Different Strokes for Different Folks
Posted July 14th, 2010 by admin | Posted in Uncategorized |I recently received a “Statement” from the Social Security Administration (“SSA”) accounting for my “contributions” over the years and my projected “benefits” under that venerable Roosevelt-era program. This was an apparent effort to assure me, a Baby Boomer, that the system was still solvent and that I could count on the warm embrace of the federal government a dozen years hence, when I reached the decrepit old age of 65.
The document looked a bit like the one I received from my bank on the same date. That bank (National City, if you need to know) went broke in 2008, and was recently merged in shotgun-wedding fashion into a much larger institution (PNC, if you need to know). PNC itself was the recipient of more than $10 billion in TARP funds, and is one of the eleven financial institutions deemed “too big to fail” by our federal government. My paltry funds on deposit were never at risk, however, thanks to Federal Deposit Insurance Corporation. The federal government is always there to help us, since obviously we lack the good sense to help ourselves.
My initial reaction to the SSA’s “statement” was astonishment. I have been paying into the “trust fund” since Jimmy Carter was president and, due to the compulsory nature of such “contributions”, had lost track of them over that period of time. Cumulatively, they were significant: I now have six figures in my Social Security “account”, held in “trust” for me by a beneficent government for my doddering old age (which begins exactly twelve years hence, at 65).
Now, on the face of things, it would appear that I’m pretty sell set, despite the fact that I made an egregious error earlier in life, to wit: I started my own business instead of working for the government, the Post Office, or a large unionized school corporation. It was an act of reckless abandon which, besides depriving me of the benefit of an employer’s “contribution” (which required me to contribute twice as much as most other employees since that fateful decision) deprived me of a public pension. I did this so that I could risk my own capital on an enterprise that had a less than 50% chance of succeeding. It was stupid of me, in the extreme.
In retrospect, it would have behooved me to stay in California, nix a college degree and become a highway patrol officer. If I’d had that foresight, I could have retired three years ago as a millionaire. Instead, I must now struggle with a payroll of twenty or more, making the required employer’s “contribution” to their SSA “accounts” as mandated by the Federal Insurance Contributions Act (FICA). If I fail to make these payments on my employees’ behalf in timely manner, I literally risk jail time.
By the way, as an employer, my compulsory payroll “contributions” cumulatively exceed my personal “contributions” to the SSA by a factor of ten. No acknowledgment of my employer ‘contributions” appeared on my own recent SSA “statement”. Nor do I recall ever receiving a “thank-you” letter from the SSA office, or the IRS, for my FICA “contributions” on behalf of others in years past.
Had my business failed, I’d be in far better shape than I am today. Had I the good fortune of going bust like my bank (National City, if you need to know) and moved on to the public sector (circa Carter Administration or so), I’d now be looking at a decent pension that would start paying a bit before I would presumptively need diapers (age 65). That, along with the SSA “account”, would put me in fat city.
What a wasted, Sisyphean life I have led.
In a similar pile of mail, I received another enlightening missive from Baron Hill, our Democrat Congressman in Indiana’s Ninth District. It was a brochure informing me of The Baron’s stalwart commitment to small businesses like mine, a claim made dubious by his voting record, and also by that fact that the letter disclosed, in small print, that it had been sent to me at taxpayer’s expense. The Baron seems eager to curry the favor of employers like me, perhaps because he thinks that I can influence the votes of those who rely upon my largesse.
The Baron voted for the TARP bailout. He voted to install Nancy Pelosi as Speaker of the House. He voted for the earmark-gorged Stimulus. He voted for cap and trade. In point of fact, The Baron has voted for every measure that expands the Federal Government at the expense of the private sector. And he did so at the behest of those who rule his party, none of whom owned small businesses of their own. The Baron, who professes to be a “Blue Dog”, seems to be easily dominated by alpha-bitches.
The Baron also professes to support Social Security, and courts the votes of aging “Baby Boomers” like me who fear that their “accounts” may be in jeopardy. His minions have savaged his Republican opponent, Todd Young, for publicly describing Social Security is a “Ponzi scheme”.
Let’s focus for a moment on the facts.
