This little story would make a good Stephen King novel. Imagine you are in college and you hear about a big event coming soon. A huge bus is headed to town and it is taking all who hop on to “Easy Street”. You’ve heard of Easy Street, right? It’s a place where your needs are taken care of for the rest of your life – a place where you are comfortable and financially secure. All of your friends are going. It sounds good, but what’s the catch?
There is one thing that you should be aware of though. The road to “Easy Street” is long and treacherous. It winds through steep, frigid mountains and a dry, hot desert. But don’t worry, the bus is climate controlled and you’ll never even notice the dangers outside. You’ll be completely safe inside the bus.
Oh, one other thing. There are no gas stations along the way. That’s why they ask you to bring a couple of gallons of fuel as your price of admission. That’s it. Just add a little fuel to the tank and you are on your way.
The next day the bus arrives. Everyone is lined up with their little red gas cans waiting to pay their fare and get underway. You climb on board.
On the bus, things are pretty cool. There is plenty of room and everyone is partying and having fun. The bus ride continues into the night, stopping occasionally to pick up more riders. Everything looks grand, but you do notice one troubling thing. Looking over the driver’s shoulder, you see that the gas gauge is getting lower and lower. Even though the bus is stopping to pick up more and more riders, the added weight to the bus is causing it to burn more and more fuel. You realize that it’s burning fuel at a faster rate than new riders are adding it to the tank.
“How much farther to Easy Street?” you wonder. If the bus runs out of gas before it gets to Easy Street it’s going to be a disaster. Looking out the window, you can see nothing but desert. No water, no towns, no help. People will surely die out here. Panic sets in. You frantically ask the driver to turn around or let you off at the next stop. He says “No, once you’re on the bus, you can’t get off.”
“What?” you think. “What have I gotten myself into? Why didn’t I check to make sure the tank was full before I got on? Why didn’t I calculate the distance to Easy Street myself to make sure this bus could get us all there? Why did I blindly trust the bus driver without question? ”
The question now is what to do. Should you tell the others? Should you warn new riders not to get on the bus? It is a certain disaster unless something changes. You think of possible solutions, like convincing the driver to ask for more fuel from each rider. Or perhaps a few people on the bus have some heavy luggage that they really don’t need that we can jettison. These ideas are met with scorn. In fact, the driver announces that new riders can get on with LESS fuel. WTF?
This is the part where it usually fades to black and Rod Serling starts narrating that you are about to enter the Twilight Zone…
Unfortunately, reality is far worse. The Social Security Administration provides retirement and disability “insurance” for working Americans. It is a mandatory program. If you earn wages in the US, you must pay into the Social Security and Medicare funds. These are commonly referred to as FICA taxes. FICA stands for the Federal Insurance Contributions Act. The Social Security program was originally sold to the American people as a federally mandated retirement savings plan. It wasn’t really described as a “tax,” it was more like a contribution. It was a great marketing strategy then, but it is now officially a “tax”, according to the Supreme Court. In fact, the new healthcare mandate that is being defended by the Obama administration is considered a “tax”. Otherwise, the federal government wouldn’t have the constitutional authority to impose it. So much for not raising the taxes on folks earning less than $250K, but I digress.
The Social Security fund receives 100% of its revenue from FICA taxes collected from workers and their employers. It gets 6.2% from the employee and another 6.2% from the employer on the first $100K or so that each worker makes. This money is held in a trust fund (invested in “special” US treasury notes) until the worker reaches retirement age or becomes disabled or dies. The “sharing” of the tax between employee and employer is just another accounting gimmick. Any employer calculates the true cost of hiring someone, including taxes, insurance, and other benefits beforehand. I guess it makes people feel better to think that they are only paying half. By the way, self-employed people have to pay the whole 12.4%. But, again, I digress.
Ok, so what the hell does this have to do with the bus? Well, until recently the trust fund balance was looking good, growing larger every year. It is now $2.6 trillion, but that balance is declining and will reach zero in just 24 years, according to the Annual Report from the board of trustees of the Social Security Administration (http://www.ssa.gov/oact/tr/2011/tr2011.pdf). If you plan on dying in the next 24 years and do not have a spouse or child, or if you do not work, then you can stop reading this.
So the SS Trust fund will be broke in 2036. Our bus will be out of gas and folks will be stranded in the desert. To make things worse, our bus driver, the President, has (temporarily) lowered the “contribution” rate to 4.2%, under the guise that this is an across the board tax cut. But what it really is simply putting further strain on the trust fund.
The reality is actually worse. That $2.6 trillion dollars in the trust fund is not really sitting in a bank somewhere; we spent it on other stuff. It’s invested “special” US securities. Basically, it was loaned to the government to spend and will have to be paid back to the fund WITH INTEREST. In other words, in order for us to make these social security payments from now on, we will have to borrow money from somebody else. Starting last year, the total SS checks sent out to retirees will be more than the total payroll contributions received that year. Since there is no cash on hand to make up the difference, we will have to borrow more, year after year.
If you are in college right now or just starting your career, do you want to hop on this bus? Shouldn’t you at least be checking the tires and asking questions? Be careful though, if anybody tries to sound the alarm bell, they are instantly accused of wanting to push grandma off the cliff. Don’t you know it’s all Bush’s fault, and anyone who criticizes the current president is just some extreme rightwing, tea-bagging, racist?