----From "Some Thoughts about Social Security," a White House Memo by Peter H. Wehner
This now famous White House memo is a sterling example of political hypocrisy. It also explains why we are headed for intergenerational war. What President George W. Bush is proposing to his justifiably reluctant party--- that the benefits formula for Social Security be changed to reduce future benefits--- is a prime example of how politicians of both parties have bought the votes of senior citizens and then sent the bill to their children and grandchildren. Let me walk you through the impact this ghastly idea would have on younger Americans when they retire.
Social Security benefits are calculated by a formula that attempts to adjust for both inflation and productivity growth. It does this to try to deliver the same "replacement rate" over time so that workers of different generations can rely on Social Security for the same portion of their retirement income. For the average worker, that figure has been about 42 percent of pre-retirement wages. Lower income workers get more. Higher income workers get less.
Today, 66 percent of all retirees get at least half of their cash income from Social Security. This makes Social Security the difference between dignity and poverty for most retirees--- while literally saving some from starvation. There is no reason to believe this dependence will be less in the future.
The proposal to change the benefits calculation--- adjusting only for inflation, not productivity growth--- will dramatically cut the income replacement rate for future retirees. The size of the cut will depend on when workers retire. The heaviest cuts would fall on the youngest workers. Those already retired or near retirement would be protected.
The administration has not called this a tax increase but that is exactly what it is, a massive tax hike reserved for the young and the young only. It is a tax increase because they will pay the same payroll tax but will receive less in benefits.
The burden will be carried entirely by the young--- yet Mr. Wehner says, "we have a duty to ensure that we do not create an inter-generational conflict."
The White House is offering benefits as usual to older Americans--- and a terrible choice to younger Americans. With expected Social Security benefits replacing about half of what their parents had, the young face an inevitable descent into poverty when they retire. They can avoid that fate by saving far more than their parents ever did, reducing their lifetime standard of living. Either way, the White House is proposing to raise taxes--- but only on the young.
If this seems strangely familiar to you, it's happened before.
In 1983 a little known economist named Alan Greenspan headed a Presidential Commission to reform Social Security. The commission recommended a slightly higher payroll tax to build the Social Security Trust fund. The idea was to smooth the retirement of the baby boomers. The age of full retirement was also raised--- but starting 20 years in the future. In addition, Social Security benefits were made taxable. Like the 20 years in the future retirement age increase, the taxation of benefits was also a stealth move--- the threshold for benefit taxation is one of the few items in the entire tax code that isn't indexed for inflation. As a consequence, more retirees see more of their benefits taxed every year.
For the last 22 years workers have been paying higher employment taxes than needed to pay current benefits. In 1983 the assets in the trust fund were at a historic low. Trust assets would have paid for benefits less than two months. Today, the retirement Trust fund has assets of $1.5 trillion, enough to pay about three years of benefits.
A now well-known Alan Greenspan has promoted the idea that the benefits formula should be changed. He also believes workers should be given years of warning to prepare for lower benefits. An entire generation of workers has paid in extra money for more than two decades. They will continue to pay in extra money until 2018, another 13 years, according to the Social Security trustees.
And what does the administration propose? A lifetime reduction of benefits.
Sadly, the beating of our children by zealous and hypocritical White House Republicans gets worse.
One of the proud legislative achievements of 2004 was the passage of the Medicare prescription drug bill, known as Medicare part D. The AARP wanted a more generous bill. So did the Democrats. Both took what they could get from the Republican controlled Congress.
And they shouldn't complain.
What they got was pretty generous. According to the 2004 Trustees report, Medicare part D has unfunded liabilities of $8.1 trillion over the next 75 years. The same reports tell us that Social Security has $3.7 trillion in unfunded liabilities over the period. In other words, the same Republican president who willingly signed $8.1 trillion of new liabilities into law in 2003 is now wanting to reduce future Social Security benefits because he is worried about its $3.7 trillion in unfunded liabilities.
It doesn't quite make sense, does it?
But it does. The difference is who gets the money and benefits now. Older voters get the money, benefits, and reassurances now. Our children and grandchildren get the shaft.
Tell me, Mr. President, what's moral and good about that?
On the Web:
The Wehner White House Memo
January 4, 2005 White House Press Briefing
How Benefits Are Calculated
Congressional Budget Office
The Iceberg of Debt, Tuesday, October 3, 2004
Generational Storm Reader
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