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Social Insecurity

March 20, 2012

We want to keep the yellow line above the x-axis.

Social Security, Medicare, Medicaid expenses expected to nearly double by 2020

Take a look at our federal deficit, and it is easy to see that we need smaller government and to cut wasteful spending. However, these statements alone don’t get us where we need to be to have a balanced budget and to begin to pay off our federal debt.

Forty-one percent of the federal budget — approximately $1.4 trillion — goes to Social Security, Medicare and Medicaid. These government programs have lifted millions of seniors out of poverty and have provided health care for thousands who would not have it otherwise.

These are good things, but we cannot continue to do what we are doing much longer. As more baby boomers retire, expenses for these three programs are expected to nearly double by 2020 to about $2.7 trillion, at a time that our 2012 federal budget already has a more than $1 trillion deficit.

According to the Peter G. Peterson Foundation, Social Security was created in 1935. It currently provides retirement, disability and survivor benefits to approximately 53 million Americans. In 2008, reports show that this program kept approximately 20 million Americans out of poverty.

The demographics that made this program work are changing. There were approximately 16 workers paying taxes to support 1 retiree in 1950; by 2040, there will only be two workers paying taxes to support one retiree.

If this is a program we want to continue, we need to make some decisions. To make this a viable program as a country, we will need to reduce the benefits, increase the revenue to fund the program, or a combination of both.

Reducing the benefits could take a wide variety of forms. As people continue to live longer lives, it could be changed to have Social Security benefits kick in later in life. When the program first began, the average life expectancy was only a couple of years past the retirement age. Now, life expectancy is a full decade past the time period of full retirement benefits through Social Security, with many people living multiple decades after retirement.

The other major choice could be to increase the amount of revenue collected from workers. Currently a payroll tax of 10.4 percent funds Social Security with 4.2 percent coming from the employee’s check and 6.2 percent coming from the employer. For the past year and a half, this is two percent less than it usually is as the employee tax was reduced from 6.2 percent to 4.2 percent to help stimulate the economy.

It is easy to see on your paycheck the huge chunk of the money going to FICA. This 10.4 percent is only collected on the first $110,100; any additional income is not subject to Social Security taxes.

To raise revenue for Social Security, we could increase taxes on everyone from the 10.4 percent to a higher percent, or we could increase the amount of income on which Social Security is taxed.

Generally, we don’t like either option of increasing revenue or decreasing benefits. The CEO of AARP, A. Barry Rand, was quoted this past June saying, “Let me be clear — AARP will not accept any cuts of any kind to Social Security as part of a deal to pay the nation’s bills.”

On the other side of the issue is the opposition to increasing revenue. Grover Norquist, president of Americans for Tax Reform, has had 238 U.S. Representatives and 41 U.S. Senators sign a pledge to oppose all tax increases or elimination of deductions. With this large of a group in support of not raising revenues, it will be hard in the current political climate to raise taxes for Social Security.

The answer probably best fits in a combination of raising revenue and reducing benefits. This is the debate we should be having as a country. Instead we have members on both sides of the issue digging in their heels to oppose all benefit reductions or revenue increases.

This stance is putting us in our current situation where we are making our future worse every day we don’t act. It isn’t a good situation. There is not a magic bullet that will cure this problem. It is important to look at the facts, and then begin to come up with a workable solution.

On an individual level, there are a couple of things you should be doing. First, especially if you are younger, save up for retirement so you have some resources if drastic changes need to be made to Social Security in the future. It is nice government wants to help us, but we shouldn’t depend or count on it.

If you can come up with your own retirement fund that can help you live the life you want to after you are done working, then this isn’t an issue that could determine if you live your last years in poverty or not.

Second, we need to let our elected officials know we are willing to make sacrifices now for the good of this country. Tell them it is O.K. to bring up the idea of raising revenue or reducing benefits. Let them know that they won’t lose your vote if they are willing to disagree with AARP or Grover Norquist. Let them know there are enough independent thinking individuals, not special interest groups, who will control the outcome of elections.

The more educated we become, and the more we are willing to support tough debate and decisions, the more our government will be able to make wise choices to benefit our country’s future.

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