When it comes to debating what to do with Social Security, it seems that the most vocal sides are out of touch with the American public. But it also seems that the most vocal sides are at least somewhat in touch with public opinion. What is going on here?
Let’s look the history of the Social Security program. The great savior FDR looked out upon his economically disadvantaged constituents, especially the elderly, and said, “Lo, here is a great inequity. Let us make a New Deal to ensure that the elderly and disabled in our nation have sufficient for their needs.”
But support for outright transfer of wealth was hard to be found, and thus, it was necessary to provide incentives to make the program seem good to income producers. And so it was sold as a self investment plan to bolster one’s own retirement. Only those that contributed for a given number of quarters would receive benefits, except that those disabled would also receive benefits. And it seemed good to the princes. And so it was written, and so it was done.
And all was good, for in the beginning there were more than 20 workers to support each non-worker, average life expectancy was less than retirement age, and the tax was only 2% (albeit, with a steady rise to 6% over a 14-year period that was eventually extended to a 24-year period).
But lo, and behold, soon cries of dismay were heard that there were yet other disadvantaged people that were not covered by Social Security. And soon the princes found it worthy to expand the program to cover these poor souls. And there was much rejoicing, especially among those that did not provide for themselves.
But the people did not produce posterity at the rate of their fathers, and with more souls covered by the program, the ratio of workers supporting non-workers fell, causing great dismay. But great fortune smiled upon the people insomuch that their increased productivity rate compensated much for these shortcomings.
Nevertheless, the princes saw fit to raise the tax rate repeatedly until it stood at 12.4%, and the benefit rate was reduced for those with earnings exceeding a basic amount. The retirement age was also raised to reflect an increased life expectancy. Thus there began to be those that had retired and could still work, but refused to do so because working garnered no net gain.
Then lo, a cry from the plan trustees that unless revamped the plan would go broke. But few wished to make any serious attempt to resolve the problem, preferring to leave it as an inheritance to their posterity. And thus the financial status of the plan languished.
And that’s where we are today, folks. Many proposals to save Social Security are bandied about, but nobody seems to be biting. There are even those that use all kinds of high-falutin’ statistical models to make believe that the system is not imperiled. But it is clear that the plan cannot survive simply by continuing with its present structure. Something must change.
But what do we change? President Bush offered to partially privatize the plan to make it more of an investment plan. This modest plan was rejected. Nancy Pelosi has promised that Democrats in the 110th Congress will staunchly oppose any privatization efforts. That leaves only a few options, all of which are untenable to one or more powerful groups.
We could raise the tax on wages. This disincentivizes productivity and income production from working. It’s a hard sell to the workers and businesses that would bear this burden. We could increase the retirement age to reflect the realities of our population’s increased productive life expectancy. Try to get that one past the powerful AARP lobby.
We could cap benefits, denying them to retirees that continue to work or that have been responsible enough to spend their working lives saving for retirement, because “they can afford it.” Never mind the amounts they paid into a system that was promoted to them as a retirement investment. Sure, it was, but for their neighbors rather than for themselves. We could also ignore the problem until it reaches critical mass a generation or so down the road. Now, there’s a great legacy to leave to our posterity.
The problem is that none of these possible solutions are politically palatable. The only one that even approaches political viability is the ostrich approach, where we hide our heads and pretend the problem doesn’t exist. I’m betting that this approach is most likely to be the one that is ultimately adopted by our politicians over the next two years.
I’ll write another post at some point down the road on why I think this is such a difficult problem to solve and how the roots of this problem impact almost all things political in our nation.