Our continued annual deficits of over $1.5 trillion will eventually destroy our economy and consume our liberty. We must deal with this crisis now. The Left says that the rich need to pay more, that more taxes will solve the problem. Here is the truth. If we were to double federal taxes on all Americans, our deficits would still be in excess of $400 billion per year. There is not enough wealth for more taxes to do any good. Consider that doubling federal taxes means the top rate would be 70%! With state and local taxes, Americans would have little left for food and shelter. The debate is over. We have no choice but to dramatically cut spending.
Entitlements are the major contributor to the spending crisis and Social Security has long been the most protected of all entitlements. It needs to be reformed in order to reduce its growing burden on our economy. The reforms being discussed will not result in anyone currently receiving, or about to receive, benefits having any less than they are expecting. The Democrats will cry that restructuring Social Security will hurt those who have planned for it, but this is a lie. All reform options being discussed will only impact those who will have the time to plan for the changes. The truth is that if Social Security is not reformed, the program will fail.
Democrats point to a $2.3 trillion Social Security Trust Fund surplus. This is not a cash surplus. It was spent on general government expenses and replaced with Treasury Bonds. Who is responsible for payment of those bonds? The taxpayer is responsible. Yes, the Social Security Trust Fund surplus is nothing more than a government I.O.U. Bernard Madoff could not have done better.
Before the recession accelerated in the fall of 2008, Social Security payroll taxes exceeded benefits paid each year. Surplus cash, though diverted and replaced with bonds, was being generated. However, since the labor force lost eight million jobs in the recession, Social Security benefits now exceed payroll taxes collected each year. With the surplus nothing more than part of the national debt, we have to borrow to make up the difference.
It gets worse.
It now takes three people working to pay for each beneficiary. Since January of this year, as the baby boomers started to turn sixty-five, we are adding 10,000 new beneficiaries each day. Hence, 30,000 new jobs need to be created each day to support these retirees. It is expected that there will be an approximate net increase of 25 million new beneficiaries over the next ten years. To support those additional retirees, our economy will have to create a total of 75 million new jobs, or 625,000 new jobs per month, over that period. During our best economic times, beginning with Ronald Reagan and ending with Bill Clinton, our economy only created an average of 320,000 new jobs per month.
We cannot support Social Security without realistic reform because there is not enough income to tax; not enough economic strength to create the new jobs to cover the growing number of beneficiaries; and there is no cash surplus.
When Social Security was signed into law in 1937, life expectancy was sixty-three and the retirement age was sixty-five. The program was designed to provide a few years of benefits to those who paid into it. Since then, Social Security was extended to provide benefits for surviving spouses and children and to provide disability benefits. Life expectancy today is seventy-eight for men and eighty for women. Social Security beneficiaries retiring at sixty-five, or their spouses, can easily receive benefits for fifteen years or more. The only answer is that the retirement age must be made higher. If we ignore this fact, the entire program will collapse and there will be nothing for anyone.
There is no doubt that the earnings ceiling on Social Security payroll taxes will also have to increase, but remember that the employer’s share increases exactly that same amount as the employee’s share. This means that the cost of adding new jobs will rise and new job creation will face another hurdle.
Some politicians are considering reducing benefits for those retirees who have other sources of retirement income. This is called means testing. The only problem is that the Social Security contract details specific benefits for a particular level of paid taxes. In order to fairly enact means testing, politicians are going to have to allow for some form of private accounts. Money put in those accounts will belong to the account owners regardless of their future means.
You now have the complete truth. The talking points of the Left are meaningless and do nothing to advance the debate. It is time to understand that our economy will collapse under the weight of entitlement spending. Reform of Social Security is a necessary part of resolving the crisis.
Robert Allen Bonelli is the author of “Liberty Rising,” an accomplished business executive, public speaker and involved citizen.
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