This commentary on November 5 and August 26, 2008 (available on the website-1), and on December 16, 2004 (text following) has discussed the steadily more dangerous impact of our increasing American longevity upon the solvency of our Social Security system. If those consistently more threatening statistics were not dire enough, Social Security now further is endangered by the recession. Economists’ projections vary as to the duration and intensity of the recession but none appears to opine that it will continue to inflict our economy for less than another year or so.
The nonpartisan and generally reliable Congressional Budget Office (CBO) reports that payroll tax revenue is dropping dangerously. Unemployment is in the 9% range, figures varying by source and by date. However, an exact figure may be unnecessary. The point is that Social Security revenue is dangerously down. Hence, one need not quibble unduly with CBO calculations.
In August 2008 CBO predicated that by 2020 the so-called surplus in the Social Security Trust Fund would have evaporated—that is, been consumed. CBO projected an $80 billion surplus in 2009, $90 billion in 2010, then a shrinking. The recessional impact has worsened that direct estimation. CBO more recently is estimating a 2009 surplus of about $16 billion, 2010 of about $3 billion, thence down into deficits. CBO has no jurisdiction over the Social Security Trust Fund, which has its own (largely political) Trustees, but that’s beside the point.
The Barack H. Obama Administration has offered no purported approach to either the mechanics or the substance of a solution. The naming of an exploratory task force informally was bandied about but that possibility has been either deferred or buried.
The reality is the everlastingly fatal political third rail, as the late Senator Barry M. Goldwater discovered in his disastrous Presidential campaign. The population is aging beyond all precedent and many predictions. Remarkably expert and innovative medical care, healthier diet, cleaner living conditions, exercise and perhaps attitude are phenomena which combine to promote longevity.
As the Iron Chancellor, Otto Edouard von Bismarck, and that most politically masterful of modern American Presidents, Franklin Delano Roosevelt, well understood, the age at which to commence social-security eligibility is the age of the average life expectancy. Pity the poor candidate whose “audacity” (to use that seemingly “in” noun) and objectivity combine so that the candidate addresses the subject—and watches the voters and votes fly elsewhere.
Marion Edwyn Harrison
Marion Edwyn Harrison is President of, and Counsel to, the Free Congress Foundation.
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From Deutschland to New Deal to Now: How Old Is Old? How Secure is Social Security?
By Marion Edwyn Harrison, Esq.
December 16, 2004
The print media - from respectable WALL STREET JOURNAL to most lightweight rag - is replete with Social Security stories. The Bush Administration has a privatization proposal; the 109th Congress will hold hearings; studies are published; so on. However, one common consideration - a basic, troublesome fact - consistently is missing.
In 1889 the Iron Chancellor, Prince Otto von Bismarck, successfully introduced into the Reichstag the precursor version of what we now call Social Security. The estimated life expectancy for a newly born German was in the 60s (bearing in mind these types of mortality tables average infant deaths, other premature deaths, wartime deaths, old age – the whole spectrum). The Chancellor and his advisers understood basic arithmetic: Social Security payments were to go to the living, not the dead; the Government was not to bankrupt itself; too many people could not be eligible. Hence, the qualifying age was 70, reduced in 1916 to 65, beyond which only a small percentage of the populace would live.
In 1935, President Franklin Delano Roosevelt, Secretary of the Treasury Henry Morganthau, Jr., and their advisors understood the basics. The newborn’s life expectancy had not changed much. Hence, the qualifying age, effective in1936 with the seemingly revolutionary new statute, was 64 years. Further, the New Deal scheme was designed to designed to benefit those eligible persons retiring with an otherwise modest, or no, retirement income – not to augment the income of the affluent.
We all know the goodies that have flowed into the Social Security system since 1937 – eligibility, albeit at a lesser payout rate, at age 62, instead of 65; no income exclusion – everybody who paid into Social Security the modest minimum and is not working at 65 collects; every such person, working or not working, collects at 70. (True, for those born 1960 and thereafter the eligibility age is to rise from 65 to 67 – statistically insignificant.) Thereafter, on top of all of that, beholds the inestimate Gargantua of the Lyndon Banes Johnson legacy: Entitlements.
Whether Bismarck, FDR or otherwise, obviously payment into the Social System derives from those people who are working who are taxed (presently upon only the first $84,000.00 of annual net income). Just as in commercial insurance the total cumulative premiums averaged out must equal payout plus General & Administrative costs (G&A) plus profits, so the Social Security tax (for that is what it really is) should equal payout plus G&A—but no profit. Phrased more visually, there must be enough water and Social Security bean in the top of the percolator to filter down into the pot as the pot repetitiously and continuously is emptied.
Therefore, there must be enough people putting beans in the System’s percolator.
In 1950 there were about 7.5 working people paying into the System for every one person drawing payout from the System; in 2000, only five people; for 2050, the Social Security Trustees Report (2004) projection is only 2.5 people. This isn’t surprising because every study, as well as empirical observation, shows that people on the average are living longer. In sum, there are progressively fewer working people to support the dramatically growing pool of older people. Then, of course, the imbalance is aggravated as more and more people retire in their fifties and sixties.
The Social Security System indisputably sits upon a precipice, irretrievably to fall into the abyss in due course. Estimates are that it would take some $8 trillion to cover the present shortfall—by comparison, the total stock market worth is about $14 trillion. Total annual Federal Government expenditures, including defense, are about $2.3 trillion. Of that $2.3 trillion, about $515 billion is Social Security cost, $340 billion is Income Security, $244 billion is Health and $271 billion is Medicare. Add only the foregoing together: Some $1.38 trillion—well over half all Federal expenditures for various kinds of welfare using welfare in its broad and inclusive sense). Estimated present Medicare liability is about $61 trillion!
Billions and trillions - unprecedented whoppers! Nobody except a few economists and statisticians can so much as visualize them. Statisticians could adduce all manner of other comparative figures but the foregoing should suffice to illustrate the point and scare anybody.
The solution at best is elusive - not uncommon when necessity and political receptivity collide. The Bush Administration proposal to allow some privatization of Social Security is said by many economists to be part of the solution but it presently does not appear very politically palatable and is estimated to cost $1-2 trillion to initiate. Predictably the political left, which wants more taxes on other people to fund more handouts, benefits, largesse, entitlements - whatever one cares to term them - opposes Social Security privatization or partial privatization, because self-determination is contrary to the Welfare State, Big Government or whatever invidious, in realistic, label one chooses to apply. The left predictably also would oppose any deferment of eligibility or reduced benefit.
That portion of the solution which no politician and few others so much as dare think about, much less advocate, is a gradual, but rather steep, raising of the eligibility of the eligibility age to or nearer the life expectancy age - already 82+ (Treasury Regulation 1.401(a)(9)-9) and rising.
Candidates for elective office recognize that Social Security is the third rail: Touch it and you are zonked.
At the rate it is going, probably in the old age of my children, and unquestionably in that of my grandchildren, as they wonder what became of Social Security, their only question will be: How did I get zonked?
1) http:// http://www.freecongress.org/
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