MAY 2015

By Dan Weber, March 25, 2015

Social Security is in trouble. We all know this, or should. But there is a cheat within the system, and it is time the cheat was brought into the full light of day. In short, Democrat lawmakers -- and Republicans who have remained silent on the issue -- are complicit in a process that amounts to fuzzy math or worse – intentional confiscation of Social Security benefits from those who, all their lives, have worked harder. Contrary to public misconception, Social Security is not a level playing field -- it is, in fact, confiscatory.

Let me put the numbers before you, and you reach the conclusion to which they lead. This is pure math. The question that the math presents is sobering: The Democrats are fond of asking, “Are the rich paying their fair share?” But the real question is: Why do those who work harder all their lives end up with less? In sum, those who make more, are paying for it later -- the Social Security system is rigged to pay them less. Here are the raw numbers. 

You would think that if a worker earned double the income during their working years, their Social Security would be double -- but that is not the case. When you do the calculations for a person with a $4,000 average monthly income, the Social Security benefit comes out to $1,759 for life. So you would expect a person whose average monthly income was $8,000 to have a double Social Security benefit of $3,518, but in reality, they would only receive $2,525 per month.

The numbers are arresting, although no one is being arrested. They are sobering, although one wonders where the more sober minds are to right the implicit wrong. Social Security benefits are presently calculated to enrich the benefits of lower-wage earners by taking away money from higher-wage earners. No politician tells you this, but it is the rock-hard truth. This is presumably baked into the system in order to give poorer people more money. But there is certainly no problem with that.

The central problem is with the false impression that continues to be created by those in positions of leadership. The impression presented day in and day out is that higher-income individuals -- or those who have worked longer and harder all their lives -- are not paying their fair share. But that is frankly not true. As Ronald Reagan was fond of saying, “facts are stubborn things,” and so they are. As illustrated above, the higher average lifetime income an individual has worked to earn, the less fair the Federal Government is to that person in retirement. Put differently, the lower the percentage of salary they are getting back in the form of Social Security. Is that fair? 

Is that honest? Is that being publicly discussed? No -- and the question is, why not? Just as veterans should not twice be taxed on their pension earnings, those Americans who have worked harder and lived longer in their earning capacity, should not be punished for their industry, diligence, creativity, or sweat. After all, into what venture is that sweat equity being paid? It is paid into the prosperity of the United States of America, and what one puts in -- one should equitably get back in the older years, when the pension matters so much. So, where is the fairness? And where are those who will stand up for seniors, particularly those who have worked all their lives to make the sunset years, sustainable?

Despite the unfairness of the facts, liberals want to punish more and harshly those older Americans who earn more and have worked harder, those higher-income individuals who have built the prosperity on which we all rely. They are attacking the hardest workers and highest earners in retirement, more today than ever before. The fiction that they are not paying more for others needs to be stopped; the truth needs to be laid bare, spoken boldly, and inequities in the Social Security system need to be put under the bright lights and openly discussed. To date, they have not been. 

By raising the tax cap, those who have earned salaries over the current cap will receive an even smaller percentage of their salary in the form of Social Security as compared to low-wage and middle-wage earners. So remind me again why this continuing burden on those who work the hardest, strive and risk and sacrifice the most, that have put more in over the passage of time, not being rewarded -- and why is this added burden on them not, in the end, proof that they continue to pay more than their “fair share”? 

The sad fact is that the present leadership -- in many parts of the Federal government -- seems intent on obfuscating the truth, and in the process punishing, diminishing, and disparaging the hard work of seniors. It is time that the truth was plainly spoken, and that the hard-won benefits of seniors who have put more into the system and at a higher level, those who have worked harder for America over their many years, were not ignored.

These many seniors -- the ones who worked hardest and paid the most into the Social Security system -- are the ones most regularly punished by an inequitable Social Security payment system, one that penalizes their hard work in retirement. The irony is that they pay more than their fair share and always have. And yet we have a president, and many around him, who are intent on placing the burdens of runaway Federal profligacy on their backs. Shall we talk fairness, then? Who would call that fair? Bold and honest leadership that appreciates them, treats them fairly, and recognizes the hard work to which they have given their lives -- and the tremendous gift that hard work is to their country -- is needed. 

Dan Weber is the President of AMAC, a senior citizens group that represents 1.3 million Americans and seeks greater fidelity to fiscal responsibility by the Federal Government. 
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By Jeffrey Folks, November 15, 2011

A recent census report disclosed that the wealth gap between seniors and younger Americans is at an all-time high. Those over 65 have accumulated $170,494 in total assets, while those between 25-34 had a net worth of $3,662 -- a difference of 47-to-1. Media commentators floated a variety of reasons for this supposed inequity: globalization, bad timing, and government retirement programs that supposedly transfer wealth from young to old. The real reason, I believe, has more to do with the choices that the young have made.

