Well, when it was sold to the public it was called AN INSURANCE program. It was NOT called an income tax or anything like that.
Oh puh-lease. Are you going to stand there and tell me you honestly believed that? And please bear in mind, it wasn't me, or anyone in my generation, who made those claims. The people who created the system are long dead.
Let me take your second point first. The FICA has always been compulsory and income-based. What aspect of an income tax does it lack? If it walks like a duck, and quacks like a duck, it's a duck.
And insurance program?!? Don't insult my intelligence, or your own. From the very earliest days in the 30s, people began to collect benefits even though they'd not paid much of anything into the system. Over the year but particularly in the 60s benefits were greatly expanded and granted retroactively to people, paid for by big increases in the FICA tax. The system has been pay-as-you-go, in effect a demographic pyramid. Here is a link with some interesting facts:
concordcoalition.org
The salient sentences:
"From 1975 to 2030, the rates of return for new retirees will fall from 6.5 to 1.9 among average-earning single females and from 7.2 to 2.3 among average-earning two-earner couples."
And this:
"...comparing Social Security rates of return to equivalent marketplace investments. Some economists believe that a prudent comparison is with the long-term Treasury rate, which has averaged a real 2.6 percent from 1960 to 1995 and which the Social Security Administration projects will average 2.7 percent over the next seventy-five years. As constitutionally protected property, a Treasury bond is a very safe investment -- safer indeed than a Social Security promise. So perhaps we needn't be this prudent. Other economists have shown that it is possible to earn a real return of at least 4.5 percent with very little additional risk by investing in equities when young and gradually shifting into bonds as retirement approaches."
And this:
"This structure allowed early cohorts of beneficiaries, rich and poor alike, to receive windfall paybacks far in excess of the market value of their lifetime contributions. But there was a trade-off: The decision not to establish a funded system inevitably meant that later cohorts of beneficiaries would suffer market losses."
And this:
"At some level, nearly everyone understands what's going on...let's stop lying to younger generations. It's wrong to tell them they're getting their money's worth from Social Security when they're not -- and it's offensive to question their civic spirit just because they want a straight answer."
In other words, it was a great deal for those who retired by 1975, better than what could have been realised with equivalent risk in the free market over the same time period. But the deal's been getting worse and worse. Once the pyramid stopped expanding (due to longer lifespans and lower birth rates) workers began to have to pay not only for those already in the system, but also save for their own retirements.
The current system is going to start being increasingly troublesome once the outflows begin to exceed inflows and the effect on the budget can no longer be imagined away (that happens around 2016). Something will have to be done to bring things into balance.
You seem to be ready to march on Washington in response to anything like my proposal, which you perceive as stopping SS (your words). Um, like, I must have missed something? My proposal amounts to pretty much giving the AARP what it wants in terms of a tax increase, but also cutting benefits to wealthy recipients (via taxation of benefits, something we're already doing with 50%). A shared pain proposal.
What's your alternative, the painlessness of private accounts invested in the stock market? I think that idea represents a far greater threat to the stability of the SS system. That's because the current system is pay-as-you-go, and if you let people opt out, you will have to make up the shortfall somewhere. But hey, bring it! I'll be first in line for a private account, and I'd be a fool not to. Except, um, someone's still going to have to pay for my share of the existing system, eh? Some political commentary along these lines:
zfacts.com
Here's the line from above that scares me:
"Privatizing Social Security means these workers, largely low-income, must play the stock market - and win - to duplicate the income they receive today."
P.S. I believe the special exemption from SS enjoyed by government employees was ended a couple of decades back. See the link below. No question they have a sweetheart pension plan, though - where in the free market can you get an inflation-indexed defined-benefit pension plan backed by an organisation that can't go bankrupt?
reagan.utexas.edu |
