Social Security is not “retirement.” The “I” in FICA stands for “insurance.” That’s an important distinction. If I were to buy a life insurance policy and then die the next day, the company would have to pay off in full. If insurance were like retirement, the company would refund my premium plus earnings minus expenses.
Social Security is a “defined benefit” system. The private sector hates defined benefits, and insists on “defined contributions” like IRA’s and 401K’s and the like. With the latter, retirees are always in fear that their funds will expire before they do. Social Security benefits are available for so long as people live. That’s why it’s called “Security.”
Social Security is also survivor and disability payments – as much as a third of the payments are for widows and orphans and disabled people. Private plans offering such payments are not affordable for ordinary people. And there is nothing in the private sector that offers defined benefit retirement, survivor and disability benefits. It’s not feasible.
The private sector cannot afford to fund a program like Social Security. That sector is laden with bureaucrats, administrative costs, and high-bonus executives along with the regular assortment of Wall Street criminals who recently brought down the banking system. The boom-bust cycle means that a large percentage of privatized retirees would be regularly wiped out.
Social Security, in its eighty years, has never had a scandal or failed to pay a benefit. People have ripped it off, but the people who run the program have been remarkably honest, and (!!!) have not gotten rich off the system.
Social Security is affordable. It has survived for eighty years without debt (it is illegal for it to go into debt.) It is not in debt now, nor will it be for decades.
Social Security is paid for by the people who benefit from it. The tax is applied only against wages and current recipients, and not against corporate profits, dividends, rents and royalty and interest. There is no transfer involved from the wealthy sector to workers. It is entirely self-funded.
Social Security does not add to the deficit. Over the past thirty years, due to accounting legerdemain, the program has been used to mask the true size of general fund deficits. The government spends all excess Social Security funds, but using an accounting trick called the “Unified Budget” (where Social Security surpluses are combined with general fund deficits), funds borrowed from Social Security are not reported as such. The true general fund deficit over the last 30 years is $3 trillion higher than reported.
That $3 trillion is called the “Trust Fund.” Unlike generations before us, we baby boomers were asked, by Ronald Reagan and the Democrats in the early 1980’s, to pre-fund our Social Security benefits. We have been paying in excess tax for thirty years now based on his promise that those excess taxes would fund our own benefits.
Repayment of the debt to the Trust Fund is not Peter paying Paul. We boomers are now in a position where we expect all taxpayers, including those who live off the dividends and corporate profits etc. that have not been taxed, to repay the money borrowed from us, most of which was used to finance their Pentagon and its many wars.
The $3 trillion will be repaid over the come 20-30 years. Our country can easily afford it. (If not, we’re all sunk anyway.)
After we boomers are gone, Social Security will again be on pay-as-you-go funding, with no need for a Trust Fund. (Think of the boomers as a snake swallowing a pig. We will pass.) It will, in theory, survive indefinitely. However, it is constant need of adjustment. That’s all it takes to maintain it.
The Trust Fund is a legal obligation. In order to walk away from that obligation, the government is going to have to legally renege on us. Even though the reneging will be “legal,” it will be highly immoral and disreputable. The people who know how the systems works and still want to renege on us are the Wall Street bankers and their allies in both parties. They are criminals who never have to pay for their crimes.
Ronald Reagan was the first president to openly challenge Social Security. He fell on his face – the program is wildly popular. On failing to undo it, “he” (“he” being his people, as he was clueless) jacked up the FICA tax to recoup some of the massive revenues lost with his tax cuts for the wealthy. That was the “Trust Fund” promise. Many of us felt that he was lying at the time, and that there was never any intention of honoring the bargain.
The only way the bargain will be honored is if we, the people who fund the system, hold them, the people who want to plunder and loot the system, to our bargain. That takes organization and effort. A contract means nothing if there is no will to enforce it.
I expect to see no comments beneath this post for the following reason: I will insist on integrity. I will not suffer ignorance or empty arguments based on the false “facts” that are regularly spread about how the system is going to fail, how it “won’t be there for me when I need it” as young people have been taught to believe. If such comments are put up, I will not take them down, as I don’t do that. But I will edit the comment, not to change content, but only to embolden the part that has no substance. If you see a comment below and part or all of it is in bold, that is the part that has no substance.
Piece of Mindful 
Does what the people want have any substance?
FOX News/Opinion Dynamics Poll. April 25-26, 2005. N=900 registered voters nationwide. MoE ± 3.
.
“Based on what you know about the Social Security proposal for personal investment accounts, is it your understanding that individuals could continue under the current system if they wanted, or is it your understanding that everyone would be required to put a portion of their retirement money in stocks and mutual funds?”
.
%
Could continue under current system 57
Required to invest in stocks/mutual funds 27
Unsure 17
.
“Thinking about Social Security contributions, do you think people under age 55 should have the right to choose between keeping all of their contributions in the current system and investing a portion of their contributions?”
.
