Walter E. Williams

Because of failure to heed the limitations of the U.S. Constitution, which has produced runaway federal spending, our nation sits on the precipice of disaster. Former Senator Alan Simpson of Wyoming and Erskine Bowles, White House chief of staff under President Bill Clinton, co-chairmen of President Obama’s debt and deficit commission, in a Washington Post article “Obama’s Debt Commission Warns of Fiscal ‘Cancer’” (July 12, 2010) said that “(A)t present, federal revenue is fully consumed by three programs: Social Security, Medicare and Medicaid. The rest of the federal government, including fighting two wars, homeland security, education, art, culture, you name it, veterans – the whole rest of the discretionary budget is being financed by China and other countries.”

The commission added the current budget trend is a disaster “that will destroy the country from within” unless checked by tough action in Washington. The tough action required is spending cuts in programs, including the so-called nondiscretionary, eating most of the federal revenues.

Federal tax receipts for 2009 totaled $2.1 trillion. The largest items in the federal budget were Social Security ($710 billion), national defense ($689 billion), Medicare ($456 billion) and Medicaid ($327 billion). The primary recipients of federal spending are seniors. Many of my readers have written me to argue that it’s unfair to characterize what seniors are getting as handouts because they worked all their lives and paid into Social Security and Medicare.

Jagadeesh Gokhale, senior economic adviser, Federal Reserve Bank of Cleveland; and Laurence J. Kotlikoff, professor of Economics at Boston University document the looming Social Security and Medicare crises in “Is War Between Generations Inevitable?”. They report that “A male reaching 65 years of age today (in 2000, the year of their study) can expect to receive $71,000 more in government ‘transfer’ benefits (of all kinds at both the federal and state levels, but mainly from Social Security and Medicare) than he will pay in taxes (of all kinds at both the federal and state levels) before he dies. A 65-year-old female can expect a net gain of more than twice that amount; she can expect $163,000 more in benefits than she will pay in taxes.”

The picture is not so rosy for people who entered the labor force in 2000. They will pay far more in taxes than they will receive from transfer programs. Expansion of elderly handouts, such as prescription drugs, will make things worse. “For example: A 20-year-old female can expect to pay $92,000 more in taxes than she will receive in transfer benefits over her lifetime. The future looks more than three times as bleak for her male cohort, who can expect to pay $312,000 more in taxes than he will ever receive in benefits.”

Why is Social Security a better deal for today’s seniors? Just look at what they paid in. From 1937 to 1949, the maximum annual Social Security tax was $60. It remained under $200 until 1956. After 1956, Old Age, Survivors and Disability Insurance was added and in 1966, Medicare was added. It wasn’t until 1969 that maximum Social Security taxes exceeded $2,000. Today, the maximum annual Social Security tax is $13,000 and the maximum annual benefit is $25,000.

As with any Ponzi scheme, the people who get on board early make out. This is pointed out by Geoffrey Kollmann and Dawn Nuschler of the Congressional Research Service in their report “Social Security Reform” (October 2002) They say, “Until recent years, Social Security recipients received more, often far more, than the value of the Social Security taxes they paid. … For example, for workers who earned average wages and retired in 1980 at age 65, it took 2.8 years to recover the value of the retirement portion of the combined employee and employer shares of their Social Security taxes plus interest. For their counterparts who retired at age 65 in 2002, it will take 16.9 years. For those retiring in 2020, it will take 20.9 years.” My question is: How can anyone who draws out every penny he’s put into Social Security in a few years say that he’s not living at the expense of another?

It takes a special form of callousness and disregard for the welfare of future generations of Americans for today’s senior citizens to fight against reform. Nobody’s talking about abolition of federal senior programs. We must accept that serious mistakes were made and we must take compassionate corrective action. But what the heck! Both today’s politicians and seniors will be dead so why should they make sacrifices now to prevent an economic calamity decades off into the future?

Regards,
Walter E. Williams
LewRockwell.com
for Whiskey & Gunpowder

August 25, 2010

Walter E. Williams
  • David

    You failed to mention the way SS funds are invested back into U.S. Treasury bonds of which is spent by the government witin moments of receipt. The interest paid by the bonds is added to the value of the SS trust, of course this “fake” money is then spent by the government. But the worst blow is that the interest paid on the SS funds is nothing more the collection of taxes on the very same people who are forced to contribute to SS. So the actual return on funds is somewhere south of zero, if one recieved his true payout, you know, like real pension plans.

    If the fools in government would just open and excel spreadsheet, and calculate the savings that they would accumulate, at just 5%, with their SS funds (along with employer funds), they could get about as much with about a 3% return, and never touch the principle.

  • Desertrat

    “Both today’s politicians and seniors will be dead so why should they make sacrifices now to prevent an economic calamity decades off into the future?”

    I’m not that conviced that the calamity is decades off into the future, given the present monetary/fiscal policies.