One of the most important generational differences has to do with home ownership. Those over 65 typically purchased homes at a time when prices were low and saw the value of their homes increase. Even with recent declines, these homeowners are way ahead on their investment. On the other hand, those who bought in at the height of the market in the mid-2000s have seen the value of their homes decline by an average of 30%. It's not their fault, the liberal media tells us, that they're underwater and behind on their mortgages. They are the victims of the worst housing market in 50 years.

That is an argument that many would like to believe because it absolves delinquent homeowners of responsibility and helps make the case for government-mandated principle forgiveness. Unfortunately, that argument is also largely bogus.

For one thing, most of those now underwater did not buy precisely at the market top. They bought before or after the top, saw their home prices rise or decline, and now sit on an investment that may be somewhat above or below what they actually paid for the property. On average, the current value of homes purchased in 2002 or 2003 is about the same as the purchase price. Many homeowners now find themselves underwater not because they bought at the market peak, but because they purchased a more expensive home than they could afford, and because they borrowed against its value as home prices increased.

In other words, they made no allowance for risk. They bought beyond their means, often after submitting fraudulent loan applications, and then they borrowed more as the value of the property peaked. They were the victims not of bad timing but of their own bad judgment.

Compare this behavior with that of Americans over 65 -- those with a net worth of $170,494. This generation purchased "starter homes" in the 1950s and 1960s, normally with a down payment of 5% to 20% on a fixed 30-year loan. These homes were modestly priced in relation to their buyers' incomes. (The median home price in 1950 was $7,354 compared to $172,800 in 2008.) As their incomes grew, those now over 65 moved up to larger homes, but their ambition was always to pay off their loans before retirement. Except in a real emergency, they did not take out home equity lines of credit.

In too many cases, younger Americans attempted to game the system by purchasing expensive homes, borrowing against the value of those homes, and hoping that home prices would continue to rise. But it was not just housing where they were gaming the system. They were doing much the same thing in regard to the job market.

Typically, Americans over 65 sought the best education they could afford, obtained stable employment, and worked for decades with the same employer. Even those who completed only a high school degree were well-educated -- more so than high school graduates today. The evidence of college entrance scores is telling: SATs scores peaked in 1963 and have declined ever since -- so much so that testing agencies have felt compelled to adjust the difficulty of exams and recalibrate scores in response to declining aptitudes. For whatever reasons, young people today are poorly educated in comparison with those over 65.

As to why graduates are poorly prepared, it is not that they are less intelligent: they have simply not worked as hard as previous generations. Large numbers of college students have chosen "soft majors" over more demanding fields in science, math, and engineering. And among all students, there has been a declining commitment to study. Among current college students, time devoted to homework has declined by half as compared to the baby-boomer generation. The loss of 13 hours per week, over a four-year period, means that today's college graduate has studied some 2,000 hours less than a 1965 graduate. No wonder he seems poorly prepared; he is.

This failure to obtain an education translates into lower earnings. CEOs and human resources managers often complain that younger workers are not well-prepared. A Business Roundtable report stressed the "overall inadequate level of education" among graduates entering the workforce. In a workplace that increasingly requires more than a high school education (63% of new jobs will require at least some college and 45% a college degree), less than 30% are college graduates.

In the same vein, a report issued by the Conference Board noted that younger workers lack "basic knowledge and skills." But it is not just preparation. Managers complain that the "generational characteristics" of millennials include the need for instant gratification, unwillingness to work long hours, and a lack of respect for rules and authority. As a group, younger workers are just not as disciplined or hardworking as their elders.

The whole argument that the young are the unfortunate victims of bad timing, unfair trade practices, or generational wealth transfers does not hold up. Every generation has faced challenges (the Great Depression, World War II, the Vietnam War, the severe recession and inflation of the 1970s and early 1980s), but earlier generations prepared for hard times by studying and working hard, obtaining stable employment, avoiding debt, and saving for retirement.

What separates the young today from earlier generations is their choices, not their luck. Among past generations, taking on debt was accompanied by a sense of moral hazard. The possibility of bankruptcy was frightening not only for economic reasons, but for moral ones as well. Bankruptcy was considered a lifelong stain on one's reputation. Today it is seen as a temporary hit to one's credit rating.

It's no mystery as to why younger Americans have an average net worth of only $3,662. So far, as a group, they have made all the wrong choices. Bad choices have consequences, and for the Millennials, the consequences will be reduced lifetime earnings, a lower standard of living, and a less comfortable retirement. This is not the fault of their elders, and it is not a situation that can or should be addressed with a government bailout. As a generation, those under 35 will never recoup what they have lost as a result of their poor choices. The best they can do is to redouble their efforts, focus on saving and paying off their homes, and trust that they will be rewarded with at least an acceptable if not a prosperous retirement.

