Social Security: Point and Counterpoint
Monday, September 14, 2009
Social Security: Point and Counterpoint
Before the 1930’s, with the notable exception of President Abraham Lincoln’s Veterans pension plan, support for the old and infirm was a matter for the states, and one’s family, rather than a government entitlement (Historian’s Office, 2001). The Great Depression heralded reinforcement for old-age insurance legislation and President Franklin D. Roosevelt crafted a letter to Congress asking for ‘social security’ legislation. The resultant Senate and House bills came up against opposition from those who saw it as a governmental invasion of the private sector and from those in favor of such a law but sought exemption from payroll taxes for employers. The Social Security Act was signed into law in August of that year and established an entitlement for old-age benefits for, not only workers, victims of industrial accidents, established unemployment insurance, aid for dependent mothers and children, the blind, and the physically handicapped (Our Documents, 2005). The task of this brief essay, from an economic point of view, is to underscore the points of contention with the entitlement that is near insolvency and award the deserved accolade of noble intention to the legacy of humanity and kindness at its best.
Give me your tired, your poor,
Your huddled masses yearning to breathe free,
The wretched refuse of your teeming shore.
Send these, the homeless, tempest-tost to me,
I lift my lamp beside the golden door!
– Emma Lazarus
On Ellis Island in New Jersey, stands the national monument of the Statue of Liberty that bears upon the pedestal of its base, the timeless poem crafted by Emma Lazarus named The New Colossus (Liberty State Park, unknown). The Promise and the Prize of liberty in the New World of the United States was pointedly different from the exhaustive trouble of forging a living within its boundaries. No welfare, no education benefits, no unions, no unemployment or medical aid: not a good time in our history to be old and infirm and no models to aid the remedy. One hundred and sixty-one years after our nation was first founded, in 1935 the Social Security Act was born, to provide insurance for the blind, disabled, un-wed mothers, and the aged. We shall see that, economically speaking, it is in our great interest to help provide such insurance.
Being the most successful anti-poverty program to date, Social Security has raised 11 million seniors from poverty. Without the social insurance, the poverty rate for women would be more than 50% – it is at 12% now. Nearly two-thirds of women over 65 receive 90 % of their income from Social Security (Waters, 2005). Without question, the impact for America would be overwhelming economic chaos for families of the elderly. Having said that, and knowing that the benefits of a retirement age insurance are not a vested right and not transferrable, the point of this essay is to gauge the economic impact of the entitlement allowed (Divorcedex, 2009). See chart below.
The dollar amounts stated are, and never have been, meant to be a substitute for a retirement plan. A woman, under certain conditions, can receive spousal benefits based upon the work history of her spouse, but because it is not an annuity but a social insurance contract between generations, an altruistic effect that is fair, compassionate, and rational is very important; it is exactly that which is difficult to put a qualitative value on (Divorcedex, 2009). Without reform, the cost to multi-generational familial bonds would be a dwindling supply of future caregivers and replaced with government aid with the accompanying diminished family centered care. Re-framing the structure of family is a notorious, contentious debate, but to not resolve the conflicts is to fail the very people who have made our existence possible. Small reformation steps have been suggested and bear merit for consideration. Medicare and Medicaid vouchers could be provided to families to give expanded choices for in-home assistance, adult daycare, foster care, or small group homes. Tax exemptions to persons – family or friends – for informal care giving to the elderly and infirm could be granted to encourage more home-like care. And for old folks actually living with children or friends, special tax breaks; like the Republican Party’s 1999 tax plan, extra personal exemptions to households providing long-term care (Carlson, 2002) would be a very good start. Sadly, partisan politics has prevented any meaningful reform for two generations now.
There exists a widespread misconception that Social Security tax money, taken from every American’s paycheck, can somehow be isolated in a lock box and then used to pay off government obligation (Biggs, The Promise of Privatization, 2001). Hundreds of billions of dollars a year have been robbed in this manner since the early 1950’s and is the single largest reason why the Social Security insurance program will be insolvent by 2017. The alleged lock box – ridiculously valued at 2.3 trillion dollars – contains nothing but government securities. In a decade or so from now, when the millions of baby boomers reach retirement age, Social Security will begin to take in less revenue than what it must pay out. What is wrong with holding U.S. Treasury backed bonds, you may ask, when treasury securities are part of many retirement accounts? The bonds in the government trust fund have no real financial value because the Social Security Administration is also part of the government that is holding the IOU’s from yet another part of the government: the U.S. Treasury (Sloan, 2008).As an example, suppose you had money in a savings account meant to budget toward your AMEX bill. But, instead of keeping it there, you put it into your checking account and spent it on something else. To remember the transfer of dollars, you write an IOU to your savings account, (Levy, unknown) but, when the next month arrives, the IOU in your savings account has no real value and American Express agents would not think so either. In political government-speak, lower debt means future reduced interest. The alleged lock box fund receives interest-bearing government bonds when its surplus is robbed to retire other government securities. Since there is no net change in the amount owed, there is no change in interest obligation. Past Social security surpluses have been spent, not utilized for debt retirement and, knowing that the baby boomer generation is waiting to retire, future surpluses will disappear (Levy, unknown) should make us all uneasy.
