This past month has been an insane one in the world of politics. The debate over the federal debt ceiling and spending finally came to a head in Washington and Congress spat out the most pathetic attempt at cutting spending I’ve ever seen: a budget plan that cuts $1 trillion over the next decade, coupled with a debt limit increase that will get the federal government into 2013 – past the next election cycle.
Now, a trillion dollars sounds like a lot of money, and it is, except when you’re talking about our budget deficit and accumulated federal debt. The Democrats and Republicans in Congress and the White House over the past decade have failed the American people when it comes to controlling spending. This latest deal is the cherry on the debt sundae: $100 billion cut a year over the next decade. This bill was passed at a time when our budget deficit for 2012 is forecasted at a stomach turning $1.65 trillion – more than the entire federal budget of 1997. To make things worse, that’s $1.65 trillion on top of the $14 trillion we’ve racked up over the past 175 years (1836 being the last year in which the federal government was debt free, under President Andrew Jackson).
(a quick primer if you’re confused by the terms: deficit is how far short income (taxes) falls short of spending (budget), while debt is the accumulation of deficits over the years).
So how does this relate to President Franklin Delano Roosevelt and how is he responsible for making America weak? Let’s take a look at some of the biggest items in the 2012 federal budget, shall we?
|2012 Budget||$3.7 trillion||100%||$32,425 per household|
|Health and Human Services||$1.2 trillion||32%||$10,516 per household|
|Social Security||$818 billion||22%||$7,168 per household|
|Department of Defense||$666 billion||18%||$5,836 per household|
|Interest on the public debt||$474 billion||13%||$4,153 per household|
The New York Time’s excellent infographic that breaks down the government’s spending also details how much that spending costs per American household. As you can see, more than half of the taxes that you pay go towards the government’s healthcare and retirement programs.
Fifty five percent of our federal budget comes from Social Security, Medicare, and Medicaid. Here’s where things become the fault of Roosevelt and the 74th United States Congress. In August 1935, Congress passed and Roosevelt signed the Social Security Act, which created a new federal agency tasked with the operation of a “social insurance” policy for the elderly.
Social Security was a reaction to the in excess of 50% poverty rate of the elderly during the Great Depression. It was a noble idea: make sure that this doesn’t happen again. But from the start the system was flawed.
While Social Security has long brought in more money than it paid out, the flow of money has always gone the wrong way – the working of today are paying for the retirements of today. Essentially, the money that you pay into Social Security today doesn’t go to your own retirement, it instead goes to the Social Security check of somebody who is currently retired (and the same happened back when they were paying into Social Security). If you’re thinking that this sounds like some sort of Ponzi scheme, then you’d be right – Social Security as it exists is in fact the largest Ponzi scheme in the history of scams.
Social Security was created a safety net for the elderly, in the event that their savings or pension fell through. The problem today is that it’s not a safety net – there are tens of millions of Americans that look at Social Security as their right, as how they’ll pay for their retirement (operating under the mistaken belief that they’ve “paid into it” through their working years).
It was America’s first massive entitlement program, but it wouldn’t be the last. The 1960s saw the creation of Medicaid and Medicare, two federal healthcare programs designed for low-income families and individuals and the elderly. Like Social Security, noble initiatives, but flawed in execution.
Programs like Social Security, Medicare, and Medicaid have helped millions upon millions of Americans over their existence. I won’t deny that. What I will deny is that they are good for the country in their current form. They’re supposed to be safety nets. Instead they’ve become spider webs. They’ve chipped away at what it means to be an American.
If you go to the National Archives in Washington, DC, you can go see the founding documents of the United States of America: the Declaration of Independence, the Constitution of the United States, and the Bill of Rights. They call them the Charters of Freedom. These documents call for such things as “life, liberty, and the pursuit of happiness”, the “right of the people to be secure … against unreasonable searches and seizures”, and the right to freely practice religion, speech, press, assembly, and petition. They all collectively were created to ensure the independence not just of the nation, but of the American people from the government.
Social Security was the first step in whittling away at that individual independence of the American people. Today we have successive generations with a sense of entitlement that demands more and more from their government when the government can’t afford it. Unfortunately, our government has been run for decades by politicians more concerned with their careers than what’s good for the nation. They’ve passed budget after budget with ballooning deficits. Ironically, the only time in the past several decades that we’ve had a budget surplus (where the government brought in more money than it spent) was under the budgets created under the administration of Bill Clinton’s second term as President. Ronald Reagan, George H.W. Bush, and George W. Bush all ran up deficits in the hundreds of billions (and trillions under Bush 43) of dollars.
The problem with Social Security is that it exists in perpetuity. It was an extraordinary solution created in response to an extraordinary problem. But even though we’re experiencing economic problems right now, they’re nowhere near the extraordinary levels faced in the 1930s. Instead we’re faced with an extraordinary governmental problem of an impending massive rise in Social Security and healthcare costs.
