On Social Security, the Middle Class and Real Retirement


An email has been circulating lately that starts off “Social Security becomes a Federal Benefit Check.”

This email suggests that Social Security is a scam, a Ponzi scheme. It says that your Social Security check has been renamed “Federal Benefit Payment.”

It implies that the reason for this is that the government wants you to feel that you are getting a handout.

That may be true. Or it may be false. Or it may be idiotic. Despite what Republicans would like you to think, the government isn’t a living human being. So unless you are writing a script for a Disney animated film, you probably shouldn’t ascribe feelings and motives to it.

The government doesn’t take a position on these things, so no one knows exactly what they “mean” or who “they” are. But the fact is that many things paid out by government are referred to as “Federal Benefit Payment.” Farm subsidies, for example, part of the normal transaction for running agriculture over the last 70 years are designated as Federal Benefit Payments.

Of course, that is not the point of this email. This email is designed to get you to think that the Social Security system is flawed so we should do away with it. Who benefits from that? The rich, who pay hundreds of thousands of dollars a year in taxes and the corporations who want to keep more of their already bloated profits to give to their billionaire owners. But if that is true…why?

Well here’s a fact you should know. Of all corporate financial instruments, stocks, bonds, and other securities, 65% are owned by the top 1% income group of Americans. The top 10% of all Americans own 94% of those assets. So profits are not going to the middle class, which, by definition, is the group below the top 20% and above the bottom 20%.

And that means that there is a very strong incentive for some people to want to do away with big government. And what in government is bigger than Social Security? The letter continues to rail at Social Security, as if the government created it merely to screw us all. It implies that we have been grossly defrauded. We have it says, been paying in to Social Security at the rate of 15% for at least 30 years while earning an average income of $30,000 annually and get back a mere fraction of that in return.

First of all, the numbers are all wrong. We don’t pay 15% into Social Security. We pay something like 12.5% and even that amount (made up of both our payment and the employer payment) has been less than 12.5% for most of the time that current retirees have been working. And $30,000 over the income earning period for current retirees would be far too much.

People who are retiring today, 2013, started working in 1973. Median income in 1973, not starting income, was $9,226. So, as you can see, the numbers in this email, while they try to make a point, are so far off that they are almost useless….because we are not talking principles, but actual dollars. So the numbers are supposed to be the point of the email and the numbers are wrong.

The term “entitlement” also applies to many different eligibilities but is distinctive in that it means payments, in this case, to which people are, by virtue of eligibility: “entitled.” In other words, because of payroll deductions, etc, the entitled are owed this money. Not getting it for free. Entitled to it because, for some reason, it is owed to them.

It is important to repeat, even though the government says it repeatedly: Social Security is a form of insurance. It is not a retirement program. It is both a subsistence program and a disability program. It allows people to have enough money to survive. It is not retirement savings. Insurance takes in premiums and then pays out money, not on individual savings, not on individual investment accounts but on average actuarial estimates. Spread across more people, the averages are broader…lower than income/interest in some cases and higher in others.

To make accurate calculations about how much you feel you are owed by the government, it is good to remember that the percentage that goes to Social Security payments are less than the FICA that comes out of your check. Social Security is only one part of it. And it is not calculated on all earned income, only up to the annual caps on the amount of income from which the payments are deducted.

Another idea of the email was that the government provides no other assistance for retired seniors but it spends hugely larger amounts on aid to foreign countries. Here are the facts. The federal government spends about 20% on Social Security and 21% on health care. It spends another 13% on the security of our financial documents and accounts. It spends only 1% on all foreign aid combined.

Here’s another mistake in the email, even though the facts may be correct. “Upon retirement, if you took out only 3% per year, you’d receive $39,318 per year, or $3,277 per month. That’s almost three times more than today’s average Social Security benefit of $1,230 per month, according to the Social Security Administration (Google it – it’s a fact).”

Well, if you Google what they said, yes, it may be a fact. (We didn’t do it because it is irrelevant. Remember, we discovered that the incomes and percentages were wrong to begin with.) But the point is this. Those who say that Social Security was not set up as a retirement fund are right. And those who say that we will soon have more Baby Boomers in the system than those working are approximately right.

