Beaver County Reds – 4/25/12

This page was last updated on May 2, 2012.

I found what follows on the Facebook wall of Tina Shannon, chairman of Beaver County Reds.

As what appears to be a current fad with BCR management, Mrs. Shannon linked to a “poster” she appears to believe is clever and/or correct. The image says, “DID YOU KNOW? Social Security taxes are paid only on the first $110,000 of income; zero is deducted for every dollar thereafter. If this cap were increased or removed, Social Security could be solvent in perpetuity.” The source of the poster is the National Committee to Preserve Social Security and Medicare, a partisan group that claims it’s nonpartisan. There’s nothing wrong with being a partisan group, so why claim otherwise? The key is the veracity of the facts, findings, et cetera presented.

(Note: The taxable-earnings cap is not “on the first $110,000 of income.” The SS tax is only on salaries/wages, not other income types.)

Lefties are in a quandary about Socialist Security. Mrs. Shannon’s husband, Randy, almost two years ago wrote “Top 5 Social Security Myths.” Given the 75-year history of SS, lefties know SS has both major financial and structural problems but too many fear recognizing that fact concedes one of their crown jewels – along with Medicare – is a deeply flawed program. This “between a rock and a hard place” position is why we have lefties claim SS is fine as it is (“Move along, nothing to see here.”) while lobbying for raising the SS tax rate on salaries/wages above whatever the ever-increasing taxable-earnings cap is at the time.

The poster asserts, “If this cap were increased or removed, Social Security could be solvent in perpetuity.” This recurring proposal is wrong and is the result of ignorance or intentional deception. The proposal ignores SS history and its structure. Remember, Medicare has no taxable-earnings cap and it’s in worse shape than SS.

Let’s look at some of the Socialist Security “fixes” applied over the decades.

· The taxable-earnings cap now increases every year by law and for 2012 is $110,100, more than twice what it was in 1990 ($51,300). In constant dollars, the original earnings cap of $3,000 in 1937 should be $47,790 today, not the $110,100 it is.

· From 1950 through 1990, Congress increased the SS tax rate 20 times! Ignoring the current monkeying around with the SS tax rate for political reasons, the current rate is 12.4%, 6.2 times its original rate.

· In 1983, the age to qualify for full SS benefits was increased from 65 to 67 depending on your year of birth. According to a USA Today story, “Social Security’s original retirement age of 65 was set in 1935 when life expectancy was 63. Today, life expectancy is 77 - and, for those who live to 65, life expectancy is 83. The system used to benefit financially from people who paid Social Security taxes but died before collecting any benefits.”

At best, these changes only delayed the day of reckoning. Why?

The reason neither “small” nor “large” changes fix anything is because SS is a Ponzi scheme.

SS is a “pay as you go” program. That is, today’s SS taxpayers pay for the benefits of today’s SS benefit recipients. The SS taxes you pay/paid are/were not put into an individual personal account with your name on it to pay for your retirement benefits. SS taxes you pay/paid are/were used to pay for people collecting benefits while you are/were employed. As designed from the beginning, SS requires an ever-growing SS-taxpaying population and a high multiple of current SS taxpayers relative to current SS beneficiaries, and/or ever-increasing SS tax rates, and/or ever-decreasing benefits. Any such system has failure built in. This is the very definition of a Ponzi scheme and the primary reason why SS is in financial trouble. Medicare works the same way.

Even for those who weren’t paying close attention, the case of Ida May Fuller should have been a red flag. The first SS taxes were collected in 1937 and the first SS benefits check was issued to Miss Fuller upon her retirement at the age of 65 in 1940. Miss Fuller paid $24.75 in SS taxes over three years, but ultimately received $22,888.92 in benefits until her death in 1975 at the age of 100. For every SS tax dollar Miss Fuller paid, she received another $923.80 in SS benefits. That’s a return of 92,380%.

If you think the Ponzi-scheme design of Medicare and SS was an accident or an honest mistake, think again. FDR addressed this in response to payroll tax critic Luther Gulick in 1941. FDR said, “I guess you’re right on the economics, but those taxes were never a problem of economics. They are politics all the way through. We put those payroll contributions there so as to give the contributors a legal, moral, and political right to collect their pensions and unemployment benefits. With those taxes in there, no damn politician can ever scrap my social security program.” The quote was cited by Arthur M. Schlesinger in “The Age of Roosevelt: The Coming of the New Deal,” Houghton Mifflin, 1988 American Heritage Library edition, pages 308-309. In effect, the Ponzi/pyramid scheme was FDR’s “poison pill” to keep SS from ever being eliminated, and 30 years later politicians used the same poison pill for Medicare. This why FDR and Congress designed SS taxes to go into the general tax fund via the purchase of U.S. Treasury bonds instead of into individual personal accounts. There never was a real SS trust fund, just accounting sleight of hand to give the illusion of a trust fund.

Now let’s get back to the proposal to eliminate the cap on taxable earnings.

Back in 2005, an Associated Press story (“Social Security tax may mean more money”; Laura Meckler; February 18, 2005) indicated completely eliminating the taxable-earnings cap would only push back SS’s critical dates by 7 years (when outlays exceed taxes) and 38 years (when the surplus is exhausted). As noted above, that’s because SS is a Ponzi scheme and it cannot be fixed by continually raising tax rates.

Another reason increasing/eliminating the cap won’t help is because SS isn’t intended to be a wealth redistribution program, or at least that’s what we’re told. SS benefits are determined in large part by how much we as individuals pay in SS taxes over our working life. That is, the more total SS tax dollars you pay, the greater your benefits check up to some limit. Therefore, increasing the taxes paid by those persons earning more than $110,100 would also increase the benefits (increasing future SS liabilities) that must be paid to those employees.

According to the Medicare and Social Security Trustees in their 2012 report to Congress, SS went into deficit (benefits paid exceed SS taxes collected) in 2010, a full six years ahead of the 2008 projection, and will remain in deficit “throughout the 75-year projection period.” The report says “the Disability Insurance (DI) program satisfies neither the long-range test nor the short-range test. DI costs have exceeded non-interest income since 2005, and the Trustees project trust fund exhaustion in 2016, two years earlier than projected last year. The DI program faces the most immediate financing shortfall of any of the separate trust funds; thus lawmakers need to act soon to avoid reduced payments to DI beneficiaries four years from now.” As for the overall SS “trust fund” (the equivalent of a stack of federal government “IOUs” for revenue already spent by the feds for other programs), it will be exhausted by 2033.

Let’s end on a point I noted at the beginning of this piece. If “There is no Social Security crisis” and “Social Security doesn’t need to be fixed,” why increase SS tax rates on anyone?

In Peace, Friendship, Community, Cooperation, and Solidarity. <g>