Just and Holy Principles

President Roosevelt signs Social Security Act of 1935

Last week, I argued that we must reform Social Security promptly in order to avoid its collapse. As the Social Security Administration (SSA) warned, “in just 10 years we will begin paying more in benefits than we collect in taxes. Without changes, by 2040 the Social Security Trust Fund will be exhausted” (read more about S.S.). Let’s look at some possible options to improve the program:

1. Raise taxes. Higher taxes will burden American workers excessively. The average taxpayer already contributes as much as 32% of his or her income in taxes (read more). Raising taxes is also politically unwise; most people demand a huge bang for few tax bucks.

2. Restructure spending. The federal budget finances dozens of less-effective government initiatives (see examples on p. 12). Congress could re-allocate funds from these wasteful programs to Social Security.

3. Reduce benefits. The SSA could recalculate benefits allocated to seniors, the unemployed, and the disabled to a lower rate. However, retired citizens who have contributed to the system for a lifetime will adamantly oppose any benefit reduction. Given that seniors comprise 19% of voters and vote often, Congress will likely never dare adopt this proposal.

4. Raise retirement age. In 1937, the retirement age to receive full benefits was 65 while life expectancy was 60 years. President Roosevelt was a genius. He provided Social Security benefits to Americans who, on average, would pass away five years before attaining eligibility. Since 1960, the full retirement age has been 67, whereas life expectancy is now 78 years. Americans not only live longer but also enjoy better health in later years. Raising the retirement age, though distasteful to those on the verge of retirement, is in my view, extremely reasonable. Raising the age to 73 would suffice to save the trust fund (read more). Congress could elevate the age gradually to allow workers to adjust their retirement plans accordingly.

5. Private accounts. President Bush made a huge push to allow Americans to open private accounts that would invest Social Security funds in the stock market. This plan would provide a bit more ownership in retirement planning and could reap a greater return on investment, but it would create more costly bureaucracy, would be risky for those unfamiliar with investing, and might not eliminate the shortfall in funds (read more).

6. Means testing. Means testing, allocating benefits to retirees proportionately to their wealth (sum of income, investments, assets, etc.), would force those with more retirement funds to sacrifice for those with less. While this Robin Hood-esque idea sounds altruistic, it would deny promised benefits to workers counting on Social Security funds and would create an additional welfare program. Moreover, workers, knowing that greater assets at retirement equal a smaller Social Security check, would spend more and save less throughout their careers. (read more).

7. Opt-out option. Social Security could be voluntary. Workers who don’t want government assistance could choose not to enroll. They could invest in 401k’s, IRA’s, the stock market, real estate, or anything else they’d like. This plan would provide increased individual liberty; however, the wealthiest, most educated workers would likely opt-out leaving the most needy with little.

Don’t rely on government
Ideally, social security would be optional. You could choose to invest in a government program that provides more stability but less return on your investment; in the private equity markets that provide less stability but a greater return; or in a combination of both. Given politicians’ fervent loyalty to the masses of senior citizen voters, any drastic change to social security is dubitable. Under that assumption, the best options for reform are raising the retirement age gradually and restructuring spending to eliminate waste.

In the end, we must not rely on government to finance our retirement. We should all tuck away in private investments as much income as possible, as soon as possible. This way, we will be self-reliant rather than dependent on an insecure Social Security program.

What do you think?

Ida May Fuller, First Social Security Recipient

The Social Security Administration (SSA) recently informed me that were I to become disabled now I would receive $896/month. I would receive that sum, enough to pay my bills, though I’ve worked only two years full-time. This post, part 1, will address the need to reform Social Security and part 2 next week will identify possible solutions for reform.

From insurance to welfare
The SSA calls Social Security “a compact between generations,” meaning that workers today pay for the previous generation’s retirement, the next generation will pay for today’s, and so forth. In 1935, when Congress passed the Social Security Act (SSA), President Roosevelt envisioned Social Security as an insurance program, or a benefit paid in return to those who contribute to the system. But since then, the social insurance program has evolved to resemble a welfare program.

In 1939, spouses, children of retirees, and families of workers experiencing a premature death began to receive benefits. In 1950, benefits increased by 7.7% and 12.5% in 1952. Today, rather than returning a benefit proportionate to a worker’s total contributions, the program favors married, low-income, and one-earner couples. (read history of S.S.)

Pros & Cons
Let’s look at some pros and cons of Social Security:

Pros:

1. Helps elderly, disabled, and unemployed survive during times of need
2. Helps people who lack the knowledge or resources necessary to save for retirement
3. Provides a perceived sense of financial stability

Cons:

1. Creates dependency on government instead of self-reliance
2. Diminishes liberty to make individual retirement decisions
3. Requires higher taxes to sustain it as needs increase
4. Provides lower return than private investments
5. Requires complex government bureaucracy to administer

In my opinion, Social Security’s cons outweigh its pros; however, we can’t eliminate it because millions of people have paid into the system and are relying on their benefits. But we should reform Social Security to make it more fair, efficient, and sustainable.

Security to bankruptcy
The SSA informed me that “in just 10 years we will begin paying more in benefits than we collect in taxes. Without changes, by 2040 the Social Security Trust Fund will be exhausted.”

