October 24, 1998

©1998 Larsen

Social Security is not going broke because it invests the surplus FICA taxes in United States Treasury notes. It is not going broke because the United States uses the borrowed money to pay for education, foreign aid, welfare, defense, etc. It is not going broke because the Baby boomers are aging and approaching retirement. It is not going broke because retirees are living longer. It is not going broke because the FICA tax is not high enough. It is not going broke because future benefits are rising at the rate of the average wage. It is going broke because the current retirees did not pay enough tax to sustain their benefit level. They paid the minimum amount to pay the first retirees. The baby boomers are being asked now to make up for 60 years of scamming.

Originally the FICA tax was applied to 110% of the average wage with only a 2% tax (1% from both employee and employer). Now it is 241% of the average wage and 15.30%. Benefits have increased from an average $22.60 (1940) to $738.25 (1997) per month. Inflation has gone up 1,144% between 1940 and 1997. Had benefits kept up only with inflation, the average benefit would be just over $248! Therefore, not only did current and past retirees not pay enough into the system, they increased their benefit levels 300% greater than inflation!

Social Security ran deficits in 1957 - 1959, 1961, 1962, 1965, 1975 - 1981 and 1983. The earlier fixes were to enroll more workers into Social Security. When they ran out of new enrollees, they began to raise taxes significantly (>10,000%) and raised the retirement age to 67. The corresponding result was more spouses entering the work force to help out financially. This has lead to day care, which added more expenses for the working family. As a result, a cry went up for tax cuts and credits. Shortly afterward the IRA was developed which helped to reduce Federal revenues. Then there were Child Care credits to help minimize the impact of higher FICA taxes. Then there was the development of 401K's which further reduced Federal revenues. Now there is the Child Tax credit of $400 per child. There are many others, but I think I get my point across. As FICA taxes increased, we saw a steady decline in the average workers Federal Taxes. This decline is what caused the Deficits of the 70's, 80's and 90's and created the National Debt that now totals over $5.5 Trillion!

We went from paying our bills 100% to borrowing so we could pay more in FICA which ultimately went to pay more out to retirees. Now we have both parents working. Child care raising our kids, Schools who are now taking a part in moral up bringing, shootings in schools and parents do not know why there is violence among the young. Has Social Security broken the moral fiber of America? Grand parents no longer live with the family. They are put away in a home or live by themselves. Where is the stabilizing force of the past? We used to respect the elderly, now they are not there and we despise them because they want more and more Social Security. The $5.4 Trillion debt is nothing more than redirected taxes from Federal to FICA. Therefore, Social Security is responsible for the National Debt.

The problem with Social Security is the benefit payable only requires a 3.5 to 4% payroll tax to pay future benefits. The reason why there is a shortfall is the current retirees did not pay enough. They paid only what was needed to pay current retirees instead of extra to pay for them when they retired. The current funds needed to make Social Security survive indefinitely is over $10.6 Trillion dollars invested at 5.5% right now. Raising the age to 70 kills off about 15%, of the people, who would have otherwise had gotten benefits. Raising FICA taxes helps prolong the problem. Reducing future benefits treats the symptom but does not solve the problem. The problem is, there is no money in the kitty and there is no way to tax $11 Trillion dollars from the American people. The income from $11 Trillion is enough to sustain Social Security's future benefits at a 4% payroll tax to the point where it is in equilibrium with the work force. In other words it would be a fully funded system

Treating the symptom instead of the problem only pushes the problem further out, increases the cost beyond belief and makes some future worker pay to clean up the mess. The solution is to bite the bullet and eliminate Social Security now! Better to do it now while there are fewer needing it than in the future when no one has been able to save and the National Debt service is crippling the economy.