Another email

The following was an exchange between two persons on opposite sides of the aisle. As Rod Serling would quip, "Presented for your perusal... from the Midnight Zone."

I agree that there are some fundamental problems with social security, but I still think that it’s a sound idea that needs updating because of the change in demographics. When social security was in its infancy in the 1930s, the life expectancy of an adult was much lower than it is now. I truly believe that it was a great idea, but with no concern about future generations. It was a quick fix, a needed fix, but probably a little short sighted. There have been several amendments to the SS Act, but I believe the most important change/addition was in 1965 when Medicare was established. I know that my 85 year old mother could not afford to live or go to the doctor without her Medicare benefits and social security check. But, I digress…I still believe that, in theory, social security is a good concept. But I also think that the middle class (me) is carrying the brunt of the burden. Why should citizens stop paying federal tax when they reach $90,000? Just raising that amount to $110,000+ would bring additional money in. I just don’t understand why the wealthy get all of the tax breaks. Hell, someone making a million dollar salary would be finished paying federal taxes by like, March. Our government is run like my ex-husband’s construction business. He would always use his current customer’s down payment to pay for supplies from his previous job and he was then checking the mail for down payments for future jobs so he could pay for current bills. He was never current and was always robbing Peter to pay Paul. Needless to say, his bills overtook his income and he lost everything. Is that where we’re headed with our Social Security money? Can we fix Social Security now? I have to admit that I’m pretty social security illiterate. I think what you were proposing has some merit, but I’m not 100% sure that I understand what you want to do with the social security money that is collected. Do you think the government or the private citizen should invest the funds? I am ultra conservative when it comes to my money. I don’t want to invest it in the stock market or home mortgages or anything for that matter. I have money in my 401K account and most of it is in the most conservative stocks. What would you tell a worry-wart like me?

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Your reply was interesting. I guess the only way I have learned to respond to proposals and suppositions, is to break them apart and in some cases re-assemble them. I'll do my best, here.

"...Why should citizens stop paying federal tax when they reach $90,000? Just raising that amount to $110,000+ would bring additional money in. I just don’t understand why the wealthy get all of the tax breaks..."

They shouldn't. But then, if they pay most of the taxes, how do you deny them their share of the breaks?

The reason that the FICA taxes were capped at a certain level had to do with assumptions made by Congress over the years. They aren't necessarily flattering assumptions, but if we refuse to look at them, we go nowhere.

Congress understood the reality that those persons earning the lowest amounts of money per annum were the least likely to put any money aside in savings, and invest that money in income-generating assets. Joe, earning $30,000.00 per year, has no significant amount of surplus left after he pays all of his bills. Tom, however, pulling down $160,000.00 per year, can easily set aside $20,000.00 or $30,000.00 per year to provide a retirement for himself.

The key to understanding Congress's actions is the reality the Tom is almost certainly already investing $ 20,000 or more per year. He is putting that money in the best balance between high-return and high-risk investments. There is no realistic way Congress could stop him if they wanted to. And Tom has plenty left over for campaign contributions, if he is threatened past a certain point....

Now, people can get angry at the unfairness of it all, pick up their protest posters, march around chanting silly slogans.. and they will thereby lose any chance at understanding what they CAN change... and what they can't. (And they need to understand that the people who have earned those high incomes... have earned those high incomes. They gave up a lot of opportunities, in order to earn that money. They've worked a lot of hard hours to earn that money.)

Social Security was designed as an insurance policy against poverty in old age. And when the average life span of a person in the 1930's was 63, and Social Security benefits were set to pay out at 65, those people who were paying careful attention when the legislation was shaped, understood that it was an insurance policy. The rest of the population didn't matter, simply because- if they cared so little that they didn't pay attention to the details- then they had no say in the matter. It is so with all things.

Look at it this way. If you buy an fire insurance policy on your house, and it fails to burn down, you cannot go back to the insurance company 30 years later, and ask for all of your money back because "I guess I didn't need that insurance anyway...!"

It doesn't work that way. You bought protection against an event. You did not put money in a savings account. The event didn't happen and you thereby won.

