Barack Obama is showing signs that he may have finally learned that since the Republicans have taken control of the House of Representatives his days of “having his cake and eating it to” are over.
He was able to manipulate the 111th congress to force his PPACA on America but he is not able to manipulate the 113th congress as easily.
In his most recent budget proposal he proposes a change in the way that cost-of-living increases are calculated for Social Security. Although I understand that what he proposes is not popular among the politicians in his own party, I appreciate his forward thinking.
I saw this graphic on Facebook this morning from a “friend” who seldom posts anything political.
I appreciate his anger but there are a couple of things he does not understand.
In this post I want to try to clarify some misunderstandings about Social Security.
“WE PAY FOR THIS”
Many Americans do not have a full understanding of how Social Security works. Social Security is technically an “inter-generational transfer of wealth.”
During your working years, your payroll taxes for Social Security are not used to buy insurance or put into a savings plan for you. That money is used to pay benefits for your parents and those who get Social Security Disability benefits.
The benefits for Baby Boomers will be paid by members of Generations X and Y. In turn, their children will pay for their benefits.
Maybe it would be easier to think of Social Security as a legal Ponzi scheme. The federal government actually does nothing to earn money. It uses the taxes from one generation to pay benefits to the prior generation.
The scheme will work provided each succeeding generation is larger than the previous one. Unfortunately, that did not happen. The Baby Boom generation is larger than Generation X.
As members of the Baby Boom generation leave the labor force and start drawing Social Security (called the “Silver Tsunami”) more money will be required from the younger generations to pay our Social Security and Medicare payments.
IT IS NOT AN ENTITLEMENT
I understand, and agree, that a person who has been made to pay into a governmental program his entire career would believe that he has earned the right to benefits.
Unfortunately, that is not the way the government sees things.
By definition Social Security is an “Entitlement.” The benefits you get are not guaranteed. They are an expression of the grace that is bestowed by the federal government. They can change the rules anytime they want to spend the time and effort to get enough members of congress.
IT HAS NOTHING TO DO WITH THE DEFICIT
Technically, this is also a false statement. Your contributions to Social Security are made in the form of a payroll tax during your working years.
As a tax, your money is not placed into an account that is held in trust for you. That money is placed into a division of the treasury of the United States called the, “Social Security Trust.”
Money is then paid out to current beneficiaries from that trust. Once the trust is gone, no more benefits will be paid.
As an asset of the United States, the Social Security Trust can be used as collateral when our country borrows from another country. In return, if the United States defaults on a loan, the money in the Social Security Trust can be seized.
The idea that Social Security is not part of the national deficit is ridiculous. This statement shows that this graphic was made by someone who was thinking with his heart and not his head.
Social Security is both an asset and liability of the United States. The benefit that is paid out of the treasury of the United States is one of the largest liabilities in the budget.
Although I know that it is painful and unpopular for the government to make adjustments to Social Security, adjustments need to be made to benefits for Baby Boomers or there will be no Social Security program for our kids.
REMEMBER SOCIAL SECURITY HISTORY
It might help to remember why Social Security was developed in the first place. The program was developed during The Great Depression to guarantee a “safety-net” to people who lived longer than expected.
Since that time, advances in medicine have enabled humans to live longer lives but there has been no corresponding increase in the Social Security eligibility age until recently.
The result is that more people than was originally intended, are draining the Trust Fund for a longer period of time. That trend will only get worse as the Baby Boomers retire.
In addition, it would be helpful to remember that Social Security was designed to be only a supplement for a person’s “retirement” savings.
Unfortunately, Social Security has morphed since 1935 to be the primary source of funds for people during retirement.
As defined benefit pension plans were replaced with 401k systems in the 1980s, many Americans failed to make plans for their future. Now that they are approaching retirement, they are looking for the government to take care of them.
No matter how loud people scream or how noble the intentions are of our elected politicians, when the Trust Fund has to pay out more than it is taking in, it has to make adjustments or shut down.
I work with Baby Boomers every day. I understand the financial risks they face and what is causing them. I also empathize with their concerns over Social Security and Medicare.
However, on this issue, I do agree with the proposal that President Obama has made. He has not proposed drastic changes to Social Security. His proposal is merely to change the way that cost of living increases are calculated and slow the growth of the program.
President Obama’s proposal will not save the Social Security system on its own. It will just delay the inevitable. A future president and congress will need to make drastic changes to Social Security or the program will go bankrupt when the entire Baby Boom generation is making claims against it.