Social Security
Return to Common Sense
February
12, 2017
Section: Culture – Social Security
“The longer the federal government delays a transition to a
personal account system the more likely the Social Security “Ponzi scheme” will drag the
economy into bankruptcy.”
”Social Security. .
. reflects some of our deepest values--the duties we owe to our parents, the
duties we owe to each other when we’re differently situated in life, the
duties we owe to our children and our grandchildren. Indeed, it reflects our
determination to move forward across generations and across the income divides
in our country, as one America.”
William J. Clinton.
Philosophy
(Background, Issues, Objectives):
Original Social Security (FICA) Program
was designed as a temporary targeted program:
·
Cash benefits plus
Medicare coverage for SSDI recipients shot up from $53 billion in
1979 to $195 billion in 2010.
·
The
participation in the program would be completely voluntary.
·
The
participants would only have to pay 1% of the first $1,400 of their annual
income.
·
The money
the participants elected to put into the program would be deductible from taxable income.
o
Democrats
eliminated the income tax deduction for Social Security (FICA) deduction.
·
All
monies would be put into the independent “Trust Fund” rather than the General Operating Fund, and can
only be used to fund the Social Security Retirement Program.
o
Democrat
Lyndon Johnson put these funds into the General Fund.
·
The
annuity payments to the retirees would never be taxed as income.
o
Democrats
started taxing Social Security annuities, with VP Al Gore casting tie-breaker.
Social Security Administration (SSA) has a staff of
over 65,000 employees and headquartered in Baltimore.
·
Retirement
and Survivors Insurance (RSI) – 1935.
o
In 2013, pays benefits to 47 million retired persons.
o
In 2013, costs $668 billion.
·
Disability
Insurance (DI) – 1954.
o
In 2013, pays benefits to 11 million disabled persons.
o
In 2013, costs $144 billion.
·
Supplemental
Security Income (SSI) – 1972.
o
Originally
designed as supplement for disabled low-income seniors and children.
o
Now
covers virtually any low-income person with a long term ailment.
o
In 2013, pays benefits to 8 million disabled and low-income elderly
persons.
o
In 2013, costs $57 billion.
·
International
SSA programs.
Although billed as a “trust fund” monies collected were
made available to the general fund.
·
The Social Security “Trust Fund's” real return
ranges between negative and 1.23%.
·
Over the 83 years from 1928 to 2010, the real return on U.S.
Treasury bills was 3.75%.
·
The real return on the U.S. equity market was just under 10%.
Social Security spent more in
benefits than it takes in from payroll taxes beginning in 2010.
·
In 1935
Social Security was created to pay retired workers a continuing income after
retirement.
·
Social
Security is the only retirement plan that many American now have.
·
Social Security
is a very poor investment, delivering negative rates of return on Social
Security taxes.
·
The Social Security trust fund does not contain cash or assets; only
special-issue government bonds.
o
Ponzi schemes are a type of illegal pyramid scheme
named for Charles Ponzi, who duped thousands into investing in a postage stamp
speculation scheme back in the 1920s.
o
The Ponzi scheme continues to work on the
'rob-Peter-to-pay-Paul' principle, as money from new investors is used to pay
off earlier investors until the whole scheme collapses.
·
The only
way to pay full benefits would be to raise taxes by about 50%.
· In 2013, the Social Security program has
accumulated huge unfunded obligations of
$23 trillion.
Personal Ownership Accounts have been
suggested, but have not gained sufficient traction for passage.
·
Conservatives
proposed personal retirement accounts.
·
Democrats
proposed reforms at Hyde Park Declaration for reform and personal retirement
accounts.
·
Liberal
obstructionists are in crisis denial and insist that “Social Security
remains sound for decades.”
Americans are also choosing to go on lifetime
disability, even though they are capable of holding a job.
·
The Social Security
Administration (SSA) manages cash benefits for people with disabilities under
two programs in this category
o
Disability
Insurance (DI) for workers with disabilities including family members.
o
Supplemental
Security Income (SSI) for individuals with disabilities who have limited income
and resources.
·
In 2011,
10.7 million people were on disability.
·
4.6% of the working
age population is on permanent disability, up from 0.3% when the Social
Security Disability Insurance program (SSDI) was set up in 1956.
·
Cash benefits plus
Medicare coverage for SSDI recipients shot up from $53 billion in
1979 to $195 billion in 2010.
·
Government
administrators deciding who is eligible are turning SSDI into a permanent (literally
lifetime) unemployment benefit for people uninterested in working or unable to
find the job they want.
o
Administrators are
promoting dependence as a lifetime alternative to employment.
o
Social Security
Administration data document that 55% of the eligibility decisions are based on
factors other than medical.
Over half of all Americans face a bleak
retirement future because they have not saved enough.
·
Fewer
than one in five are covered by a traditional defined benefit pension.
·
Many of
these pension plans are under-funded.
·
Traditional
pensions are being replaced by 401(k) type savings plans, but only half
participate.
Pension Benefit Guaranty Corporation
insures pension programs and is essentially broke.
