Social Security: Abolition Is The Best Answer

Most everyone, including me, likes the concept of Social Security.

Every paycheck of your working career you have some of your earnings deducted and used to pay retirement benefits to retired workers older than you.  When you reach the age of retirement the younger people in the workforce are returning the favor and having their paychecks deducted in the same manner in order to pay benefits to you.

Nice.  Very warm and fuzzy.  Great concept.

However, I think everyone is aware that the practice of Social Security in the United States is radically different than the concept described above.

There is a lot of information circulating about the numerous problems with Social Security but the core issue is that beginning in 2015 (current projection) the Social Security Trust Fund itself will have to be tapped in order to meet the expenditures required by the program.  In other words, payroll deductions from working individuals will no longer be sufficient to cover the required payouts and the Trust Fund will have to supplement that.

Think of it as having to spend part of the principal of your investment instead of being able to live off the interest.

Accordingly, the next year you have less principal invested which earns less interest which means you have to use more principal to supplement expenses.  And so on.

The projection is that the Trust will be fully depleted by 2037 and that payroll deductions going forward will only be able to cover 78% of required payouts.

Now, in the case of an individual, you might be able to cut expenses in order to not have to draw off your principal in coming years.  This is not the case with Social Security.  With an estimated 10,000 Baby Boomers per week for the next twenty years reaching retirement age the program’s expenses will be unavoidably growing in dramatic fashion.

The most common approaches discussed to covering this 22% shortfall are either (a) raise the payroll tax rate (currently 12.4% split evenly between employee and employer) or (b) fund the Social Security shortfall from the General Fund (income tax revenues – which would have to be increased in order to maintain current government services as well as cover the Social Security shortfall).

A few other facts about Social Security:

  • The original tax rate was 1% each from employee and employer.  The current tax rate is 6.2% each and still not near enough to make the program sustainable.
  • The 2010 tax cut reduces the tax rate to 4.2% for employees with no changes to employers.  While I personally like this bit of extra money in my pocket every two weeks it can only hurt the financial future of the program as a whole.
  • Social Security is the single largest item in the federal budget at 20.8%
  • In 2008 over $615,000,000,000 was paid out in benefits.  That is six-hundred-and-fifteen BILLION dollars (and increasing every year).
  • Social Security has been fraught with complications since its inception (the recession of 1937, mathematical errors calculating COLAs in the 1970s which almost led to complete insolvency, “reform” in the 1980s that in actuality accomplished nothing, and so on).

Add to all of this the fact that very few (if any) members of Congress want to seriously move forward with reform because it is political dynamite (i.e. increased taxes in one form or another).

When you bottom-line the entire topic it seems like we citizens are left with what appears to be an insurmountable issue.  Something that is almost too huge, too expensive, and too complex to solve.

Or is it?

Remember:  the Social Security Act was signed into law in 1935.  The first monthly payment was made in 1940.  This isn’t something that has been with us since Jamestown, or 1776, or even the Civil War.  Relatively speaking, Social Security is new.  Only two generations in American history have benefited from it (the GIs and the Silents, with the Baby Boomers on the cusp of mass enrollment with the system already in turmoil).

Instead of trying to prop up an unsustainable system for a few more years or playing a shell game with the finances or (even worse) raising taxes in some form or another, why not look at this as a chance to prune the federal tree and start on the road to reduced national debt, austerity, and a lower debt and tax burden for future generations?

Let’s abolish Social Security once and for all.  Here’s how to do it:

Envision everyone who is eligible for Social Security organized into five groups:

GROUP A:  Anyone who is already receiving Social Security retirement benefits.  Nothing changes for this group.  They continue to receive their benefits under the current rules of the system.

GROUP B: Anyone 45 years of age or older who is not currently receiving a Social Security retirement benefit.  Nothing changes for this group, either.  They continue to pay into the system and all of the current rules apply to them once they reach the age to begin receiving benefits.

GROUP C: Anyone between the ages of 25-45.  This is the major transitional group of this proposal.  People in this age group would be given a one-time opportunity to opt-out of Social Security.

If a person chooses not to opt-out then they continue paying into the system as they have been and will receive retirement benefits according to the current rules of the plan.

