Alternative Insight

The Social Security Debacle



The Social Security debacle arises from the failure to recognize that the present system had built-in-problems from the start and no patch work can repair it. With corporations deserting their original pension commitments and the U.S. government's Pension Guaranty Corporation rescuing the failures, with the stock market stagnating and investment going strongly into U.S. government bonds (at least for now), it is obvious that America's citizens are depending upon their government for an assured income. So, why not admit that the only Old Age and Survivors Insurance (OASI) plan that will work is a national pension plan? It's almost equivalent to what American retirees have now.

Social Security's Built-in-Failures
From the day of its first payment, check number 00-000-001, issued to Ida May Fuller in the amount of $22.54 and dated January 31,1940, Social Security obligated itself to pay benefits that exceeded the contributions from the earliest retirees. The increase in life expectancy and constant cost-of-living adjustments additionally strained the Social Security fund. Payroll taxes (FICA) were greatly increased to make certain that Social Security operated in the black. After substantial increases in the payroll tax, the government concluded that the present payroll tax is still insufficient for future demands - the retirements of the "baby boomers" will greatly decrease the ratio of workers to retirees - and the Social Security "trust fund" will go bankrupt in year 2041. Other OASI failures exist.

Retirees deserve more than the present Social Security system has afforded them. The government created Social Security to meet immediate demands, consistently altered the system to meet growing demands and now is in a dilemma of how to meet future demands. Social, cultural and economic factors change, and a retirement plan must be able to adjust to the changes. It is obvious that a new OASI system is required that can respond to the exigencies of a dynamic economy.

The Present Plan has Evolved into a National Pension
Social Security operates as a pay-as-you-go plan rather than a plan in which retirees receive all their retirement income from their original investment. Essentially, workers are taxed to support retiree income from payroll taxes rather than from general revenue. Social Security determines the formula that shifts a portion of wage earners to retiree income. No matter how its sliced, diced or construed, the present OASI system is almost a National Pension Plan. - the government raises funds by taxes and distributes these funds to give retirees a fixed income. It is actually a simple system that needs improvements; which are: a more just retirement income for everyone and a secure pension.

Securing the National Pension Plan
The American constitution states that everyone is created equal and America does everything to make its citizens unequal. The OASI is one example: Why is a Wall Street broker, who already earned huge sums during a lifetime and should have sufficient funds for retirement, worth more than a cleaning woman who worked hard and didn't receive sufficient earnings to secure a satisfactory retirement? A National Pension Plan should equalize benefits.

Regardless of previous income, retired workers are entitled to equal pensions if they worked equal years and hours and have exceeded some minimum wage in each year. This concept conjures a Marxist vision of "each according to his/her needs." There is no relation. Government plans, by law - medical, housing, schooling - provide equally for all persons. Medicare benefits are not related to earnings. Retirement income should not be biased towards any sector of society. Every qualified worker should receive a basic income that allows for acquiring the staples in life - food, housing and clothing.

Officials might disagree on the amount of funds that constitute a basic income, but eventually a consensus will emerge. As one approximation, consider $1100/mo for housing, $200/mo for food and $100/mo for clothing and miscellaneous - a total of $18000/year for single persons. Increase the pension by 40 percent to $25000/year for couples. Since not all retirees will have worked the maximum hours, the average pensions will be lower than the approximations. Nevertheless, the average pensions will probably be higher than the average benefit presently received by Social Security beneficiaries.

The National Pension Plan intends to make Social Security more relevant, more simple and more equitable. It isn't intended to resolve the exaggerated Social Security problem of insufficient funding by the year 2041. Actually, there is no problem in getting funds for maintaining Social Security solvency and funding the Pension plan; there is only resistance to an appropriate financial solution. One solution raises earnings limit of the payroll tax and graduates it so that top earners pay slightly higher percentages.

Resolving the Social Security Debacle
Before resolving Social Security's financial problems, the government should resolve the inherent problems. The OASI needs to be redefined as a program that provides basic wants for retired persons. Persons no longer able to work must know - socially, psychologically and morally - that they will have sufficient funds to meet their basic wants and that these funds will be secured. Retirees need a National Pension Plan. Considering the deceases in tax rate during the last years, a two to three percent increase in payroll taxes that yields the required funds for a National Pension Plan, is not excessive or punishing.

Rather than treating Social Security as an adjunct to America's economy, it would be preferable to integrate the desires of the retirement community into the desires of the entire society. In a responsible society, resources are shared and so are sacrifices.

alternativeinsight
July, 2005

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