Although the American public is slowly recognizing that Social Security is not a savings program, many people are now referring to it by its proper description: the transfer system. The FICA taxes a working citizen pays today does not go into an account designated for her or his future retirement. Instead, the program collects money from today’s workers to pay out current pensions.

The nature of the transfer system is causing a financial crisis that the Bush Administration is trying to address in its second term. According to Thomas Savings, a public trustee of the Medicare and Social Security Trust Funds, “Social Security system’s long-run cash flow deficit is 11.9 trillion dollars.” In other words, in order for Social Security to meet its future obligations, it will need to cover those 11.9 trillion dollars by either raising taxes, borrowing or cutting benefits today.

How did this deficit come about? According to Treasury Secretary John Snow, the transfer system started with a worker-retiree ratio of “16 workers to 1, and we now have 3 or so and we're headed off to having 2.” Social Security receipts have been greater than the amount of paid benefits for much of the system’s history simply because the contributing workers have outnumbered retirees. Now all of that is ending as baby-boomers begin to retire. But shouldn’t there be surpluses? Since there has always been a higher worker-retiree ratio, surely there were over collections.

There certainly were. The system often over collected, running surpluses ranging from $89 million to 163,088 million dollars since 1982. But good old Uncle Sam spent those Social Security receipts on other things. And as he spent away, his obligations as promised by the program kept growing with the labor force. Social Security was just a convenient source of money ever since the program began.

Those surpluses have usually gone to make up deficits in other government programs. This was a great technique to avoid reform and downsizing of unnecessary and inefficient functions. With another wave of the wand, politicians created the Social Security Trust Fund and tricked the public into believing that the government will repay workers for the money it borrowed. When Uncle Sam tapped into these surpluses, the Treasury simply made accounting entries into the Social Security Trust Fund crediting the government for the exiting amounts and claimed that the sum of those debit entries represents future pensions. You can safely assume that the trust fund is empty; it is only full of IOUs.

Things were not supposed to be this way. Collections should have gone in individual accounts and paid out as pensions as the time came due. Social Security should have saved what it took from individuals and then have paid those individuals the exact amounts it took from them, to include interest, when they retired. Social Security should have operated as a fully funded system. “Fully funded” meaning you get out of it what the government told you to put into it. How was this hard to do?

This was hard to do because a Social Security system gave politicians unnecessary power. On one hand, politicians offered goodies using Social Security receipts while on the other, they used the Trust Fund to cover up the expenditures they used to curry constituents’ favor and votes.

Whether you agree with the above statement or not, one must question whether funding items such as congressional pork, public monopolies, visionary programs, regulatory agencies and excessive military expenditures is worth putting working Americans’ future retirements at risk. Government spending is placing baby boomers’ retirements at greater uncertainty, yet it is praised everyday for increasing GDP. Go figure.

The real irony, however, lies in the fact that it does not matter whether you agree with how the whole system operates or how the government handles your money. In what is supposed to be a free country, this apparatus of the U.S. government holds Americans prisoner. If Social Security were voluntary then the people could stop paying into the system if they felt that Social Security may become insolvent in the near future or that the rate of return is not worth the opportunity cost of foregoing the use of their wealth today. This is not true of the system today.

Social Security is, instead, a tax imposed upon the people, and law treats it as such. The government determined in the 1937 Supreme Court case of Helvering v. Davis that Social Security is not an insurance program although many politicians continue to tell voters otherwise. The government further concluded in the1960 Supreme Court case of Flemming v. Nestor that Social Security deductions are taxes and that taxpayers have no right to any benefit funded by FICA. As a result, Americans cannot lay claim to promised pensions in court. Future retirees are at the mercy of those elected to office.

The only logical answer to the crisis is to give Americans back their money by repealing Social Security. Unfortunately, an overwhelming majority still consider this an extreme step for the country to take. When you consider that people have been investing with their net incomes in private accounts for years, we can safely conclude that Americans have the experience in saving and taking responsibility for their own future. The wealth of saving options available on the market include checking and savings accounts, mutual funds, stocks, 401ks, thrift savings, IRA’s and many more. These accounts vary on different levels of risks, and the payable interest rates vary accordingly. But most importantly, these accounts count as real savings for the individual; they are not future transfers of another citizen’s assets and property.

And as far as risk is concerned, people move their monies according to the level of risk they are willing to take. People handle their funds with the same amount of care they use to manage their lives: risks here and there, but on average, generally safe. Rewards and losses vary according to the decisions people make. Even in light of this obvious characteristic of human nature, the American people continue to transfer their wealth through the Social Security system because the government tells them that the risk is just not worth it. This assertion assumes that Social Security is risk free. It is not considering the program’s long-run deficit of 11.9 trillion dollars (not including the 61.9 trillion dollar Medicare shortfall) and the soon-to-be 2-to-1 worker-retiree ratio.

The Cato institute predicts that by year “2018…Social Security…will begin to run a deficit.”

Talifaitasi Satele, 23, is a senior this fall at Hawaii Pacific University. He is enrolled in the ROTC program and is majoring in Business Economics. Tali, originally from the village of Vailoa, American Samoa, joined the active army force in 1998, and served for five years. He has been living in Hawaii for four years and plans to receive his commission as an Army officer in the Reserves. Eventually, Tali plans on settling in Hawaii or American Samoa.

A Fresh Perspective is a project of the Grassroot Institute of Hawaii. Project manager is Stephanie Ghilarducci, Director of Development. Submit proposed articles to her at: mailto:grassroot@hawaii.rr.com addressed: Stephanie. Recommended word count 500-750. Any and all comments or questions regarding articles or authors can also be sent to Stephanie.

This editorial is intended to provoke thought, discussion and an examination of issues. It does not reflect official policy of the Grassroot Institute of Hawaii. See the GRIH Web site at: http://www.grassrootinstitute.org/

HawaiiReporter.com reports the real news, and prints all editorials submitted, even if they do not represent the viewpoint of the editors, as long as they are written clearly. Send editorials to mailto:Malia@HawaiiReporter.com

Fresh Perspective...