But their solution, the really hard Right Wingers who want to kill Social Security, is to simply do away with it and let people “decide how to use their own money. They can decide better for themselves.” That part is wrong. The year 2008 pretty conclusively proved that we cannot “decide better for ourselves.”

We have scam artists on every corner, in every Wall Street cubicle, doing their best to maximize their incomes at your expense. If the plan offered by George W. Bush, and Chuck Schwab and Goldman, Sachs had been in place…for a Social Security replacement plan…those retiring between 2009 and 2012 would have seen anywhere from a reduction of 30% to 70% in their retirement funds. Remember that the Bush plan, unlike the Gore plan, called for doing away with Social Security and putting disability under HHS. Gore would have perhaps slightly reduced Social Security or left it where it is, and added an optional retirement program based on the federal employees retirement program model.

Some people do well in mutual funds. Others do not. The Social Security part of any retirement plan would continue to do well…but not great. It is not a mutual fund. It is fixed-amount insurance.

But the mutual fund portion of retirement…and it doesn’t come free…you would need to invest in it…would fluctuate. If it had been in effect for those retiring in 2009-2011, those funds would have been negative for those years, dramatically reducing any retirement funds. And, remember, you would have been paying into them, not just for a year or two but for 30 years or more.

But the point is well taken. Can it be done better? Yes it can. But remember that Social Security, as it is presently written into law is an old age, survivors and disability, pension agreement. It is not a retirement program as such.

There are a number of ways it could be…and should be…improved. For example, as it stands now, each generation is paying for the last generation. So you might say that the people who retired in 1985 or so were the ones who filled the fund for those who retired up to that time. Because, theoretically, there was not enough money in the fund in 1936, 1937, 1938, etc. to pay for the early retirees.

While it is true that many people died before they received more than a few years of payment, subsequent generations paid for the benefits that their initial payments did not cover. And so each new generation has paid the shortfall for the last. But this is all done in long-range actuarial terms. So, in the mid 1980s, when the Baby Boomer generation was being considered by Social Security, Ronald Reagan and Tip O’Neill got together and changed the contribution formula so that the Social Security system would be solvent for at least 75 years. And that is how it is now.

What Republicans are complaining about is that, during Reagan, during Bush I and during Bush II, when they were in power, they spent much more than they took in. So government has a huge shortfall and they like to describe Social Security as part of that debt. But the fact is that even today the Social Security fund takes in more from taxpayers than it pays out in Social Security and Disability checks.

What the Republicans say, which is a lie, is that the Social Security fund is broke…that it does not have the money to pay out what it owes. That is not true. It actually has a huge surplus. It is the U.S. Treasury that has the huge debt, part of which is owed to U.S. citizens who are Social Security recipients or will be one day.

Social Security doesn’t owe anyone anything beyond those receiving their entitlements. It is the government that owes its citizens. And some of the very rich who made a fortune on lower taxes and war contracting and zero corporate taxes…these people now want to avoid paying more into the Treasury in the form of taxes…because that is what must happen.

Deficits, because of tax breaks that were unwarranted and unnecessary, primarily to corporations and the already very wealthy, have caused a huge national debt that must be paid. And those who benefited most are the ones who must now contribute to replenishing funds, like Social Security, from which they borrowed to gain their affluence.

We could change all this very quickly. And there is not just one way. There are several ways. First, we could simply raise the caps on Social Security. And we are not talking about something radical. Raising the cap on income to $200,000 would simply restore the 90% of income that Reagan and O’Neill established in the mid-80s. The $106,000 current figure is now only 80% of income.

But before we get into specific recommendations, let’s establish what does NOT and will NOT work. The so-called “chained CPI” is not only not workable but should be resisted at all costs. The reason is simple if you know the facts. Given current economic conditions, there is no reason to adjust the cost of living index downward. Here’s why.