The vast majority of policy holders enjoy relatively low fire insurance rates because the pool was designed not for savings... but rather against terrible loss. In the case of Social Security- that of reaching an age where you can't work, but still need income to survive. Not to party, but rather to merely not starve or freeze to death.

As long as only a few ever collect, then the rates will be low. And as long as the actuarial assumptions hold, and the average number of houses which burn down- or the average number of people who live long enough to collect significant pension benefits- doesn't change, then the program will continue indefinitely.

But after paying those low fire-insurance premiums, if you had taken the extra money you spent for that Daytona Beach fling, and instead invested it in a long-term annuity... then you wouldn't mind that the fire insurance premiums were low because they were insurance premiums, instead of a retirement plan.

The difference is between a sandwich handed out at the homeless-care kitchen... and dining out at The Olive Garden. One keeps you alive... and the other keeps you heartily enjoying being alive. The point is that they are two totally separate concepts that, if mixed together and seasoned by Congressional deception and two pinches of willing ignorance, will give you something very like the present Social Security mess.

If you are lucky enough that you never need the Social Security you paid in... then you have no complaints. I break with other conservatives in that I figure if I am blessed with enough income to support myself, I don't need or want that Social Security. But I can understand how they would take umbrage at me, since they figure it is a retirement, not an insurance policy against poverty. And, it"s their money. I do know that all sides will have to give once Social Security collapses. We will wish in blood that we had compromised earlier, if my guesses come to pass.

The problem is that Social Security has morphed from what it used to be- a guarantee against abject poverty in old age- into a host of things it was never designed to be. It is a classic bait and switch, done slowly enough that Americans didn't notice. And done severely enough that they have no real excuse for not noticing.

And the reason it happened was that people never seem to understand the difference between a business arrangement and a political opportunity. A business arrangement must be fixed,and defined under law. The terms, much like a mortgage, once signed, cannot be continuously changed, added to, re-written, and treated as a Congressional candy jar.

If Social Security is to be what it was first sold to Americans as, then it needs to return to what it was. The age of eligibility must escalate with a cost-of-not-dying multiplier, much like the cost-of-living multiplier applies to other government benefits. If life expectancy goes up, then the age of eligibility goes up. By mathematics- by formula- but not, however, by asking Americans what they would like from the Government this week.

If Americans refuse to accept that, then they have other choices. They can accept ever increasing rates of S.S. taxes, until the system collapses under the relentless mathematics of reality.

They can mandate that the program isn't really a policy mainly for lower to average income wage earners- and instead declare that all citizens must pay into the pool at the same rate.

But there you run into a problem. The people who are making the bigger bucks understand that the money they pay on their first $90,000.00 in income is gone, spent, wasted. They accept that as the price of living in a democracy where people think they can vote themselves wealthy. Those higher wage earners keep their mouths shut as Congress takes its rake-off of money from the lower wage earners. As long as the understanding holds. "Juice the rubes as hard as you like... but don't think of treating us that way... or we'll be forced to engage in hardball politics." And everyone understands the limits...except, of course, the average wage earner.

Congress has played their hand well enough over the years that every time the "surplus" of money, (collected over and above what is needed for payouts), begins to shrink, they trot out the same game. They announce with tender concern on their faces in front of the cameras that the Social Security fund is "in trouble". What they don't say is that the amounts coming in are still in surplus, but are decreasing down to exactly what is actually needed, and that this would be a good opportunity to institute a yearly increase of "exactly what is needed" to provide a balance of income-to-payout. What they don't say, is that what is disappearing is the "surplus" that they consider to be theirs by conquest- money that they rely on to shovel out to reward supporters. And both parties do it.

Instead they announce that by increasing the taxes by, say, 50%, the fund would then be "... solvent for several more decades...." WHAT THEY WILL NEVER TELL YOU IS... that by creating another huge surplus of funds collected, they assure themselves that they can buy votes for decades... (using money you naively thought was actually collecting together somewhere), and making your children and grandchildren pay for the embezzlement. They worked it by insisting that the mainstream media always refer to it as a "fund", maintaining the fiction they desperately needed- to keep the rubes from understanding that since the law mandated that the "surplus" be invested into Federal bonds, and thereby dumped into the general fund to be spent, that this "fund" was a collection of paper I.O.U.'s drawn on children who haven't even been born yet.