·
The Pension Benefit Guaranty Corporation (PBGC) was created by the Employee
Retirement Income Security Act (ERISA) of 1974 to cover voluntary
private defined benefit pension plans,
ensure pension benefits, and keep pension premiums low.
·
The PBSC was supposed to be, according to its charter, financially
self-supporting, with its liabilities not being obligations of the U.S.
government.
·
The PBGC has two programs, one insures
single employer pensions and the other multiemployer, union-sponsored pensions.
·
Both programs are insolvent, with the
multiemployer liabilities of $54 billion which are 27 times its assets of $2
billion.
·
Between 2010 and 2014, just eight states
managed to cut the level of their unfunded liabilities.
Other countries are beginning to change
their retirement programs to personal accounts.
·
Chile replaced tax-based, pay-as-you go government retirement
system with an ownership based system of individually owned retirement accounts
in 1981.
o
Workers
could choose to stay in existing system, or could get out and invest in own
account.
§
95% of
Chilean workforce opted out of government system into personal retirement
accounts.
§ Chilean workers pay in 10% of
wages (they can send up to 20%) to one of several conservatively managed and
regulated pension funds.
§ From the accumulated savings,
workers get a life annuity or make programmed withdrawals (inheriting any funds
left over).
o
In 2013 a Dictuc study found that average annual rate of return was
8.7%, compound rate of return.
o
Chilean
system has provided so much investment capital that Chile moved from being a
poor country to being a solid middle-income country.
·
Some 30 nations have adopted a version of Cjhile’s private
system.
·
Sweden adopted personal pension accounts in 2000 paid for by tax
dollars.
o
Swedish
reform introduced a “notional
defined contribution” assigned to each participating worker tracking
“investment earnings” and
“account balances” as a
tracking vehicle.
o
At
retirement retirees get a pension based on the balance in their own notional
account, converted into a monthly benefit based on expected remaining life
span.
o
Use of
“notional account” that positions for later simpler switch to fully
funded accounts.
§
Current
retirees and older workers will continue to receive retirement income based on
the old program.
§
Workers
born from 1938 to 1953 will receive benefits from both the old and new systems
as the new system is gradually introduced.
Principles:
Benefits of current retirees and those
close to retirement must not be reduced.
·
Rate of
return on a worker’s Social Security taxes must be improved.
Personal retirement accounts must
guarantee an adequate minimum income.
Recommendations:
Short Term, Isolate the social security financing funding and liabilities from
the total budget.
·
Protect surplus from current spending.
·
Separate
OMB forecast income and spending as a discrete entitlement.
·
Budget
long term (30 year) to identify shortcomings long before they become problems.
·
Require
program reauthorization every four years based on sustainability.
Improve the funding of traditional
defined benefit pension plans.
·
Offer auto-enrollment
in Federal Retirement Thrift Investment Board.
Examine social security reforms to
salvage program such as:
·
Adjust the retirement age to reflect increases in life
expectancy.
·
Adjust the annual cost of living adjustment based on Chained
Consumer Price Index (C-CPI-U)
·
Provide incentives to work longer, offering those who work
past their full benefit age receive a special annual tax deduction, regardless
of income level.
·
Increase taxes by increasing earnings cap.
Tighten disability eligibility, limiting it to
those medically unable to work at any job.
Long Term, Create Social Security Personal Retirement Accounts for individual workers
owned and provide savings for retirement.
·
Protect
current recipients (over 50-55) with program as currently exists.
o
Everyone
is responsible for their own retirement funding, cushioned only by the Social
Security safety net as originally designed.
·
Migrate
current participants, over a five year transition period
o
Provide a
lump sum equal to the amount already contributed grown at a modest rate of
return.
o
Create a
tax sufficient to provide for the needy in advanced age based on definitions of
need and actuarial assumptions.
·
Expand
private pension coverage by offering automatic enrollment and payroll
deduction.
Privatize the Pension Benefit Guaranty
Corporation (PBGC).
References:
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Reform in Sweden: Lessons for American Policymakers” by Goran Norman
and Daniel J. Mitchell dated June 29, 2000 published by The Heritage Foundation
at http://www.heritage.org/Research/SocialSecurity/bg1381.cfm .
“Six
Important Rules for Real Social Security Reform” by David C. John
dated June 2, 2003 published by The Heritage Foundation at http://www.heritage.org/Research/SocialSecurity/EM884.cfm .
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Progressive Proposal for Social Security Personal Accounts” by Peter
Ferrara dated June 13, 2003 published by Institute for Policy Innovation at http://www.ipi.org/ .
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6.2 Percent Solution: A Plan for Reforming Social Security” by
Michael Tanner dated February 17, 2004 published by The Cato Institute at http://www.cato.org/pubs/ssps/ssp-32es.html .
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High Time for Lifetime Savings Accounts” by Terry Mitchell dated
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Social Security Trustees Report Shows the Urgency of Reform” by David
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in Its Investment Choices” by David C. John dated September 24, 2007
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.
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.
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.
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Chile’s Private Pension Model Works, Big Time” dated September
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Public Pension Problem: It’s Much Worse Than It Appears” by
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Will Pay for the Pension Benefit Guaranty Corporation’s Huge Losses?”
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