Social Security: What's the Recipe?

What’s the Recipe (video)
The year was 1929; the stock market had crashed, and the great depression was taking its toll; putting food on the table was a daily struggle.  Americans were engaged in a battle for economic survival, and funds for the golden years had been lost. To fill this void, our government created Social Security, an economic safety net for seniors who had lost so much.  Signed into law in 1935, Social Security was based on one generation of workers funding another generation of retirees through a payroll tax. 

After a series of challenges, the Supreme Court found Social Security to be constitutional and in 1937, Social Security began receiving 2% of the first $3,000 of a worker’s annual wages, or a maximum of $60 annually. In 2010, Social Security received 12.4% of every dollar earned up to the annual wage cap of $106,800, or a maximum of $13,243 annually. On January 31st 1940, the first monthly Social Security benefit check was issued to Ida May Fuller. Ida May lived to be 100, paid a total of $24.75 in Social Security taxes and collected $22,888.92 in Social Security retirement benefits. Social Security was a great deal for Ida May Fuller. 

As you review the following information, think about Grandma mixing up a strawberry cake in her mixing bowl. She’s added all the ingredients the recipe calls for, and puts the mix in the baking pan. Several minutes later, she pulls the cake out of the oven. Do you think Grandma is shocked to find a strawberry cake in the baking pan? Of course she isn’t. Why? Because she used a recipe that says you’ll end up with a strawberry cake if you follow the directions.  Foreclosures, depressed home values, bankruptcies, lost jobs; middle class working Americans are struggling financially today. Do you think it just happened or do you think we’re getting what the recipe called for?

Like the maple tree, social security takes on a new look with the comings and goings of each political season. Over time, Social Security has gone from the good, to the bad, to the ugly. Good in that one generation of worker contributions have lifted another generation of retirees above the poverty level. Bad, in that Social Security taxes have consumed an ever increasing portion of average working American’s paychecks. Ugly in that since 1983, every excess Social Security retirement dollar contribution has been turned into a new retirement dollar debt, putting millions of working Americans, their families, and the communities they call home at financial risk.

The Bad
Like a well oiled Pacman, Social Security taxes have consumed an ever increasing bite out of the paychecks of average working Americans over the decades. For example, over a 45-year working lifetime, Social Security received an average of 1.6% of a 1960 retirees lifetime wage. Over the 45 year working lifetime of a 1980 retiree, Social Security received an average of 5.15% of their working lifetime wage. For a 2000 retiree, Social Security received  an average of 9.66% of their 45 year working lifetime wage. For those who just started work in 2010, Social Security received 12.4% of every dollar they earned that fell below the wage cap of $106,800 annually. Do you see a Pacman taxing trend here; 1.6% to 5.15% to 9.66% to 12.4%?  What will our children and grandchildren be paying if we don’t cut the head off of this taxing Pacman, 15, 20 or even 30%? Is it part of the recipe? (video)

More Bad
Social Security retirement benefits are based on the relationship between your average wages over a period of time, and the Social Security wage cap. To attain maximum Social Security benefits at retirement time, one's annual wages must meet or exceed the annual Social Security wage cap. Over a period of years, millions of average working Americans' annual wages have increased at a slower rate than the Social Security wage cap, resulting in significant reductions in Social Security benefits at retirement time.

To demonstrate, in 1970 the annual Social Security wage cap was $7,800, and the average annual wage was $9,350, or 20% greater than the Social Security wage cap. Maintaining this wage/wage cap relationship means maximum Social Security benefits at retirement time. By 1990, the Social Security wage cap had increased 558% to $51,300, while the average wages increased only 209% to $28,930 annually, resulting in significant reductions in Social Security retirement benefits. By 2010, the Social Security wage cap had increased another 108% to $106,800 annually, while average wages were increasing only 46% to $39,423, further eroding Social Security retirement benefits. Is it any wonder that middle class working Americans are taking Walmart greeter jobs in their golden years; it’s the recipe (video).

Original funding for Social Security was known as pay as you go taxing structure, meaning for every dollar Social Security received from workers paychecks, a dollar went out in Social Security retiree benefits, with very little if any imbalance at the end of each accounting period. Any excess Social Security trust fund retirement dollar balance was transferred to the general revenue fund. In exchange for the surplus retirement dollars, the Social Security trust received a unique government financial instrument, known as a special obligation bond, which could be redeemed later when presented to the general revenue fund. From inception through 1985, special obligation bonds held by the Social Security trust fund never exceeded a few billion dollars (video). 

The Ugly
The year was 1980 when Social Security began turning ugly. A rumor was floated that Social Security was on the verge of bankruptcy. This rumor injected fear in the hearts of current and future retirees. The conservative President, Ronald Reagan and the liberal Speaker of the House, Tip O’Neill, appointed a special non-partisan presidential commission to address this issue. As a result, Social Security reform legislation was signed into law in April of 1983. This Social Security reform legislation replaced the old pay-as-you-go taxing structure with a new pay-in-advance taxing scheme to address funding shortfalls, both immediate, and long term (video). 

Both the tax rate and the amount of annual wages subject to Social Security taxes, would be increased over time. Millions of average working Americans began overpaying their Social Security taxes by billions of dollars annually believing that their extra retirement dollar contributions were being earmarked for funding the now-retiring 78 million baby boomers.

To an outsider (like you & me), it appeared as though the pay-in-advance plan was working as the Social Security trust fund balance sheet assets, as represented by special obligation bond holdings, were growing significantly. Additionally, it appeared annual budget deficits were being managed, as the same borrowed retirement dollar appeared as income on the general revenue fund ledger, masking the true size of annual federal budget deficits. Deceit, deception and cover-up are the telltale signs of any affair, and this financial affair has all the telltale signs. 

Revelation that the American people have been dealing with a partner that reneges is not an easy pill to swallow, and learning the full financial details is an even harder truth to face. Since the 1983 pay-in-advance taxing scheme’s inception, $2.6 trillion of potential Social Security trust-fund retirement dollar assets have been turned into $2.6 trillion of retirement debt; a net loss of $5.2 trillion suffered by Main Street, to the benefit of Wall Street .

This begs the question, if the intent was never to set aside the people’s excess retirement dollars for funding the now retiring 78 million baby boomers, then why did they take our money in the first place? Was this a well planned assault on middle-class working Americans, their families and the communities they call home? Was it part of the recipe to create a welfare state? Chances are we’ll never know the answer to that question, but one thing is clear – those same political parties who were pulling the strings in 1983, can’t be trusted to pull the strings again in 2011 (video). 

Now politicians are once again diverting attention by suggesting the solution to the Social Security issue is either raising the retirement age, lowering benefits, or a whole host of other options. Excuse me – been there, done that. We have a little matter of $2.6 trillion of our excess retirement dollars that have been spent on something other than intended; I mean fool me once, shame on you, fool me twice, shame on me.

They’ve used deceit, deception and cover up to keep us in the dark and confused for the last time.  Now It’s ”We the Peoples'“ turn to pull the strings, and promote a real solution that restores middle-class working Americans, their families, and the communities they call home. Join the conversation every weekday morning 9am (eastern):  You may contact the author of these articles at; jgries1@tampabay.rr.com.

Read Part 3