The obvious solutions to the impending crisis are steeply increased taxes and/or decreased benefits. No politician is willing to even engage the conversation. Instead opponents of privatization put forward the idea of a trust fund with imaginary assets and then deride and demonize anyone that dares expose the myth. The Government Accounting Office (GAO) considered congressional studies that would have allowed workers to invest a small part of their payroll taxes into personal accounts. The plans premise was to use 1.8 percent of the total 12.4 percent used for Social Security disability program and invest the remainder in accounts that can be managed by the consumer. But because the Social Security was based on the same formula as the retirement benefit, that money would not count toward the disability benefit and the GAO deemed the plan to bear results of less than what the full faith and confidence of the United States is already promising to retirees (Biggs, The Promise of Privatization, 2001). Bipartisan plans would repair that error easily and revealed that disabled workers would receive substantially greater benefits than the current system allows. But, shamefully, no such plan has come forth from the ones elected to watch out for us. Two examples, however, will reinforce the arguments. In 1981 the city of Galveston, Texas opted out of Social Security; allowing the city workers to receive retirement and disability benefits through personal accounts. Among older, low income workers, Galveston’s disability benefits averaged 50 to 100 percent higher than Social Security. The next example goes to the Chilean government which has completely privatized Social Security. In a 1996 study, it was seeing benefits averaging 75 percent greater than the prior publicly funded administration. Their system offers benefits for partial disability that helps disadvantaged people remain in the workforce! The U.S. system allows for no such contingency (Biggs, The Promise of Privatization, 2001). Destitute people aside, a very disturbing report from the Tribune News Service, posted June 30, 2008 in the AARP Bulletin Today, alarmingly states that the Social Security Administration is paying millions of dollars in benefits to dead Americans and says that other old people are at risk of losing life saving funds because they are being incorrectly recorded as being deceased. Federal investigators, last year in California, found 140 Social Security recipients on record as dead when they were very much still alive. Representative Jim Costa (D-Calif.) offered a ‘clerical error’ as an excuse for the devastating reporting. The report notes that other congressional offices have periodically faced the identical issue. Other individuals told investigators that they needed proof for the local SSA offices that they were, in fact, alive before their benefits could restart! In April of 2009, 6,733 Social Security beneficiaries whose master files had them classified as dead (someone, certainly alive) had been cashing the Social Security checks until 2009. From this small sample, investigators conservatively extrapolated that ~$40 million had been wrongly paid out (Doyle, 2009).
The assessment now can be seen as a system that was crafted for all the right reasons, but, without variation, is influencing people to maximize its utility by irrationally rewarding families who turn over their elderly members to public care and penalize, through taxation, those families providing informal care. The great benefit that the Social Security system has given to us in the past has given way to political pilfering of the cash in the ‘lock box’ of federal trust; so much so that the entire entitlement is in danger of insolvency. Moral considerations notwithstanding, the unsustainable economic impact upon our nation will not long endure without non-partisan political agreement that we have a good model for social security but the one we have now is in dire need of reformation.
Biggs, A. G. (2001, March 9). The Promise of Privatization. Retrieved September 9, 2009, from National Review Online http://www.socialsecurity.org/cgi-bin/scripts/sstopics.cgi?qt=tCarlson, P. A. (2002, November 22).
Rebinding the Generations. Retrieved September 14, 2009, from The Howard Center: http://www.profam.org/docs/acc/thc_acc_frc_multigen_021122.htm
Divorcedex. (2009). Social Security Benefits: Application in Divorce. Retrieved September 13, 2009, from Divorcedex: http://www.divorcedex.com/divorce/Social-Secuirty-Benefits-943.shtml
Doyle, M. (2009, June 3-). Social security audit finds dead people getting checks. Retrieved September 11, 2009, from AARP Bulletin Today: http://bulletin.aarp.org/yourmoney/socialsecurity/articles/social_security_audit_finds_dead_people_getting_checks.html
Historian’s Office. (2001, February). Social Security Online: History. Retrieved September 8, 2009, USA.gov: from http://www.socialsecurity.gov/history/termorigin.html
Levy, R. A. (unknown). The Lock Box and Other Delusions.Retrieved September 9, 2009, from CATO.org: http://www.socialsecurity.org/pubs/articles/art-levy010919.ht
Liberty State Park. (unknown). The New Colossus. Retrieved September 12, 2009, from Statue of Liberty National Monument from http://www.libertystatepark.com/emma.htm
Our Documents. (2005). Social Security Act(1935). Retrieved September 8, 2009, from Our Documents: http:// www.ourdocuments.org
Sloan, A. (2008, march 19). Social Security’s running out of time. Retrieved September 9, 2009, from Fortune Magazine: http://money.cnn.com/2008/03/18/news/economy/sloan_socialsecurity.fortune/index.htm
Waters, M. C. (2005, February 4). Social Security: Politics and Economy. Retrieved September 12, 2009, from NOW http://www.pbs.org/now/politics/socialsecdebate.html