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Monday, May 2, 2016

Boldly Going Nowhere

Thursday, February 10, 2005

Social Security

President Franklin Roosevelt (Democrat) introduced the Social Security system in 1935. Republicans in Congress wanted it to be voluntary but Democrats were in control and yearning for socialistic reforms so the system became mandatory. The program required employees to pay 1.5 cents for each dollar they earned, up to $3,000, beginning in 1940. The employer was required to match the contributions. In 1943, the contribution was to increase to 2 cents per dollar, and in 1949 it was scheduled to increase to 3 cents per dollar.

"That is the most you will ever pay," promised Congress in its 1936 Social Security pamphlet. Had Congress lived up to its promise, the maximum annual Social Security tax would be $90 instead of over $6,000.

When the Social Security program was first set up, its funds were put into a secure trust account. To cope with huge expenditures during the Vietnam War, President Lyndon Johnson (Democrat) and the Democratically-controlled Congress eliminated the trust fund whereupon Social Security taxes were diverted directly into the general fund. The Social Security Trust Fund no longer exists. It's now a "pay as you go" system.

Today, the Social Security system is on the verge of disaster. People are living longer and the birth rates have been leveling off. In 1950, there were 16 workers for every person receiving benefits. Presently, there are only 3.5 workers for every beneficiary. By 2018, there will be only two workers per beneficiary.

In 2014, the system will start running a deficit, paying out more money than it takes in. By 2037, it will be unable to pay promised benefits. Simply raising Social Security taxes is not the solution. To maintain promised entitlements, Social Security taxes will have to eventually be raised to an astonishing 40 percent of wages.

The nation's Gross Domestic Product (GDP) stands at $10 trillion. The federal government gobbles up $2 trillion of it, while state and local governments consume another $1.5 trillion. The national debt (money borrowed against the future to be paid by future generations) exceeds $7 trillion.

Our nation's annual deficit is at the highest levels in history with no end in sight. We spend more than we take in and defer this irresponsibility onto our children and grandchildren. Every child born in America today is automatically $30,000 in debt.

The Social Security system needs to be overhauled, sooner rather than later.

The Democrats, who orchestrated the system in the first place, stick their heads in the sand and claim the system is solvent. They may be scoring some political points (people naturally resist change) but they're ignoring the obvious. The problem may not exist today but will in the very near future. Now is the time for action.

The Republicans want to solve the problem by setting up privatized Social Security accounts whereby participants will have the option to invest a portion of their confiscated wages into investment accounts (presumably "secure" accounts designated by the government, such as stocks, bonds and mutual funds).

Republicans should be applauded for addressing the problem, but permitting politicians and bureaucrats, who can't even balance their own books, to make investment decisions for the rest of us would be a monumental blunder.

While Wall Street investors are eager for the rapid market growth this plan would create, many analysts warn that these accounts would yield low returns and be expensive to manage. Furthermore, the stock market is not an investment; it's a forum for speculation on the worth of various entities and subject to fluctuation of value.

This is a complicated problem with no obvious solution. Those in or nearly in the system will probably not be affected by whatever action is necessary to fix the system. But something must be done to secure future generations. If Congress would simply cut back on spending and put a small portion of federal revenues into a real trust fund (which could earn simple interest), this would put some "security" back into Social Security.

Ignoring the Social Security problem is a lot like driving 90 miles an hour down a dead-end street. At some point there's going to be an abrupt halt and lots of splatter.