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  • RT Carpenter

    I started paying into Social Security as a newspaper delivery boy in the 1940s. Working class Americans and their employers “contributed” to this 75 year old pension plan. It has repeatedly been raided by deficit spending federal governments, and is no longer even pretended to be a contributory system. Today, it is simply another tax-supported “entitlement” now known as the “payroll tax”. Our Fed and Treasury have been looted by war profiteers and Wall Street speculators, who were “bailed out” at an estimated cost of $2 trillion!!! Yet, when the power elite look for new money, what do they see? Social Security leeches–taking more out than they paid in, with no concern for future generations. What an insult to those (like me) who served in combat and were finally able to survive long enough to receive pensions. Goldman Sachs, on the edge of bankruptcy in 2008, was a year later paying million dollar bonuses. If our “leaders” have to cut off SS “benefits”, please have the courage to admit what you are doing and the courtesy to respect honest, hard working American seniors. RT Carpenter, Florida

  • Sterling Too

    And what is worse, what was paid in by my generation is not really covered by social security because of the inflation which makes the future dollars paid out to during retirement worth much less than those we paid into the system decades ago. As always, it doesn’t matter how many dollars we have to spend, it’s the amount of matching goods and services available to purchase with those dollars. Given our present situation in an ever deepening depression, by the time my part of the Romper Room (Baby Boomer) Generation – which is the peak of the buldge – reaches 65 in 2019 we will most likely recieve nothing significant either due to inflation or outright default. And that, after a life time of intense competition for what’s been out their to earn and spend on over the last 38 years since graduating from high school in 1972 along with the biggest class relative to total population in history. Sad really.

    As usual; always a pleasure to read your words and hear your logical voice.

    Sterling

  • jay moses

    sir-
    if the government offers to return my social security contributions to me with a reasonable long term rate of return, say 5% compounded annually, i will gladly take it. any likelihood of that happening do you think?
    otherwise, pay me the benefits that were promised and stop complaining. there is plenty of slack in the federal budget, especially the costs of fighting two pointless wars. as ron paul notes; we marched in and we can march right back out. cut the military down to the size needed to protect the united states and it’s amazing what we can afford.
    jm

  • http://www.rampartsilver.com/ Onza Libertad

    If you retire in 2020, you’ll still get a social security check … with inflation, that might be just enough to buy a loaf of bread.

  • Dr.Henry M. Chakoian

    I have written my proposal for privatizing SS to guarantee a minimium return for the younger taxpayers. Wll not happen. Also, I have pointed out that minorities are scammed. Especially if the eligibility age is increased. Male blacks start work at earlier ages than whites as they leave schools earlier. Their life expectanciy is several years less than whites. They are at present slated to receive fewer years of payouts. Increasing the age eligibilty will exarcerbate the problem.
    Reviewing the present payout qualifications for people who have not contribited to SS and to the scam of disability claims on SS will save billions. In Southeast Arkansas, the number of disability recipients far surpasses any normal metric. It has become a racket. At 88 years of age, I am not worried about my SS payments. I cringe at what I perceive awaits the coming generations.

  • Desertrat

    The direct cost of the wars in Iraq and Afghanistan are in the vicinity of $200 billion per year, give or take. The deficit is around $1.5 trillion, and is expected to be around a trillion dollars per year for a goodly number of years. By comparison, the war cost is chump change.

    You add up SS, Medicare, Medicaid and the interest on the already-ridiculous national debt, and you’ve pretty much used up the government’s tax-take for the year. And then?

    Joe Sixpack can’t spend his way to prosperity, either…

  • http://www.rampartsilver.com/ Lydian Lion

    Social Security, like all ponzi scemes, will end in flames. The wise will follow the advice of our own Ms Trahern, and load up on hard assets while they are still available.

  • http://www.rampartsilver.com/ Lydian Lion

    Social Security, like all ponzi schemes, will end in tears for those at the bottom of the pyramid. The wise will take the advice of our own Ms Trahern, and load up on hard assets.

  • Nranallo

    The comments clearly point out the issues: 1-It is the present value of contributions that should be used in these comparisons, not just dollars contributed (or taken if you will); 2-If payments were only made to those that paid in, the system would work. Instead, the fund was hijacked by politicians and spent to buy votes. With no thought to replacement, the fund is doomed.

  • http://www.thetexasring.com Linda Brady Traynham

    Dear Nranallo: Welcome to the crew. Very well put!

  • http://whiskeyandgunpowder.com/avoiding-the-looming-disaster-of-social-security/ Geoff

    Walter – Love your columns – keep them coming. Reflected a moment on your latest. Here’s my take: Have for some time resented the large annual remittances to SS. Your bottom line seems to be that if I begin to collect SS at 65 I’ve got to live to ~86 to collect what I have “contributed. Did I get that right? Would have been far happier (as I’ve already alluded) to have kept & invested my own money. And it would be mine or my heirs. If I pass on to my reward before age 86 (as most will), Uncle Sam ends up to the good. When SS elligibility is raised to age 70… Would appreciate your thoughts. Geoff

  • http://beforeitsnews.com Concerned Citizen

    Taking money from one group of citizens at gunpoint to give to another group is NOT compassion.

