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If you read my column with any regularity, you have a good idea of where I stand on the Social Security program. But in a nutshell: I believe the way in which it was initially constructed — and, more importantly, continually expanded over the years — makes it unsustainable in its current form. And that’s especially true given the current state of our economy and changing demographics, too.
Yet I’m continually amazed at just how clueless our politicians seem to be on the rather basic equations involved here.
I mean, really: Obama’s latest jobs plan involves yet another REDUCTION in the amount Americans will be contributing to the program? Plus, it now ALSO reduces the amount that most American employers will also be paying into the system?
Yowza! To me, this simply sounds like another case of robbing additional money from American retirement coffers to “fix” some other problem that Washington finds more immediate.
Moreover, it’s absolutely astounding how many poor projections, half-truths, and outright lies we’ve been getting fed about this program.
Just look at the sequence of events over the last couple years and you’ll see what I mean!
Let’s sort the facts out one by one, in chronological order …
Fact #1. As recently as 2009, the Social Security Administration was predicting that the program would begin taking in less than it paid out in 2017.
Fact #2. Then, just one year later in 2010, the Social Security program took in less money than it paid out. (The first time since the 1980s.)
Fact #3. This annual shortfall was blamed on the poor economy — i.e. fewer employed people paying in and others choosing to retire early, thus increasing the amount of money being paid in benefits.
Fact #4. At the time, the Social Security Administration said it would only be a temporary slip and that a permanent state of deficits would actually begin in 2016. (Note revision from previous estimate.)
Fact #5. In 2011, the Congressional Budget Office came out and said that the Social Security program had already entered a permanent state of annual deficits. (Woops again.)
Fact #6. Despite the idea that Social Security had already reached a permanent state of underfunding, politicians decided to “stimulate the economy” by LOWERING the amount of money each employed American pays into the system in 2011 — from 6.2 percent of the first $106,800 in earnings down to 4.2 percent.
Fact #7. This change was said to be a temporary measure for the year 2011 only.
Fact #8. Last week, President Obama said we should further stimulate the economy and create more jobs by having working Americans pay even less into Social Security in 2012 — i.e. 3.1 percent vs. this year’s already-reduced 4.2 percent and the previous full rate of 6.2 percent.
Fact #9. President Obama went one step further by proposing that American employers should also see their part of Social Security contributions slashed in half for the first $5 million in their payrolls for 2012. Please note that this year’s reduction did NOT cover employers at all. They have continued to put in 6.2 percent on as much as $106,800 for each of their employees.
Fact #10. It was reiterated that these would be temporary measures, and lawmakers would totally offset the costs with new cost cuts by 2014. Yes, the same lawmakers who took us to the brink of default just a few months ago because they couldn’t agree on cost cuts before this new proposal was in play.
All told, these new cuts to Social Security payments will total about $240 billion (out of the $447 billion proposed in Obama’s jobs plan). So that’s another quarter of a trillion dollars in retirement money we’ll have to make up some other time, I guess.
You know, if it weren’t such a serious topic, this would make for some great slapstick comedy. Can’t you just imagine Abbott and Costello doing a little routine?
Abbott: “Okay, how do we fix Social Security?”
Costello: “Get more money into the system.”
Abbott: “Great. How do we do that?”
Costello: “Simple. Create more jobs.”
Abbott: “Okay, so how do we do that?”
Costello: “Just stimulate the economy, stupid.”
Abbott: “Got it. Just one more question then. What would stimulate the economy?”
Costello: “Putting less money into Social Security, obviously!”
Please bear in mind that you can start the above dialogue at any point — with jobs, the economy, or the Social Security system’s state of disrepair. It really doesn’t matter because the circular logic will just keep taking you round and round all the same.
Seriously, It’s Amazing Just How Bad
This Entire Situation Has Become!
Hey, I’m as glad as anyone to pay less into Social Security for as long as possible. (Or to join the Amish in opting out of the program entirely!)
At the same time, I recognize that the beast that Washington has created is now the retirement lifeblood for tens of millions of Americans. They paid their fair share into the system and are counting on getting their fair share back out.
So I simply have to shake my head at how far off the rails things are getting.
It was bad enough that Washington begged, borrowed and stole from the surpluses that had built up after the last major overhaul …
It was worse that we were approaching systemic shortfalls going into the second decade of the new millennium …
And it’s absolutely appalling that we are now bankrupting the program even further with new legislation in the name of jump-starting the economy.
Sincerely,
Nilus
P.S. I hope you see why I continue to advocate for building your own personal nest egg comprised of my favorite dividend stocks and other private income investments.
