Some Social Security System History and Some Facts

(Posted 5/10/2011) - I've come to understand that once I or anyone else takes up a position and invests it with an ideological (aka moral) valuation it becomes difficult for contrary facts to shake that belief system.

Much of the public debate about social programs is really nothing more than reiteration of opinion, filled with anecdotal stories and coded references that no impartial observer could ever use to become informed. For these reasons I largely eschew reading published social-opinion pieces (from right, left, or center).

This short piece proves the exception to my general disdain. It is an attempt to rebutt Alan Simpson (ex-Senator from Wyoming, and voice of the 2010 Obama Appointed Deficit Commission).

I have little use for the likes of Simpson; he's just another self-assured reactionary minded rich boy from a state with less citizens than a large city in Illinois. In short a big fish from a very small pond who will never ever change his opinions on social issues. But, he's getting so much play right now that his statements need to be analyzed and his assumptions tested -- which was done by a journalist named Ryan Grim. Click Here for a link to the reference article.

Simpson believes that the Social Security Trust and SSA should be replaced with mandated participation in privately managed 401K like plans. He provides the following supporting arguments for that position:

  • "It (Social Security Trust) was never intended as a retirement program. It was set up in '37 and '38 to take care of people who were in distress -- ditch diggers, wage earners -- it was to give them 43 percent of the replacement rate of their wages. The [life expectancy] was 63. That's why they set retirement age at 65" (for Social Security).
  • The average life expectancy has since increased dramatically and this was never anticipated by the social security administration.
  • Further, the dwindling contributing work force in relation to the number of active retirees was never taken into consideration by the social security administration and that is why the system is unsustainable.
  • Conclusion -- taxpayers cannot be asked to take up the slack and pay social security welfare to an ever increasing population of old folks.
Sounds pretty dire doesn't it -- his conclusion that we need to migrate to an individual retirement system managed by wall-street investment brokers almost sounds plausible, except for the following facts:
  • Simpson's comments to ICI reflect an apparent unfamiliarity with the history and foundation of Social Security.
  • According to the Social Security Administration's actuaries, women who lived to 65 in 1940 had a life expectancy of 79.7 years and men were expected to live 77.7 years. So the original program was designed with the expectation that on average folks living to retirement would receive a 15 year payout.
  • A man who turned 65 in 2010 has a life expectancy of 83.1 -- barely five years more than he had in 1940. Women have increased their life expectancy at roughly the same rate. Since 1940, the retirement age for drawing Social Security benefits has been lifted from 65 to 67, meaning that people are receiving a net of only three extra years of benefits than they were 70 years ago! Hardly an insurmountable change in age demographics.
  • The Social Security Administration tracks births every year and knew by 1947 that 1946 had been a boom year. When the system was reformed in 1983 by the Greenspan Commission, the Baby Boom was specifically taken into account.

    "The fundamental ratio of beneficiaries to workers was fully taken into account in the 1983 financing provisions and, as a matter of fact, was known and taken into account well before that," Social Security's actuaries noted in 1994.

  • The only real issue today? The explanation for the shortfall -- the program will only be able to pay roughly four-fifths of scheduled benefits after 2037 -- is much simpler: Social Security's actuaries didn't see the wild swing in income inequality that came about since 1983. Income has been largely flat for the middle class while rising for the wealthy. Social Security taxes apply only to the first $106,000,

    One solution off course is to continue to withhold FICA taxes for the high-earners beyond $106K. If those additional Social Security taxes were collected from the wealthy earners -- no shortfalls!

So, why do the Simpsons of the world shy from the natural conclusion that since wealth disparity has dramatically increased in the last 28 years between the bottom 99% and the top 1% of earners the amount collected from that 1% should increase? Simpson is a 1%-er himself, and represents and identifies with fellow 1%-ers.

Read the entire linked article and if you draw a different conclusion than I have, please feel free to educate me as best you can -- but don't try to use Simpson's tactic, to wit "I don't believe your numbers." That just doesn't fly since those same actuarial's numbers were accepted for decades and produced a viable Social Security Trust that is JUST NOW starting to draw down on its reserves (after operating continuously since 1936).