A friend of The Seniors Center recently wrote:
I’ve been contributing to Social Security for more than 50 years. When I owned a business, I also paid the employer share on my employees for many years. And after doing my part for more than 50 years, now the program cannot pay off as promised?
Social Security is running out of time. Within 15 years, maybe less, Social Security will not have the money to pay benefits as promised.
I am not OK with that. It’s just not the kind of promise a government can break. Revolutions happen. Kings lose their heads.
The Seniors Center is searching for a bi-partisan solution for our Social Security crises
A quick recap of the failure: Social Security collects 12.4% tax on a worker’s earnings, 6.2% from the employee and the other half from the employer. For 2018 the earnings were capped at the first $128,400 earned. The result is a maximum tax of $15,921.60 per worker. That applies to everyone with earned income. Warren Buffett pays about the same as you and me.
The money is held in a trust and invested, to be paid back to the worker in their later years. It’s a continuous process with new workers starting to pay-in as older workers start taking their pay-out. The pay-out amount is based on the best 35 years of earnings, so the cycle is obviously long enough to monitor. Adjustments can be made gradually, as needed, without shocking anyone.
The official name for this plan is the Federal OASDI Program. It’s the Old Age, Survivors, and Disability Insurance Act. It was enacted in 1935. I mention this so it’s clear, Social Security is a federally run program. (If your state assemblyman is talking about protecting Social Security, vote for the other guy.)
It’s a good plan based on solid principles. The problem is with management.
Today, there is no cash in the Social Security Trust Fund. The US Treasury borrowed it. The trust holds special purpose bonds, which is a deceptively positive name for a debt instrument that is not marketable and cannot be used for anything else. If you ever borrowed $20 from the cash register and left a note, you did the same thing, but I bet you didn’t call it a special purpose bond.
Fun fact. Lyndon Johnson was the first president to raid the Social Security cash register. He needed to pay for a certain war the public was not willing to support, so he took their money a different way. Johnson was the first, but the practice has continued in every administration right up until today.
The Social Security trust fund today is a pile of IOU’s that cannot be transferred. No cash, no marketable investments, just special purpose bonds. The Treasury pays Social Security a whopping 1.375% interest for the most recent issue. Repayment stretches out to 2027.
There is no market to set the price of this “investment”. The book value is whatever the US Treasury says it is. The issuer is $20 trillion in debt, continues to operate at a loss, and the bond pays 1.375% interest… but Treasury says our trust is 100% funded. I’d like to quote George Carlin here; “it’s called the American Dream because you have to be asleep to believe it”.
The Social Security trust fund cannot be protected or kept intact. It’s already gone.
Social Security is based on a well-established investing principle. You save over a long period of time, you take advantage of compounding, and you end up doing well. That method works. I look at my IRA and think it’s magic. It’s been compounding for quite a while, at considerably better than 1.375%.
What turned Social Security from near magic into a risky investment? Obviously, government mismanagement… in the private sector we call it embezzlement… but we must go deeper if we want to fix this.
Do we revolt? Is there a king to behead? Fortunately, we don’t need the guillotine. Peaceful revolution is built into our system.
We the People choose our government. We get to do it every two years. When “they” fail to fix Social Security year after year, and then we re-elect virtually the same people to fail again, who is really failing? I blame Social Security’s problems on We the People.
The heated rivalry currently defining our two-party system is delivering one failure after another. And Social Security is a prisoner of this win or lose mentality. I don’t want a guillotine, but… damn! It’s just good business to fire people who consistently fail at their job.
Fixing Social Security is not a partisan issue. Red, blue and every color in the rainbow benefits from Social Security. This is an American issue. And We the People have the power to fix this.
We have all been here before. It’s Déjà Vu all over again. In 1983, the political parties worked together and made needed adjustments. They did some solid, bi-partisan work as Article One of our Constitution intended. It didn’t seem remarkable at the time.
In 1983, taxable earnings revenue was increased and the age at which benefits can be claimed also increased. Also, two trustees were added to increase the public’s “confidence in the integrity of the trust funds.”
Now it’s 35 years later and it’s time to do it again. It should be easier, because it’s not the first time. The precedents have already been set.
