op-ed by reader coberly
SOCIAL SECURITY: Unpacking the Lies
Social Security is not difficult to explain. The difficulty comes because EVERYONE has been hearing stories about Social Security that are not true. And they have been hearing them their whole lives, so they believe them in their bones. They do not know that these stories are constructed by highly paid “experts,” or that these “non partisan experts” are paid by people who have a lot of money to spend on trying to destroy Social Security. We are asked to believe that these money people are only disinterested patriots, spending their own money to warn foolish Americans and their irresponsible Congressmen who are about to drive the country over a cliff of debt into financial and moral ruin. Future generations, we are told, the very babies, will be crushed by a staggering burden of debt, all possibility of a free life snuffed out before it even begins. And all because of “entitlements.”
I will show that this is not true. Moreover it cannot ever be true. It is not possible for it to be true.
The facts are clear enough, and few enough. You can verify them yourself. The problem will be getting you to pay attention to them and gradually letting go of what you think you already know. This will not be easy. Please don’t trust me. But don’t trust what you think you know already either.
This first essay will be very rough. The arithmetic won’t be quite right… we’ll get to that later. I just want to begin with the basic lie and show a way of thinking about it that should lead you to question it. We’ll get to the careful arithmetic next time. And there will be lots of repetition. Sorry about that. But the bad guys have been repeating their lies for twenty to seventy years, and it will take some repetition before reality sinks in.
The first thing to understand is that Social Security is NOT WELFARE. It is not “the rich” being taxed to provide for “the poor.” In fact it was created exactly to avoid welfare taxes and the indignity of working people having to rely on welfare. Social Security is an insurance program for workers, paid for by workers.
It IS mandatory because experience has shown that left to their own devices most people will not save enough for their own retirements. Social Security requires them to save enough, and in return it protects their money from inflation and provides other kinds of insurance that even the smartest people sometimes need. But it is insurance. Not welfare. Social Security requires workers to save enough, and this saves them from having to rely on welfare, and it saves the prudent from having to pay a welfare tax.
The second thing to understand is that Social Security is “off budget.” This means that Social Security can NEVER be the cause of a budget deficit. Any projected shortfall in Social Security is a problem for workers to solve by adjusting between the tax they pay (the insurance premium) and the level of benefits they expect to need in retirement.
The third thing you need to understand is that the projected deficit you hear about is not large. Though the paid liars have been screaming about “44 Trillion Dollar Unfunded Deficits”… and lately David Walker has upped the ante to 58 Trillion… these numbers are made up for the sole purpose of panicking you so you will sit quiet and stunned while they gut Social Security and take away your chances of being able to retire while you are still healthy enough to enjoy it.
The 44 Trillion dollar figure has a basis that is too complicated for us to get into here, but there is a way we can start to think about it. Divide the 44 Trillion by the 200 million taxpayers who will pay it, and then by the 75 years over which it will be paid: 44,000,000,000,000 / 200,000,000 / 75 = 2933 per year per taxpayer or about 56 dollars per week.
Then you need to know that this is not money going into some government black hole. This is the money that goes to YOU in the form of a monthly check of about 1600 dollars per month for the six years longer life expectancy you will have compared to the people the last time the premium (tax rate) was set. This will also pay for all of your medical care after you leave work. (Check: 2933 times the 40 years you will be paying it works out to 117,320 dollars. Divide that by the six years of extra life expectancy = 19,553 dollars per year or $1629 per month. Note these are real dollars, and we will get to where the interest went in a future post.)
Then you need to know that your income in this future time will have increased on average to about twice what you are now making. This is real income, not inflation. So if you are making the average wage of about 700 dollars per week now, you pay about 50 dollars per week in payroll taxes and your boss matches that. If the tax rate stays the same, in about 50 years you will be making about 1400 dollars per week and paying about 100 dollars per week in payroll taxes, with your boss matching that. But if you are going to be living longer, and paying more for medical care, you will need to pay an extra 28 dollars per week (your half of that extra $56).
So as a first approximation, “44 Trillion Dollar Unfunded Deficit” means that in about 50 years you will have twice as much money in your pocket left after paying a payroll tax that guarantees you a longer, richer retirement with your medical bills paid in advance: Today’s 700 – 50 = 650. Tomorrow’s 1400 – (100 +28) = 1272.
This does not look like a crisis or a huge burden to me. It looks like what being richer means. But let me remind you… this was all rough estimates. I will try to get back in a week with some more accurate numbers taken from the 2007 Trustees Report. They will be remarkably close to our estimate today. You may want to get ahead of me. Or show me where the 2008 Report changes anything significant.