Brushing Up On Social Security

"The Old-Age and Survivors Insurance (OASI) Trust Fund, which pays retirement and survivors benefits, will be able to pay scheduled benefits on a timely basis until 2034, one year later than reported last year. At that time, the fund's reserves will become depleted and continuing tax income will be sufficient to pay 77 percent of scheduled benefits." - From the 2022 Social Security Board of Trustees' Annual Report.

The above conclusion from the 2022 Trustees' report & the information presented in the graph above from the 2000 Trustees' report show remarkable consistency in the Trustees' calculations - the Social Security Trust Fund was projected on the graph to pay 72% of scheduled benefits after 2037, with further reduction after that, & the 2022 report makes the numbers 77% of scheduled benefits after 2034.

The Medicare Trustees' 2022 report determined the Hospital Insurance (HI) Trust Fund will be able to pay scheduled benefits until 2028, afterwhich "the fund's reserves will become depleted & continuing total income will be sufficient to pay 90% of total scheduled benefits."

The Supplemental Medical Insurance (SMI) Trust Fund (i.e., Medicare Part B - doctors & non physician medical services) is paid for mainly by general tax revenues collected by the U.S. Treasury.  Part B is also financially supported by a monthly premium, paid by recipients, that covers about 25% of the program's costs plus an annual deductible & 20% copayments.  As per this formula the Trustees warn that "SMI will place steadily increasing demands on both taxpayers and beneficiaries" like the 14.6% increase in Medicare Part B premiums this year from $148.50 to $170.10 per month.

Through 2021 the above type of information regarding Social Security reducing scheduled benefits in the not too distant future was found on page 2 in bold print on the document entitled "Your Social Security Statement" (available to everyone online & mailed to people over 60 who do not have an online account).  

As of June 1, 2022 the Social Security administration "redesigned the Statement to make it easier for you to read & find the information you need!" except of course for the warning of the impending shortfall of benefits - that is now euphemistically mentioned with a link not prominently displayed  that tells the real shortfall message.

Clicking on the link starts by letting you know there may be a problem.  See below.

And ends by defining the problem like the old statements used to in bold.

Despite the general feeling that people have, that they know what they are doing regarding Social Security, I have never met one person @ any of my FairTax seminars or radio programs I have been on, including the program hosts, who were aware of the Trust Fund's pending exhaustion & the program's subsequent reduction in benefits. 

A June 2021 Harris poll found that a significant lack of knowledge about Social Security carried over into just about every aspect of the program.

For instance, 53% of those surveyed believed they knew exactly how to maximize their Social Security benefits yet only 7% correctly identified all four of the factors that determine the maximum Social Security benefit someone can receive - factors they had control over during their working life & not factors like life expectancy that nearly one fifth of respondents thought was one of these factors.

The poll also found poor knowledge & misconceptions among those participating in a series of true-false statements presented as follows:

1.  You cannot sign up for Medicare unless you are enrolled in Social Security.

2.  Your income does not impact how much you are charged for Medicare.

3.  Somebody who makes $150,000 (per year) pays as much in Social Security taxes as millionaires.

4.  If I claim benefits early, my benefits will go up automatically when reaching full retirement age.

5.  If I don't work for @ least 35 years, my Social Security benefits will be reduced.

6.  Social Security offers guaranteed income for life.

And I add four of my own favorite true-false statements: 

A.  During your working life your employer pays half of your Social Security taxes.

B.  There is a legal connection between FICA taxes & benefits.

C.  Both workers & retirees have no legal claim to benefits, regardless of how much in taxes they have paid into the system.

D.  Just like the current system, privatized personal accounts, where a portion of FICA taxes are invested in the stock market, will result in a person having an actual account with their name on it for retirement & also will have the ability to leave these assets to their heirs.

Social Security, Medicare, & Medicaid (now with 95 million Americans enrolled) make up the cornerstone of the American welfare state.  Two thirds of seniors depend on Social Security as the main source of their income & for one in five it is the only source of income.  Without Social Security half of all seniors would be living in poverty.

