Politicians, pundits and other smart alecks make me peevish whenever they bloviate about “entitlements.”
And more annoyance is just around the corner as campaign noise gives way to policy debate. How the entitlements arguments proceed is an open question. Paul Ryan, speaker of the House of Representatives and anti-entitlements smart-aleck-in-chief, favors reductions; President-elect Trump has been coy.
Closer to home, both Sen. Steve Daines and Rep. Ryan Zinke can be trusted to blow whichever way the Trump-Ryan wind blows. Meanwhile, Sen. Jon Tester’s official website will continue to say that he “strongly opposes plans to privatize Social Security and opposes any reduction in benefits. He voted to … ensure Social Security is not on the chopping block when working to cut the debt.”
The smart alecks typically ignore the accepted definition of an entitlement, that is, something that someone has a right to have, do, or get. (Harry is entitled to his wages because he works a 40-hour week.) Instead, an entitlement is typically maligned as a dole that the recipient does not deserve. (While Harry earns his keep, welfare queens think that they’re entitled to food stamps.)
When the smart alecks denigrate entitlements they’re usually targeting Social Security, Medicare and Medicaid, unemployment compensation, food stamps, etc. (Understandably they usually ignore Veterans Administration programs, agricultural price support programs, etc., but that’s another story.)
I’m blissfully unfamiliar with Medicare and Medicaid, unemployment compensation and food stamps. Thanks to a good friend, though—one Jane Doe by name—it’s clear to me that the Social Security system is more Harry and his wages than welfare queen and her food stamps. Let Jane’s story explain.
Jane and her employers began contributing to the Social Security system when she took her first part-time job as a teenager in the 1950s. Their contributions continued until 2005, when Jane celebrated her 65th birthday and retired. At that point, of course, her contributions ended and her withdrawals began. Jane doesn’t know where the smart alecks were while she and her employers were making a half century of contributions. Whenever they malign her withdrawals, though, she finds herself wondering whether she’ll live long enough to get a good-value return on her good-faith investment.
Jane isn’t a statistician and she isn’t an actuarial maven, but she’s done the numbers as best she can. She’s begun with the half century of contributions. She’s factored in the wonders of compound interest (rates averaged 6.9 percent during her contributing years). And she’s considered the curiosities of inflation (a dollar that she contributed in 2000 is worth $1.40 today, a 1980 dollar = $3, a 1960 dollar = $8).
How does today’s value of her contributions as a worker compare to her benefits in retirement? What are the odds of good-value return on good-faith investment? Jane puts it this way: “I should live so long.”
If the smart alecks focused on Jane’s experience, they’d stop pretending that the system is implicated in the national debt accumulation and admit that it’s a pay-as-you-go arrangement that contributes little or nothing to the debt. That done, they could admit that the system has a relatively small problem. As Ryan’s own website describes it: “… our society is aging [and] the number of retirees has grown more rapidly than the number of individuals whose taxes pay for future retirees’ benefits.”
This relatively small problem suggests several relatively simple solutions. Of the many in circulation, Jane and I suggest three:
The Social Security Administration manages a trust fund into which Jane’s contributions were deposited and from which her withdrawals are paid. The fund should be a sacred fiduciary, into which payments are faithfully made, within which funds are prudently managed, from which withdrawals are confidently expected.
Unfortunately, Washington doesn’t treat the fund as a sacred fiduciary. It treats it as a piggy bank that can be raided whenever it’s convenient. How many dollars has Washington filched from the trust fund for other purposes depends on how you read the statistics. They’re in the trillions, however, and they should be returned.
When the Social Security system began in 1935 more than 45 percent of male participants died before retiring at 65 (although female participants fared better). In 2016 the average participant reaches the age of 65 and anticipates collecting benefits for 20 years. (Again, females fare better).
Why, Jane and I ask, shouldn’t the retirement age be raised and contributing years be extended? Why, that is, shouldn’t policy and practice follow demography? How long will this disconnect be tolerated? Studies suggest that by 2050 life expectancy for females will be 89 to 94 (although males will fare worse). Then what?
Unless you’re a high earner—one of those biblical camels that can’t get through the eye of a biblical needle—you may not know that Social Security contributions aren’t collected on earned income that exceeds $118,500 (in 2016). Jane and I understand this to mean that average American workers and their employees contribute throughout the year.
We also calculate that (in 2015) the average top-earning CEO in America completed his contribution to the system by the 2nd of January. And don’t forget that the wealthy receive larger withdrawals and, we are told, enjoy longer lifespans. A perverse means testing is occurring here, one in which high-earners pay lower contributions and receive larger benefits. It’s a for-whoever-has, to-him-more-shall-be-given structure that weakens the trust fund while strengthening the strong. It is pernicious; it should stop.
So in January, when the smart alecks resume their denigration of entitlement programs, tell them about Jane. Clarify for them that she is more Harry than welfare queen. Explain to them how a few simple adjustments can better the odds that she’ll live long enough to get a good-value return on her good-faith investment. They need to be told.
Bruce A. Lohof is a native of Montana. A former professor and a retired diplomat, he lives in Vienna and in Red Lodge.