Thursday, January 27, 2011

Is it really a myth if no one actually thinks it?

In the Washington Post today, Robert J. Samuelson takes the President to task for his unwillingness to address reality during his campaign State of the Union lies speech the other night:
it was a teachable moment - and Barack Obama didn't teach. Unless public opinion changes, we won't end our budget deadlock. As is well-known, Americans want budget deficits curbed. In a new Kaiser Family Foundation poll, 54 percent urge Congress and the president to "act quickly" and 57 percent prefer spending cuts to tax increases. But there's little support for cuts in Social Security (64 percent opposed), Medicare (56 percent) and Medicaid (47 percent), which together approach half of federal spending. The State of the Union gave Obama the opportunity to confront the contradictions and educate Americans in the unpleasant realities of uncontrolled government. He declined.

What we got were empty platitudes.
True, if trivial. It's a good column anyway.

But there's one thing that I'd like to, well, quibble about.
Myth: The elderly have "earned" their Social Security and Medicare by their lifelong payroll taxes, which were put aside for their retirement. Not so. Both programs are pay-as-you-go. Today's taxes pay today's benefits; little is "saved." Even if all were saved, most retirees receive benefits that far exceed their payroll taxes. Consider a man who turned 65 in 2010 and earned an average wage ($43,100). Over his expected lifetime, he will receive an inflation-adjusted $417,000 in Social Security and Medicare benefits, compared with taxes paid of $345,000, estimates an Urban Institute study.
Maybe he's right, and that there is some non-trivial, or even large, segment of the population that believes that. I don't know.

And I guess, now that I get here, that I'm not really quibbling with him, rather using his comment as a starting point for some comments of my own.

Social Security is a Ponzi scheme. It is utterly and completely unsustainable without major modifications. (Medicare is the same, but I'm just going to address Social Security right now.) It is a Ponzi scheme because, contrary to the way that government officials like to talk about it, it's not a savings plan, it's not an investment plan, it's not a retirement account. It's a tax, a direct transfer from working Americans to retired Americans. And the ratio of workers to retirees has fallen significantly since the law went into effect, and continues to fall. Where each retiree was supported by about 16 workers in 1950, it's now down to about three and headed to about two as the baby boomers retire1. And there is no "trust fund." The money comes in to the treasury, the money goes out of the treasury.

So it can't be sustained. The problem is, it can't be eliminated, either. I think it's a bad plan, I think it's bad public policy, bad economics, and would have fought against it if I were around when it was proposed, but since it's now been in effect for 70 years, it cannot just be eliminated. The fact is, the government has made a commitment to those who are retired, and those nearing retirement age, to provide this program, and the government is morally obligated to follow through. Those people have lived their lives under the assumption that that commitment was real. They've paid their Social Security taxes, on the belief that, when it was their turn, funds would be provided for them, too. So you can't just cut it. Unfortunately.

It's got to be "fixed," though, because if it's not, it will eventually consume the whole government, and then it will be eliminated by the fact that there just isn't any more for it by any means. A fix that would, over some period, phase it out, would be a good thing. The fact is, the taxes paid in by workers over the last fifty years are gone, spent, and there's nothing that can be done about it. But those who would be stewards of our national resources must find a way to stop throwing good money after bad and deal with this unsustainable program.

For years, they've called Social Security the "third rail" of electoral politics, the electrified rail that would kill anyone touching it. We the people have got to elect some people who are willing to touch that third rail2.




1 - http://www.cato.org/pub_display.php?pub_id=3523

2 - George W. Bush was willing to spend his considerable political capital on Social Security reform following his re-election in 2004. The Republicans in Congress, unfortunately, had been co-opted by the system, and the Democrats were unwilling to be serious about anything other than driving him out of office. There was a moment - the moment passed. The problem has, over the intervening six years, continued to get bigger.

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