Social Security’s Enduring Truths ( A naive point of view- what would FDR say?)

15 Jun

Social Security Poster: old man

Image via Wikipedia

The following excerpts are from an article in the AARP Bulletin.  It is understandable why Mr. Roosevelt would be supportive of Social Security, but in my view this type of naïve assessment of the issues facing Social Security does every American a great disservice. Mr. Roosevelt is the grandson of FDR





Social Security’s Enduring Truths

Despite the naysayers, the system’s finances are sound by: James Roosevelt Jr. | from: AARP Bulletin | June 1, 2011

 “Much of the money that boomers are and will be drawing from Social Security is and will be their own.”

 “But these important factors are usually left out. Instead, the purveyors of fear want you to believe that boomers are retiring on the backs of their children and grandchildren. If you buy that, they have statistics showing fewer contributors supporting more beneficiaries— “proof” that the program is unsustainable. These utter distortions, however, are nothing new.”

 Utter distortions, ah, not so much.  For example, I paid Social Security taxes since I was fourteen.  The last statement I received from the Social Security Administration a few months before I began to collect benefits showed that over the years I paid $110,457 in taxes, my employer paid a like amount.  However, in 2.64 years my monthly benefit together with my spouse’s portion of the benefit will exceed the entire amount I paid in taxes.  If you include the employer taxes, my benefit will exceed what was paid in taxes in only 5.28 years.  These calculations do not include the fact that my benefit will continue for my surviving spouse or that there is a Cost of Living Adjustment that regularly raises the benefit.  Since I began collecting Social Security benefits in November 2009 I only have a year to go before I am receiving benefits paid for by someone else’s taxes, my children included. Thank you very much. 

“By the end of 2010, the Social Security trust fund had a positive balance of $2.6 trillion. As a result of interest earned on the trust fund balances, the fund’s surplus will continue to expand to approximately $3.67 trillion at the end of 2022. After that year, it is projected that the balance will begin to decline. Still, reserves will be sufficient to pay full benefits through the year 2036. After that, Social Security would still be able to pay for 77 percent of benefits.”

Here is what the Social Security Trustees Report says in 2011:

“Social Security expenditures exceeded the program’s non-interest income in 2010 for the first time since 1983. The $49 billion deficit last year (excluding interest income) and $46 billion projected deficit in 2011 are in large part due to the weakened economy and to downward income adjustments that correct for excess payroll tax revenue credited to the trust funds in earlier years. This deficit is expected to shrink to about $20 billion for years 2012-2014 as the economy strengthens. After 2014, cash deficits are expected to grow rapidly as the number of beneficiaries continues to grow at a substantially faster rate than the number of covered workers. Through 2022, the annual cash deficits will be made up by redeeming trust fund assets from the General Fund of the Treasury. Because these redemptions will be less than interest earnings, trust fund balances will continue to grow. After 2022, trust fund assets will be redeemed in amounts that exceed interest earnings until trust fund reserves are exhausted in 2036, one year earlier than was projected last year. Thereafter, tax income would be sufficient to pay only about three-quarters of scheduled benefits through 2085.”

Let’s look at that interest earned and where it comes from.  If we were talking about interest earned on a private pension fund or even your 401(k) account, the interest comes from the earnings of companies in which you are invested, in other words from creating wealth or it comes from bonds, the proceeds of which the companies use to finance growth and expansion. However, the interest paid on Social Security bonds comes from the US Treasury and the Treasury gets the money from borrowing more money (or just printing it).  Think of it as using one credit card to make the minimum monthly payment on another card.

“Since when is news that a program is completely solvent for 25 years bad news?”

Not bad news?  Twenty-five years is not that far away, especially if you happen to be age 50 or 55 at the moment.  Would it be bad news if your employer said its pension trust was only going to be solvent for twenty-five years or that your 401(k) account would only last for twenty-five years?  In addition, it is foolhardy if not irresponsible to pretend there is no problem with Social Security.  This is such a massive and complex program and one so emotionally charged that it will take decades to change the direction in which we are headed.  We certainly cannot wait for twenty-four years and then try to find a fix.

FDR envisioned quite a different program from what we have today following decades of “improvements” made by Congress. If you think that government estimates of the cost of a program are to be relied upon for years into the future, consider this from a 1936 government Social Security brochure:


The taxes called for in this law will be paid both by your employer and by you. For the next 3 years you will pay maybe 15 cents a week, maybe 25 cents a week, maybe 30 cents or more, according to what you earn. That is to say, during the next 3 years, beginning January 1, 1937, you will pay 1 cent for every dollar you earn, and at the same time your employer will pay 1 cent for every dollar you earn, up to $3,000 a year. Twenty-six million other workers and their employers will be paying at the same time.

After the first 3 year–that is to say, beginning in 1940–you will pay, and your employer will pay, 1.5 cents for each dollar you earn, up to $3,000 a year. This will be the tax for 3 years, and then, beginning in 1943, you will pay 2 cents, and so will your employer, for every dollar you earn for the next 3 years. After that, you and your employer will each pay half a cent more for 3 years, and finally, beginning in 1949, twelve years from now, you and your employer will each pay 3 cents on each dollar you earn, up to $3,000 a year. That is the most you will ever pay.

When was the last year you paid $90.00 in Social Security tax?

No comments yet

Leave a Reply