The graph below shows the skewing of the ratio of taxable earnings to benefits in favor of low earners compared to high earners.  For instance, using the numbers from the graph below the maximum earner annually pays 5.37 times ($17,707 versus $3,296) more in Social Security taxes than the low earner but receives only 2.67 times more in benefits ($34,180 versus $12,825).

But the above table & calculation are only part of the real life story of uneven results from person to person.  "Social Security transfers income from people with low life expectancies to people with high life expectancies, from single workers & from married couples with substantial earnings by the secondary earner to married one earner couples, & from people who work for more than 35 years to those who concentrate their earnings in 35 or fewer years."  Source - NBER Working Paper Series, Redistribution In The Current U.S. Social Security System, by Jeffrey B. Liebman, dated December 1, 2001.

With regard to the life expectancy point from the above NBER report I knew a man who paid the maximum Social Security tax every year of his life & died less than one month before his 62nd birthday thereby not collecting one cent from Social Security himself.  His wife collected a survivor benefit & lived to be 93.  Had the man been single all of the potential benefits would have been lost.  These are the uneven situations of life the formula cannot account for.

Nevertheless, FDR's intent when he signed the Social Security Act of 1935 into law on August 14, 1935 was clear - life expectancy was 64 years meaning that someone in their twenties, thirties, or forties who originally paid into the system to help the elderly would actuarially not live to collect any benefits themselves @ age 65.  This not only takes the term "Ponzi Scheme" to another level but shows the fraudulent premise this government program was founded upon.

Because the Social Security benefit formula replaces a greater fraction of the lifetime earnings of low earners than of high earners, Social Security is considered progressive regarding benefit payouts.  It is regressive regarding the payroll tax. 

The following graph shows how someone's monthly benefit is determined using bend points (90%, 32%, & 15%) per the formula once the Average Indexed Monthly Earnings (i.e., average inflation-adjusted monthly wage over a lifetime in today's dollars) are known.  The decreasing slope of each line on the graph illustrates the progressivity of Social Security benefits.  

For instance the benefit for someone with an Average Indexed Monthly Earnings of $6,172 is determined by taking 90% of $1,024 ($921.60) & adding 32% of the difference between $6172 & $1,024 ($1,647.36) = $2,569 per month.  See left side of graph.

There are many suggestions regarding shoring up Social Security's solvency such as raising the full retirement age & the early eligibility age & basing both on 38 years of earnings rather than the current 35, increasing the payroll tax, raising the payroll tax cap, allowing participation in private accounts, & slowing the cost of livings adjustments especially for high earners.

All of these types of suggestions only tinker around the edges of the solvency problem so that they will have to be reimplemented again in the future.

I have presented, on this blog, the permanent long term solution to Social Security's solvency problem several times over the past ten & one half years - namely replacing the average real wage index with the cost of living index (CPI) in the determination of someone's Primary Insurance Amount

(i.e., a person's monthly benefit @ their Full Retirement Age) & phasing it in after ten years without affecting any current recipient of benefits or anyone 55 or over.  This solution was first presented by Susan Lee in November, 2004 & confirmed by Amity Shlaes in November, 2007.

Social Security currently makes up almost 25% of federal spending so it is important for a well informed citizenry to understand it as the number of workers decreases, the number of beneficiaries increases, & benefits increase faster than the cost of living.  

Thanks to a frequent contributor to RTE for sending me this video entitled Social Security Facts.  Readers of this blog should know most of the information but it is a good recap despite having three errors that I found.  I'd be interested to see if anyone picks them up.  Let me know.

If you did not know about the pending Trust Fund shortfall, any of the ways to maximize Social Security benefits, some of the above true-false statements, how to calculate your benefit, or what happens to your benefit if you do not have 35 years of earnings, it is time to brush up, if not for yourself, then to help a friend, an adult child, or grandchild who has plenty of time to plan to avoid bad mistakes & maximize the program's benefits.

French President Emmanuel Macron, referring to France's labor problem, summed up our Social Security solvency problem when he said "We have a strength, which is our social & educational model, & a weakness is that we no longer have the productive model which makes it possible to finance it."

