Longer Life and Larger Loss of Funds - An Issue Ignored
By Marion Edwyn Harrison, Esq.
Aug 26, 2008
Shades of the Iron Chancellor and President Franklin Delano Roosevelt continue to hover. Both recognized a reality then applicable - a 65-year life expectancy. This commentary addressed that history on December 16, 2004, column reprinted following.
Why think about it again? Alas, there is cause, because the problem not only does not disappear but grows. Most politicians ignore anything to do with the possibility - aye, likelihood - of ultimate Social Security collapse. The latest sounding of the alarm comes from the trustees of this Nation’s two largest entitlement programs. Not surprisingly, THE WALL STREET JOURNAL has written about it. Equally unsurprisingly, candidates for election and re-election avoid the assured third rail. Calculations by experts find that in 2041 Social Security trust funds will be insolvent; sooner, by 2019, Medicare trust funds will be insolvent.
The American Academy of Actuaries has issued a statement which direly, and undoubtedly accurately, predicts that the overall retirement age must be raised lest financial problems - in other words, shortfalls, collapses, bankruptcies - explode.
Few in office, perhaps even fewer candidates for office, have dared propose solutions or even serious investigation. Some Members of Congress and others, not surprisingly mostly leftist, suggest, or even argue, that the economists, statisticians and other experts are all wrong, there is no impending crisis. Among that group some would solve the problem by further taxing of business, raising private insurance premiums and the like.
If one looks about one sees the manifestations of reality. There are more old folks - that is to say, more people older than prevailing retirement ages and older than the 65 or 67 (if born in 1960 or thereafter) Social Security-eligibility age. One need not be, or even consult, an expert. Evidence of greater aging is ubiquitous. The need for later retirement and later Social Security-eligibility is obvious. Massive nuclear annihilation or a resurgence of the Black Death is hardly an acceptable alternative.
From Deutschland to New Deal to Now: How Old Is Old? How Secure is Social Security?
By Marion Edwyn Harrison, Esq. First published on December 16, 2004
The print media – from the respectable WALL STREET JOURNAL to the most lightweight rag – is replete with Social Security stories. The Bush Administration has a privatization proposal; the 109th Congress will hold hearings; studies are published; so on. However, one common consideration – a basic, troublesome fact – consistently is missing.
In 1889 the Iron Chancellor, Prince Otto von Bismarck, successfully introduced into the Reichstag the precursor version of what we now call Social Security. The estimated life expectancy for a newly-born German was in the 60s (bearing in mind these types of mortality tables average infant deaths, other premature deaths, wartime deaths, old age – the whole spectrum). The Chancellor and his advisors understood basic arithmetic: Social Security payments were to go to the living, not the dead; the Government was not to bankrupt itself; too many people could not be eligible. Hence, the qualifying age was 70, reduced in 1916 to 65, beyond which only a small percentage of the populace would live.
In 1935, President Franklin Delano Roosevelt, Secretary of the Treasury Henry Morgenthau, Jr., and their advisors similarly understood the basics. The newborn’s life expectancy had not changed much. Hence, the qualifying age, effective in 1936 with the seemingly revolutionary new statute, was 65 years. Further, the New Deal scheme was designed to benefit those eligible persons retiring with an otherwise modest, or no, retirement income – not to augment the income of the affluent.
We all know the goodies that have flowed into the Social Security system since 1937 – eligibility, albeit at a lesser payout rate, at age 62, instead of 65; no income exclusion – everybody who paid into Social Security the modest minimum and is not working at 65 collects; every such person, working or not working, collects at 70. (True, for those born 1960 and thereafter the eligibility age is to rise from 65 to 67 – statistically insignificant.) Thereafter, on top of all that, behold the inestimable Gargantua of the Lyndon Banes Johnson legacy: Entitlements.
Whether Bismarck, FDR or otherwise, obviously payment into the Social System derives from those people who are working who are taxed (presently upon only the first $84,000.00 of annual net income). Just as in commercial insurance the total cumulative premium averaged out must equal payout plus General and Administrative costs (“G & A”) plus profits, so the Social Security tax (for that’s what it really is) should equal payout plus G & A – but no profit. Phrased more visually, there must be enough water and Social Security bean in the top of the percolator to filter down into the pot as the pot repetitiously and continuously is emptied.
Therefore, there must be enough people putting beans in the System’s percolator.
In 1950 there were about 7.5 working people paying into the System for every one person drawing payout from the System; in 2000, only five people; for 2050, the Social Security Trustees Report (2004) projection is only 2.5 people. This isn’t surprising because every study, as well as empirical observation, shows that people on the average are living longer. In sum, there are progressively fewer working people to support the dramatically growing pool of older people. Then, of course, the imbalance is aggravated as more and more people retire in their fifties or sixties.
Why there are more old, older, elderly, senior people – whatever the appellation – is another subject. Causes include brilliant scientific and technological advances in medicine and dentistry, greater health-care availability, more healthful food and medicine availability, a smaller percentage of people malnourished arising from poverty, the tragedy of some 1.4 million abortions annually, so forth. Statistically the components of the raison d’ętre don’t matter. The fact is there are disproportionately more older people and the imbalance steadily mounts. Indeed, the fastest growing age group is those of 100 years or older – a nation of Methuselahs, to indulge a little hyperbole.
The Social Security System indisputably sits upon a precipice, irretrievably to fall into the abyss in due course. Estimates are that it would take some $8 trillion to cover the present shortfall – by comparison, the total stock market worth is about $14 trillion. Total annual Federal Government expenditure, including defense, are about $2.3 trillion. Of that $2.3 trillion, about $515 billion is Social Security cost, $340 billion is “Income Security,” $244 billion is “Health” and $271 billion is Medicare. (Additional such costs are hidden in various categories.) Add only the foregoing together: Some $1.38 billion – well over half of all Federal expenditures for various kinds of welfare (using welfare in its broad and inclusive sense). Estimated present Medicare liability is about $61 trillion!
Billions and trillions – unprecedented whoppers! Nobody except a few economists and statisticians can so much as visualize them (and, of course, some of the figures are subject to interpretation, but the totals do not vary significantly). Statisticians could adduce all manner of other comparative figures but the foregoing should suffice to illustrate the point and scare anybody.
The solution at best is elusive – not uncommon when necessity and political receptivity collide. The Bush Administration proposal to allow some privatization of Social Security is said by many economists to be part of the solution but it presently does not appear very politically palatable and is estimated to cost $1-2 trillion to initiate. Predictably the political left, which wants more taxes on other people to fund more handouts, benefits, largesse, entitlements – whatever one cares to term them – opposes Social Security privatization or partial privatization, because self-determination is contrary to the Welfare State, Big Government or whatever invidious, if realistic, label one chooses to apply. The left predictably also would oppose any deferment of eligibility or reduced benefit.
That portion of the solution which no politician and few others so much as dare thing about, much less advocate, is a gradual, but rather steep, raising of the eligibility age to or nearer the life expectancy age – already 82+ (Treasury Regulations 1.401(a)(9) – 9) and rising. Candidates for elective office recognize that Social Security is the third rail: Touch it and you are zonked.
At the rate it’s going, probably in the old age of my children, and unquestionably in that of my grandchildren, as they wonder what became of Social Security, their only question will be: How did I get zonked?
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