Benefits, Taxes, and Demographics - Pick two and call me back - Granite Grok

Benefits, Taxes, and Demographics – Pick two and call me back

What goes around, comes around.  When President Bush first started to talk about reforming Social Security, his ideas included the personal savings component (like many Federal employees already have) and the indexing of COLAs from the wage price inflation rate to the consumer price index.  As expected, there was a lot of blowback.  The opposition came from two different groups.  From the Left was the hysterical outpouring of angst over people not being able to figure out how to invest their  personal savings accounts, the role of the private market, and (I feel) the loss of power of not being in charge of all that money.

The other came from those who were either already on Social Security or about to partake of its benefits.  In the local paper, I saw numerous articles and Letters to the Editor complaining about "cutting benefits", that people paid their money and demanded to get it back in benefits, and that Social Security was needed to "live a normal retirement".

Well, I’ve seen a few peices again over the last few months yet again on Social Security.  Although it has been in reference to the new Senate bill extending Social Security benefits to illegal aliens (at terms better than I can get!!), I figured it was time to say something once again about a couple of the basic issues.

Far be it for me to clue those that want all the money they paid in over the years is long gone; there are no Trust Fund accounts with their names on to now draw against.  While they worked, they paid for Mr. & Mrs. Johns’ Social Security checks; now my taxes help to fund the current seasoned citizens’ monthly S.S. check and benefits.  In the private sector, Social Security is known by another name – a Ponzi scheme.  Illegal by others; legalized for and only for government purposes.  They may "demand" anything they wants, but the simple truth is that they did not pay earlier for what they now receive.  

The role of Social Security was never intended to provide anyone with a complete retirement fund.  Rather, it was created as a "floor" to guard against the poverty of senior citizens; it was never supposed to supply a sufficient income to supply a comfortable retirement.  It is not the general public’s fault, nor is it our responsibility, to pay for anyone’s retirement in full.  I am sorry that many do not realize this fact and fail to adequately plan to provide for themselves in retirement.  I may feel bad, but that’s their fault, not ours, and I and others should not have to pay for their mistake.  We should help, but only to a point.  There is no promise in the Declaration of Independance, the Constitution, or the Bill of Rights to give anyone the right of a reasonably comfortable retirement.  No one should expect one as an entitlement.  This brief anomaly of the general population able to enjoy a retirement may over; we all may need to work during our "retirement years".  Older folks got lucky, we didn’t.  Get over it.

Next – no one’s Social Security check will be cut, and it is doubtful that it ever will (has federal government spending ever gone down?).  Some of those against changing the indexing process believe that their  benefits are going to be cut Real Soon Now, which is not true.  While it may sound "nuanced"; there are no cuts being talked about.  It is the rate of increase that will SLOW (not cut) if the Social Security increase rate changes from wage inflation to a more moderate inflation rate. Their checks will continue to grow over time but they will just get larger at a slower pace.   

Please note: somebody always has to pay for Social Security check to get larger. Government can only pay benefits by using money taken from other people who pay taxes.  Thus, for anyone’s check to get larger, the next generation that is now paying for that check gets to keep less from their hard work for themselves.

There is a saying "Good, Quick, or Cheap; pick two and call me later".  Think about it; any two choices excludes the third.  The equivalent in the Social Security arena is "Benefits, Taxes, and Demographics".  Benefits have risen as politicians have used it as a way to win votes. Taxes have already gone up since Social Security’s onset – from 2% to 12.4%.  And taxes will have to go even higher without changes made. Way higher.

Why?  The third item, Demographics.

The "joke" is that this overrides the other two.  The problem is not just having higher taxes or lower benefits.  The real problem is accounting for demographics – less workers in the labor force and retirees living longer.  At the time Social Security started there were 30 workers for every retiree and the life expectancy was 63 – benefits didn’t kick in until age 65.  By the time I retire as a late boomer, there may be only two workers to support me and I hope to live to my eighties.  This is the driving force behind requiring changes and we can’t change that due to the "bulge in the snake" of the retiring boomer generation and better medical services, so something has to give.  This is an tsunami of a problem if there aren’t serious changes WHETHER WE LIKE IT OR NOT.  Should I be required to pay more into the system than what I will receive back?  Should I require those to workers to pay most of their hard earned wages in taxes so I can receive my "fair share"?  Should I expect to receive the same as my parents did?  

The problem is that I won’t, unless structural changes to Social Security happen, including the re-indexing.  The Social Security system was not built to endure long with fewer workers and longer lifespans. To maintain Social Security, we will have to pick either much lowered benefits, much higher taxes or both. And honesty compels us, after all the rhetoric is said and argued, that neither will be enough.  The only thing that can save the system is serious changes to that system.  Not all changes will create joy in all people.  

Given the choice, I can easily accept the pegging to a slower rate of growth as a starter.  I also would welcome the personal account feature (again, a choice which federal employees have had for a while) being bandied about.  And there may be many other changes needed as well (think of a retirement age commiserate with our longer lifespans).  Get used to it.  

It all comes down to TANSTAAFL – There Ain’t No Such Thing As A Free Lunch.