A New Birth Of Freedom Is Needed To Reverse The Progressive Administrative State

"This was the object of the Declaration of Independence.  Not to find out new principles, or new arguments, never before thought of, not merely to say things which had never been said before; but to place before mankind the common sense of the subject, in terms so plain & firm as to command their assent, & to justify ourselves in the independent stand we are compelled to take." - Thomas Jefferson, Letter to Henry Lee, May 8, 1825

***

The Declaration of Independence is a document about ultimate purposes, what is called in classical philosophy final causes - the things we seek above all others, the things we would die for, & that is why the 56 delegates to the Second Continental Congress signed that they  "mutually pledge to each other our Lives, our Fortunes, & our sacred Honor."

The Declaration is divided into three parts: 1) a statement of universal & timeless principles, 2) a list of 27 "Oppressions" committed by King George III of England, such abuses forming "a History of repeated Injuries & Usurpations, all having in direct Object the Establishment of an absolute Tyranny over these States," & 3) the conclusion "That these United Colonies are, & of Right ought to be, Free & Independent States; that they are absolved from all Allegiance to the British Crown, & that all political Connection between them & the State of Great-Britain, is & ought to be totally dissolved." 

The Constitution, written eleven years after the Declaration of Independence, expresses the formal cause, or form of government based on the timeless principles of the Declaration.  These two documents establish the formal & final causes of the United States & make possible the freedom that is the birthright of all Americans.

The country was founded on the principles of limited government, personal responsibility, & free enterprise.  The Founders held "these Truths to be self-evident, that all men are created equal, that they are endowed by their Creator with certain unalienable Rights, that among these are Life, Liberty, & the Pursuit of Happiness." 

And "to secure these Rights, Governments are instituted among Men."   

"We the People" of "the thirteen United States of America" envisioned a government that was not only seen as "deriving their just Powers from the Consent of the Governed" but was going to be specifically designed & intended to protect Man's individual rights - the natural rights people had in the state of nature due to their humanity.  

In forming the social compact of government, our forefathers were not going to surrender their individual rights in favor of government protection (allegiance - protection arrangement) but rather were envisioning a government whose only proper moral purpose was to protect man's rights to his own life, & his own property while protecting him from physical violence better than he could protect these rights alone in a state of nature.  Accordingly, protection of individual rights is the only proper subject of legislation.

As the federal government was formed individual natural rights expanded to include fundamental civil rights, or rights of citizenship, that were defined by positive law such as the right to vote, the right to sit on a jury, the right to hold office, the right to a fair trial, the right to government services like fire & police protection, the right to use public facilities like churches, hospitals, & police stations, the right to travel from state to state, the right to make & enforce contracts, & the right to purchase, inherit, lease, sell, hold, & convey real & personal property.

Ayn Rand called the United States "the first moral society in history."  And it remains the richest, most prosperous country in history because the government "instituted among Men'' placed the power of the people superior to any power of the government.  Free enterprise capitalism pulled more people out of poverty that any other system ever devised. Just try to name another.

You can't beat it - but you can abuse it, not appreciate it, & take it for granted 246 years after its founding.

As early as 1860 Progressive theories to reject the principles of the Declaration of Independence & the Constitution began.  Progressivism was not a homegrown political theory, but one imported from Germany where many early American progressives studied.  Johns Hopkins University in Baltimore was founded in 1876 to bring the German progressive educational model to the United States.

The Germans taught that a "living Constitution" is needed to understand the political theory of organic life.

The Progressives thought there was no principled limit to government & their idea of a "living Constitution" paved the way for government to determine the rights & liberties of individuals, not "their Creator."  Social expediency, determined by the government, would control & decide the sphere of individual freedom of action.

Early Progressives like TR & Woodrow Wilson knew there was little difference, if any, between Progressivism & Socialism.  Wilson explained that Socialists would bring about their ideal society faster through revolution, while Progressives sought to do it incrementally.

Social Insurance programs trace back to Germany in the late 1880s when Chancellor Otto von Bismarck implemented his Prussian Plan to provide retirement benefits & other benefits to German workers.  Bismarck's plan was the basis of TR introducing in 1912 a platform calling for national health insurance for industry which in turn led to FDR getting his idea for Social Security & universal single payer healthcare being  part of the New Deal.

