The Social Security Debacle

Social Security today

There is an amazing amount of misinformation floating around this election year about Social Security and it's future. I think I'm going to stray a bit from my usual policy of presenting only my own opinions to publish a few historical facts.

First off, let's discuss the SS Trust Fund. Social Security started in 1935 and was intended as an insurance system to protect senior citizens from poverty. This was during the height of the “great depression” and during the rise of centralization or people deserting the family farms for the cities. Prior to that time, most people lived on farms in multi generational family groupings and children grew up and took care of aging parents. That may be why we had much larger families back then.

Anyway there was no trust fund, the SSA simply collected taxes and paid it out in benefits. Things continued in this vein until 1983. In that year a commission was created headed by Alan Greenspan to look into the future of Social Security. The concept was that with people living longer eventually taxes at the rate current in 1983 wouldn't be able to pay out the benefits in existence in 1983. The result of this “dilemma” was the creation of the “Trust Fund”. The idea was to create a reserve to carry us through the time of the retirement bubble of baby boomers.

The result of this plan was that we now have $2,000,000,000,000 in this fund. That's $2 trillion, please check my zero count. Under current tax law that fund will continue to increase until 2016 at which time the payouts in benefits will start to catch up with the income in taxes. Then, around 2041 we will have exhausted the excess and be back to pay as you go financing like we were from 1935 to 1983. One note of opinion here, I don't see how that's a BIG problem. It worked for nearly 50 years.

Now, there are as many “solutions” to this “catastrophe” as there are politicians running for election. Here's two likely possibilities.

First, we now stop charging FICA tax at an annual income of $102,000. BTW, that tax is 6.25% for employees. If we remove the cutoff, we will never hit the deficit problem at all. That is NOT Mr. Obama's play. His plan calls for a “donut” solution where we stop charging FICA at $102k and start back at $250k. That plan does NOT recover enough money to fix the problem. It only covers about 38% of it and requires more band aid approaches to the problem.

Idea number 2 calls for raising FICA taxes from the current 12.5 % (6.25% to the employee) to 14.5% (7.25%) to the employee. That one also means we never hit the deficit thing at all. I'm not sure who backs this idea, if I did I'd vote for him.

How about Idea number 3? This one is mine. Why not return to the system in place from 1935 to 1983 where we adjusted taxes each year to pay for the benefits paid that year? The trust fund in place would mean we didn't need to change taxes at all for the next thirty odd years, and long before then we should be into the time when the smaller generations are retiring. The baby boomers will be mostly expired and no longer receiving benefits.

Last note, I am talking only about Social Security here. This is an entirely different situation from Medicare and Medicaid. Perhaps I'll research those subjects and discuss them in a future column. The Internet makes this a wonderful time to be retired with time on your hands.

I encourage those with differing or even similar ideas on this subject to comment. I'll publish anything that is fit to print whether you agree with me or not. All the ideas I express or my own, but they are subject to being changed with new information.