The Millennium Mandate

          Social security is nothing more than a legalized pyramid scheme, a complete fraud. 
            That is, its functioning is dependent on more and more people participating and contributing to the program.  As such it is fundamentally flawed.  Nobel economist Paul Samuelson quipped in 1967,  "The beauty about social insurance is that it relies on a growing population and rising incomes to pay each generation of retirees more than they paid into the system.  A growing nation is the greatest Ponzi game ever contrived."
            Were you or I were to attempt to set up such a program, it would be crushed by law enforcement in a heartbeat.
            Government accounting creates the illusion of a trust fund, but the money Social Security collects from you is paid out immediately.  And, the amount taken can change at political whim – the payroll tax has increased 17 times since 1935. 
            Politicians can and have looted payroll tax funds to pay for thousands of pet pork roll projects and other entitlement  programs. If the funds are low, they simply change the age at which one can retire to later. Or reduce the amount of the payouts. IOUs  are created, but no one in Congress ever intends to pay it back.  Congress is the fox watching over the hens. 
            Yet, Social Security is portrayed by most everyone as risk-free financial security in old age. This, despite the fact that this Ponzi scheme creates no wealth -- benefits one person receives in excess of his payments is done at the expense of others. 
            Why is such an irresponsible system regarded as moral?
            The answer lies in the belief that those who “have” must sacrifice themselves to the “have-nots.” Worse, since reasonable men who “have” cannot be expected to sacrifice themselves to the “have-nots” voluntarily, then they must be forced to do so at the point of a gun (payroll taxes). 
            If there were no Social Security, those who “have” would be free to give to charities of their choosing for those who are not so responsible – or who have the misfortune of becoming so ill that they are not able to work.
            “But to loot the savings of untold millions of innocent, responsible, hard working young people in the name of [achieving help for the irresponsible and disabled] is a monsterous injustice,” says Alex Epstein at the Ayn Rand Institute.
            Before 9/11, the Government Accounting Office projected that social security would be bankrupt by 2030.  Karl Borden, professor of financial economics at the  University of Nebraska, predicted it would go bust in 2015.
            But 9/11 and the Iraq war changed all that; the time line has been pushed back considerably.  With billions being thrown at defense and security, a bankrupt date in not certain.  (The Bush administration is saying 2042, which is perfectly ridiculous.)
            Regardless of the amount of time, the point is that the system is fundamentally flawed.  With 76 million baby boomers turning 50 over the next 10 years, a generation parade is marching toward retirement, and disability.
            Walking behind that parade is a trickle of workers who fall far short of being able to “contribute" enough to pay the baby boomer’s retirement and disability bill. Right now, including retirement benefits, SSA has a $12.7 trillion unfunded liability --obligations it cannot pay to workers and retirees at the current Social Security tax rate. How much is $12 trillion?  The entire economic output of the U.S. was $11 trillion last year.
            

“These numbers are staggering in their magnitude.” says economist Thomas Saying. “But when I testify before Congress, I’m the only one saying, ‘We have a funding problem.’ Everyone else is testifying for more benefits.” 
                  The government’s obligations for Medicare and Social Security are 10 times the national debt, says USA Today.  If this situation were to continue as it is now, today's younger workers and their children would have to pay more than 25% in payroll taxes, or work until they're 75 or 80 years old.
            Nor can any amount of tinkering with the system save it.  Taken as a whole, the 40% level of taxation is already oppressive. Raising the age of retirement only puts off the inevitable collapse.
            The only reasonable and moral solution is to kill government-run social security.  "It must instead be replaced by one derived from free markets and operated by a free citizenry making individual economic decisions in their own self-interest," says Professor Borden.  "Only private pension plans with individual property rights to accumulated fund balances can create a secure pension system," he continues.
            Says Mr. Epstein, “How much, when, and in what form one should provide for retirement is highly individual – and is properly left to the individual’s free judgment and action.  Social Security deprives the young of this freedom, and thus makes them less able to provide for their retirements, less able to buy homes, less able to invest in themselves.”

No Need To Re-Invent The Wheel
Though not total privatization, Chile made the conversion in 1981.  It is both popular and successful.  Its government-run pension system was replaced with a privately administered, national system of Pension Savings Accounts (PSAs).
            The results speak for themselves.  After 15 years of operation pensions in the private system are 50- to 100 % higher than they were in the pay-as-you-go government controlled system.  Privatization of the pension system has increased the growth rate of the economy from 3% per year to an average of 6.5 percent.  Chilean savings rates have increased to 27% of the Gross National Product.  The unemployment rate has decreased to 5% since the switch. Chile's success has spawned Argentina, Peru and Colombia to make the transition in '93 and '94 as well.  It is a strong possibility that all the countries in South America will have privatized their pension systems by the millennium.  One of the most important results of this would be a massive redistribution of power from the state to individuals, enabling greater personal freedom, promoting faster economic growth and alleviating poverty, especially in old age.
            Under Chile's PSA system, 10% of each worker's wages is deposited by his employer each month into his own PSA.  But, this 10% applies only to the first $22,000 of income so as the worker's income increases, the amount he is required to deposit into his account goes down.  (The Chilean system is not completely private because workers are required by law to put 10% of their wages into a PSA.)
            Nevertheless, the privatized system solves the problem of government controlled pay-as-you-go systems by eliminating unfunded pension liabilities.  lntergenerational conflict and eventual bankruptcy is eliminated since the retired are not dependent on ever increasing numbers of workers for income.
            Were a privatized system to be adopted in the U.S. and workers invested their Social Security taxes in stocks and bonds, many of them could retire as millionaires.  The Heritage Foundation recently looked at how much Social Security would provide wage earners in various occupations and compared that with what they could expect if they invested their payroll taxes in a portfolio evenly divided between stocks and U.S. Treasury bonds.
            Assume a 35-year-old single individual making $38,000 a year.  In lifetime Social Security taxes, he will pay roughly $177,000 but get back only $121,000 in benefits - a net loss of $56,000.  If he were to invest that money in stocks and bonds, he'd retire with $570,000, about $450,000 more than Social Security would provide.  A married couple making $88,000 a year would pay $268,000 in lifetime Social Security taxes and get back $559,000 in benefits.
            In another study conducted by the  Congressional Research Service, it found that workers earning average wages and born in 1980 would only have to invest 3.1% of their income in stocks to receive the same retirement benefits they would get from Social Security.  This leaves 9% that they wouldn't have to give the government.