The change from liberty to government dependence under the New Deal is based upon the ideas of Woodrow Wilson & TR.  Thus, the more than 50% socialist government we have today in America is wrought by the political theory of the Progressives & their rejection of the principles of our founding documents - the Declaration of Independence & the Constitution.

Specifically, Progressives believed that modern life in the first half of the 20th century gave rise to problems that were too complex for the principles of the American founding or the structure of the limited government established by the Constitution with all its checks & balances.

Progressives believed that the ends of government change over time & they did not want to take the time to amend the Constitution.  It was far easier to just work around it.  Progressives felt that the government was becoming less of a danger to the governed & better able than the individual to solve society's problems.

But the Constitution is not the law that governs us, it is the law that governs those who govern us.  Temporary politicians should not be able to change the meaning of the law that governs them without going through the Amendment process any more than you & I should be able to change the laws that they make that govern us without going through the legislative process.

Progressivism deteriorated further into an administrative state as citizens lost more & more contact with their elected representatives when the legislative branch was reorganized (Legislative Reorganization Act of 1946) to make congressional oversight of the bureaucracies they created - IRS, EPA, FDA, CDC, & the Fed as a very few examples - a main function of Congress.  

Accordingly, as congress's role changed so did that of the President who was now seen as a visionary rather than the enforcer of laws as an  Article II executive.  For instance, Biden's woke vision is one of implementation of AOC's crippling Green New Deal, adding tens of thousands of potential Democrat voters by ignoring immigration law while letting the poorest, lowest skilled, least educated people flood across our southwest border to receive government services & welfare, degradation of race relations by supporting Critical Race Theory & Black Lives Matter, & restorative justice that focuses on rehabilitation of criminals through reconciliation with horrified victims.  Biden & Harris clearly demonstrate that they are uninterested in carrying out the basic functions of Article II like protecting our southwest border & protecting the sovereignty of the United States - this is a Progressive tenet of the administrative state.

The priorities of the government were inverted by this administrative state that was founded on the idea it was best for people who were unbiased, scientific, & had technical expertise above that of the elected representatives to make policy.  In short, it was thought that a committee of people like Issac Newton, Frederic Bastiat, & Albert Einstein should head every issue undertaken & Congress would merely oversee the committee's work & the President would be free to envision an even brighter future since theoretically nothing could go wrong.

The reality is that the modern administrative state is far different & of course was anti-constitutional from the start & really returns the country to pre-constitutional government.  Laws are made by the agencies created by Congress & many get down to minute details trying to control people's lives like the amount of water that can be used in our washing machines & dishwashers, the content of light bulbs, & the composition of gas can spouts.  EPA & OSHA inspectors can show up @ businesses without a warrant for an inspection.  And instead of people in positions of power having high technical expertise many have poor credentials for their assigned work like people without professional engineering licenses overseeing wetlands regulations.

In practice the administrative state has created an oligarchy managed by an elite class of administrators who are distinct from ordinary Americans.

The two biggest problems the country has faced the past two & one half years are the Wuhan coronavirus pandemic & the highest inflation in the past 40 years.

Anthony Fauci, Director of the National Institute of Allergy & Infectious Diseases, has been the perfect example of what the administrative state produces to solve problems.  Fauci has been wrong more than he has been right with orders to wear masks & then not wear masks &/or to stand six feet apart before saying this is not important.  With all of his wrong information no one has ever suggested he step down or be fired.  On the contrary, @ 81 years old he is the highest paid federal government employee & still going strong.

As far as the inflation problem, both Biden & Congress have washed their hands of working on any meaningful solution after being the cause of the problem to begin with.  Biden says he is relying on Fed Chairman Jerome Powell to bring down inflation & Congress dutifully holds oversight hearings with Powell, questioning him as if they had nothing to do with the problem.  Powell is not an economist - he is an attorney with a degree in politics from Princeton.  No one asked for the inflation problem or the solution from an opaque institution that most people know absolutely nothing about - yet it is about to bring on a recession that throws millions of people out of work.

