FLYING SAUCERS, THE YOUNG, and SOCIAL SECURITY

by Dale Coberly

FLYING SAUCERS, THE YOUNG, and SOCIAL SECURITY

What if the Social Security
Trust Fund WAS
Worthless IOU’s

George Bush liked to tell us “the young” were more likely to believe
in flying saucers than they were to believe they would ever see any
benefits from Social Security.

First, let me assure you the iou’s are not worthless. They are legal
promises by the United States of America to pay back money it
borrowed from real people. The United States of America has the
assets to honor its debts.

But it might be interesting to see what could be done, other than
cutting benefits, if a flying saucer came and stole the Trust Fund
and Congress just couldn’t find the money to replace it.

What if the people just decided to repay it themselves? How much of
a burden would that be?

The answer is “Not much.” You can verify this by studying

the Tables
in the Trustees Report. I’ll spare you the details, but you can
easily do it yourself. You want to look up

http://www.ssa.gov/OACT/TR/2013/ or better http://www.ssa.gov/OACT/
TR/2013/lrIndex.html

and find Table VI.F9 and Table VI.F6. Find the Balance for each
year from 2013 to 2033 and divide it by the Payroll for each year.
This will give the percent of payroll that is how much the workers
would have to tax themselves to pay what the “worthless” Trust Fund
was going to pay… to repay the Boomers who lent it to the
government to pay for their own retirement. The average of those
extra payments turns out to be 2% of payroll.

Please note, the Boomers are now the “older generation” that
“investment legend” Stanley Druckenmiller is going around saying
“stole from the younger generation.” They stole it, see, by lending
it to you. This makes perfect sense if you are a pathological liar.

If the workers were to pay that 2% by raising the payroll tax 2%,
they would on average see a paycheck each week that was 8 eight
dollars less (that’s 1% because the average worker only pays half of
the payroll tax) than what they are getting today. But it is also
true that over the 20 years they would be paying the extra tax, their
wages are expected to go up from about 800 dollars per week today to
about 1100 dollars per week then. The worker’s share of that would
then be about eleven dollars per week, leaving him 289 dollars
richer each week than he was before he started paying for the missing
Trust Fund.

Workers would rather not pay the extra, of course, but if the
alternative is “no Social Security,” they would be wise to consider
it a bargain. They will get that money back about twice over in real
dollars, in the form of Social Security checks when they will need
the money more than they do today.

And it is a fact of life that no one is going to pay it for you.
Your choices are to pay for Social Security, which protects your
money from inflation and market losses and personal bad luck, or
take your chances “on the market.” Or you could throw yourself on
the floor and kick your feet and demand that “the rich” pay for your
retirement.

The rich won’t do that. And if they did, first they’d get the money
back by raising prices and cutting your wages, and second, they would
not rest until they had destroyed Social Security entirely.

In effect “the rich” borrowed the Trust Fund when they got tax cuts,
and the government continued to buy things using the money borrowed
from Social Security. But the rich don’t think that they borrowed
it. They think “the government” spent it. And they will throw
themselves on the floor and kick their feet and demand we “cut
entitlements” so we don’t have to “pay the huge debt” we owe to
Social Security. Except, because they listen to pathological liars,
they don’t hear the “to” in that sentence. They think that somehow
Social Security BORROWED the money … which is getting it
completely backwards.

Just to say it again… it would be better for the workers to just
pay the money (again) than to take the chance of losing Social
Security altogether by trying to make the rich pay for it.

But the news is better than that… a whole lot better.

Lets look at what happens if :

The Trust Fund is NOT worthless IOU’s.

First, look at some other tables, this time from the Statistical
Abstracts of the United States:

http://www.census.gov/compendia/statab/cats/
federal_govt_finances_employment/
federal_individual_income_tax_returns.html

Table 483 Shows that the 18 million taxpayers who made over a hundred
thousand dollars in 2008 made as much money in total as the 124
million taxpayers who made less than a hundred thousand dollars.

This means, essentially, that those people.. who did not pay the
payroll tax on the part of their income over 100k could pay back the
Trust Fund by raising their tax the same 2% on average that we just
showed it would take the workers who did pay the payroll tax to pay
for it again.

OR… we could ALL of us pay a tax of about 1% to pay back the Trust
Fund. The Boomers would get the retirement they paid for, and the
rest of us would get our money back when we retire in the form of
higher benefits over a longer lifetime. So no one would really be
“hurt.” Except those people who can always convince themselves that
their sister got a bigger piece of the burfday cake than they did.

Arguably, we all benefited from borrowing the money from the Trust
Fund. We got things for the government that, arguably, helped make
this a richer and stronger country. And we, arguably, were able to
invest our tax cuts in enterprises that made US richer. We are NOT
“paying twice” for Social Security; we are paying once, the first
time, for the stuff we bought with the money we borrowed FROM Social
Security.

But the news is actually better than this: Neither we nor “the rich”
will probably ever have to pay back any of the “Debt,” including that
owed to Social Security. Normal growth in GDP will enable the
government to pay back the money it has borrowed without raising tax
rates. This is the normal way that governments, and successful
businesses, pay back borrowed money… even as they borrow more.

But the news is even better than that: A payroll tax increase of one
TENTH of one percent (about eighty cents per week per worker) per
year will entirely pay for the future costs of Social Security. That
will reduce the “actuarial deficit” from 9.6 Trillion Dollars to
zero. AND it will eliminate the need to “repay” the Trust Fund. The
tiny tax raise will entirely pay for Social Security costs “as we
go,” so the Trust Fund can lie there, on paper, growing with the
size of the economy, without ever needing any actual cash.

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