Its A New Year – Time to Change

Everyone talks about New Years resolutions in terms of personal goals. Nothing wrong with that, but there are some national challenges that require changes to be made. Just like weight gain, year after year, problems ignored become greater problems to resolve in the future. Here’s one that needs some serious attention. Stat!

Social Security & Disability


President Roosevelt signs Social Security act into law 1935 – Getty Images

Monthly Social Security and Supplemental Security Income (SSI) benefits for more than 65 million Americans will increase 0.3 percent in 2017.

The 0.3 percent cost-of-living adjustment (COLA) will begin with benefits payable to more than 60 million Social Security beneficiaries in January 2017. Increased payments to more than 8 million SSI beneficiaries will begin on December 30, 2016. ~ Social Security Administration

COLA (Cost Of Living Adjustment) has been as high as 14.3% in 1980, and as low as 0% in 2016.

The 2016 Social Security Trustees report shows a continuing trend toward insolvency of both of its trust funds. The Trustees estimate that Social Security’s combined retirement and disability trust funds will become exhausted in 2037. This means that Social Security’s day of financial reckoning is now less than 20 years away. Social Security faces severe, urgent financial challenges that policymakers must soon address if the program is to remain viable for the most vulnerable in our society.

In fact, the Social Security crisis is not only real; it is already upon us. The trustees now estimate that the 75-year financial shortfall for the combined trust funds is $11.4 trillion in present-value terms. If we indefinitely extend past the 75-year period, the so-called “infinite horizon,” the shortfall is a whopping $32.1 trillion. For comparison, our nation’s gross domestic product is slightly over $18 trillion – and our gross national debt (not including unfunded liabilities) is almost $20 trillion.

There are two separate trust funds: one for the retirement program (the Old Age and Survivors Insurance, or “OASI”), and one for the disability program (the Disability Insurance, or “DI”). For the retirement program, the Trustees estimate that the trust fund can continue to pay full benefits until 2035, at which point the program will only be able to pay about three-fourths of scheduled benefits. For the disability program, the Trustees estimate the program will hit insolvency less than a decade from now, in 2023.

What Are the Problems in Funding Social Security?

The problem for this fund wasn’t inevitable as some would like to have us believe. The problem stems primarily from the way it has been administered and used as a fund to help offset deficit spending by augmenting the general fund with FICA collections in excess of what was needed for prior years.

Beer summit brings together arrestor & arrestee

We can have meaningless gestures of goodwill or work on real problems.

Social Security isn’t administered like an individual private investment. Rather than save individual payments for future payout, the fund is a real-time pay as you go, and hope that somehow or someway, future policy makers will address the fundamental flaws. The most obvious is the found in actuarial tables. If you use the present group of workers to pay for the retired workers, there should be more wage earners than retirees to keep the cash flowing. Life insurance companies determine their ability to make a profit from collecting premiums and paying out benefits using these tables. In summary, the factors for how many will live to retirement, and how many will contribute is largely based on live births, and how healthy the general population remains.

We’ve seen the U.S. population grow substantially after WWII, but dwindle with a greater acceptance of contraceptives, abortions, and postponement of pregnancies. Overall this means fewer people are in the group of wage earners for a large group of people who are entering retirement.

Since the 1990’s. we’ve also seen a decline in real wages for many while observing an increase in the income and holdings for a smaller percentage of the population. In addition, those who are now actively in the job market has declined over the past several years. All of this leaves a declining revenue tax base for Social Security. Currently (2017) these are the rules for funds collected.

  • Social Security (Old-Age, Survivors, and Disability Insurance)
    Employers and Employees, each          6.20%
    Medicare (Hospital Insurance)
    Employers and Employees, each a,b    1.45%
    Maximum Taxable Earnings (dollars)
    Social Security $ 127,200
  • Medicare (Hospital Insurance) No limit
    Self-employed persons pay a total of 15.3 percent — 12.4 percent for OASDI and 2.9 percent for Medicare.
    This rate does not reflect the additional 0.9 percent in Medicare taxes certain high-income taxpayers are required to pay.
    ~ See IRS information on this topic.

What Should Be Done

pew-research-asocial-securityThe only bipartisan agreement that has been announced up to this point is, ‘something should be done’. After that, there’s not been anything done to alter the course we’re on.

During one debate, former Republican presidential candidate Rick Perry described Social Security as a “Ponzi scheme.” Interestingly, Perry has been picked to become head of the Department of Energy. A department which he couldn’t name in a debate, but said it needed to be eliminated. Perry does typify one of the many people who misunderstand that Social Security is neither illegal, a scheme, or a wily trick by Democrats to gain a greater voter demographic.

Here are some of the ideas which have been discussed.

  • Change the taxation of earnings
  • Change the benefit formula
  • Increase Benefits for low earners
  • Raise the full retirement age
  • Reduce cost of living adjustments

See this chart to examine the effects of each bullet item.

The last bullet item has been addressed over the past decade; COLA has severely declined. Increasing benefits for low wage earners may be a desirable goal, but it will have the opposite effect on aiding the fund. Changing the benefit formula is another way of saying, pay less benefits. Changing the taxation level may make some sense for those earning in excess of $127,000. A false narrative circulates that says people don’t pay anything if they earn above a specified threshold. This is incorrect.

Who Pays for Social Security?

Examples: Jon Smith makes $50,000 in 2015, and Jane Doe makes $120,000 for the year. Jon pays $3,100 for Social Security (6.2 percent of $50,000) and $725 for Medicare (1.45 percent of $50,000) for a total of $3,825 for the year. His employer pays an identical amount. Jane pays $7,049 for Social Security (6.2 percent of the 2013 maximum wage base of $113,700) and $1,740 for Medicare (1.45 percent of $120,000 salary), for a total of $8,789 for 2013. Her employer pays the same.

For more information, see: National Academy of Social Insurance

Where Do We Go From Here?

Donald Trump smiling in front of flag

President-elect Trump  policies on Social Security?

Some things are obvious. The math says we’re in trouble and like an oncoming train, it’s avoidable. Doing nothing just ‘kicks the can down the street’, making it become a larger and more difficult problem to solve in the relatively near future. We’ve had multiple administrations (Republican & Democrat) that have done nothing to alleviate the problem.

Those who hold office, don’t see it as any more of a problem than how to keep people voting for them. I seriously doubt Donald Trump recognizes the plight it puts people in, because he’s a billionaire and wealthy people have a tendency to think there’s no reason anyone should rely on Social Security.

Some people claim it’s just another government dependency program. The truth is, government has been collecting specific taxes from workers for decades and has become dependent on this fund to solve general fund shortfalls.

This problem won’t go away on its own and up to this point has only been made worse through a misguided belief, because we’re a large and prosperous nation, someone will auto-magically pay for it.  All politics aside, we will pay a much larger price tomorrow for something we can solve on a smaller scale today.

Congress: Leadership Members’ Salary (2016) – $174,000

Leaders of the House and Senate are paid a higher salary than rank-and-file members.

Senate Leadership

Majority Party Leader – $193,400
Minority Party Leader – $193,400

House Leadership

Speaker of the House – $223,500
Majority Leader – $193,400
Minority Leader – $193,400

Pay Increases

Members of Congress are eligible to receive the same annual cost-of-living increase given to other federal employees, if any. The raise takes effect automatically on January 1 of each year unless Congress, through passage of a joint resolution, votes to decline it, as Congress has done since 2009. The increase for Federal employees in 2017 is 1.3%