Since Social Security’s creation, it has been praised for keeping retired seniors out of poverty. From the New Deal era to the present, every attempt to reform or abolish the national pension program has been lambasted by the leaders of the political left. Then came last week’s game changer.
The budget presented by President Barack Obama out-flanked fiscal conservatives by proposing a new formula for calculating Social Security benefits. His announcement sent shivers down the spines of progressives who believe his plan will sever one of the most important weaves in the social safety net.
After all, even Paul Ryan (R-WI), who was portrayed by the pro-Obama camp as a draconian, granny-hating deficit hawk while he was former Republican presidential candidate Mitt Romney’s running mate, hasn’t dared touch the politically lethal third rail.
However, the president’s gambit to save Social Security, while admirable, might prove paltry relative to the scale of the problem.
The facts about the dismal state of Social Security are well known. Social Security’s trust funds are about to be cleaned out by a tidal wave of retiring baby boomers and will be exhausted by 2033, according to government projections. And it might be sooner than that.
Professors Gary King and Samir Soneji of Harvard and Dartmouth University, respectively, have studied the Social Security Administration’s forecasting methods and concluded that their calculations are chained to calcified formulas that omit decreasing smoking rates, advances in medical care and a smaller payroll tax paying workforce. According to their study, by 2031, longer life spans will cost an extra $801 billion that the government is not prepared to pay for.
Obama’s proposal could help. His budget predicts that the change to Social Security’s cost of living adjustment will save $130 billion over the next ten years, but more needs to be done.
Some commonly tossed around solutions include increasing the payroll tax rate, which is already ludicrously regressive and burdensome on the poorest workers, reducing benefits, pushing the retirement age to 69 or 70 and raising the cap on income subject to the payroll tax, currently $113,700, according to the New York Times.
None of these solutions are ideal. During the two-year payroll tax holiday, workers’ take-home pay increased, but those gains were wiped out when the tax cut expired in January, as reported by the Bureau of Labor Statistics. Taking more money out of an already sluggish economy is a bad idea. And good luck trying to pass further cuts or increases in the retirement age.
But failing to keep our commitments to current and soon-to-be beneficiaries would be cruel and irresponsible. Some combination of the measures mentioned above will be necessary to shore up the system. We cannot pull the rug out from under people who have planned their retirements around Social Security.
However, for people like us, students who have not entered the work force and younger people, something more has to be done. The current Social Security scheme is inherently disadvantageous to us. It redistributes wealth from the poor and young to the rich and old, from the generation struggling to find jobs and pay off staggering student debt to the generation that thrived through the postwar boom, Reaganomics and the go-go 90s.
What was a New Deal for our grandparents has decayed into a raw deal for posterity. Just last summer the Associated Press released an analysis of Social Security benefits and concluded that current retirees were receiving fewer benefits than they paid in taxes.
One universal truth about money is, if you are smart enough to earn it, then you are smart enough to know how to spend it. The government cannot even manage its own finances, so why should you trust it with your retirement money? Keeping a diverse investment portfolio and a sizable amount of money in an insured savings account would yield greater returns for us than the antiquated Social Security system.
Returning financial power to the people and decreasing their dependence on government would not only assuage our fiscal problems, but it would revitalize long-treasured American values like thrift, frugality and individual autonomy. That would be real reform and a real New New Deal.
Max Reinhardt is Chairman of the UMW College Republicans.