Social Security Summary

Social Security is Going Broke
In just 14 years, Social Security will begin running deficits and by 2038 the program will collapse. Many Americans faithfully put money into the system expecting that their funds will be separate and safe until the time they retire. Nothing could be further from the truth. Under current law, the portion of payroll taxes that exceed outlays for Medicare and Social Security – estimated to be $161 billion in FY 2001 – are turned over to the Treasury in exchange for interest-bearing I.O.U.s to be stored in a “Trust Fund” and redeemed by future beneficiaries. The Treasury then spends whatever payroll tax revenue it receives, making the I.O.U.s worthless and the “Trust Fund” in which they purportedly reside entirely fictional.

Social Security Benefits are not Guaranteed

The biggest public misconception about Social Security is perhaps the belief that individuals are entitled to the money they have paid into the system as workers. As the Social Security Administration explains on their web site, “Entitlement to Social Security benefits is not a contractual right. ”This principle, established by the Supreme Court in the 1960 case of Flemming v. Nestor, means that Congress can do whatever it wants with an individual’s FICA contributions – even withhold benefits completely. Or as the Social Security Administration states: “Benefits which are granted at one time may be withdrawn.” As the popular saying goes, “possession is nine-tenths of the law.” In the case of your Social Security benefits, Americans have neither possession nor ownership – only the federal government does.

What are the Alternatives?
Properly designed Social Security reform would accomplish two major objectives: allow current workers to invest in real assets for retirement instead of relying on the good will of politicians and public resources that may or may not be available upon retirement; And to relieve the tax burden, caused by demographics, on future workers, who will be expected to hand over about a fifth of their salary to pay retirees’ benefits. Lawmakers must begin to transition the program from “pay-as-you-go” to individually owned retirement accounts. If workers paid their Social Security taxes into their own dedicated retirement accounts, demographics become irrelevant as each worker would build their own retirement nest egg. Even better, these resources can be invested into the economy, giving workers the potential to earn a superior return over traditional Social Security.

What are the Objections to this Proposal?
While serious people may have legitimate differences when it comes to the implementation of any reform proposal, the Congressional objection to reform is based solely on politics. Rather than debate the merits of reform, or offer suggestions for how best to address the inevitable collapse of the current system’s finances, Congressional opponents demagogue the issue by blasting “privatization” as a break in “our contract with the American people,” which will lead to “cuts in benefits.” This deliberate misinformation is outrageous and must come to an end.