Civil War Pensions were an early attempt at “Social Security” in America.  The program began in 1862 and provided a pension to those who were disabled as a result of military duty.  The benefit would be payable to a deceased soldier’s survivors if he had been disabled.  In 1906, any elderly soldier qualified for the benefit had no trouble finding an attractive young woman to marry.  There were still surviving widows of Civil War veterans receiving pensions in 1999!  Of course, veterans of the Confederate Army were not eligible for the benefit.

There were other attempts to provide security for the elderly such as company pensions, marches on Washington, and state old-age pensions.  None of these and other attempts had legs.  It took the Great Depression and a Progressive President Roosevelt to come up with THE plan.  A program submitted by his Committee on Economic Security became the Social Security Act of 1935.  Its purpose was to keep old people from being poor, and to encourage older workers to retire and make room for younger ones entering the work force.

Social Security numbers were assigned with Grace Owen receiving the first, 001-01-0001, and the government began collecting FICA (Federal Insurance Contribution Act) taxes in 1937.  Trust funds were established.  Over $8.7 trillion has been collected and around $7.4 trillion has been paid out in benefits.  $1.3 trillion should remain in the trust funds to pay future benefits and more should be coming in every day.  But Social Security is going broke and there is no money to pay the $16.3 trillion in unfunded Social Security liabilities.  What went wrong?

First, there are no LEGAL trust funds.  A trust fund has several requirements. There must be trust property (Social Security money), a beneficiary (people who paid Social Security taxes), and a trustee, or trustees in the case of Social Security (the people in charge of the trust property).  The trust will not exist without any of these.  The problem with Social Security lies with the trustees.  A trustee must be loyal to the beneficiary (the people); must secure and take charge of trust property (money); must keep trust property (money) separate from all other property; make the property productive and ensure growth in the property (money).  A trustee who violates these requirements may, and should, end up in jail.  Social Security trustees are Secretaries of Health and Human Services, Labor, Treasury, and two members appointed by the president for four-year terms.  The two appointments have been vacant under President Obama.

SS contributions have not been kept separate from all other money.  They have been placed in the general fund and politicians have used them to buy votes.  Benefits have been added without an increase in taxes.  Trustees have not fostered growth in the trust property.  Why are the trustees not in jail?  They are political toadies, submitting to every desire of their lord and master.

Had there been a true trust, there would be no problem with Social Security today.  There are several estimates how much beneficiaries would have had if SS “contributions” been in a legal trust and invested at going interest rates.  A few punches of the keys on my TI BA-11 shows an interesting result.  A worker making a constant $30,000 a year for 45 years would pay $3,720 a year (6.2% from the worker, 6.2% from the employer).  This amount, if invested at 5% would have a future value over 45 years of $594,085, and provide a compounded annual income of $42,205.71 for 25 years until the retiree reaches 90.  If the retiree dies earlier, the worker’s heirs would have a nice inheritance.  But it wasn’t so.  Politicians wasted the worker’s retirement buying votes.

When the Social Security Act was first passed, life expectancy was 62 years.  People who died as expected would get no benefit.  Life expectancy of people born today is 78.5 years.  Perhaps we should raise the eligibility to the age of 80.  We could also increase FICA and raise the tax cap from the current $106,800 to income unlimited.

A current push is to means test Social Security.  Pay the benefit to those who need it and no one else.  That makes Social Security welfare.  If that is adopted, the FICA tax should be eliminated and SS placed under the general budget.  This, of course, would require a massive income tax increase

But how do we take care of money we now owe but can’t pay?  There is no painless way.  Perhaps O’ has the right approach.  Allow the bureaucrats on the Obamacare Independent Payment Advisory Board to deny medical care to everyone over 65.  Surely, they won’t have “quality of life” left to justify health care cost.  Let them die!  Problem solved!

Anyway, the problem is not the fault of Social Security.  It’s our government.  Should the SS trustees be put in jail?  Probably.  Can we sue the government for stealing our money?  Probably not.  We would need the government’s permission to do that.

Posted by at April 20, 2013
Filed in category: Uncategorized,

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