benefiting those who don’t earn wages – including the very wealthy and senior citizens. But for some reason he doesn’t promise to cut payroll taxes. Hey Rudy, damn it, if you are going to run up even more debts younger generations will have to pay for, could you at least consider giving them some of the benefits today? Rudy also proposes eliminating the “death tax.” Like most wealthy Republicans, he wants people like himself to be better able to offset, for their own children and only their own children, the financial damage they have done to our country.
Looks like another generational gang rape.
I said what I would do about Social Security here http://www.r8ny.com/blog/larry_littlefield/social_security_what_should_they_do.html . The bottom line is to stop the ripoff, by ending the collection of any additional payroll taxes “for Social Security” beyond what is required to pay benefits, immediately. And once it is conceded that Social Security is just another tax, there is no excuse for it being a regressive tax that only hits wage earners. Cut the rate, tax every dollar of income from the first to the last, and include non-Social Security retirement income too. We never did save up for the retirement of younger generations, and we never will.
And then we need to face the facts like the adults our elders never were – the extra money we paid is gone, and we’ll have to work longer.
If one looks beyond the realm of paper assets and thinks solely about the tangible economy, in fact, one comes to doubt if any such paper assets, whether government or corporate, can assure retirement. Those paper assets are claims on future goods and services, to be produced by someone else. What happens if there are more people not working and producing anything, but holding such paper claims, and fewer people working and producing goods and services? Then it will take more paper claims to purchase the same amount of goods and services. And if the retired have a guarantee that they will get more claims to offset any adjustment in price, such as the inflation adjustment under Social Security, everyone else will be pauperized by inflation.
In reality, the goods and services consumed by Americans, working and retired, in 2030 will have to be produced by working Americans in 2030. That’s where the food, clothing, shelter, health care, and custodial care of seniors with self-care limitations will come from. Someone will have to do the work, not matter who holds what paper. It might have been possible for the United States to produce a surplus during the past 25 years, send it to developing countries like China to invest in their development, and then have those developing countries pay it back as our population ages. But as a result of our individual and political decisions, we have in fact done the reverse, and will be forced to produce a surplus to pay back other countries in addition to paying for retirement in the future, no matter how many pieces of paper are issued. (And, by the way, the federal government spent the money rather than invest it in business because Alan Greenspan was afraid that capitalism would be hurt if the U.S. government owned a substantial share of U.S. corporations. Now, as the United States goes bankrupt, foreign governments are buying up a large share of U.S. corporations, which have been forced to beg for money to avoid bankruptcy. Hey Alan, care to comment?)
When social insurance for old age was first enacted, and the retirement age was set to age 65, that was also the average life expectancy. That’s why Social Security is actually called Old Age Survivor and Disability Insurance (OASDI) — one is taking out insurance against living to an old age. The average life expectancy for women (relevant because Social Security pays survivors even if they did not work), however, was already 73.1 years in 1960, and was 80.4 in 2004. Moreover, people used to work longer than they do today. In 1940, 66.9% of men age 65 and over were in the labor force, working or looking for work, according to the Historical Statistics of the United States. In 1890 that figure was 68.3%, but in 1985, it was just 15.5% for single men and 16.8% for married men. If people are going to live longer, they are either going to have to work longer as well, or they are going to place an unreasonable burden on the young.
I’ve heard just one person describe the Social Security issue correctly. The goal of the program is not to allow a healthy man to play golf and take cruises after age 62; it is to allow his frail wife (or mother or sister) to avoid deprivation after age 80. That is something very basic, Senator McCain, not something you gamble in the stock market. (What is that rate of return currently, Senator?)
Today’s young and middle aged have one advantage that their elders didn’t have. Without the pressure of larger generations flooding the labor market behind them, they will be less likely to be pushed out of it. The labor force participation rate is already rising among those over age 65, the data show, for both men and women — the reversal happened in the mid-1980s, after the last of the Baby Boomers was absorbed and the unemployment rate started to fall. It will have to rise further. The age wave isn’t just the Baby Boomers, it is the Baby Boomers and everyone coming after. Yes there was a “Baby Bust,” but immigrants rushed in to make up the shortage in the labor market. Every future generation of retirees will be large, nearly equally so. A permanent, rather than temporary, solution is required.
I don’t propose changing the Social Security retirement age. I propose eliminating it as a specific guaranteed date altogether. Instead, the law should simply declare that the ratio of those working and paying in to Social Security (including those also collecting) to those collecting Social Security shall forever be 3. People would be allowed to begin collecting, in birthday order, as room was made available as older beneficiaries died and/or more young people started working. This could be considered in some sense equitable. The retirement age might change, but the ratio of the retired to the working would remain the same. If people in general lived longer, they would be required to work longer, but would also be retired and supported by others longer. If rising obesity cut life expectancy, the retirement age would fall, keeping the ratio the same. Some people in poor health may have to be permitted an earlier retirement date due to disability, forcing others to keep working longer to keep the ratio the same. If properly selected, however, such people would presumably die younger, spending no more time in retirement on average than the healthy.
In addition, instead of having a guaranteed inflation adjustment, Social Security benefits should rise or fall with the incomes of those paying into the program, keeping the amount of money coming in equal to the amount going out. Rather than benefiting at the expense of workers, or falling behind them, the fortunes of the retired would therefore be linked to those of later generations. In the 1970s, under the rules then in effect, when Social Security benefits were adjusted for inflation but workers wages and therefore Social Security taxes) fell behind, the young faced an exploding burden in hard times and the Social Security program nearly went broke. More recently, some have proposed linking benefits prior to retirement to inflation rather than average wages if the former was lower, cutting benefits for the retired if the economy continues to grow and workers become relatively richer. Under this proposal, all would prosper and sacrifice together.
With these two provisions in place, the entire Social Security shortage is instantly eliminated, now and for all time. The program could be restored to a pay-as-you-go basis, and the Social Security portion of the payroll tax cut.
Of course, a $1.9 trillion fictional trust fund would remain on the books. If the U.S. Congress were to start running budget surpluses in good years and paying off the national debt held by the public, then at certain times in the future it could sell those “Lock Box” IOUs to the public, and use the proceeds to allow people to retire earlier than the real Social Security guarantee, and the ratio to temporarily fall below 3 to 1. The time to do so would be in recessions, when senior citizens who lost their jobs would have trouble finding new ones, and young people might not object as much to being saddled with paying off more debt if jobs would be opened up for them by seniors who retired.
That is an honest look at Social Security. The only candidate who is being remotely honest is Senator Obama, but his solution is to take the existing generational betrayal and increase it. As I said last week, if he wants to increase a tax, let him increase the personal income tax, which senior citizens also pay, not the tax on work income alone, which has been higher than it should have been for 25 years.