Social Security’s Demographic Tsunami

by | Mar 5, 2005

“Santa Claus. The Tooth Fairy. Social Security. It’s Time for E*Trade.” That’s the message on a San Francisco billboard. It’s saying that stock trading on the Internet provides a better shot at a secure retirement than depending on the government. House Minority Leader Nancy Pelosi, D-Calif., less enthusiastic about the market, warns that President Bush’s […]

“Santa Claus. The Tooth Fairy. Social Security. It’s Time for E*Trade.” That’s the message on a San Francisco billboard. It’s saying that stock trading on the Internet provides a better shot at a secure retirement than depending on the government.

House Minority Leader Nancy Pelosi, D-Calif., less enthusiastic about the market, warns that President Bush’s plan to allow workers to privatize and invest a portion of their Social Security taxes “turns a guaranteed benefit into a guaranteed gamble.”

She’s right about the “guaranteed gamble” part. Most things are a “gamble.” Picking a major in college is a surefire gamble. So is getting married or switching jobs or jumping out of a perfectly good airplane and hoping the parachute isn’t on the blink.

One might even say that not “gambling” in life is the equivalent of death. And even then we’re betting on whether we’re going up, down or nowhere. Or as Edmund Burke put it, “Gambling is a principle inherent in nature.”

Conversely, Pelosi is wrong about the “guaranteed benefit” in Social Security. In Flemming v. Nestor, the U.S. Supreme Court ruled in 1960 that we don’t have a legal right to a dime in Social Security benefits. Payroll taxes, said the court, are just that — taxes, not “contributions” to an assured or fail-safe program of defined benefits.

In the eyes of the law, Social Security retirement checks are no different than the subsidy checks that farmers get for not growing wheat. Either set of payouts can be reduced or eliminated by a vote in Congress. Simply stated, Social Security is a legislated and changeable entitlement, like food stamps, and not a contract.

What is guaranteed about Social Security is that it’s facing a demographic tsunami. In 1940, there were 42 workers per retiree. The ratio today is down to 3-to-1 and it’ll be 2-to-1 before today’s 20-year-olds are eligible for Early Birds.

More young immigrants would help, but a recent report by Stuart Anderson, a senior official at the Immigration and Naturalization Service in President Bush’s first term, concludes that a hefty 33 percent jump in immigration over the next 75 years would only trim Social Security’s impending multitrillion-dollar deficit by 10 percent. More domestic babies would also help, but there aren’t enough evangelicals to turn things around.

The first well-publicized crunch comes when today’s 20-year-olds are 33 and the amount of money collected per year in payroll taxes begins to fall short of what’s needed for annual benefit outlays.

The second moment of truth, according to the 2004 Annual Report of the Social Security and Medicare boards of trustees, comes when today’s 20-year-olds are 57 and there’s nothing left of the “trust fund” reserves.

The problem is that tomorrow’s workers might well not be able or willing to erase the red ink in a system where the number of retirees is projected to increase by 100 percent by 2030, to 70 million, while the number of workers is expected to rise by only 20 percent.

As it already stands, a median-income American family is paying more in taxes than it spends on food, clothing and medical care combined. In 1955, for instance, the typical one-earner family paid 17 percent of its income in taxes. Today, that’s more than doubled to 38 percent.

Things were cheap when Franklin Roosevelt succeeded in pushing the Social Security plan through Congress in 1935. The maximum tax was 2 percent on a worker’s first $3,000, or $5 per month. Benefits didn’t commence until age 65, and life expectancy at birth was 58 for men and 62 for women. Among men who survived to age 21, only about half managed to make it to 65.

All told, we’re way past the point where doing nothing is the best answer.

Ralph R. Reiland is the B. Kenneth Simon professor of free enterprise at Robert Morris University in Pittsburgh.

The views expressed above represent those of the author and do not necessarily represent the views of the editors and publishers of Capitalism Magazine. Capitalism Magazine sometimes publishes articles we disagree with because we think the article provides information, or a contrasting point of view, that may be of value to our readers.

Have a comment?

Post your response in our Capitalism Community on X.

Related articles

The Young in America Turn Against Capitalism

The Young in America Turn Against Capitalism

If young people worry and wonder about their retirement future, their health care, and medical needs, their chance to afford a place to live, and a reasonable possibility for their lives to be better and more prosperous than their parents, it is precisely because government over the decades has either taken over or heavy- handedly imposed itself over all these and other sectors of the American economy — and brought them to financial crisis and imbalance.

The Justice of an All-Volunteer Military

The Justice of an All-Volunteer Military

The most equitable and just sharing of the burden of America’s military is assured by its all-volunteer nature, and that conscription would be inequitable and unjust.

No spam. Unsubscribe anytime.

Pin It on Pinterest