by Kerry Thomas
June 14, 2005
Ronald Reagan said America is too great a country to
dream small dreams.
Dan Johnson of Harshaw wants to know what he’s missing in the debate
over Social Security. I guess it’s up
to me to tell him.
In
any pyramid scheme, you have a large base of people at the bottom, paying into
a system in the hopes that they will somehow eventually rise to the top of the
pyramid, where they will reap the rewards of the scheme. It relies upon a constant stream of new
participants joining the plan, entering the system at the bottom with the same
hopes that they, too, will somehow rise to the top. As long as there is a larger base of newcomers than there is a pinnacle of recipients, the pyramid
equation is structurally sound.
Once
the numbers in the equation are inverted, when there are more people receiving
payments from the program than there are people paying into the system, you no
longer have a stable pyramid. The
structure’s center of gravity shifts, and the system collapses of it’s own
weight.
The
way the Social Security system works, current workers pay into the system with
every paycheck. (And please don’t think
your employer is paying half of these payments; it all comes out of your
compensation.) The Social Security
system then turns these monies around and pays out the promised benefits every
month to current retirees. It’s a
pay-as-you-go system.
After
WWII, the “Baby Boom” generation was born, grew up, and entered the
workforce. For the next 40 years they
paid into the Social Security system, expecting that these funds would be there
for them to tap when they retired.
Because
there were so many in this generation paying into the system, there was a
surplus of money coming in, more than was being paid out. The Congress, instead of setting these funds
aside in separate accounts, co-mingled these funds with general tax revenues,
and used these surplus taxes to pay for other pet Congressional programs. Instead of money in a Social Security fund,
it only holds IOU’s, that must be paid from future tax collections.
Depending
on whose math you use, the Social Security system will reach a break-even point
sometime between 2012 and 2018. At that
time there will be more benefits scheduled to be paid out to the retired Baby
Boomers than there will be FICA taxes coming in from their children and
grandchildren. With absolutely no
changes to current law, in order to cover this financial gap, either FICA taxes
will have to be raised or benefits will have to be cut, or both.
The
pyramid will be inverted.
There’s something else Mr.
Johnson said that puzzles me. He claims
that the Social Security system “has allowed [retirees] to feel the pride and
dignity that comes with financial independence” and “not have to be dependent
on one’s children or a government welfare program.”
Financial
independence? On Social Security? I dare say anyone who has to rely solely on
a Social Security check to pay their monthly bills is hardly financially
independent. Mr. Johnson says he also
prefers a government-regulated savings program, but then admits to existing
problems that are causing the demise of the system. Remember, it was Congress (the government) who spent those surplus
funds for so many years that were supposed to be invested.
Unlike
Mr. Johnson, I want you to have the option of relying on yourselves for
planning your own retirement. I want
you, not the government, to own your retirement funds. When you own your money, it can be passed
from one generation to the next, instead of disappearing when you do.
As
I said, such an option will take a generation or two to implement. But I am confident that intelligent adults
who learn the truth about the Social Security Ponzi scheme will choose to opt
out of it, if they have the opportunity to do so. All I ask is such an opportunity, especially for future
generations.
You
can read Mr. Johnson’s original Letter to the Lakeland
Times here.
© 2005 Kerry Thomas
All Rights reserved