Published in The Tennessean, Sunday, July 17, 2011
by Richard J. Grant
Did President Barack Obama just admit that Social Security adds to the deficit? In an interview about the debt ceiling with CBS News last week, the president said, “I cannot guarantee that those checks go out on August 3rd if we haven't resolved this issue. Because there may simply not be the money in the coffers to do it.”
Clearly it was not the president's intention to admit that Social Security payments are inextricably entwined with the federal budget. His intention was to score political advantage by scaring a politically active voting bloc, composed largely of seniors, into pressuring Republicans to raise the debt limit unconditionally.
There never has been any chance that Social Security payments to current recipients would be missed or even reduced. Although Congress is not legally bound to continue such payments indefinitely, it has a strong political motivation to do so. Over the past 70 years, people have made retirement plans based on a promise, however vague, that they would receive certain payments. No congressman wants to be the first to stand in the way of those payments.
That is precisely why President Obama brought it up. There was no threat to Social Security, so he had to invent one. The hoped-for political payoff would be to panic seniors, a large portion of whom vote Republican, to put pressure on their congressmen to acquiesce in a debt-limit increase.
For many months, Republican House leaders have made it clear that they are willing to raise the debt limit provided that there would also be budget cuts of at least the same magnitude. They even passed a budget that included a deficit, but reduced projected spending. If anything, they have been too soft.
The president's words demonstrate the real political purpose of Social Security. No, it is not to make the elderly more financially secure – and it doesn't really do that. The real effect has been to make the elderly dependent, to some degree, on the political class.
Throughout their working lives, people are required to pay the FICA tax, which is really an income tax paid on the same base as the official income tax. For most people, the FICA payments are at least as large as the income-tax payments. These payments are then channeled into the same uses as any other tax.
Had the working people been allowed to put their FICA payments into personal investment accounts, they would almost certainly have entered their retirement years with much greater and more dependable financial security. A reader, who has the aptitude to make the financial calculations, has provided details showing that private investment of his FICA payments would have yielded him a monthly retirement income over three times larger than the Social Security payment he is now eligible to receive. He is not alone.
Had everyone been allowed to invest privately, then the economy would now be much larger and retirement incomes would be far more than three times current Social Security payments. If President Obama were serious about fulfilling the intent of Social Security, he would give future generations a private option. Instead he is squandering their inheritance with current government spending that is 60 percent higher than revenues.
President Obama has run out of our money, and now he is trying to scare us into giving him more.
Richard J. Grant is a professor of finance and economics at Lipscomb University and a senior fellow at the Tennessee Center for Policy Research. His column appears on Sundays. E-mail: email@example.com
Copyright © Richard J Grant 2011