Jeffrey Folks is the author of many books on American culture, most recently Heartland of the Imagination (2011).

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JULY 2007


In Human Events, for the week of June 25, 2007, Terrence P. Jeffrey, writes about a boy who was born in September 1991.  By the time he was seven -- according to W-2 reports bearing his Social Security Number (SSN) -- he had taken multiple jobs.  From 1998 to 2001, employers filed more than 3900 W-2s using his SSN. When he was 12, they boy was holding down 919 jobs in 42 states.

This information was published in a 2005 audit report from the Social Security Administration's (SSA) inspector general.  The absurdity of the law as it now exists in that if the SSA were to discover that someone was misusing your SSN, they can't tell you about it.  Instead, they try to contact the employee who used your number and the employer who accepted it.

Employers who turn in a lot of no-match SSNs get lots of letters.  They have the ability to check on SSNs by phone and on-line.  They have the ability to obey the law if they wish to do so.

Under present law, the only disclosure allowed by the SSA of no-match numbers is to law enforcement agencies.  The SSA, however, cannot refer cases to law enforcement agencies.  They cannot report these no-match numbers to the Department of Homeland Security -- the agency which is charged with enforcement of the immigration laws.

Mr. Jeffrey suggests that Congress (which is well aware of this problem) pass a law mandating that the SSA hand over lists of no-match numbers, particularly involving employers who are egregious filers of no-match W-2s.

He finishes his piece with this piece of wisdom: "Who knows? They might discover that, like that child born in 1991, you, too, have been holding down several hundred jobs you didn't know about."

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MARCH 2001

Editorial by Maureen H. Rudel

It is disconcerting to hear people say the federal government should "save Social Security first."  The federal government cannot save money.  It can only spend money.  Let me explain.

At the present time, payroll taxes collected from current workers exceed the current cost of Social Security and Medicare payments to retirees.  The extra money is called the "Social Security surplus."  Unlike people, companies and even state governments, the federal government does not have a way to invest the money and earn interest.  This is good, because a lot of mischief could be caused if Congress or the Executive Branch had the freedom to pick and choose the winners and losers in the market place.  So, what happens to the excess money?

The so-called "Social Security Trust Fund"  does not have a nickel of real money in it.  It holds special bonds which cannot be sold on the market and which represent a debt from the government to itself.  If the "Trust Funds" (and there are many of them) are the left pocket of a pair of pants, the right pocket holds the rest of the funds which flow through the federal government.  When there is extra money in the left pocket, it is moved to the right pocket and replaced with an IOU. The money in the right pocket is spent on government programs and to pay interest on the national debt.

The debt is made up of two parts.  The first part is the money that the government borrowed from the public through issuing treasury notes, bills and bonds (like savings bonds).  Each of these bear an interest rate and the interest must be paid when it comes due.  From time to time, each of these instruments expire and can be redeemed, just like a savings bond.  The government then must pay the face value of the instrument as well as the interest due.  In previous years, the government would then go out and borrow more money to replace the money it just paid out.  Now that we have surpluses, the government is not borrowing from the public by issuing more debt instruments, it is borrowing from Social Security, Medicare and other trusts funds.  These are the other part of the debt.  This is why you hear politicians talk about paying down the "public debt."  What they don't tell you is that the debt owed to Trust Funds is going up every year.  The only way to pay that off is with future taxes.

The money that was once paid by a worker for Social Security and Medicare is then spent on other programs.

There are two ways to stop the theft of this money.  One way is to lower the payroll taxes so they only bring in enough to pay off current retirees.  However, this leaves a major problem for current workers when they become retirees, because there are simply not enough people who will be working when the baby boomers retire to pay the costs of their benefits and still have any money left to live on.  It has been estimated that, if there are no changes to the systems, the baby boomers children and grandchildren would have to pay 85% of their income in taxes to cover the Social Security and Medicare payments to the boomers.

This is why the systems must be changed.  The other way to stop the theft of the Trust Fund money is to effectively take it out of the government's hands.  That is the purpose of creating individual accounts for younger workers.  Since there is so much extra Social Security money coming in right now, the extra money could be used to establish separate accounts for current workers and still pay off the people who are already retired or are very close to retirement.  The worker would have a choice of whether or not he wanted to stay on the old system or try the new system.  If they went on the new system, a part of their social security taxes would be invested in an account in their names.  They would be able to choose from a variety of safe investments -- all of which would produce much higher returns than the IOUs in the Social Security Trust Fund -- which now returns about 2%.  The accounts belong to them, not the government, so they can't be spent and Congress does not get to decide whether it can change or lower the payments from those accounts as it can for regular Social Security.  If the worker dies before he reaches retirement age, the private account would go to his family.  Now, he loses it.