The only way to keep the fraud concealed is to have people cooperate by believing that somewhere in a shining emerald city on the hill, that a great castle has a vast basement filled with dollars carefully guarded by the king's men. That this money is in a "lockbox". And that words, if properly used, can destroy a future much more effectively than a sword, but can insure re-election every couple of years by telling people what they want to hear. That it's all the fault of greedy corporations.

Controlling a mob is easy, as long as the mob can be prevented from thinking. Keep them angry with someone hazy, some dark, evil, unnamed men who are shipping all the money and jobs overseas in vast UPS boxes.

Can we fix Social Security? Sure. We have always had the ability to do that. But it cannot happen until people understand and agree to what, exactly, they want Social Security to BE.

If they want it to be a social safety net, then they can use a large portion of the "surplus" for Grandmothers to go to doctors. I have no problem with that- my own Mother collects Social Security and Medicare. But adults need to stop acting like children and assuming that there is an enormous cookie jar in Washington which everyone can dip their hands into, as long as they hook up with the right interest group.

Medicare has to be separated out of Social Security and scrutinized just as carefully. Why? Because, in case you haven't noticed, the "surpluses" of Medicare have also gone into... government bonds. Spent, gone. And no one, (except us perennial, bitching, Freerepublic essayists), have said a word, or complained a bit. They didn't know or didn't care.

Now, IF... IF... people want Social Security to be a retirement program, and not an insurance program against dire old age poverty, then enormous amounts of money will be involved. Because you can't put 15% of your pay into the program for 30 years, have 40 percent of that spent and gone by Congress, and then expect to collect 100% of what you were making... for perhaps 20 to 30 more years.

Do the math. Numbers don't lie. Unless the amounts of money taxed from the wage earner are invested into compounding interest, rather than being spent to keep the funds "safe"... then your only recourse is to enslave your children and grandchildren with crushing debt, if you insist on paying a vastly expanding group of retirees.

They tell you that the Social Security fund is "earning interest". What this means is that over the coming years, they will demand that the toddlers of today and their children, will have to "pay back" to the Social Security fund the money that has already been spent, and is presently being spent, and that they will also have to pay "interest" on that money that was spent.

They will be told that since we discovered that we could borrow tanker-loads full of money from around the world to fund whatever government benefits we decided to award to ourselves, and sign our unborn children's name on the VISA slip, we did so with a vengeance. They will be told that they have no choice in the matter.

They will be told that Taxation without Representation... was something that couldn't applied to US... but that we didn't hesitate to inflict on the next generation. They couldn't vote. They weren't even here, yet, to protest.

Our Representatives... Congressional and Senatorial, signed the names of the unborn for decades to come, onto debt to fund a lifestyle that we stole from their future. We pawned their birthrights for Congressional earmarks... for silly studies, and for boondoggle projects. But what no one else will admit... we also spent that birthright on good causes... that we just figured we could pay for later, rather than now.

And it became so easy that, like the credit-card-addicted spenders among us, we learned to demand whatever we wanted and just put it on "the card."

"...The money we pay into our social security should be locked away where no one can touch it…so we’d have it when we retired... I know that is impossible to do for a myriad of reasons, but the money that we worked for should be safe and we should be able to depend on it for our future..."

I don't mean to seem like I am attacking you, because I certainly am not, but as long as we accept what you have posited above, then there is no hope. If it were even politically possible to keep all of the funds intact, by dumping them into some colossal Swiss bank account... for the reasons I outlined that still would not solve the problem entirely. This money needs to be used to displace the vast amount of oil money which has poured into our country in mortgage funds. Only a portion will cease, due to people finally understanding the insanity of sub-prime lending. There will still be significant funding of assets, and a large number of investors eager to do so. Why? Because money can be made. But only after the stupidity of luring persons incapable of maintaining mortgage payments into buying houses they can't afford, ceases to happen through the grim reaper of the bottom line.

And why will that happen? Because reality is a cruel, merciless predator. And those persons dumb enough to have been caught up in it are going to, and have, lost serious cash. This gets people's attention like a wet fish slapped in your face.

