Social Security: The $8 Trillion Tweak
As election day gets closer, politicians seem to closely guard the words they utter in speeches and debates so as not to give their opponents fodder for newspaper headlines that could swing tight races in their favor. The Associated Press’ Mike Baker recently reported on the current Social Security policy position of Senate candidates Richard Burr and Elaine Marshall:
“North Carolina’s leading candidates for U.S. Senate say they are considering policy tweaks to keep Social Security solvent instead of major shifts such as raising the retirement age or allowing partial privatization. Burr rejected a proposal previously backed by Republicans to earmark a part of Social Security collections into private accounts, something a spokeswoman recently said he supported. Marshall said the idea of raising the retirement age was off the table, even though she previously said it should be considered.”
One would doubt seriously if Senator Burr, especially, is unaware of the true state of Social Security, having served as one of North Carolina’s senators for several years and having been apprised of the annual report of the Social Security trustees. Senator Burr surely knows that Social Security needs major reform now, not tweaks, if it is to be sustained as a partial personal retirement program and not become another income redistribution program financed by tax payers.
Current Status Of Social Security
Each year by law, the Social Security trustees must issue a non-political report on the financial status of the trust funds that make up Social Security. The report details the current and future financial status of Social Security and its ability to pay benefits well into the future. The law requires the trustees to recommend ways to make up any shortfalls that are projected, but this provision is routinely ignored.
Heritage Foundation Analysis Of 2010 Trustee Report
The Heritage Foundation has analyzed the 2010 trustee’s report in a recent “Backgrounder” publication that is particularly alarming. The report, entitled “2010 Social Security Trustees Report: Reform Needed Now” is available on the foundation’s web site at http://report.heritage.org/bg2451. The analysis of the current status of Social Security is nothing short of alarming. The trustee’s reports shows that in 2015 the program will begin to spend more than it takes in and, “Social Security will require large and growing amounts of general revenue money in order to pay all of its promised benefits. The magnitude of the annual trust fund deficits is staggering…$78.3 billion in 2020…267.5 billion in 2030…and $317.3 billion in 2035(adjusting for inflation). And over the next 75 years, Social Security owes $7.9 trillion dollars(net present value) more in benefits than it will receive in tax revenues.” The very fundamentals on which the program were established are changing to make it financially unfeasable in the future…there are now far fewer workers to support each retiree…retirees are living longer…and more workers are taking early retirement.
Social Security Today: A Poor Investment for Everyone
Social Security has changed over the decades. The percentage of payroll taxes paid by employers and employees has grown over the years and the amount of benefits paid to retirees has fallen. Today, Social Security taxes amount to a whopping 12.4 percent(6.2 percent paid by employer and considered part of an employee’s compensation and 6.2 percent paid directly by the employee) of earnings compared with 2 percent just 50 years ago. Social Security funds are not invested by the government in income-earning assets like traditional 401-K and other private sector investments and hence the returns paid by the complicated AIME formula are dismal, averaging less than 2% annually. These exorbitant taxes combined with the inept return on the funds crowds out more lucrative returns that are available in the private sector and prevents taxpayers from fully maximizing their retirement portfolios, they prohibit taxpayers from passing on savings to future generations, they particularly negatively affect our minority brethren, and the sheer size of the economy, with the economic development more lucrative investments would generate, is detrimentally affected on a massive scale. In short, today’s Social Security is a poor investment for every working American.
Reform Social Security Now
While politicians walk the tight rope of election politics, the truth about Social Security is there for everyone to see. The program as it exists today cannot be fixed by “tweaking” anything about it. Social Security faces structural flaws that will generate trillions of dollars in unfunded liabilities in the coming decades. Politicians will need to choose between reforming the program to include private investments or letting Social Security become the latest government income redistribution program.
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