Yes No Unsure
% % %
ALL 79 13 8
Under 55 84 11 5
55 & older 74 15 11
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“Based on what you know about the Social Security personal investment proposal, would you want the choice to invest a portion of your Social Security contributions in stocks or mutual funds?”
.
Yes No Unsure
% % %
4/25-26/05 53 37 9
2/8-9/05 48 40 12
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Now, Swede, and I mean to hold you to this, please explain to me the difference between a private retirement account, and a government run insurance account. No ducking and dodging. Be direct. Your answer should be based on what you know.
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Here’s what’s going to end Social Security:
Racial politics.
Our growing and politically motivated minority groups are gaining demographically, soon to be a majority. They are not going to want to fund the retirement of a bunch of old White people. They will vote for their interests, not yours.
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So tell me, oh great and wise one, just what are the implications of America’s changing demographics? Are no changes in store on this front? Are we just one, big, happy family, destined to express the politics of the Boulder coffee house once they are properly explained to one and all?
Social Security is essentially a transfer of wealth from the young to the old. This works if your society is:
)wealthy, so the young don’t miss the money too much
)ethnically homogeneous, so the young see people like themselves getting the money
)comprised of people with a long time horizon. The young tend to discount the future, and they may discount grandma completely out of the picture.
Our current immigration policies are changing all of these. So we shall see, Mr. T, if you and yours are going to be paid by those who come next.
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Yeah, I know, I’m all wise and shit … it so happens I’ve spent a lot of time with this program, going all the way back to Ronnie’s time. It jsut is what it is – I am a wonk on this subject.
But I don’t know the future. I just know that as best we can plan, SS has laid out a good plan. Time and chance …
Your concerns about ethnicity are troubling. It’s almost like you obsess on it. People of different cultures and colors are coming here. I happen to like it.
We don’t need to be wealthy to survive, though there will always be disparity. You do know that beyond $106,000 in wages, wealthy people don’t pay into Social Security, right?
Long time horizon? Young people discounting the future? Grandma being a burden? You mean, like always?
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If I dwell on ethnicity, it is because I think it is an important area you leave out. I realize one has to make some simplifying assumptions, but this one is ignored at one’s peril.
I’m aware that SS cuts out above $106,000. I’m not a fan of giving our oligarchs even more money to fund their wars and other vandalism, but this seems like an easy place to raise some funds.
I realize the future has always been discounted. The fullness of time often has people squirming out of their obligations, be it the homeless alcoholic or the Wall Street banker. Those in charge of maintaining programs such as Social Security would do well to take all factors into account, be it changing ethnicity, a changing knowledge base of who lives how long and who makes how much money, a changing level of trust between generations and political factions, etc.
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Agreed. Social Security is obligated to report each year on its condition and prospects, and takes into account all of the change you note, as it must. It’s not a static world, and the best kind of budgeting we can do, even at the household level, is flexible.
I find your attitude about ethnicity interesting – for myself, I prefer mutts for dogs, as purebreds tend to have genetic defects that are magnified by exclusive breeding. Perhaps the high prevalence of sociopaths in this country (4%) as opposed to the rest of the world (2%) is the result if inbreeding.
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Inbreeding is both good and bad, it concentrates both kind of traits.
Problem here is we don’t get much outbreeding. We mainly get replacement of one ethnic group with another.
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Inbreeding among races doesn’t even exist scientifically, I suppose, but to qualify it as “good” or “bad” is useless. It just is.
I don’t care if my ethnic group (Czech/Irish, or white European) becomes a minority. I hope that the Hispanics or Asians are kinder to me than my fellows have been to them.
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I hope that the Hispanics or Asians are kinder to me than my fellows have been to them.
You can hope, but you might not get it.
I made the point below that the US is pretty generous to Haiti by letting a significant number immigrate here and have a better life thanks to our infrastructure and stable social norms. You don’t see this from other countries. Cuba, for example, is for Cubans. China is for Chinese, especially the political power structure. They (probably wisely) aren’t going to share with others.
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For practically all of human history, human affairs have been organized along ethnic lines. The post-modern, Boulder coffee house view that ethnicity doesn’t matter is a recent development. You seem to think that this new paradigm will carry into the future. We shall see.
You want to discount the effects of relative wealth in all this. Again, we shall see. You have the arrow of causation backwards. A country can afford Social Security because it is wealthy, it does not become wealthy because it institutes Social Security. A country can afford unions because it is wealthy, it does not become wealthy because it creates unions. A country can afford affirmative action because it is wealthy, it does not become wealthy from implementing affirmative action.
A country’s wealth is in no small part tied up in the traits of its constituent ethnic groups: future time orientation, intelligence, industriousness. Are northern Europe and the Pacific rim wealthy because of enlightened social policies, or does the inherent characteristics of its peoples play a role? Is America’s future tied up in more prosperity and racial harmony? Again, we shall see, but if I’m right and you’re wrong, where’s the window where I collect on this bet?
