January 28, 1976

President Confirms Social Security Trouble

Now it is official.

Social Security is in trouble!

And we have it from an authority hard to dispute - the President of the United States.

Gerald Ford has said out loud in the Halls of Congress what a few economists and journalists - including this writer - have been asserting for years.

"Simple arithmetic warns all of us that the Social Security Trust Fund is headed for trouble," said the president in his recent State Of The Union message.

"Unless we act soon to make sure the fund takes in as much as it pays out, there will be no security for old or young."

To save the fund TEMPORARILY, Ford proposes to increase Social Security taxes next year - after the elections - of $4.2 billion.

This would be accomplished with an increase of three tenths of one percent in the Social Security tax rate.  It would raise the tax for employees to 6.15 percent of his pay and the same for employers who must match the deduction.  The total take, therefore, would be 12.30 percent of the payroll.

Three tenths of one percent doesn't sound like much - and, indeed, it isn't in relation to the whopping amounts of money going into and out of the fund.

Yet, this newest transfusion will not even cover the expected deficit in 1977 of $5.7 billion, nor the deficit of this year.

The sorry fact is that the government is paying out much more money each year than is coming in.  Without a massive overhaul - doubling the present tax rate or greatly reducing benefits, or both - the Social Security Fund will not carry into 1980.

Once upon a time, Social Security was a true insurance fund, with gobs of money accumulating in the U.S. treasury with which to pay benefits.  Shortly after World War II, with hardly a ripple of dissent, most of the cash was confiscated by the government.  "After all," the argument went, "We only owe it to ourselves."

The insurance fund was replaced with a "trust fund" for those rainy-days when the in-come would not match the out-go.  It was not believed that the growth bubble would ever stop expanding.

But now we have zero-population growth, and the bubble has burst.  We are dipping into the rainy-day fund every year.  At present there is only $43 billion in the kitty and we have obligations to present workers and retirees of $3 trillion.

Don't skip over those last two statistics too quickly.  They mean our unfunded obligations exceed the reserve fund 70 times.  To put it another way, the reserve fund is less than one and a half percent of the obligations.

If a private insurance company or bank were to attempt to operate on this ridiculously low back-up fund they would be criminally prosecuted.

Social Security - as it is presently regarded - is a gigantic hoax!

It cannot be the principal financial resource of retired workers.  It can never be more than it was originally intended - a SUPPLEMENT to private insurance plans, pension plans, and personal savings plans.

The present concept of fully supporting retired persons, albeit frugally, in combination with social welfare benefits for the non-working indigent would require taxes in excess of half the earnings of every working citizen.

History has demonstrated that civilizations collapse before this half-and-half point is reached.

Despite this, Social Security analysts ask the new generation of wage earners (age 22 today) to support one non-working adult in addition to himself and his family.

No other generation has ever assumed - this back breaking burden.  I doubt that human nature has changed to the extent that the now-forming work force will pay in $300,000 each from their life earnings to get back one third of it - for this is the anticipated ratio PROVIDING the rate of inflation is cut to 3 percent and wages go up only 5 percent.  

Those now on Social Security will get the most benefits as anyone ever will.  Those nearing retirement MAY get something.  It is not likely that the young worker just starting will ever get what Social Security now promises him.

Warren Moore, a former consumer affairs editor for "Chicago Today" and author of a forthcoming book "Social Security: The Fraud in Your Future", suggests that only by turning over Social Security to the private insurance companies can the plan be saved.

Personally, I would hesitate to put this much buying power into the hands of the relatively few insurance companies.  Already, they are the largest source of capital and wield vast power in the financial markets.

Rather, I would like to see Social Security returned to its original plan of an actual accumulation of cash, this time managed by a non-political board similar to the Federal Reserve system.

Whatever the solution, it must come soon.

Author: Lindsey Williams