by Klaus Rohrich
Thursday, March 3, 2005
I seldom disagree with aaRP, as I believe their advocacy for seniors is necessary because as a culture we are totally youth obsessed. Without that advocacy, God knows what would become of their interests. Having said that, however, I must say that I do not agree with their stand on Social Security.
The aaRP is opposed to Social Security reform because they see it as a threat to the existing program. But the existing program is already threatened in that it will be bankrupt very shortly. In 1950, the payroll taxes of 16 workers supported the Social Security of one retiree. Today 3.3 workers support one retiree and in another 35 years that number will fall to 2.1 workers per retiree. What happens when the payroll taxes of one worker are supposed to support one retiree?
There is a lot of talk about the Social Security "trust fund" or a lock box that contains the funds to support retired workers. The truth is that the "trust fund" is an utter fabrication. There is no trust fund containing the money that americans have paid into Social Security. It’s only a drawer full of IOUs as the government has found it expedient to "borrow" that money to fund current program spending.
In elementary physics if you remove matter from a container at a faster rate than you are adding matter to it, it will one day be totally empty regardless of how full it was initially. The Social Security program is currently heading in that direction, because the amount being taken out at one end is not being replaced at the same rate at the other.
The Democrats have accused the Bush administration of fear mongering in attempting to reform Social Security. Interestingly, when Democrats were in control of the White House, the Senate and the Congress, they proclaimed Social Security to be in crisis. But then Democrats are betting that americans have a short memory. Short memory or not, the problem isn’t going to go away by filibustering. The problem will only get bigger as time passes.
Consider that an average worker who retires today will get close to $15,000 this year. In the next 45 years that figure will grow to almost $24,000 as wages and benefits increase with inflation. The amount being paid into the system will certainly also increase, but not by much, as the number of workers active in the workforce is declining and the number of retirees is increasing. Current forecasts has the program going into receivership in just 13 years as the annual payout will exceed the annual influx. at that point the government is going to have to start repaying those IOUs it’s sitting on.
There are several things that can and should be done to save Social Security. First and foremost, there should be a means test for those wishing to receive Social Security benefits. The program as it was conceived by the FDR administration was not supposed to be a panacea for retirement. It was meant to be a supplement to the incomes of retired individuals to help augment the income they derive from their own retirement plans. It does not make sense to pay Social Security benefits to people like Bill Gates, for whom it would be a bother to cash the cheque.
at the same time, the means test could establish a base level of assistance for people who really do need it to be able to live. This would mean an increase in the benefits of the poorest seniors.
Younger workers should be able to divert a significant portion of their Social Security taxes into registered private accounts, established for the express purpose of having the proceeds of those funds available at some distant point in the future. Critics of this scheme have warned that these private retirement plans could lose money. However, I believe that this argument is specious in that there has never been a time in history when the stock market lost money over any 20-year period. In 1969, the Dow Jones Industrial average stood at just under 1,000. Today it’s at over 10,000. In fact the stock market has yielded an average of 6.7 percent gain in value over inflation. No one is suggesting that a 55-year old take his Social Security premiums and invest them in the stock market, as there may or may not be enough time available to earn a good average return. However, if someone aged 25 invests money in the stock market, it’s a given that over a 30 year period, the value of those investments will increase significantly.
So why all the resistance by the Democrats and the aaRP to reforming Social Security? I believe that with aaRP it’s "a bird in the hand, rather than two in the bush", therefore they don’t want to upset the apple cart. However, with the Democrats it’s different story. Encouraging young people to invest money in the market will, in effect create a new class of worker. These workers will have a stake in the success of the economy, meaning that all the new investment would represent a tremendous boost to business. and when times are good, then the Democrats’ reserve of "victims" declines, meaning that there will be fewer people in need of their help. a free market flies in the face of everything that Democrats stand for, as it means less government intrusion, less regulation and fewer people dependent and beholden to the government.
I can see why the aaRP would be against Social Security reform. I can even understand why the Democrats are opposed, but just as sure as the sun will rise tomorrow, if nothing is done to reform Social Security now, the program will be in a heap of trouble in very short order.