The endless fraud that is Social Security seems eternal to most Americans, and even those who prophesy its demise might feel a bit like Jonah outside the walls of Nineveh, under a gourd, cursing a worm. But the comedy of its seemingly stable instability aside, the basic truth remains quite clear: It was never constructed on a sound basis. There was never investment of funds taken in; that was prohibited by law. It was always pay-as-we-go. Surpluses were sent to Congress where they were spent. What Congress “owes” the program is vast.
And, because of its creaky, half-tontine/half-Ponzi scheme structure, “the deal” so many count on is repeatedly restructured, so to keep it going — each time the tax burden on non-retirement people raises.
None of this should be shocking to readers of Paul Jacob’s Common Sense column. Back in 1999 (that was quite some time ago!) Paul explained why the program has served as a “third rail” in American politics:
Politicians chasing votes have spent every dollar you’ve paid to Social Security. The money’s gone. There is no “trust fund” because Congress couldn’t be trusted. If a private pension fund was run this way, the people would be arrested. Managing your Social Security, Congress spent all the money and the program is headed for bankruptcy.
But why should Congress care? They’ve opted out of Social Security and their congressional pension makes them millionaires.
In 2007, Paul wrote of the first Boomers to apply for Social Security benefits under the standard retirement plan. In 2010, Paul directly contradicted a Nobel laureate economist (Paul Krugman, in case you are interested), calling him a liar. About Social Security.
Telling whoppers about Social Security is almost a national tradition at this point.
In light of this, The Wall Street Journal’s September 17 look at the subject is worth noting. It is called “Republicans’ Pre-Emptive Social Security Surrender” and it is by Joseph C. Sternberg:
The battle over Social Security reform will be among the most consequential economic fights Washington has had in several generations. So why are some Republicans already preparing to surrender?
The issue has taken on new urgency as it becomes clear a legal cliff edge will force reform by 2032 or else. By that date the so-called trust fund for the old-age portion of Social Security will be exhausted. By law, annual benefit payouts then immediately shrink to match annual payroll-tax revenues. That would mean a 22% reduction in Social Security checks in the first year.
The standard proposal to forestall all this is the focus of Sternberg’s op-ed. And what is that proposal? Nothing other than the notion — beloved by Democrats, because it looks an awful lot like “sticking it to the rich” without saying so directly — of raising the cap on contributions.
The program is funded by a payroll tax of 12.4%, borne equally by employer and employee and applied to the first $184,500 of taxable income. The theory is that if higher-earning households pay the payroll tax on all their income, it removes a regressive element of the existing system and creates a fabulous new revenue stream.
But will that work? Sternberg says No:
This issue will likely gain coverage here at ThisIsCommonSense.org in the near future.
