Social Security set the stage and the pattern for our government’s financial problems.  It was intended to be self sustaining, with individual contributions calculated to meet future costs.  Of course, it didn’t end up working out that way.  The government didn’t foresee the great leap in average life expectancy.  As the basic assumptions of the program changed, Congress did not sufficiently adjust worker payments into the system or the retirement dates.  Those who started collecting Social Security early on received many, many times what they actually put into it, including interest.  When the program was started in 1937, the yearly individual payment was only 1% of salary with a maximum taxable salary base of $3,000, matched by the employer (only $60!).   Now the payment is 6.2% of salary with a salary base of $106,800, or $13,243. This is 220 times more than when it started. 

 

Since its inception, Social Security taxes have exceeded payments by $2.5 trillion.  This excess money is supposedly in the “Social Security Trust Fund”.  However, all the money in the fund was lent back to the government to use for other programs.  In other words, that $2.5 trillion is already spent.  Don’t believe the repeated line that Social Security is still strong because of this supposed surplus. Social Security payments will be going up in future years to cover the retiring Baby Boom generation, and that extra money will have to come from raising taxes, cutting expenses, or borrowing money, just like any other government program. 

 

One reason Congress thought they could get away with spending the Social Security surplus was an ssumption that growth in the number of workers would pay for a rising number of Social Security recipients.   Once again, that assumption turned out to be way off.  Americans aren’t having the number of children we had in the past. Right now, the country’s birth rate is just barely above the level needed to keep population at its current level.  In 1945, there were 45 workers per Social Security recipient.  Now there are only 3.3 workers per recipient and that number is expected to decline even further.  Does that seem sustainable to you?  It is obvious why major reforms (otherwise known as breaking promises) will be needed. The Heritage Foundation says that Social Security would need $7.9 trillion today to meet its promises, or an immediate increase in the payroll tax rate from 6.2% to 7.12%, matched by employers.  

 

Social Security started Congress’s pattern of coming up with entitlement programs, grossly underestimating costs, and failing to fix mistakes as they became known.  Actually fixing mistakes would hurt taxpayers and the program beneficiaries, but more importantly, hurt their re-election chances.  Better just to put the cost off until after their retirement from office.