All about ideas…

Killing the Retirement Goose

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I admit to qualms over the 2% payroll tax reduction in the recently enacted tax package. I know that 2% will put extra monies right now into the hands of hardworking, financially strapped middle income Americans who really need all the extra money they can get, especially after losing so much during the 2008 financial crash, a decade of declining or flat incomes, and continued higher than inflation health care and education costs. I also know that President Obama promised that the Treasury would make up the missing funds. However, what they didn’t say – and maybe didn’t know – is that is illegal to for Treasury to make up the reduced funds.

By law, Social Security must be self-funded, meaning it cannot accept money from the Treasury or any other federal revenue source. The result of this new reduced payroll taxation will cause billions in lost revenue to Social Security for future generations.

In 1985, President Reagan signed a bill that allowed all the funds from Social Security to shifted from safe investments in Treasury bonds into the general Congressional budget fund, enabling Congress to spend Social Security funds as they chose. Over $2 trillion of Social Security funds have disappeared into the federal budget.

According to economics Professor Allen W. Smith, Eastern Illinois University (http://www.thebiglie.net), Congress essentially gives the Social Security Administration IOUs for the used funds, rather than those funds being invested into the safe Treasury Bonds that China buys or that Wall St currently purchases as safe repositories of excess funds. But the question remains: what happens if Congress cannot repay those IOUs?

What if the federal deficit hole is so huge, as it is now, that repaying those funds is impossible? (Again, the amount currently owed to Social Security by the Treasury – Congress – is $1.2 Trillion.)

The simple answer to reduce that Congressional debt is to change the rules of the Social Security program. In other words, change how it works, from a self-funded, Treasury bond-invested defined benefit program, as originally created, into a “welfare” program.

That’s what I fear this so-called “temporary” reduction of payroll taxes will cause.

Does anyone believe that at the end of 2011 the GOP will allow the decrease to simply expire? Given that the Bush tax cuts were due to expire this year but were extended, does anyone believe the GOP won’t advocate for maintaining the lowered payroll taxes funding Social Security, saying the taxpayers should keep more of their money rather than giving it to the government, even though Social Security continually maintains far more efficient costs (Return on Expenses) in a total cost-benefit analysis than any current IRA or 401k?

A few months ago, a very tax-conservative politico admitted that making Social Security in a welfare program was a laudatory goal. He saw it as a preliminary step to ending Social Security as we know it: a defined benefit retirement program, paid for by workers and administered by the federal government. His ideology he admitted, as defined by his conservative principles, is that government should not be in the social welfare business. According to him and his ideological partners in the GOP, retirement programs should be strictly in the purview of Wall St and private enterprise.

As a result of his and the mainstream GOP ideology, in redefining Social Security as a “social welfare program,” Congress would be able to continually change the rules and who qualifies until they met their goal of legislating Social Security out of existence.

While this goal may seem ideologically appropriate to some “free marketers,” it could have devastating effects on middle and lower income workers. Depending upon the so-called “free market” carries risk – as recently revealed in the many well-documented books and editorial analyses of national and international Wall St financial scandals – which many people have neither the expertise to navigate nor the time to manage.

As a result, Social Security has been the safe and secure backstop, if not the primary source of income, to millions of Americans who’ve worked hard their entire lives and want to live independently, not putting an additional financial burden on their children.

They believed that Social Security would provide that backstop towards providing them with fiscal responsibility and security without burdening their children.

But just as the 2009 market crash saw the loss of 50 to 60% of private retirement incomes disappear, perhaps to never be recovered when needed for retirement, the non-existence of Social Security would have devastating effects on the economy.

How many families today or in twenty years from now are prepared to accept the financial responsibility for taking care of their parents? In other words, are you prepared to have your parents to move in with you as families were required to do a hundred years ago in order for elder parents to survive?

There’s nothing wrong with extended families – parents, children and grandparents all living in the same household – but are you willing to accept that change and the greater financial responsibility that change implies? Think about all the fiscal implications, from a larger home needed for the additional occupants to the decreased control – and negotiation – of your household.

Ideological policy changes – and financing of those policies – have long lasting consequences. What consequences are you, as average American workers, willing to accept, especially after forking over so many of your hard earned dollars into a retirement system that you thought safe from Congressional overspending while under generally under-taxing to pay for Congress’ gross expenditures? Are you wiling to balance the budget on the backs of future seniors who’ve paid into a retirement system they thought safe from Congressional exploitation in order to pay for a truly corrupt tax system?

Remember Congress owes the Social Security Administration over $1.2 trillion dollars for the monies used by Congress to finance a decade’s long 60% increase in defense programs – over 100% higher than during the Cold War expenditures of the Reagan Presidency – or $1 of every $5 collected by the Federal government. Many of those programs and projects currently budgeted, the DOD doesn’t want and has stated the country cannot afford in addition to the fact that the recent general tax cuts make those programs and projects no longer affordable.

Not only do those DOD expenses inflate an already gross federal deficit, but overall actual health care costs threaten to wreak havoc on an already trained budget.

Should the Social Security Trust Fund be changed now into a “welfare” program to be used and changed by a profligate Congress as result of excess spending to put its already spent (deficit) financial house in order?

Social Security is not a welfare program – nor was it meant to be. It was always meant to be a defined benefit plan, safe from the predations of Wall St., which we all pay into insure a meager retirement should all else fail.

The way to fix to Social Security funding is to eliminate the caps so that everyone who pays into it – including those who have comfortable office jobs and expect to live much longer lives – pays to the last dollar of income, regardless of income as well as to force Congress to repay the funds over time they’ve already used to fund other programs and expenditures. Finally, Congress should be forced to return Social Security to its original “lockbox” as advocated by Al Gore, and prior to Pres. Reagan’s signing off on using those funds for general budgetary expenditures.

As a nation, we need to get serious about our expenditures, but doing so should not be done at the expense of diverting paid Social Security funds from future seniors into a Congressionally defined “welfare” program, enabling Congress to eliminate the repayment of funds it owes to American citizens.


Written by Valerie Curl

December 20, 2010 at 8:19 AM

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