Wednesday, November 28, 2007

Social Security - Fred Thompson & Peter Brown

Peter Brown wrote, “Around the middle of the century Social Security will go broke. In that case, today’s young would get nothing at all.” Well folks, this is an out and out lie.

In 1984 our elected representatives made sure that social security could only use dedicated social security taxes and the funds allocated to the trust fund to pay benefits. If nothing is done to change either benefits or revenues, then by law when the trust fund falls to a predefined amount, across the board cuts take place. Social Security’s OASI program will be able to pay about 60% of promised scheduled benefits with COLA or about 70% of promised initial benefits without COLA. In no event will social security benefits be zero.

Fred Thompson proposes to change the method to calculate your initial benefit. Instead of using the National Change in US wages to index previous years’ wages, he proposes to use inflation. The difference between wage growth and inflation is equal to our change in the US living standard. In essence when you retire, your living standard will no longer be based on the buying power of your dollar, but about twenty years earlier. Had this method been used to calculate this years’ benefits, they would have been 30% smaller! How is changing the wage indexing index any different than doing nothing? Both methods reduce future benefits.

Keep in mind that in 1977 Congress adopted the Wage Index to keep benefits between cohorts fair in relation to life time indexed wages. Mathematically this is a very fair method. The problem is that Social Security in 1977 had well over $1 Trillion in unfunded liabilities, which has now grown to over $17 Trillion. They created a fair method, but never solved the initial 1937 problem of who pays for the first 40 cohorts of beneficiaries?

Congress has simply passed the buck onto each succeeding generation. Let us face the fact there is no painless solution. With this said, the solution should not be to simply shift 100% of the cost onto our children by paying the same payroll tax with smaller benefits. A child born after 1985 can expect to receive 29 cents for every one dollar in taxes and credited interest at the US Treasury rate. No matter if you raise taxes, retirement age, or cut future benefits, the sad fact remains; they can receive only 29 cents. If you raise taxes, they pay more for the same promised benefit. If they raise the retirement age, they pay longer and receive less. If they cut benefits, they pay the same for less. These are your children and grandchildren. Those born prior to 1938 have benefits that are paying them multiple times more than their fair share. There are over 8 million seniors with a net-worth of $1 million or more. One in five seniors have $1 million or more?

There are 117 million potential voters in the United States under age 46. There are only 36.5 million over the age of 65. Even when the boomers are all retired; those under age 46 will out number those over age 46. The young need to get out and vote or people like Bush and Thompson will steal ever more from you and say how they feel soooo sorry. Don’t fall for it.


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