A “Ponzi scheme” is a fraudulent investment that pays returns to separate investors from their own money or money paid by subsequent investors, rather than from any actual profit earned. The Ponzi scheme usually entices new investors by offering “guaranteed” returns that are either abnormally high or unusually consistent. The system is destined to collapse because the earnings, if any, are less than the payments to investors. The perpetuation of the returns that a Ponzi scheme advertises and pays requires an ever-increasing flow of money from investors to keep the scheme going (in other words, more suckers, “one born every minute”).
The Baron’s Republican opponent Todd Young is entirely correct in his assessment. Social Security is based upon current transfers to recipients that are predicated upon future “contributions” from unsuspecting schmucks (i.e., taxpayers) expecting similar benefits. Those future payments have been “guaranteed” by professional politicians like Baron Hill who, like coquettish women, promise a whole lot more than they intend to deliver. Social Security is, in fact, a “Ponzi scheme”.
The Social Security Act was based upon two specious assumptions: (a) that the birth rate that prevailed in 1935 would never change; and (b) that the life expectancy that prevailed in 1935 would never change. Thus, it was assumed that the ratio of workers (payors) to retirees (payees) that prevailed in 1935 would remain constant ad infinitum, thereby keeping the tax burden reasonable for those that worked and the money flowing to those who did not.
Those assumptions, had they been accurate, would have guaranteed Social Security’s solvency for several generations (until, at least, human population had increased to the point that it had become a sphere of flesh expanding outwards from earth at a rate exceeding the speed of light). Roosevelt correctly calculated that this ultimate day of reckoning would occur long after his remains had been laid to rest here on earth.
The facts are these: (a) the birth rate has fallen precipitously since 1935; and (b) life expectancy has increased since 1935. Thus, the ratio of workers to retirees has changed radically. The system, as contrived by the Roosevelt Democrats, is now unsustainable by any empirical measure. The day of reckoning is a hand.
We have known it to be coming for some time. A dozen years ago–I am now at the mid-point from this study and my own retirement–Mariacristinia DeNardi (University of Chicago and Federal Reserve), Selhattin Imrohoroglu (University of Southern California) and Thomas J. Sargent (Stanford University and Hoover Institution) reached the following conclusions:
Without policy reforms, the aging of the U.S. population is likely to increase the burden of the currently unfunded Social Security and Medicare systems. . . Our calculations suggest that it will be costly to maintain the benefits at the levels now promised because the increases in distortionary taxes required to finance those benefits will reduce private saving and labor supply. We also find that the accounting calculations. made by the SSA underestimate the required fiscal adjustments. Finally, our results confirm that policies with similar long-run characteristics have very different transitional implications for the distribution of welfare across generations.
Journal of Economic Literature Classification. Numbers: D52, D58, E21, E62. © 1999 Academic Press. http://www.nber.org/~denardim/research/DIS.pdf
We can fix this. We can (a) delay the retirement age, (b) reduce benefits, (c) raise taxes (oops—did I say “taxes” instead of “contributions”?), or (d) implement some combination of the foregoing.
Unfortunately, these options are politically untenable in this age of entitlements. It would be political suicide for an incumbent congressman (especially a Democrat) to utter these truths in public. Thus, the sanctimonious railings of Baron Hill against his Republican opponent, Todd Young.
Fortunately, there are a lot of people with many years of productivity ahead of them who are not quite ready to put their teeth into a glass jar upon their 65th birthday. I count myself as being one of those. Not everyone looks forward to retirement.
The SSA’s immediate fiscal situation is actually far more dire. Congress has raided the Social Security “trust fund” periodically to pay for unrelated governmental expenses, such as recreational facilities and self-actualization classes for Guantanamo detainees. Such plundering is a breach of trust which would have led to jail terms were Congress held to the same standards as the rest of us.
I can access my IRA if I really need to, albeit with a tax penalty. But I cannot “withdraw” anything from my SSA “account”, because it does not exist. If my banker had stolen my IRA the way that my congressman has stolen my SSA account, I could sue, and most certainly would.
The brutal and inconvenient truth is this: Social Security is broke, and will remain so unless and until the SSA receives some adult supervision. If someone in the private sector had sold an investment so long on promise and so short of substance, they’d rightfully be bunking with Bernie Madoff at this point in time.
Evidently, we do not prosecute congressmen the way we prosecute ordinary criminals. Different strokes for different folks.
Rick Hofstetter, Country Lawyer