Monday, August 13, 2012

Social Security Cuts

A few years ago analysts predicted that the Social Security trust fund would run out in 2039.  Then we entered a recession and the prediction changed to 2037.  Then, instead of facing the problem, Washington instituted a temporary reduction in the payroll tax, the source of funding for Social Security.  This reduction caused an additional $112 billion shortfall in funding, so today’s prediction is that the Social Security surplus will run out in 2033.  (I sincerely expect that instead of addressing it again, Washington will argue about extending the tax cut scheduled to expire in January.)

Most rational people, who understand basic third-grade arithmetic (critical thinking) and know that there's no magic money tree to satisfy all our needs (economic understanding), agree that something must be done to sustain Social Security and avoid disaster.  It could be raising (not cutting) the payroll tax, extending the retirement age, reducing the rate of increase in benefits, eliminating the salary cap on payroll taxes, even reducing benefits, or some combination of these.  Recommendations along these lines have been made and ignored for the past 30 years.  We have seen the problem coming for a long time.  When the trust fund runs out, in only 20 years or sooner, current taxes will support only about 75% of the need and, unless another scheme is proposed, every recipient will take an immediate 25% cut!  That would be stunning.  Look at the turmoil in Greece that resulted from letting these problems go until the last minute.

Unfortunately, organizations like National Committee to Preserve Social Security and Medicare and AARP, who apparently don’t understand third-grade arithmetic and believe in that magic money tree, use scare tactics, sentiment and a sense of indignation to rally seniors against any change.  They tell them that Social Security is a solemn promise, their right, and the return on their contributions.  Although I have never heard a proposal that would cut current benefits, opponents of change imply that possibility, and seniors are urged not to give up anything.  “Give them an inch, and who knows what will follow.”  But worded another way, “Grandparents, stick to your guns.  Don’t worry that your grandchildren and great grandchildren, whom you claim to love so much, will someday be called on to pay the piper and may never be able to have a decent retirement of their own because you have been so selfish and intractable.”  No one would ever say such a thing.  It’s too harsh – and honest!

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