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Tuesday, March 01, 2005

Social Security has a Goal

If you haven’t been inundated by information about Social Security, then you are either dead or simply disconnected from the word – in which case you aren’t reading this, either. Although my voice in this matter is small, I do believe I have an obligation to address the matter. At least, I have the inclination.
So, let’s start by understanding that Social Security is a jobs program. It benefits society by allowing a continual, controlled turnover of jobs from an aging generation to a younger one. It does this, primarily, by enticing older people to give up their jobs in favor of a monthly benefit check – it lets them retire. The benefit of this to the recipients should be obvious. They get to continue drawing a “paycheck” without really having to go to work for it.
Social Security is often explained as a burden on the backs of working people. Actually, it was designed to help them – and it still does. What happens when an older worker leaves is a younger person is hired to take that position. This younger person is likely to have a family and the income will be of great benefit to them. In return, these workers pay a tax on their pay check that is disbursed among retirees.
Social Security is also said to be hurting employers. In reality, Social Security taxes employers to capture some of the difference in pay between the retiring worker and the younger one. This means that, even with the tax, the business is paying less for the same work than they would if they had kept the older worker. The system, as designed, benefits the retiree, the worker, and the employee. The system benefits the whole community by making it stronger, or more secure, than it would be otherwise.
Somehow this goal, and the system that supports it, have been forgotten. Instead we are offered a get-rich-quick-at-no-cost plan. My brother has a term for such ideas, but I’m trying to keep this blog PG-13 or lower. Let’s just agree that there’s no such thing as a free lunch.
Current projections say that we will soon reach a day when it takes two workers to support the benefits of one retiree. Using various mathematical formulas, this is calculated to produce doomsday scenarios. It’s helpful to remember that doomsday predictions are generally wrong.
Let’s say that today three workers earn $50,000 each. At the current rate of 7.5% combined payroll tax that means that each contributes $3,750 per year. After doubling by the employers the retiree receives $22,500 per year. Twenty years from now, there will only be two workers, who, if they are still only making $50,000 and taxes remain the same will cut benefits to the retiree to only $15,000. To get the same $22.5K, the workers would have to contribute $5,625 each, or slightly more than ten percent of their wages. These are the doomsday scenarios – more tax or less benefit.
However, if those workers are making $80,000 each it isn’t so dreary. At the same rate of taxation, each worker would contribute $6,000 in tax and, after matched by the employers, the retiree would get $24,000. Everyone pays more tax dollars, but they are still left with more money than before. The question is: are they better off?
That can only be answered by figuring in inflation and higher wages are claimed to cause inflation. This is true. But the extra wages are averaged across every item the employer sells, so inflation (at least the part due to wages) will always be less than the increase in wages. If inflation outpaces wages, it is because of other reasons.
The real question then is: will wages rise enough to outpace inflation and beat the demographic changes of society? No one really knows for certain, and anyone who claims they do is either lying or an economist (which is a liar with a college degree). The fact is that they can – but only if further policy areas (trade, employment, health insurance, etc.) are aligned with the goals of social security.
Doing so will require a vision where each individual is held to be a worthy and honorable member of society. This means that the rampant individualism of the right will have to come face to face with the reality that it is ultimately set at the destruction of society. The only way such a shift in public perception can occur is if a competing view of the world is offered. In case you’ve missed the point of this blog, I believe there is one – and you’re a part of it.
Here’s an experiment: print this out and mail it to your Congressman and Senators. If that’s too much trouble, use the US House and US Senate links to find their email addresses and email this article to them. Let’s see how quickly we can get these words out of the mouths of our representatives.

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