Friday, May 5, 2017

The nation of Seguridad

I have a crazy theory that there is another nation within the United States called the nation of Social Security.  I will call this hypothetical nation "Seguridad", (the Spanish translation of Security).  A "nation" is a community of people who share a common language, culture, ethnicity, descent, or history.  For instance, the Navajo Nation is a nation within the United States, that the US Government recognizes as sovereign for some purposes.

Seguridad is also sovereign for some purposes.  The "president" of Seguridad is the Social Security Commissioner, currently Nancy Berryhill.  Social Security begin in 1935 with the Social Security Act signed by Franklin Delano Roosevelt.  It was specifically designed to be a social contract and not a welfare program.  The difference is that a welfare program is funded each year and it can be arbitrarily cut if Congress wants to.  Everyone receiving Social Security today also paid into it and feels like they have "earned" the benefits, even if they receive far more than they paid in.

Social Security became "Seguridad" in 1983 with the passage of the amendments recommended by the Greenspan Commission.  The exact date was April 20, 1983, when the Great Communicator, President Ronald Reagan, signed the amendments into law.  This was a proclamation that granted Seguridad independence.  Note that Social Security is "off-budget" and has a separate funding source and dedicated trust fund.  Also note that there is a cap on Social Security taxes so they are only paid on the first $127,000 of taxable income.  This is only fair because there is also a maximum benefit that can be paid and this reinforces the idea that benefits are "earned".

The effect is that Seguridad, although formed by acts of Congress, has become independent of it and can't be abolished by it.  Seguridad has assets of about $2.85 trillion, which are owed by the U.S. Treasury and which collect interest of about 2-3% per year.

Where I am going with this is that Seguridad will face a "war" with the U.S. in about 2029 unless something drastic changes.  And these proposals are off the table:
  • Benefits cannot be cut.  Congress has no authority to cut benefits, any more than King George could tax Boston tea after the American Revolution.  (Well, legally they could cut benefits a little, but this wouldn't be enough to make a difference, and this would be a breach of the social contract).
  • Social Security taxes cannot be raised.  They are already at 12.4% (when both employee and employer rates are included).  Actually they could be raised slightly, but they couldn't be raised enough to make a meaningful difference.  People would rebel if they were raised much higher.
  • The United States cannot contribute to make up the shortfall.  They can't for two reasons:  First, Social Security is supposed to be independent, and if general fund taxes are contributed, then this would make Social Security into a welfare program.  Second, even if it is clear that this is a "gift", the US cannot afford to pay enough to make a difference.  We are talking about $500 billion per year and rising rapidly.  And this is at a time when it will be facing massive deficits due to interest and rising health costs.
Note that I am excluding Medicare and Medicaid from this analysis because I believe that they are ultimately welfare programs and can be cut (even though there is a Medicare trust fund).  Note there is no cap on Medicare taxes, and there is even a Medicare surtax on incomes above $200,000.  Social Security benefits are paid to the recipient.  Medicare is paid to the healthcare provider.  I think this is a fundamental difference.

We are headed for a disaster, and I mostly blame the fools who got us into this mess, namely FDR and Reagan.  Yes, Reagan was a fool - he should have made it clear that the 1983 amendments were only a temporary fix.

Here are remarks from a speech Reagan made on April 20, 1983 (emphasis mine):
This bill demonstrates for all time our Nation’s ironclad commitment to Social Security. It assures the elderly that America will always keep the promises made in troubled times a half a century ago. It assures those who are still working that they, too, have a pact with the future. From this day forward, they have our pledge that they will get their fair share of benefits when they retire . . . . Our elderly need no longer fear that the checks they depend on will be stopped or reduced. These amendments protect them. Americans of middle age need no longer worry whether their career-long investment will pay off. These amendments guarantee it. And younger people can feel confident that Social Security will still be around when they need it to cushion their retirement.

People in the American territories - Puerto Rico, US Virgin Islands, Guam, American Samoa, and Northern Mariana Islands - are part of the Social Security System.  However, they don't pay income taxes to the U.S. Treasury.  Hmm, think about that.

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