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From Deutschland to New Deal to now:  How old is old?  How secure is Social Security?

By Marion Edwyn Harrison
web December 20, 2004

The print media – from respectable Wall Street Journal to most lightweight rag – is replete with Social Security stories.  The Bush Administration has a privatization proposal; the 109th Congress will hold hearings; studies are published; so on.  However, one common consideration – a basic, troublesome fact – consistently is missing.

Prince Otto von BismarckIn 1889, the "Iron" Chancellor, Prince Otto von Bismarck, successfully introduced into the Reichstag the precursor version of what we now call Social Security.  The estimated life expectancy for a newly born German was in the 60s (bearing in mind these types of mortality tables average infant deaths, other premature deaths, wartime deaths, old age – the whole spectrum).  The Chancellor and his advisors understood basic arithmetic:  Social Security payments were to go to the living, not the dead; the Government was not to bankrupt itself; too many people could not be eligible.  Hence, the qualifying age was 70, reduced in 1916 to 65, beyond which only a small percentage of the populace would live.

In 1935, President Franklin Delano Roosevelt, Secretary of the Treasury Henry Morgenthau, Jr., and their advisors similarly understood the basics.  The newborn’s life expectancy had not changed much.  Hence, the qualifying age, effective in 1936 with the seemingly revolutionary new statue, was 65 years.  Further, the New Deal scheme was designed to benefit those eligible persons retiring with an otherwise modest, or no, retirement income – not to augment the income of the affluent.

We all know the goodies that have flowed into the Social Security system since 1937 – eligibility, albeit at a lesser payout rate, at age 62, instead of 65; no income exclusion – everybody who paid into Social Security the modest minimum and is not working at 65 collects; every such person, working or not working, collects at 70.  (True, for those born 1960 and thereafter the eligibility age is to rise from 65 to 67 – statistically insignificant.)  Thereafter, on top of all that, behold the inestimable Gargantua of the Lyndon Banes Johnson legacy:  Entitlements.

Whether Bismarck, FDR or otherwise, obviously payment into the Social System derives from those people who are working who are taxed (presently upon only the first $84,000.00 of annual net income).  Just as in commercial insurance the total cumulative premiums averaged out must equal payout plus General & Administrative costs ("G&A") plus profits, so the Social Security tax (for that’s what it really is) should equal payout plus G&A – but no profit.  Phrased more visually, there must be enough water and Social Security bean in the top of the percolator to filter down into the pot as the pot repetitiously and continuously is emptied.

Therefore, there must be enough people putting beans in the System’s percolator.

In 1950 there were about 7.5 working people paying into the System for every one person drawing payout from the System; in 2000, only five people; for 2050, the Social Security Trustees Report (2004) projection is only 2.5 people.  This isn’t surprising because every study, as well as empirical observation, shows that people on the average are living longer.  In sum, there are progressively fewer working people to support the dramatically growing pool of older people.  Then, of course, the imbalance is aggravated as more and more people retire in their fifties or sixties.

Why there are more old, older, elderly, senior people – whatever the appellation – is another subject.  Causes include brilliant scientific and technological advances in medicine and dentistry, greater healthcare availability, more healthful food and medicine availability, a smaller percentage of people malnourished arising from poverty, the tragedy of some 1.4 million abortions annually, so forth.  Statistically the components of the raison d’etre don’t matter.  The fact is there are disproportionately more older people and the imbalance steadily mounts.  Indeed, the fastest growing age group is those of 100 years or older – a nation of Methuselahs, to indulge a little hyperbole.

The Social Security System indisputably sits upon a precipice, irretrievably to fall into the abyss in due course.  Estimates are that it would take some $8 trillion to cover the present shortfall – by comparison, the total stock market worth is about $14 trillion.  Total annual Federal Government expenditures, including defense, are about $2.3 trillion.  Of that $2.3 trillion, about $515 billion is Social Security cost, $340 billion is "Income Security," $244 billion is "Health" and $271 billion is Medicare.  (Additional such costs are hidden in various categories.)  Add only the foregoing together:  Some $1.38 billion – well over half all Federal expenditures for various kinds of welfare (using welfare in its broad and inclusive sense).  Estimated present Medicare liability is about $61 trillion!

Billions and trillions – unprecedented whoppers!  Nobody except a few economists and statisticians can so much as visualize them (and, of course, some of the figures are subject to interpretation, but the totals do not vary significantly.)  Statisticians could adduce all manner of other comparative figures but the foregoing should suffice to illustrate the point and scare anybody.

The solution is at best elusive – not uncommon when necessity and political receptivity collide.  The Bush Administration proposal to allow some privatization of Social Security is said by many economists to be part of the solution but it presently does not appear very politically palatable and is estimated to cost $1 – 2 trillion to initiate.  Predictably the political left, which wants more taxes on other people to fund more handouts, benefits, largess, entitlements – whatever one cares to term them – opposes Social Security privatization or partial privatization, because self-determination is contrary to the Welfare State, Big Government or whatever invidious, if realistic, label one chooses to apply.  The left predictably also would oppose any deferment of eligibility or reduced benefit.

That portion of the solution which no politician and few others so much as dare think about, much less advocate, is a gradual, but rather steep, raising of the eligibility age to or nearer the life expectancy age – already 82+ (Treasury Regulations § 1.401 (a)(9) – 9 ) and rising.

Candidates for elective office recognize that Social Security is the third rail:  Touch it and you are zonked.

At the rate it’s going, probably in the old age of my children, and unquestionably in that of my grandchildren, as they wonder what became of Social Security, their only question will be:  How did I get zonked?

Marion Edwyn Harrison is President of, and Counsel to, the Free Congress Foundation.

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