Check out the deterioration of the currency of the republic after the enactment of the Legislative Reorganization Act of 1946 with the stability of the price level under the gold standard from 1800 to 1946.

 click on graph to enlarge

As shown above citizens today are deprived of the legal protections of constitutional government & are subject to the arbitrary will of unelected elites who operate in an insular manner in an administrative state resembling absolute monarchs.  Our lives are affected by presidents who have pens & phones used to issue executive orders instead of going through the legislative process.  And activist courts have been used to make laws when the ballot box didn't work - until recently.

But last month the Supreme Court issued four decisions based on the Constitution & oh what a difference it makes not just in the result but the constitutional reasoning used to arrive @ the result.  Please note the Supreme Court was not making law in these decisions but rather was saying that the decisions reflected the correct constitutional interpretation for the issues raised in the cases presented.  The losing parties are free to rewrite the affected laws or amend the Constitution to gain their desired result, instead of the lawless Progressive methods of bureaucratic administrative state authoritative or arbitrary orders to advance their agendas. 

Rather than find a right to abortion, like the 1973 Supreme Court did relying on implications to the Due Process clause of the 14th Amendment & the Griswold v. Connecticut case of 1965, that found a non existent constitutional right to privacy in the "penumbras, formed by emanations" in the Bill of Rights that was extended to a right to abortion by the 1973 Supreme court, our current Supreme Court found that there is no constitutional right to abortion since the topic was not mentioned in the text of the Constitution & states were well on their way to outlawing abortion when the 14th Amendment was ratified in 1868.    A state by state review was included in the current Court decision.  In short, Roe passed an activist 1973 Supreme Court based on penumbras (partially shaded outer regions of the shadow cast by an opaque object) & emanations (an abstract but perceptible thing that issues or originates from a source) to a right that doesn't exist - & 50 million lives were lost.  It is no wonder that Justice Antonin Scalia called this reasoning "garbage."

In the West Virginia v. EPA case the high Court found that the EPA (part of the Executive branch) overstepped its authority by issuing coal-fired power plant regulations that were a "transformative expansion" of its power.  Chief Justice John Roberts wrote "A decision of such magnitude & consequence rests with Congress itself, or an agency acting pursuant to a clear delegation from the representative body."  The EPA had planned to put in place regulations that included how much electricity you could use in your own home.

I have received comments recently about our elected representatives hiding from the line of duty & the above EPA case makes me wonder why there was no complaint of an encroachment of power on Congress by Congress - our elected representatives who, in times of trouble, prefer not to be seen or thought of.

The Supreme Court also found that Bremerton High School in Washington state could not prohibit "the free exercise" of religion of their football coach kneeling in prayer @ midfield after games, & that the right of the people of New York to bear arms "shall not be infringed."

And, on another matter of current interest, Mike Pence did not have the authority to return certified ballot lists from electors from any state - Pence's only function on January 6, 2021 was to open certified state election results & have them counted in the presence of Congress.

So as we celebrate the founding of our country in the year 2022 & of the independence of the United States of America the two hundred forty seventh, it is best to realize the Progressive onslaught described above that has been turning the country incrementally, for over 100 years, from a growth & liberty nation to a welfare state.  Handing the Democrats the presidency & both chambers of Congress in 2020 has come within a whisker of one vote here or there, by Joe Manchin or Kyrsten Sinema, from tipping the bucket over to run dry.

When I hear conservative pundits on TV gleefully say that we are going to have a red wave in the midterms to take our country back I always think how I would like to ask them why they thought we lost the country so that we need a red wave to take it back.  There is no debate on the conservative side - just presentation of one-sided talking points & laughing @ the Democrat opposition including Biden & Harris.

Last month five associate justices, & the Chief Justice of the Supreme Court shined the light on the courage it takes to make the difference to return to excellence.

"Freedom is never more than one generation away from extinction."  It will take a Herculean effort from all of us, not just justices on the Supreme Court, to ensure "that this nation, under God, shall have a new birth of freedom, & that government of the people, by the people, for the people, shall not perish from the earth."