What Social Security Crisis

In 1935, wealthy liberal do-gooder Franklin Delano Roosevelt, the most notorious violator of Constitutional federalism in the 20th Century, found a clause in that venerable document authorizing the central government to provide retirement benefits for all Americans. Apparently, 100 years earlier, that clause did not exist. So claimed another Democrat, Tennessee's Davy Crockett, who rose on the floor of Congress and chastised his colleagues for their proposal to appropriate benefits for the widow of a distinguished naval officer.

Crockett protested: "I will not go into an argument to prove that Congress has no power to appropriate this money as an act of charity. Every member upon this floor knows it. We have the right, as individuals, to give away as much of our own money as we please in charity; but as members of Congress we...have not the semblance of authority to appropriate it as a charity."

Crockett was echoing the words of our Constitution's author, James Madison, who said, most eloquently, "I cannot undertake to lay my finger on that article of the Constitution which granted a right to Congress of expending, on objects of benevolence, the money of their constituents...." Madison further noted, "If Congress can do whatever in their discretion can be done by money, and will promote the General Welfare, the Government is no longer a limited one, possessing enumerated powers, but an indefinite one, subject to particular exceptions."

However, those words were long lost on FDR, who eviscerated federalism in his relentless endeavor to make the central government the agent of salvation for all ills. In June of 1934, he announced to Congress one lasting example of that endeavor -- his intent to create a nationalized Social Security program, ushering the United States into the ranks of Europe's welfare democracies. The nation was in the midst of the Great Depression, and FDR was funding his political dynasty by redistributing wealth. After all, as noted by George Bernard Shaw, "A government that robs Peter to pay Paul can always depend upon the support of Paul." FDR's plan, like all unbridled populist-entitlement programs, was popular with the democratic majority -- and helped ensure his re-election to office three times.

Social Security's first beneficiary was Ernest Ackerman of Cleveland, Ohio, who retired one day after the Social Security Act was signed into law 14 August 1935. A nickel was withheld from Ackerman's final paycheck, but he received his one-time lump-sum Social Security payment ... 17 cents.

That 12-cent return was the beginning of unforeseen things to come. Soon, congressional amendments added benefits for spouses, minor children and survivors, and by 1950 the program assured virtually universal coverage. 1972 saw the addition of the Supplemental Security Income

(SSI) program (AKA "welfare"), and by 1975 the addition of annual Cost of Living Adjustments (COLAs) assured the SS juggernaut's exponential growth. In 1977, Medicare became an independent entitlement, spun off from the Social Security system. Today, despite its humble beginnings, the Social Security system confronts our young people with the grim prospect of paying for unfunded promises made to past generations.

Notwithstanding the "welfare reform" acts of the 1990s, when Social Security turned 65, SSI benefits covered 6,688,489 Americans at a cost of $32,165,856,000, while Social Security itself disbursed some $431,949,000,000 to 45,877,506 beneficiaries. However, those staggering numbers are mere chump change compared to what lies ahead.

President George W. Bush's modest proposal to reform Social Security appears to be a good start at diverting this behemoth from its collision course with insolvency. Predictably, though, the latest retort from the Left is, "What insolvency? What crisis?" Indeed, these do-nothing Demos claim the Fed's IOUs in Social Security's so-called "trust fund,"

combined with minor tweaks to the system, will keep it solvent for generations.

Well, not exactly. Unless Democrats plan to "tweak" the system by increasing both the retirement age and the current 12.4% SS tax, adding more government debt and reducing benefits, Social Security will not have the revenues to refund current IOUs and meet the SS revenue shortfall. IOUs? For generations, every dime forcibly taken from worker paychecks -- ostensibly to finance the non-existent SS "trust fund" -- has been taken from that fund and applied to other massive entitlement programs.

Social Security outlays now consume 4.28 percent of GDP but will exceed 6 percent in 20 years. There are two reasons for this growth:

demographics and benefits increases.

There are 48 million Social Security beneficiaries today, but in 2030 there will be 84 million. In 1950, there were 16 SS taxpayers for every recipient. Now there are only 3.3 taxpayers for every recipient, and that will be reduced 30 percent by 2030. Additionally, when SSI was formed, life-expectancy was 61 years, which is to say, most Americans did not make it to 65. Now, however, average life expectancy is 77.

The second reason for the SSI balloon is that benefits have not been indexed to inflation. Future retirees are being guaranteed retirement increases that grow substantially faster than inflation.

Social Security, as currently managed, will incur an estimated unfunded liability of 27 trillion 2003 dollars over the next 75 years. To offset this jaw-slackening shortfall, President Bush has proposed the incremental privatization of some SSI taxes by allowing individuals under age 55 to invest in personal retirement accounts (PRAs). Additionally, Congress must resolve to index benefits to inflation.

The President's three-year PRA opt-in for SSI taxpayers born after 1950 would allow them to put up to four percent of their wages in their PRAs. At retirement, those invested in PRAs would be guaranteed to receive at least what their payout would be if they only had SSI income. But those beneficiaries whose PRAs have a higher return can share in that return, which reduces the burden on the SSI fund, and the principal balance is fully inheritable.

from The Federalist