May 2, 2019 by Anders Ingemarson
“In the 2019 Annual Report to Congress, the Trustees announced:
- The asset reserves of the combined […] Trust Funds increased by $3 billion in 2018 to a total of $2.895 trillion. […]
- The year when the combined trust fund reserves are projected to become depleted, if Congress does not act before then, is 2035 – gaining one year from last year’s projection. At that time, there would be sufficient income coming in to pay 80 percent of scheduled benefits.
“The Trustees recommend that lawmakers address the projected trust fund shortfalls in a timely way in order to phase in necessary changes gradually and give workers and beneficiaries time to adjust to them, …”
If nothing is done, those who receive Social Security can expect a 20% pay cut in 2035. Get ready to tighten the belt.
In practice, fixing social security is easy. Cut expenses, as indicated by the trustees, increase income (raise Social Security (FICA) taxes), or a combination of both. Here at SEPARATE!, championing the moral case for separating state and retirement, we obviously reject raising taxes, so we’re focusing on the expense side. And we’re advocating phasing out rather than fixing Social Security, gradually removing government retirement shackles and returning control of retirement financing to individual Americans. It has taken some 80 years to get to the current state of affairs so phasing out will have to take time as well, as it would not be conscientious to pull the rug out from under those who have counted on and depend on Social Security for their retirement.
As we have outlined in “Separation of State and Retirement” the following three actions would put us on the path towards returning control of planning and saving for retirement to individual Americans:
- Increase the retirement age for instance 1 year every 3 years until reaching the average life expectancy of Americans (currently around 78-79 years). Today’s 67 would become 68 in three years, 69 in six years, etc. Same for ranges of early/late retirement options: 62/70 would become 63/71 in three years, 64/72 in six years, and so on. If you’re 59 today, you’d have to wait until age 71 to collect in full, instead of age 67. If you’re 50 today, you’d have to wait until shortly before age 75.
(A similar approach was part of the solution implemented back in 1983 when Social Security last time was on the brink of insolvency.)
- Reduce benefits from a certain cutoff date, allowing everybody who is for example 50 and above to collect in full once reaching the retirement age as calculated above. For everybody younger than 50 reduce benefits with let us say 2.5% per year. If you’re 49 at the cutoff date, you’ll collect 97.5% when reaching full retirement age, if age 48 95%, if 40 75%, etc. That will allow for plenty of time to save up for retirement for those younger than 50.
- Reduce Social Security taxes gradually to zero after all current liabilities have been funded (assuming the above gradual dismantling).
Combine the above with increased tax deductions for retirement savings, regulatory rollback, and incentives to opt out of Social Security early, and we would soon be on track towards total separation of state and retirement. If you think the math doesn’t add up, then make the retirement age increase and/or benefit reductions more or less aggressive.
What will it take to gain traction on liberating us from the shackles of government retirement control? The answer is a sea change in moral sentiment. Since its inception, champions of Social Security have occupied the moral high ground with vague promises of financial security for everyone in old age. But a system that robs Peter to pay Paul is both morally and practically fraudulent.
For example, if you are currently collecting Social Security consider the following:
- The “Social Security trust fund” doesn’t sit on some 3 trillion in cash, only on claims on the U.S. Treasury; the money has been and is being spent on other government activities. If the Board of Trustees would come knocking on Treasury’s door and ask for 3T, either taxes would have to skyrocket, or government spending be massively cut. The system is basically “pay-as-you-go.” The funds you and your employers paid into the system your entire working career went to paying for the retirement of your parents’ and grand-parents’ generations. In fact, the program got off the ground in the first place in no small part due to a Supreme Court case (Helvering v. Davis, 301 U.S. 619 (1937)) that upheld the program because “The proceeds of both [employee and employer] taxes are to be paid into the Treasury like internal-revenue taxes generally, and are not earmarked in any way. That is, the Social Security Tax was constitutional as a mere exercise of Congress’s general taxation powers.”  So while the scheme hasn’t exactly been secret, it shouldn’t make you any less indignant.
- That no money is in the “bank” (the Treasury) means that you are a welfare case; there is unfortunately no other way of putting it. You are at the mercy of the people who continue to pay into the system and grant you a monthly handout. The only thing separating you from the person with the food stamps in front of you at the supermarket, and from a crushing blow to your self-esteem, is the government depositing your welfare check directly into your checking account giving you a false sense of independence.
- If this makes you feel morally uneasy (this doesn’t seem right, does it?) or outraged (this is wrong!) or anything in between, you are now part of the change in moral sentiment that is a prerequisite for reform. You may be depending on the current Ponzi scheme for the rest of your life, but don’t you owe yourself a fight for reforming the system to give your children and grandchildren the opportunity to live independently off their own savings in retirement, without being at the mercy of their fellow men and the heavy hand of government?
What if you are not yet collecting Social Security? The fact that you and your employer are paying a combined 12.4% welfare flat tax to finance other people’s retirement needs and not your own should make you feel morally betrayed; absent a change you will be a welfare case just like today’s retirees—if there is any money left to dole out when your time comes to collect. So much for a “Golden Age.” Do you think this is a moral travesty? Congratulations, you just added a ripple to the moral sea change we’re talking about.
The time is ripe for retaking the moral high ground for individual rights-respecting retirement independence. But it must start with us. The Board of Trustees annual report was again) met with a yawn and a shrug. Why? Because as long as we the people don’t show the will to change, as long as we don’t express moral outrage over the injustices of the current system, our elected representatives will not lift a finger. You have to show that will. You have to start fighting for your individual right to plan and save for retirement and to reap the fruits of your labors in the later parts of your life without government interference. This is the only way to get the attention of politicians with election and reelection ambitions, and convince them to take your cause with them to Congress.