Saturday, July 26, 2008

John McCain was Right - Social Security is a Disgrace

I have been drawing Social Security for two months now, and John McCain was right: “It’s an absolute disgrace, and it’s got to be fixed!” Social Security is a horrible investment using the very simple yardstick of what you pay in compared to what you get out.

I am receiving $1,874 per month, or $22,488 per year. I’ve paid into Social Security for 48 years, and in many of those years I paid at or near the maximum annual contribution. During my real estate career of the past eight years, I paid both sides – the employee and the so-called employer contributions – into Social Security. That made obvious what I already knew: the “employer” contribution has always been paid by me, even when I worked for someone else. If the employer did not have to contribute to my Social Security, he would have had to pay me more, and I would have had to contribute more.

Therefore, all the money contributed in my name to Social Security over the years was paid from my earnings.

Many years ago I offered to take what I and my employer had contributed towards my Social Security (forget even getting interest on total contributions going back to 1958) and invest it myself, and in return I would never ever ask the government for a thing from Social Security.

Think about it. The government would have received a “no interest” loan from me, and all they would need to do to drop me forever as a liability is just give me a few of the Special Treasury Bonds they hold in the Social Security Trust Fund.

Of course they can’t do that. The money I contributed has been spent, used to pay other Social Security recipients and any excess used to pay other government operating expenses, like the Medicare cost overrun. The Special Treasury Bonds are worthless. If they were sold to pay current Social Security obligations, more Treasury bonds would have to be sold immediately to replace the cash needed to pay for other government expenses.

Many Americans, including innumerable PhD’s, can’t understand this, so do this simple test: put $10 in a jar labeled “Dining Out Fund.” Now take the $10 out and pay your phone bill, and in its place write an IOU for $10 to the “Dining Out Fund.” Now go out for dinner (at a real cheap place), and when the bill arrives pull out the IOU as payment.

At this point, even a Democrat would refuse the IOU and demand real money, even as you protest that you already spent it on your phone bill. So you reach into your wallet and pull out the $10 you planned to use to fill your empty gas tank. Then you tell your date, “If you don’t want to walk home, you’ll have to loan me $10.”

Our government has done the same thing, and now each and every American has a $455,000 share of the unfunded long-term liability for future Social Security and Medicare expenditures for which we through our government are obligated to pay.

This situation was brought into clear focus by the mortgage banking crisis, with calls for the government to bail out huge mortgage lenders like Fannie Mae and Fannie Mac. With what?

"People seem to think the government has money," said former U.S. Comptroller General David Walker. "The government doesn't have any money."

Simply put, the government does what is doesn’t allow businesses to do: it doesn’t put its long-term unfunded liabilities on its books, and the total now for Social Security and Medicare is a whopping $53 trillion, or $455,000 per person.

"Health care costs are just amazing," said John Shoven, director of Stanford University's Institute for Economic Policy Research. Total health care costs now consume 16 percent of the economy and are headed quickly toward 30 percent, Shoven said. "Social Security is a big problem, but it's dwarfed by health care. Even the housing problem is dwarfed by health care."

Just the built-in rise in spending on programs for the elderly will cost about 25 percent of workers' payrolls over the next generation, said Richard Jackson, director of the Global Aging Initiative at the Center for Strategic and International Studies.

When I was in the Air Force I griped about having to contribute to Medicare, because at the time military members had “guaranteed” life-time medical coverage in military hospitals. Many military retired near military hospitals. Trust the government to mess things up. Congress passed a law that once a retiree became 65 years old, they had to join Medicare and not be treated in military hospitals.

How about those retirees living near military bases far away from civilian hospitals?

Retirees raised a stink, and for once were listened to. The military retiree program for under-65’s, Tricare Prime, was expanded to Tricare for Life, the secondary insurer to Medicare. So the military retiree gained a little, but basically still came up a loser: the retiree could now use both Medicare facilities without prior approval (which was almost always granted) and military hospitals, but instead of a $460 annual fee covering both retiree and spouse, the annual Medicare fee for a typical retiree and spouse is now $2,360, or roughly one month’s Social Security payment more expensive.

Now I’m having second thoughts about all this, and I realize that John McCain was wrong when he said that Social Security is an absolute disgrace. He should have said that both Social Security and Medicare are absolute disgraces!

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