SSA's Assault On The Disabled
            Since government cannot cut the amount of the payout to the retired without open revolt, it comes as no surprise that it has chosen to do its cost-cutting tinkering on the most vulnerable sector of social security: the disabled.
            Now, SSA sends $100 billion a year to 10 million people.  This represents only 17.5%  of SSA's total payout.  But, at the current rate, in 10 years benefits will  double to $200 billion.  (Applications are now close to 3 million a year, a 70% increase in the past 5 years.) When increasing administrative costs to handle the programs are added we find that disability claims consume 40% of the Administration's operating budget.  It will soon be 50%.  In fact, the disability program is bigger than unemployment insurance, welfare, and earned income tax credit for low in come workers combined.
            Originally sold to the public as "insurance" by Franklin D. Roosevelt, Social Security was touted as the cure for destitution in old age, and in the event of a working adult becoming so ill that he or she is not able to work. As with most all government “protection" programs, they become the cause of the problems they are intended to solve.  Ask Bob Docket (not his real name):.  "Mywife Anna first applied for disability back in '1985.  And, her claim was denied time and time again.  Because of long delays and repeated denials by the Social Security Administration for disability benefits, we experienced severe financial problems.
             “The first thing to go was our savings in our attempt to hold onto our little part of the ‘American Dream,’ our home in Glyndon, Maryland.  Then we lost our car, then our credit, then our home.  We were forced to sell our home at a considerable loss.             “The medical bills kept coming, as did all the other bills as well as law suits by creditors for their money.  We were eventually forced into bankruptcy.  In the meantime, Social Security kept denying Anna’s claim.
            “While I never told my wife or let on how I really felt, I had considered suicide.  How could our country do this to our family.  I even drove up on the main span of Key Bridge, parked my car and went over to the rail and stared out into the cold midnight water.”
            All of this suffering simply because incompetent SSA workers continually told him to reapply instead of appeal.  Though this was 15 years ago, it happened countless times both before and after that with different victims and different incompetent Administration employees.  The obscenity is that this gross injustice is being meted out with the claimants' own legally expropriated money.
            Then there is Walter Bates, a 60-year- old who is homeless and mentally impaired with manic depression.  As a result of an employee entering an erroneous filing date on an appeal form, his case had to be appealed, adding 18 months to 2 years to the time when he would get a hearing where he has an excellent chance of being awarded benefits.
            President Clinton, who was fond of invoking the welfare of children as a primary reason for additional restrictive legislation or spending programs, signed into law in ’96 a bill which restored a stricter standard of judgment for disabilities in children.  Government estimates were that this would eliminate benefits for 162,500 children.
            In a 1996 ruling the Administration surreptitiously “trashed” the legal definition of work which was 21 to 40 hours a week and declared that part time work can also be considered substantial gainful activity.  In effect, this substantially lowers the standard by which the ability to work is gauged and will result in fewer payouts.
            As of January 1, 1997, those receiving disability payments solely for drug and alcohol addiction were cut off.  It was supposed to eliminate 200,000 benefit payments.  Imagine a private insurance company changing the rules retroactively.  (The issue here is contract integrity, not whether alcoholics and drug addicts should be paid benefits.)
            Under the guise of an effort to reduce the backlog of cases, SSA is testing a "streamlined" processing system that would, among other things, eliminate the second step: Reconsideration.  On appeal an Adjudication Officer (AO) reviews the case and OKs it for payment if s/he deems it appropriate.  If not, the case goes to an Administrative Law Judge for a hearing.
            Four years into the test, cases are once again reaching “crisis levels,” according to government evaluators.
            The Administration also proposed a new process which would eliminate the current standards of judgment for disability - the so-called "Listings” - and replace them with an Index of Disabling Impairments.  This index would name and describe impairments that are so enfeebling that other, less devastating medical problems, which nevertheless prevent one from working would not qualify.  However, recent changes did not implement this proposal.
            If you would rather have a government whichrecognizes your earnings as private property which cannot be taken through legalized theft, and a private competitive system where you would choose the terms of the agreement, the method of investment for growth and the terms under which you would agree to, then now is the time to let your Congressmen know.

            How much better off will YOU be if you have the freedom to invest part of your Social Security taxes in private funds? Check out Cato's plan.