Did you know?

The Patriot Post is funded 100% by its readers, avoiding the influence advertisers and special interest groups impose on other publications. Help us stay front and center in the fight for Liberty and support the 2021 Independence Day Campaign.

Jul. 17, 2014

Social Security Insolvent, Voters Say ‘Do Nothing’

The best solutions for the federal government’s most popular program are, unfortunately, a no-go.

The main driver of the ballooning federal debt is wealth transfer payments. Indeed, more than two-thirds of the federal budget is money that goes from one taxpayer’s pocket into someone else’s. Some of this is naked wealth redistribution, like food stamps and other welfare. But much of it is what some call “earned” payments, like Social Security and Medicare – money that has been taken from workers’ paychecks for decades with the promise of a retirement return. The solvency of these programs, however, is in jeopardy.

Social Security already runs an annual deficit – about $200 billion this year – which will only grow worse as fewer workers support more retirees. From the start, politicians have raided the Social Security “trust fund” and spent the money on other general fund projects, leaving the program as a wealth transfer one instead of an investment as it’s billed. Economist Walter Williams explains, “What the Treasury Department does is give the Social Security Trust Fund non-marketable ‘special issue government securities’ that are simply bookkeeping entries that are IOUs.”

Now that benefits paid exceed taxes collected, the problem has become acute. According to the Social Security board of trustees, in 1945, there were 42 workers for every retiree; the current ratio of three workers to every retiree is unsustainable. Strictly speaking, Social Security is not a Ponzi scheme, in part because it’s not against the law. Indeed, it is the law. (Try not paying payroll taxes – a.k.a., “investing” in the system.) But it is structured exactly like a Ponzi scheme, and it will eventually fail for the same reasons.

Of the gap between Social Security taxes collected and benefits paid out, The Wall Street Journal’s William Galston writes, “To close that gap while maintaining scheduled benefits, we would need to enact an immediate increase in the payroll tax rate from 12.4% to 15.9%. For workers earning $50,000 a year, that would mean a tax increase of $900, nearly 2% of gross income. And employers would have to match it. For workers making the maximum now subject to payroll taxes (a bit under $120,000), taxes would rise by $2,100.”

If the income cap were lifted, workers at higher incomes would face an even more staggering tax increase. And yet as it stands, the payroll tax is regressive in that it hits lower income families disproportionately. If the income cap were doubled, it still wouldn’t fix the problem. Galston notes, “One might imagine that such a sizable increase in covered earnings would be enough to stabilize the system for the long term. In fact, the CBO calculates, it would reduce the imbalance by only 30%. Indeed, eliminating the cap and taxing all earnings would solve just 45% of the problem.”

Meanwhile, the expected return on the 12.4% in Social Security withholding from our income is practically criminal. Consider the potential return of investing 12.4% of a typical middle class income in indexed mutual funds, where decent investments would yield perhaps multiple millions of dollars over 30 years. Over a retirement span of 20 years or so, annual withdrawals could be six figures while still leaving a good chunk of change making money.

Compared to that, Social Security looks like the poorest investment ever concocted. In fact, from that perspective, Social Security is stealing our money by mandating that it do something for us in a worse way than we can ourselves.

Or put it another way. Financial advisers often recommend putting 10% to 15% of your income toward “retirement” (whatever that means to you). The potential return on that 15% over 30 years is fantastic. Unfortunately, Social Security is already taking over 12%, while giving us miserable returns. So for savers, Social Security is costing us significant returns that we could have realized but won’t. What a “safety net.”

In spite of the facts, Social Security has always been one of the most popular programs the federal government runs, and the overwhelming choice of voters is to do nothing to fix it – let alone returning to the constitutional norm of the federal government staying out of your retirement. So we understand politicians desperate for votes not wanting to touch this beloved system. But Social Security is built on a half-truth at best, and it’s unsustainable.

Start a conversation using these share links:

Who We Are

The Patriot Post is a highly acclaimed weekday digest of news analysis, policy and opinion written from the heartland — as opposed to the MSM’s ubiquitous Beltway echo chambers — for grassroots leaders nationwide. More

What We Offer

On the Web

We provide solid conservative perspective on the most important issues, including analysis, opinion columns, headline summaries, memes, cartoons and much more.

Via Email

Choose our full-length Digest or our quick-reading Snapshot for a summary of important news. We also offer Cartoons & Memes on Monday and Alexander’s column on Wednesday.

Our Mission

The Patriot Post is steadfast in our mission to extend the endowment of Liberty to the next generation by advocating for individual rights and responsibilities, supporting the restoration of constitutional limits on government and the judiciary, and promoting free enterprise, national defense and traditional American values. We are a rock-solid conservative touchstone for the expanding ranks of grassroots Americans Patriots from all walks of life. Our mission and operation budgets are not financed by any political or special interest groups, and to protect our editorial integrity, we accept no advertising. We are sustained solely by you. Please support The Patriot Fund today!

★ PUBLIUS ★

“Our cause is noble; it is the cause of mankind!” —George Washington

The Patriot Post is protected speech, as enumerated in the First Amendment and enforced by the Second Amendment of the Constitution of the United States of America, in accordance with the endowed and unalienable Rights of All Mankind.

Copyright © 2021 The Patriot Post. All Rights Reserved.

The Patriot Post does not support Internet Explorer. We recommend installing the latest version of Microsoft Edge, Mozilla Firefox, or Google Chrome.