{ 8 comments… read them below or add one }
Hi Nilus… . Thanks for highlighting a huge discrepancy that the mainstream media ignores. To be fair to the Obama administration, I found on the White House website some fine print that claims there will be no impact on Social Security reserves because the General Fund will make a contribution to make up for the money being temporarily (??) diverted. But where are they going to find $240 billion? It’s an incredible statement.
Yeah Nilus — I have been surprised that the off-stream media (and obviously not the mainstream media) has not made this simple association. Rick Perry is being lambasted for being honest about Social Security being a failed program and Ponzi scheme (never mind that Mitt Romney has gotten a pass for now about calling SS a criminal enterprise in a pre-election season book).
But wow — neither of them has overtly called to reduce the funding for SS — only Obama has enacted this (Stimulus chapter 1 ), and now doubling down on further de-funding SS! But I won’t hold my breath for the truth about the payroll reduction to be honestly reported broadly across the press….
Hi Nilus,
You forgot something those of us on SS have endured. For the past two years we have not gotten a COL increase in our benefits. Up until then (exact date unknown) we were getting about a 3% annual increase in benefits. All the while our cost of living has gone up, interest income rates have gone down and the stock market has had big swings that affect our retirement accounts. Some over 65 take jobs, or if unable, live with it.
There are a lot of good things happening if you take the time to really look at them.1)Social Security system is going bankrupt,so maybe it will end or options to allow citizens to manage and own their retirement ,2)Public schools in trouble and charter schools are growing along with private online education,3)The Dollar and other dishonest fiat currencies may be close to crashing,so we might see an honest currency,4)Republicans are finally acting fiscally responsible,5)Unions continue declining and public doesn’t like them.
As a strong supporter of strengthened and enhanced U.S. Social Security (for citizens only), I too have been dismayed at plans for the APPA RENT further reduction of its funding from employer and employee contributions. HOWEVER, I suspect that there may be a method to this madness, which I support even more strongly. Employers have now shown that they are not to be trusted or counted on to fund such employee “welfare” costs as Social Security and medical insurance; and, FURTHER, those kinds of costs are a DIRECT IMPEDIMENT to increased hiring. It is time that we transferred such benefits of U.S. citizenship as retirement and medical care to the direct Federal budget, as a true entitlement (“citizens entitled? — bet your ass we are!”), rather than making them dependant on employer “generosity”. Let employers compete for employees strictly on a wage and working conditions basis, and let an enhanced taxation and tax collection system fund these benefits of citizenship!
Nilus,
In 2009 I took $50K out of my IRA and paid back my early Social Security. The market was dropping at the beginning of 2009, so I lost money on selling mutual funds, but I thought this would be a good long-term investment. I was concerned that Social Security was in trouble and could fail, but everyone I asked including you, said this would not happen to existing recipients.
Now I’m not so sure. Did I blow it big time? I can’t afford to lose my Social Security now. I’m working part time as an online college instructor, but I don’t make much from that either. I’ve been investing in dividend stocks, but not enough to cover my retirement.
The Tea Party people are pitting young against middle-aged and middle-aged against old. I guess if they kill Medicare, that will kill us off and everything will be fine for them until they are over 65. Things are looking bleak for me right now.
Roz
Hi, Roz. I stand by my belief that it was a smart move to take advantage of that payback provision “loophole,” which has now since been closed. The real risk with that strategy is premature death, really. While the program is bad — and getting worse — I continue to expect minimal impact (if any) on current recipients. So while anything can happen, I believe you will be okay.
Nilus, I totally support the extension of the Social Security tax cut that President Obama proposed. I favor it because it totally exposes the fraudulent nature of program. If Social Security were a real pension then reducing our contribution from 6.2% to 4.2% would cost the government nothing. We would pay less into the pension in order to cash flow more this year and would have less money towards retirement but this would not represent a cost to the federal government. However, because all of our contributions are redistributed to current retirees (because their lifetime contributions were redistributed to the retirees of that era) allowing us to keep 2 points worth of contributions for a total 2011 stimulus of $85B created an $85B hole in the social security budget. So the federal government has to backfill that deficit making the total 2011 cost $170B. It is illegal for any pension to operate in this manner and that I why I favor this tax cut. The longer it stays in effect the further it will drive Congress to reform it. Reforms I trust will convert the 2% tax cut into a private account.
For now, I relish this partial privatization of Social Security and have invested my Obama tax cut in silver and am up about 23% this year. That’s far better than the 1.4% lifetime rate of return the current program offers me. If the tax cut gets extended in 2012 I will likewise invest that amount into something wise.