Following are other government agencies’ warnings about Social Security:

Government Accountability Office (GAO): “Assuming no changes to currently projected benefits and revenues, Social Security and Medicare ultimately will pose an unsustainable burden on future taxpayers and would significantly reduce the nation’s economic growth.” (see report)

U.S. Treasury: “[Social Security’s] annual cost will begin to exceed tax income in 2017 for the combined OASDI Trust Funds, which are projected to become exhausted and thus unable to pay scheduled benefits in full on a timely basis in 2041 under the long-range intermediate assumptions.” (see report)

Congressional Budget Office (CBO): “Annual spending will outstrip annual revenues starting in 2019 and will reach 6.1 percent of GDP in 2030–nearly 40 percent higher than in 2003.” (see report)

Social Security’s potential bankruptcy is a long-term problem, but acting sooner than later provides more and better options, just like a chain smoker who quits now to avoid emphysema and a costly, painful lung transplant or death in the future. We should act today to avoid Social Security’s collapse; procrastinating may harm millions of American workers. We will analyze possible solutions in part 2.

What do you think?

Here’s my latest op-ed published in the Graphic. You can read the original here. During this op-ed writing process, I’ve learned that working with newspaper editors can be very frustrating sometimes, but overall, it’s been a good experience.

Also, since I’m pretty much done with finals now, you can expect much more interesting, compelling blogging from me. I hope you’ll make some comments.

Americans in need of a long term perspective
MATTHEW PICCOLO
Staff Writer

Americans possess abundant strengths that propel them to world superpower , but their most debilitating characteristic is lack of individual and collective foresight. This absence of vision has engendered a nation ripe with impatient foreign policy practices and an exorbitant debt burden.

Americans consistently elevate seemingly immediate needs and today’s fleeting pleasures above more essential, long-term ambitions. Often, Americans’ pre-occupation with the present eliminates, or at best delays, the ability to attain future goals.

The U.S. government and people’s irresponsible fiscal policies and desire to leave the war in Iraq are the most crippling forms of shortsightedness in the United States.
Short-sighted, quick fix policies like the minimum wage, food stamps and farm subsidies, though well-meaning, placate our fears in the present but fail to provide durable solutions that address the roots of poverty and economic instability. Only policies that empower the poor with lifelong education and skills will produce permanent improvement.

Short-sightedness has inhibited worthy efforts to protect American interests abroad.

Opinions on the war in Iraq aside, many Americans impatiently insist that leaving Iraq sooner than later is ideal for American and Iraqi interests, but they ignore deleterious, future consequences of doing so. Rapid redeployment will leave Iraqis in a chaotic state with minimal infrastructure rebuilt, eager insurgents, and a probable full-scale civil war.

Most notably, abandoning Iraq today will further embolden our enemies to take action. Iraq’s menacing neighbor Iran will strategically extend its influence throughout the Middle East and beyond, observing, as also evidenced in Vietnam, that though America’s resources are plentiful its political will and patience are not. Americans must sacrifice and endure conflict today in order to obtain long-term peace and stability in the Middle East.

America’s national debt today approaches $9 trillion, according to the U.S. Treasury. That’s a $29,000 burden per American. We spend and cut taxes and spend accumulating irresponsible sums of debt. Much is said about the national debt but little is done to reduce it.

For instance, all major government agencies affirm that entitlement programs, including Medicare, Medicaid, and Social Security, will consume as much as 20 percent of the GDP within the next few decades, according to the Government Accountability Office. The new Medicare Part D program will cost up to $678 billion over the next ten years, according to a February, 2006 Heritage Foundation article. These figures are not news, and yet, Americans continue to ignore the public treasury’s potentially catastrophic future.

Not everyone is disregarding our financial fix. In 2005, President George W. Bush attempted to cash out his political capital with Social Security reform, but people were not then, and still are not, in the mood for change despite the program’s impending bankruptcy. Politicians fear that altering the system for the future will repel senior citizen voters, comprising 19 percent of current registered voters, according to the U.S. Census Bureau. Ironically, the entitlement programs that aim to provide long-term security for U.S. citizens may ultimately shred their safety net, resulting in more insecurity than ever.

Congress should reform budget controls to instill increased accountability and careful planning in the budget process. Enforcing the pay-as-you-go rule, which ensures that neither mandatory spending nor tax legislation increases the deficit, and reauthorizing a line item veto will be a step in the right direction.
Although politicians are well-meaning, they do not always propose prudent policy. Americans need effective, long-term solutions, not temporary, feel-good policies that lull them into a false sense of security only to awaken to a raging lion.

These public problems often originate from seemingly innocuous personal habits.

Consider the wonderful world of health. After Jane Doe’s calculus final, she chooses to celebrate the moment. She picks up an order of greasy French fries, a double bacon cheeseburger and a Coke. On the drive home, she enjoys an after-dinner cigarette. That night, she enjoys one too many drinks with her friends. In the morning, she enjoys a headache, nausea and fatigue. More significantly, after a long life of such routine, she eventually develops obesity, heart and liver disease and lung cancer. In the post-information age, she cannot claim ignorance of the harmful effects of her habits. Jane chose to live in the moment, daily ignoring her future.

According to the Federal Reserve, the average American had a median $2,200 in credit card debt in 2004. More than 55 percent of cardholders carry balances. As purchases accumulate so does interest. Living from paycheck to paycheck becomes surviving from credit line to credit line. Though knowing the debt must be repaid, Americans covet a new surfboard, cute pair of stilettos or Xbox 360 today. Desiring today’s gadgets and gizmos supersedes future financial security. They disregard cautionary thoughts of possible health emergencies, natural disasters or unemployment that may deplete future income.

Better things come to those who wait. Americans need patience and determination to delay hunger pangs while the ketchup eases out of the bottle.

Implementing prudent, visionary policies now will bring about more peace and prosperity tomorrow than imaginable today.

Submitted 04-05-2007