For all retirees, Social Security provides at least 40% of their income. In addition, one out of four married retirees and almost half of single retirees need Social Security for 90% of living expenses. The older the retiree, the less they get in relation to current payments. Therefore, the chained CPI would be hurting older retirees, the most vulnerable and the very people we should be trying to protect.

We could tax all stock trades by a tiny amount and this, it has been demonstrated, would produce enough revenue to pay for a huge number of things. One of the things it could do is to create a fund, which, when combined with employee contributions, could provide that kind of retirement plan, at some point, that would be like a 401K for every worker.

Now, if we raised the cap to $250,000 we would be solvent for at least 75 years, no questions, no problems. But the important thing is that we would not really be raising anything at $200,000. At $200,000 given the current income level, we would merely be in line with what Social Security has always set as 90% rather that the current $106,000 which is only 80%. So, as with so many other things, we are underfunding the programs we have always had and then Republicans complain that we don’t have enough money.

Here is a way to solve all our financial problems. If we charge a one cent ($.01) on each $100 of financial transactions, we could raise, according to the International Monetary Fund and others, including people like Warren Buffett and Bill Gates, about $200 billion a year in revenues. We could completely eliminate our debt, and by doubling the caps on income for Social Security, end our financial problems.

But this still would not solve our retirement problems. Here’s a suggestion that would solve all the above and retirement. In addition to the two measures above, increased caps and stock transaction taxes, if income tax rates to 70% on any income earned over $2,000,000 per year, 50% on any income earned over $500,000 per year and 35% on any income over $100,000 per year, we would fix our budgets permanently.

But we could do more than that. With these three tax proposals, we could shift Social Security to a real retirement program. We could reduce the Social Security formula slightly, and add a mutual fund program that would have two or three options and allow for up to perhaps an additional 10% to be invested, tax free.

This would provide the same security as currently, continue the disability benefits as is done currently, but would add the option of a portable retirement program, similar to the federal employees retirement program that would have no downside, but an upside variable by the amounts invested and the status of the market at the time the person retired.

The way it could be done is to use the financial transactions tax to act as a stop-gap measure between what is now a pay-it-backward program and a new pay-it-forward program, like a 401K (for the investment part only.) Once the person retires, the money could be optioned but once the person dies, the accumulated funds would stay in the fund for future retirees. It would be basically an annuity added to Social Security.

The measures above are not radical. The 70% and 50% are at far, far higher rates of income than the same rates were when Ronald Reagan came to office. The cap on incomes is only bringing things back to where they should be anyway, before Republicans began to see that they could rail against fair taxes and get the hicks to support them. And the transaction tax has many, many more supporters than even the substantial ones mentioned.

You can fix government. You can make it work for you. The top one percent in this country have personal assets of more than three times the amount of the national debt. In other words, just the top 1% of Americans could theoretically pay off our national debt completely and still keep two-thirds of their personal assets intact.

How many houses do the Koch Brothers own? Senator McCain and his wife, who is an heiress but not to the Budweiser fortune, but the daughter of a Budweiser franchisee in Arizona, had, at the time he was running for President, 9 houses themselves. The Koch brothers spent $500,000 chartering a yacht just for a vacation.

The wife of Vince McMahon, the President of the World Wrestling Federation, spent $90 million out of her pocket money to run for the Senate on a campaign of cutting taxes for the rich. The former head of Ebay, Meg Whitman, ran unsuccessfully for Governor of California against Jerry Brown. She spent $140 million of her own money trying to put the state back to the way it was, she said, when she first moved there. Who was governor then? Jerry Brown!

The country is awash in money. Don’t sorry for the rich. The Rockefellers and the Mellons and the Vanderbilts paid 97% to help us fund a war against German Nazis, the Italian Fascists and the Shinto regime of Japan. So asking the Koch Brothers either to invest their excess cash in business…which will make them even richer, but will create jobs…or pay it in taxes is not too much for people making about $15 billion a year.

There is only one thing you need to think about between now and November 2014. Vote Democratic next time and take every undecided voter you can to the polls with you. It is time to stop the propaganda and get real.

Only when Republicans are wiped clean from the face of government will we all be assured that the American Middle Class will return.