Thursday, February 5, 2009

Social Security and Bernie Madoff Style Pain

If Americans decided tomorrow that they wanted to be rid of Social Security forever, it would cost them about twenty trillion dollars over the course of a generation. It would cost about a trillion dollars a year, every year for over twenty years... and that's in a good economy.

This time it is not Madoff's fault and it is not Charles Pozi's fault, it is our fault; it is the fault of three generations of Americans who apparently haven't had the minimum economic sense required to properly participate in a democratic republic. Social Security has always had a design flaw. It is like a pyramid scheme. For instance, the first Social Security benefit recipient paid "$22.54 into the system and received $22,000 in benefits over her lifetime" (History of Major Changes). Where did those benefits come from? Were they a return on investment? No, as in Bernie Madoff's pyramid investment scheme, the benefits were paid directly from the payroll taxes of men and women still working.

At first most voters who understood this didn't care because the tax burden was so slight. The original rate of Social Security taxation was a mere 1%. that included Medicaid insurance. Moreover, when Social Security began, self-employed persons paid no payroll tax whatsoever. Such a wonderfully easy social largesse must have been so persuasive in the hard times of the Great Depression, but that was the bait, the first level of the pyramid scheme. As in a pyramid scheme, the first Social Security beneficiaries were far fewer in number than the number of workers paying into Social Security. When Social Security began, there were sixteen workers paying into the system for each worker receiving benefits. Today, there are about 3.3 workers paying into the system for each beneficiary. When Social Security began, only the first $3,000 of a worker's paycheck was subject to taxation, today the first $100,000 is subject. Today individuals are taxed at 6.2%, their employers match the 6.2% and the self employed pay 12.4% in Social Security taxes. Including Medicaid (which was once part of Social Security), and matching employer taxes, every United States employee pays 15.3% of every dollar they earn into Social Security and Medicare. If this money had actually been invested in any serious retirement fund, the resulting wealth would have been phenomenal. What a waste.

From its inception, the program was scheduled to reach a rate of 6% for each wage earner and 12% including the employer contribution. However, FDR postponed the full tax increase until 1960. Since the 1960's there have been at least nine more adjustments to the rates involved in keeping Social Security solvent (Just the Facts). Generally speaking, before each of the FDR "contribution" increases, an increase of benefits was emphasized. Nonetheless, the increase of the rates was most directly related to the decreasing number of workers paying into the system to support the increasing number of beneficiaries. Since it is hard to imagine that the generation of patriots and immigrants who gladly sacrificed for their children and their children's children would knowing threaten the futures they held so precious, it is plain our forefathers were duped. Just as Bernie Madoff duped universities and charitable institutions, the good people of twentieth century America were duped into downloading a Trojan horse. Like a Trojan Horse, the symptoms of Social Security's design flaw, its worm, only increase over time. Social Security's history of rate increases simply confirms what logic must tell us: Social Security is a Ponzi scheme, a trap, a Bernie Madoff pyramid scheme that requires the blood of each new generation to sustain an illusion of prosperity. Dedicated to the horrid god atop the pyramid, the god of big communistic government, Social Security has become a religion of the far left fed by the blood of needless human sacrifice.

Now, at 12% of a workers salary, Americans who don't care about the effects of this tragedy are Americans who don't pay into security, don't pay into social security any longer, or don't have the prerequisite brains required to participate in a democratic republic. Just as Madoff victims who lost their family's life savings must feel great personal anguish, American workers must begin to allow themselves to feel that same pain over what has become our national retirement disaster. That's the only way we can move on. We need to find a solution without blaming one another.

Here are several estimates of the dimensions of the pain we must acknowledge:

If Americans stood up today and said "enough!" it would cost 22 trillion dollars. This includes benefits to those who have retired and benefits to those who will retire within the next ten years. From this amount one might fairly enough subtract the current Social Security trust fund surplus of a little more than 2 trillion dollars (2007). The American worker has already promised to pay these benefits, but it wasn't this generation that made the deal. It doesn't matter. That's the deal. Laws mean things. These benefits need to be paid out over a generation, twenty-two years. That's a about trillion dollars per debt a year that must be generated. The American worker is, seemingly broke. Our parents and grandparents made this deal. We need to come up with a trillion dollars a year for a generation to end it. That's pain. That's Bernie Madoff style pain.