Fixing the problem is not difficult. There is no complicated equation to work out. Everyone who’s ever managed a household has solved this problem before. You reduce expenses or increase revenue. And, unless you’re a political zealot, it’s usually best to do both!
Republicans want to increase the age before you collect, and thus reduce expenditures. This is a reasonable and quite rational idea.
We are living a lot longer today and collecting a lot longer. Waiting longer to collect reduces the number of years we collect, and obviously works to reduce expenditures. That’s OK with me. Social Security was never intended to fund a 25-year retirement. It doesn’t sound great when you suggest giving people less, but it helps if the expectations are realistic in the first place. The original idea was you’d collect for about 10 years. We’re only living about 20% longer now, but 100% of those extra years are spent collecting Social Security. Every small gain in life expectancy equals a disproportionately larger demand on Social Security funds. Delaying the age to claim in some proportion makes good economic sense.
Democrats want to remove the earnings cap, with the obvious result being more revenue. This is also a quite rational position.
Roughly 20% of earned income today is above the earnings cap. During that last adjustment in 1983, only 10% escaped the tax. Well over $1 trillion annually is escaping the tax today. No matter what other opinions you hold about the polarization of income in the USA, there is no denying it’s hurting Social Security. In the present political climate where “tax the rich” is a popular theme, this is the most palatable way to redistribute some wealth. Many of the ultra-wealthy already support the idea.
Removing the earnings cap is not a new concept. There is no cap on earnings taxed for Medicare. That cap was removed in 1993.
Increasing full retirement age and removing the earnings cap, these are good and rational solutions to the problem. More importantly, they are not mutually exclusive. There does not have to be a winner and a loser. A bi-partisan solution should be easy here. And there is plenty of evidence showing We the People want it.
There is broad support for raising the earnings cap, and not so much for increasing the age to collect. About 67% to 33% in various polls. That would be a landslide in an election, but you cannot make laws ignoring one third of the people. Not if you want to keep your head anyway.
What really makes America great is people of different opinions living together peacefully, not the majority forcing their will on the minority. That was never the plan. In fact, that’s a sure way to have conflicts instead of peace. We need to fix Social Security by combining the 67% and the 33%.
The hard part is already done. Good rational solutions have been put forth by both parties. All that’s left is to fill in some details.
Maybe we could increase the age for collecting full benefits to 69, and raise the earnings cap to $1,000,000? That would fix things for longer than we can make accurate projections. It would give us plenty of time to observe results and adjust for the next crisis if necessary. Maybe a bi-partisan committee could argue about that for a few months and come up with some variation they both like. We the People would be happy with anything in that ballpark.
There is a more difficult part to fix. For this one we might need some people to fear losing their heads… I mean jobs!
The US Treasury needs to stop “borrowing” and pay a realistic rate of return on funds already borrowed. How is it that our Social Security trust fund lends everything to the Treasury and collects less than half the rate of interest on a 10-year bond? Do you know anyone who gets to borrow like that? They dictate the terms and then take your money. I guess we should be happy they’re even saying they’ll pay it back.
Where are those Trustees who are supposed to build my confidence in the integrity of the program? Remember them? They were part of the bi-partisan legislation of 1983, added to safeguard our trust fund and make us feel confident in the program…
Those positions are vacant. I guess no one is worrying about our confidence in the integrity of the funds anymore. This is unacceptable. We must demand those trustees be in place, and that they do their job. It’s the law, and it was enacted to protect us from exactly the abuses that are happening. I’m astonished We the People let them get away with this.
Those three steps are all we need to do to solve the current problems. It’s not complicated. Increase the earnings cap a little, increase the age to collect a little, and put our watchdogs back in place to stop management embezzling. These simple steps will fix Social Security for generations to come. Maybe forever.
If corrective action is not taken, the people who lose are the people who can least afford it. If nothing is done and Social Security fails to make its promised payouts, millions of people who did their part and rely on the program will be hurt. That just might bring back the guillotine… and I might even vote for it.
We the People can fix this. All we must do is get off our collective ass and require our elected government get the job done.