  • mmmm,

    and even that little bit shows the luck some people have, as some could never get employed and if lucky paid cAPITAL GAINS TAXES ON ALL GAIN AS INCOME PAYING AT TIMES 50 PERCENT OF INCOME AND GETTING NOTHING TOWARD sOCIAL sECURITY…JUST MORE RIP0OFFS…FOR NOT BEING POILITICALLY CORECT , AND having to make ones own workings.

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  • http://. Ron Oregon

    If I were to take money out of my personal savings acct, should I be surprised that it doesn’t accumulate interest and grow in value? Our government has been taking from our social programs for generations and has not paid any of it back. No wonder the social programs wither! For example, Obamacare was partially paid for by $500 mill taken from Medicare. These dollars were supposedly to be from fraud and waste from the program. If the fraud and waste was known already, why was it not curtailed years ago?!
    Also Social Security recepients were not given a cost of living raise for 2010 and 2011. How many other years has that been done? Poor senior citizens whose expenses grow with inflation every year see the money they relie on for food, housing, and utilities get less and less. No wonder you hear “Jokes” about senior citizens eating dog food because they cannot afford real food. The population grew astronomically after WWII, and as those kids grew older, there taxes paid for the smaller amount of SS/MC recipients. Thus the Ponzi scheme worked, as they will do initially. Now the Baby Boomers are retiring and the number of workers paying taxes for the social programs has dwindled, thus, annually, the ratio of workers paying for their share of benefits received by our senior citizens goes down as well. Hmmm, time for a major flu epidemic to bring equality so the Ponzi scheme can run a while longer. The elderly are at greater risk for exposure to flu germs, etc.

  • Victim

    “But what the heck! Both today’s politicians and seniors will be dead so why should they make sacrifices now to prevent an economic calamity decades off into the future?”

    I beg your pardon? I’ve been robbed by the government for decades – given NO choice in the matter. Had I invested that money myself (or just put it in a shoebox), I’d be better off. When money is taken from my pocket and not given back – that is THEFT. Tell you what, all I ask for is what I’ve paid in. I’ll donate any “reasonably expected interest” to the social insecurity program. I’ll stop contributing to that precarious gamble of a program and the government can immediately give me back every penny I’ve paid in. Anything less is theft. You want sacrifice? How about criminal charges and civil lawsuits against EVERY member of congress and past/present presidential administration. Lower their wages 40%, sieze their assets for sale, impose fines for theft against the american public. Examples are set from the top down. I hear they make pretty good money; great lifetime benefits and pensions. THAT’S where the sacrifice should start. I have sacrificed – I’ve been robbed for decades and have not and my never receive a penny back!

  • jack

    Once the Federal Government takes my 401K to pay down some of this debt, we will be back to sqaure 1.

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  • http://www.rampartsilver.com/ Silver Tiger Bar

    “People make mistakes all the time; but if you want to make a real mess of things, you need taxpayer support.” – Bill Bonner

  • http://www.thetexasring.com Linda Brady Traynham

    Jack, Congress has its eyes on your 401(k) but what makes you think it will pay debts with it?! We’re talking about a “windfall” in the trillions of dollars, and they can buy a lot of votes with that.

  • http://www.thetexasring.com Linda Brady Traynham

    Socialized Insecurity was a dreadful idea from the start, compounded by politicians taking the money as it came in, piled on with Medicaid, welfare, giveaways to illegals, and the incessant growth of government. I was an admirer of Dr. Williams’ from the early Nineties until recently when he began to preach that the solution is for sweet little old ladies to sell their houses and move in with their children rather than “leech” off the younger generation indirectly. The best solution I can see is to clean up the waste and corruption, and then phase out the program over time, starting with an arbitrary age of perhaps 45 for those who will just have to accept that SS is just another tax, but they will receive no benefits. Twenty years is enough to make better preparations for their futures. Freeze ALL giveaways at present levels and whittle away at programs which should never have started, such as Medicade and Medicare. Revoke all pensions for Congress and cut salaries to minimum wage. Hey, if he can hold that it is honorable to default on a contract with the Baby Boomers, what makes Congress special? Most of them are, or are married to, millionaires. Reverse policy and hold government salaries to prevailing wage in private enterprise–and do the same with unions. Spread the misery around. Cut out all foreign aid. We have problems of our own. Close the borders, stop all immigration, cut off all welfare effective 1/1/11. Yes, there would be blood in the streets. There is going to be no matter what we do or do not do because half of us can no longer support the other half and should never have been expected to do so. Funny how those of us who produce are never considered under the phrase “the general welfare.”

  • CapnRick

    THE ANSWER IS… YOU CAN’T SEIZE MY SS FUNDS IN THE 1970S AND GROW INFLATION TILL A LOAF OF BREAD(25 CENTS IN 1956 WHEN I GOT MY FIRST W2) IS NOW NEAR $4 AND TELL ME I DIDN’T PAY MY FAIR SHARE! ITZ MY MONEY AND I WANT IT BACK. ” My question is: How can anyone who draws out every penny he’s put into Social Security in a few years say that he’s not living at the expense of another?”

    The answer is… you CAN’T seize my SS funds in the 1970s and grow inflation until a loaf of bread (25 cents in 1956 when I got my first W2) is now near $4 and tell me I didn’t pay my fair share! It’s MY money and I want it back,

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