You can sit around and craft ways to keep Social Security afloat, but other things may intrude. The guy in California happily living in his ethnic enclave, flying his home country’s flag, making $40,000 a year probably isn’t too excited about seeing his $6000 a year in Social Security tax going to the equivalent of Mark Tokarski’s pocket, and he will vote for someone who will rectify this injustice. Mark will patiently explain that he pays now as part of a social contract that will have the next ethnic cohort paying this Californian’s retirement costs. Mr. Cali realizes that such out-group altruism is unique to the brain chemistry of the Boulder coffee house and not to any other group extant on the planet and will vote accordingly.
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I live in Morrison, 40 miles away from Boulder.
The European advantage came about for many reasons, not the least of which was navigable rivers. Hundreds of years of internecine war led to the development of high-tech weaponry, and it was the weaponry that allowed for conquest of large swaths of the rest of the planet and accumulation of wealth from the resultant colonies that made the place rich. As with all history, its largely accidental, and could have gone many ways.
Your attitude seems to be that good fortune results from good breeding. When the Spanish invaded South America, they found extraordinarily wealthy civilizations, and cities larger than any in Europe at that time. Due to their advanced weapons and brutal nature, they destroyed the civilizations and looted the wealth.
Who is superior there?
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I know you don’t live in Boulder proper. I like to imagine you walking the streets of Boulder sporting a fake pony tail, handing out Maoist tracts while eating arugulla and bok choy, advocating an effective tax rate of 100%. Meanwhile, your fellow
Boulderites spit on you and scream, “COUNTERREVOLUTIONARY SCUM! THE TAX RATE SHOULD BE 120%! 200%! OR MORE”
they destroyed the civilizations and looted the wealth.
Ahh, the perils of undocumented immigration. We should heed their experience.
…accumulation of wealth from the resultant colonies that made the place rich.
I hate to break the news to you, but colonies and empires have pretty much always been a net economic drain. England was wealthy from the industry and efforts of its native citizens. Its colonies cost more than they brought in. Spain and Portugal were never all that wealthy despite huge colonies. Russia’s vast empire never made it wealthy. Germany and Japan are wealthy with essentially no colonies/colonial history.
As with all history, its largely accidental, and could have gone many ways.
But not merely so. At some point Anglo-Saxon culture made the decision and effort to promote intellectual achievement coupled with a practical, empirical science. Through these decisions and efforts we get such things as cities in the foothills of Colorado with many bookstores, high end businesses, and the wealth to have a border of green space. So thank your ancestors who, yes, had good breeding. Maybe you could make some effort to pass some of this on instead of trying so hard to give it back to former cultures that were never that great.
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Round and round we go. First, I don’t have enough hair on the back of my head to sport a pony tail.
Second, the purpose of high marginal tax rates is to help investors make decisions – as in, if I invest in plant and equipment and create some jobs, I don’t pay that high rate. It’s called the “Laffer Curve” – the mere act of instituting a high tax rates makes people avoid taxes and serve the greater good all at once.
Colonies are hardly a drain, then or now. They are a source of cheap labor and resources. Geez! How can you not know this stuff! The Brits imposed harsh rules on their colonies – the Americans were not allowed to make things for themselves – we were only allowed to export raw materials back to them. The first thing we did after the breakaway was to institute high tariffs so we could grow our manufacturing base.
The Brits devastated India – many more people died of starvation from famines during British rule than ever in China under Mao. After India broke free, there has not been another famine. India too was not allowed to make things – all of its cotton had to be shipped back to England for manufacture.
And today, Latin America, the Philippines, Indonesia (and Cuba, once upon a time), and others, are our resource base. We don’t talk about them in that manner – but then, neither did the Brits or the Spaniards or the Soviets about their colonies.
This is very basic stuff.
Your attitude about other cultures and races is not one of your more attractive features.
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I said a fake pony tail. Like a wig.
Yes, these discussions are a kind of whack-a-mole.
Your reading of history reinforces your political beliefs. Some of your basic stuff isn’t necessarily so: Slavery is expensive labor; owning/selling resources is not the way to wealth. Adding value to those resources is what builds wealth.
Your attitude about other cultures and races is not one of your more attractive features.
Whoa! Dude! The implication here is that I actually might have some interesting features.
I like to think I’m a little more realistic about the situation. Here’s something I found interesting.
I’m curious about a conflict I see in your camp. Mass immigration means more people…more population…more pressure on land resources…less WILDERNESS. How do you square this conflict? Are our growing multi cultural communities supposed to live in high rises?
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Idealists cannot present a phony image to the world. We cannot wear wigs.
Slavery is probalby more expensive than sweatshops, in that slaveholders had to provide food and shelter and had an interest in good breeding stock. Oddly, the arguments in defense of both are identical.
Not sure I have a “camp.” Preservation of the commons does not stop at political boundaries.
You’re starting to sound Lincolnian … no … Marxist.
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Great post and explanation of what social security is and isn’t. I think the life insurance comparison works well, and one can easily see why the private sector would prefer the “defined benefit” system. Thanks for your insight and explanations!
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Note – I think the above comment should be spammed, but since it stroked my ego, it stays.
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