In my last column, I told you that Social Security is at the cliff’s edge of financial disaster. How big a disaster? Big enough that even if Congress quits robbing the Social Security trust fund this afternoon, our generation can only expect to get back 70% of every dollar that we pay into the system over our working lives – on average, a loss of $84,000 dollars per person. Who would be crazy enough to invest in such a system voluntarily?
It’s clear, then, that we need a better way to fund Social Security. The best way to do this, according to both Senator Obama and Senator Clinton along with most of their political friends, is to raise or eliminate the salary cap on Social Security taxes. Currently only the first $90,000 dollars of anyone’s income are taxed by the Social Security Administration (SSA). Go ahead and tax every dollar that everyone makes in order to save Social Security, say Obama and Clinton.
By Megan Ritter,
Alumni
In my last column, I told you that Social Security is at the cliff’s edge of financial disaster. How big a disaster? Big enough that even if Congress quits robbing the Social Security trust fund this afternoon, our generation can only expect to get back 70% of every dollar that we pay into the system over our working lives – on average, a loss of $84,000 dollars per person. Who would be crazy enough to invest in such a system voluntarily?
It’s clear, then, that we need a better way to fund Social Security. The best way to do this, according to both Senator Obama and Senator Clinton along with most of their political friends, is to raise or eliminate the salary cap on Social Security taxes. Currently only the first $90,000 dollars of anyone’s income are taxed by the Social Security Administration (SSA). Go ahead and tax every dollar that everyone makes in order to save Social Security, say Obama and Clinton.
While this seems like an exciting possibility – you and I won’t pay an extra dollar, since I’m certain neither of us makes more than $90,000 a year – it’s really little more than a meaningless play for America’s traditional class-warfare vote. Even leaving aside the historical fact that every time we have ever raised taxes, tax revenues have actually dropped, the U.S. Treasury Department estimates that eliminating the salary cap would delay Social Security’s coming financial collapse by seven years at the most.
(If you don’t understand why tax revenues decrease when tax rates increase, consider whether you feel an incentive to work more or work less and when you know that the more you earn, the more the government will take from you in taxes.
If lifting the salary cap won’t save Social Security, we’re left with three options to save Social Security. We can immediately, this afternoon, raise Social Security taxes by 16% for everyone. We’ve already seen that tax increases don’t work. We can immediately, this afternoon, cut Social Security benefits by 13%. By the end of her life, my grandmother had to live entirely off Social Security, as do many seniors. It’s not much money to begin with. Cutting benefits by 13% would leave most of them subsisting at or near the poverty line.
The last option, I’m often told that I’m not allowed to suggest, because President Bush proposed it and it went down in flames.
Do you remember his 2003 proposal to save Social Security by creating personal retirement accounts for anyone not currently retired or within ten years of retirement age?
Now, do you remember why we were told it was a bad idea? I believe the primary reason why anyone believed it was a bad idea was because George Bush suggested it.A personal retirement account takes the money that you’re paying into Social Security – or actually, only needs to take 7.5% of the money that you’re paying in, according to Bush’s defeated proposal – and invests it in a combination of stocks, bonds, and mutual funds.
The current Social Security system is losing our money at the rate of 1.75% per year. The worst recorded performance by any investment plan comparable to a personal retirement account still shows a growth of 1.5-2% a year. One system, therefore, drains money steadily, while the other, even at its worst, is still growing rather than losing money. It seems a matter of simple mathematics.
There are obviously concerns, in these financially unsteady times about investing anything in the stock markets. In the short run, sure, the stock market is risky. In the long run, which is what investing for retirement is: Did you know that if you’d invested in the stock market thirsty years to the day before the crash of 1929 that triggered the Great Depression, and pulled your money back out a week after the market collapsed, you’d have still seen growth on your original investment? There’s something to be said for thinking long-term.
I fail to see how, in 2003, Congress couldn’t grasp the notion that if one system is bleeding money at the rate of 1.75% a year, and another is, at worst, guaranteed growth of 1.5-2% a year…I won’t insult your intelligence by continuing this sentence. You can all figure it out.
You know what else I fail to see?
While they were voting down personal retirement accounts, every member of Congress was secure in the knowledge that as employees of the U.S. government, their retirement plans are all secure in a program known as the Thrift Savings Plan, which is none other than a personal retirement account.
Why doesn’t your congressman want you to share in a benefit that he already enjoys?
Some of them explained their votes with the figure that the transition costs for Social Security to be rolled over into personal retirement accounts might run as high as one to two trillion dollars. That’s true – but that number pales before the number thirteen trillion. That’s the size of the deficit that Social Security will run without serious reform. Here’s a pop quiz: Which is easier for Congress to come up with: $2 trillion or $13 trillion?
I’m sure you all got that question right. So now you ought to be asking your congressmen some questions about why you’re not allowed to enter into a system that will allow your retirement money to grow instead of drain away?
Thanks for reading. Thanks to everyone who’s argued politics with me during my four years here. You’ve helped me to figure out what I believe.
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