If a person chooses to opt-out several things happen:

(a)   They immediately receive a 12.4% pay raise because neither they nor their employer would be required to pay into Social Security on their behalf

(b)   All monies they have contributed to Social Security in their lifetime are returned to them over the course of a four-year plan.  These monies would have a calculated rate of return of 50% of the composite return of the DJIA for the years of the contributions (realize that the average Social Security investment historically returns only about 33% as compared to a conservative investment strategy so this feels like a fair compromise).

  • Year One:  payback of contributions made between the ages of 40-44
  • Year Two:  ages 35-39
  • Year Three:  ages 30-34
  • Year Four:  ages 25-29

The reason this works from the oldest age to the youngest is that presumably most people would have made larger contributions in their older years and therefore these larger sums need to get back to them quicker for maximum compounding on any investments they make with it.

(c)    They are no longer eligible for any Social Security benefits.  They are opted-out for life.

GROUP D: Anyone under the age of 25.  This group is automatically removed from Social Security and any contributions they have made to the system are returned to them in one year, again with a calculated rate of return of 50% of the composite return of the DJIA for the years of the contributions.  No additional Social Security numbers are issued to minors that have not yet received them or children born after the abolition date.

GROUP E: Anyone receiving benefits from Social Security other than for retirement (i.e. disability).  This group would transition over a three-year period from the federal Social Security Administration to an equivalent state program in the state in which they reside.  The three-year transition period would allow for case reviews and cost forecasting by the state.  It would be mandated that any revenue shortfall would be fully funded by increases in sales taxes to the exclusion of creating a new tax or increasing current ones (income, property, etc).

The implementation of this plan would render Social Security a distant memory in the span of two generations and a historical afterthought in three.  At the same time this plan would allow the Social Security Administration to fulfill its obligations to those citizens who have spent the majority of their lives paying into the program.

Some additional benefits of abolition:

  • Eliminates of one of the single largest contributors to the entitlement mindset
  • Reduces fraud due to a shrinking number of active Social Security numbers
  • Reduces fraud due to a radically reduced bureaucracy from what is currently required to maintain the system.  Did you know that fraud is so prevalent that the Social Security Administration maintains its own investigative group known as Continuing Disability Investigations yet still has to request assistance from other federal law enforcement agencies?
  • Forces people to make plans for themselves and take personal responsibility for their financial future rather than allowing them to “plan” on a Social Security check that everyone knows will hardly be enough to feed and house them (if that).
  • Does away with the “fall-off-a-cliff” scenario which goes something like this:  a person works their entire life and then at an arbitrary age designated by the government they retire, regardless of their productivity or value within the workplace.  They then go home and sit in a rocking chair doing very little and actually “get old”, as in age dramatically beyond the actual passage of time.  This doesn’t have to happen.  I’m not suggesting that a 67-year-old should work fifty  hours per week every week but why not have a system which empowers them to decide for themselves how to manage their later years rather than forcing them into potential irrelevance on a fixed income?

Think about it:  why should a person who works their entire life (which is most people) need a monthly check from the government to survive in their old age?

Think about it:  you as an individual can earn a greater return on your money.

Think about it:  aren’t you giving the government a lot of control over your life if you allow it to tell you how much your paycheck is going to be in your later years?

Does this plan address every detail that would be required to implement it?  Certainly not, but it is complete as a concept.  All that remains is the fleshing out of the necessary administrative and procedural processes.

Is it possible that in the short-term (5 years) this plan might cost more than continuing on the current track?  Yes, that is quite possible, even probable.  However, this plan has an endgame in place that will reduce expenses to zero.  The current system has expenses spiraling out of control with no viable plan on how to fund them.  And even a casual observer will note that if the federal government has a need for funding they more often than not are successful in obtaining it (funding wars in Iraq and Afghanistan, funding the Economic Stimulus Package of 2008, etc).

Would this exercise in “Social Darwinism” negatively affect some people?  Without a doubt.  But ask yourself:  is the current system working for everyone?

Would the abolition of Social Security dramatically reduce the size, scope, and budget of the federal government while at the same time force people to take back personal responsibility and control over their own lives and futures?  Absolutely.

And that’s the point.




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