It is not impossible to use retirement money for investment into interest-returning assets in moderate safety.

Because Tom and all of the other investors like him have been doing this for 200 or more years. The large income people don't want their money wasted by Congress in Social Security rakeoffs. They instead invest a portion of their money in safe, income-producing, debt-based instruments, ranked by Moody's and Standard & Poors, as AA and AAA rated investment-grade bonds, and the remainder in the stocks and futures they believe in. These huge fortunes made over the last two centuries did not come from discovering and hogging to themselves a grove of money trees.

They are made by borrowing money from depositors at 4%, and re-lending it to home buyers at 6%. The "spread" of 2 points builds gigantic marble-faced edifices downtown. The spread builds family empires. The spread easily covers losses if common sense rules return to credit.

Will there be risks that Congress will find some way to cause losses among these funds? Sure there are. We keep our investments safe, the same way we keep our families and our culture safe. By unrelenting vigilance... and the Second Amendment. If we are too lazy to prevent embezzlement of investment funds.. then we have no hope anyway. And anyone who will say that the only way to safeguard this money against the risk of some losses against the pool of overall gain... is to hand it to politicans to immediately spend... needs intensive therapy.

It is cruel, but I have to say it- those persons who have been told that it is "...impossible to do so for a variety of reasons..." are playing into the hands of those who are depriving you of the best chance you might have had to achieve security in your retirement years... without enslaving your kids and grandkids.

Put as much money as you are allowed to into ROTH IRA's invested in compound-interest asset-based investments, and, as you called them "safe stocks", that you know are free from any sub-prime component. Just smile a bit when you say "safe" stock, so that we all know that you understand that nothing is "safe".

Why a ROTH IRA? Simple. The ROTH is an inverted IRA. You put after-tax money into it, and whatever earnings you get from it, as well as the contributions themselves, are tax-free when you withdraw it. No one in his right mind can possibly believe.... that taxes will be lower, years from now, than they are right now. Money you put in the 401K are tax-deferred, meaning that you pay no taxes now, but will pay the PREVAILING TAX RATE, when you take that money out. Think about that for a minute...

Since most people don't believe there is any urgency to saving for the future, the various 401 plans are at least better than nothing, insuring that something gets saved. But if you can, put extra away in a ROTH. Save like you mean it- invest like you believe tomorrow will come.

If Americans as a people accept on their knees that our elected officials have a pre-ordained right to spend a large percentage of our retirement savings foolishly, then the best advice I could give you is to either:

A. Scrimp and save as much as possible to privately dump into ROTH IRA's and any other investments allowed, and thereby reduce as much pressure as possible from your grandkid's futures... (and make them see exactly how this was done to them so that they know how to undo it over the coming years, and keep their children's future safe ) ...

The problem is that Social Security has morphed from what it used to be- a guarantee against abject poverty in old age-

Socialist Security was never designed to spare blue-hairs from abject poverty. When it was initiated the average life expectancy was something like 62 years but the benefit didn't kick in until you were 65.

This was a designed scam from the get-go.

The problem with your position is that id a person paid in the max amount for the last 40 years (like I have) and had it been invested instead of stolen for the general fund, it would be worth between 2 and 3 million today. 15% of what you earned was pisses away by our government. There would not be a problem had the feds not took it and given it to someone else.

An often, (conveniently), overlooked fact is the 40,000 aborted babies who would now be in the work force contributing to SS and the general economy. Not to mention the fact one or more of the throwaway babies might have grown up to find a cure for cancer. It’s all part of the Law of Unintended Consequences with an ironic twist.

In the days before Social Security, families took care of their own. Elderly people lived with their children whenever medically possible. Now we have 2 generations of whom many have decided not to have any children. Many of them will rely on their own savings, but many more will have no safety net except Social Security, and will draw out of it far more than what they put into it. They will wind up alone in a wheelchair in the corridor of a nursing home, with not a soul to visit them. How sad.

The people who are REALLY making out are some of the "Greatest Generation" that preceded the baby boomers. Many of them have nice pensions, some even have free healthcare throughout their retirement, paid for by their former employers, and they get Social Security and Medicare on top of it. Must be nice.

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