The rest of the Social Security payroll tax would be used to pay off current retirees and to maintain the death and disability insurance benefits that exist now.

The Medicare excess payments that are now being generated could be used to set up a different system.  The one proposed by President George W. Bush would work like the system the federal employees have now.  There would be a choice of policies or medical programs offered to each retiree.  The recipient would be given an amount of money to apply to the premium for the program he chose.  If the recipient wanted better coverage, he could add to the money he received and get it.  If he wanted to get a policy which contained prescription drug coverage, (because he didn't have it elsewhere, for example) he could get it.  If he decided to stay with the old Medicare, he could do it.  The choice is in the hands of the citizen, not Congress and not a bureaucrat.

This is the approach that President Bush favors and so do I, because I know the truth.

There is no "Lockbox."

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MARCH 1999


Clinton keeps saying he wants to "Fix Social Security First." The question is whether his proposal does it. The answer is "NO."

Since 1983 when the "bipartisan" committee to save social security met and came up with a plan, the Social Security system has been running a surplus. When it was first designed and to 1983, Social Security was a pay-as-you-go program. The money that came in from working people went immediately out to retirees to pay their benefits. Since the 1983 plan has been implemented, the Social Security taxes were raised tremendously and there has been more money coming into the system than was necessary to pay retirees. The money that is not needed to fund immediate benefits is "invested" in special U.S. Treasury bonds which are not negotiable and earn a real rate of return of less than 2%.

In plain words, the Social Security "Trust Fund" holds IOUs which will have to be paid back by future taxpayers. The money that came from the IOUs is spent by Congress and the President to fund other government programs.

It was Lyndon Johnson, during the Viet Nam War, who came up with the idea of a "unified budget" which put all of the "Trust Funds" (gas tax, airport taxes, Social Security, etc.) together with money that came in every year in general tax revenue so that the size of the deficit would be masked. That way, the money which was supposed to go for a specific purpose (roads, airports, Social Security payments, etc.) was NOT necessarily spent for the purpose intended, but could be used for general expenses. In exchange, all of these "Trust Funds" got IOUs. The unified budget is still in use today.

The problem with Social Security is not just the fact that all of the extra money which came in has been spent, but that the "Baby Boomers" will be retiring soon and living longer and there will not be enough workers behind them to pay for their Social Security benefits unless they pay up to 82% of their income for Social Security taxes. So a real solution really is needed if the Social Security system is to survive.

The Administration's plan is to take either all or most of the extra money which comes in from Social Security taxes now and to pay off "Public Debt." By this they mean that when someone cashes in a U.S. Savings Bond or other debt instrument issued by the Treasury to outside buyers, the person will get paid off with extra social security money. This might have some merit if the plan were actually to reduce the debt. That is not the plan.

Because Clinton wants to keep spending at the same or higher levels, he still wants to spend the extra Social Security money while he says he is saving it. He does this by giving the Social Security "Trust Fund" MORE IOUs. He does not use the extra money to retire IOUs already in the Trust Fund, he just adds more of them. That means that the future taxpayers will have to pay off that many more IOUs.

Treasury Sec. Robert Rubin says that this is a good plan because it substitutes "public debt" for "private debt" (the debt the government owes to pay off all of these trust fund IOUs) and in the future, Congress, the future Presidents and the American public will feel a special obligation to pay those debts first. Since they don't feel that obligation at the present time, this is a highly dubious proposition.

In addition, if "the Government" can find a little money somewhere, Clinton wants to have "the Government" invest a few of these dollars in the stock markets to get a better rate of return. Federal Reserve Chairman, Alan Greenspan, has indicated that allowing "the Government" to invest the Social Security funds in the stock market is a terrible idea because of the danger of politicizing the investment decisions. He favors paying down the debt and lowering spending but, if that can't be done, he favors giving the taxpayers at least some of their money back so it doesn't all get spent on new and larger programs.

The plan which has been raised by Rep. John Kasich, R-Ohio, Chairman of the Budget Committee, is to allow future retirees to choose to put some of their Social Security taxes in their own investment account. This will allow those who are now in their early earning years to take advantage of the effect of higher interest rates over a long period of time to build an account for their own retirement which will belong to them, not be subject to being spent by "The Government", and not only will provide far higher benefits than Social Security can, but also will belong to their heirs in the event they do not spend it all before they die. The rest of the Social Security tax money that is not invested in the private accounts will be used to pay benefits for those who are now, or soon will be, on Social Security and to pay the premiums necessary to fund the disability and death benefits that Social Security also provides.

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