Which leads me to ask the question: why?
Why are my tax dollars contributing to somebody else’s retirement? Why is the government involved in retirement at all? How far should the government be reaching into our healthcare system?
Don’t get me wrong – I have to qualms with reasonable regulation. It’s regulation that makes sure airlines are safe to fly, cars are safe to drive, and food is safe to eat. Regulations exist to protect the people against problems the individual citizen is not able to address.
The answer to the above questions is complicated, but it all goes back to the idea of the independent American. The federal government has established minimum wage to be at $7.25 and hour, which at full time equals out to about $15,000 a year. That may not seem like a lot in a world where everybody expects to make $40,000 annually right out of school, but it’s enough to get by and still have some savings. In fact, according to the US Census, $40,00 is right around the average income for a single American.
The sense of entitlement among Americans is what has gotten us into massive financial trouble. We have a right to our freedoms, but that freedom only extends as far as your arms can reach, voice can be heard, and dollar can be spent. We have no right to the house of our dreams or that shiny new car or even a pack of cigarettes. We have to work for those things, which requires planning and saving. But thanks to the government’s programs there to catch us when we fall, we’ve come to not think far enough ahead past that next payment on the mortgage or the trip to Disney World. We don’t think about how much retirement is going to cost, because the government’s supposed to be there to take care of it.
Social Security has to end. But it can’t end overnight. Whether or not the government had the authority to create Social Security, it made a promise to current and future retirees that it would take care of them. We’re in deep enough trouble as it is – the last thing we need to do throw the populace over the edge and roll back any chance of fixing the problem.
Here’s my rough proposal. I’m no politician, nor am I any sort of financial whiz, but I can see a way out. It’s a graduated plan that phases out social security over the next several decades. It continues to take care of today’s retirees and gives current workers time to prepare for their own self-financed retirement.
Current life expectancy in the United States is 78.7 years. If life expectancy continues to increase at the same rate it has over the past several decades, by 2020 the average life expectancy will be 80, and by 2045, 85 years. That means that not only will more and more retirees be joining the ranks of Social Security recipients, they’ll also be collecting for longer. It’s an unaffordable future that must be changed.
Current retirees will continue to receive their current benefits plus applicable cost-of-living increases. The current average Social Security recipient receives $1,777 a month (that’s actually more than a full time worker on minimum wage). Future Social Security recipients will receive benefits (plus cost-of-living increases) based on the year they first start receiving benefits. The table below lays out the target average payment for that year’s new recipients.
|year of retirement||2015||2020||2025||2030||2035||2040||2045||2050|
|life expectancy||79 years||80 years||81 years||82 years||83 years||84 years||85 years||86 years|
|monthly Social Security payment||$1,777||$1,600||$1,400||$1,200||$1,000||$800||$600||$0|
|years to retirement||4||9||14||19||24||29||34||39|
|required annual savings||$0||$3,068||$4,524||$5,466||$6,216||$6,872||$,7477||$10,388|
The idea is to slowly phase out Social Security over the course of the next 50 years. That gives today’s workers plenty of time to save for their retirement. Will it mean that retirement won’t be as comfortable for some as it is now? Yes, it will. It’s a tough pill to swallow, but it’s required medicine. Phasing out social security will greatly diminish federal spending (especially given the swelling ranks of retirees) and force more independence on the part of Americans. It will also require the average American to save considerably more for their retirement to make up the difference.
The savings requirement is the reason that Social Security cannot just be turned off like faucet. Working Americans will have to start saving immediately for their retirement, lest they stop working and have no savings to live off of. Personally, I believe that you should be saving for your retirement and not counting on the existence of Social Security. If you’re working and you’re not saving for your retirement, you’re a fool.
Spending discipline is something missing from both the federal government and the American individual. Living within our means doesn’t mean anything any more, and it’s time we correct that before it’s too late – assuming it’s not already. We as a nation have to face the fact that we can’t have the house, the boat, and the car. Heck, if you can’t afford it, you probably shouldn’t have kids either (that’s a rant for another day).
My retirement is not the government’s responsibility, and it shouldn’t be.
NPR: Obama Signs Bill To Raise Debt Ceiling
ABC News: Obama Unveils $3.73 Trillion Budget for 2012
Bloomberg: Obama’s 2012 Budget Underestimates Federal Deficits, CBO Says
NPR: When The U.S. Paid Off The Entire National Debt (And Why It Didn’t Last)
New York Times: Obama’s 2012 Budget Proposal: How $3.7 Trillion is Spent
Social Security Administration: History
CNN Money: How does Social Security work?
The National Archives: Rotunda for the Charters of Freedom
Congressional Budget Office: Historical Data on the Federal Debt
United States Census: Personal Income 25 or Older, 2005
Central Intelligence Agency: Life Expectancy at Birth
Social Security Administration: Average monthly Social Security benefit for a retired worker