The Real Crash by Peter D. Schiff

Author:Peter D. Schiff
Language: eng
Format: epub
Publisher: St. Martin's Publishing Group

The Scheme Is Crumbling

What made Ponzi’s scheme fall apart? The public figuring out that there was nothing there.

And when did Madoff’s house of cards collapse? It was when investors started calling on their money.

The point at which Ponzi and Madoff and dozens like them finally were exposed, and thus crumbled—that’s where Social Security is now.

The idea of Social Security as a self-funding, reliable source of retirement security is a joke. Social Security taxes no longer cover Social Security benefits. In 2011, benefits were expected to be $733 billion, while taxes were estimated at $637 billion.3 How did Congress react to this imbalance? By reducing Social Security taxes, and thus widening the deficit.

As part of the late 2010 tax-extenders deal, Congress passed a temporary cut in the Social Security tax. Republicans liked it because it was a tax cut. Democrats liked it because it was a rare tax cut that could benefit the lower middle class (many of whom don’t pay income taxes).

This tipped the scale, sending Social Security into a deficit from which it will never emerge. For every year from now until the end of time, Social Security is projected to pay out more than it takes in—even if the temporary tax cut is ended.

Things are just going to get worse for this program.

As unemployment continues to grow (and it will), there are fewer workers paying in. With jobs hard to find and wages stagnant, people are retiring earlier than they otherwise would.

Demographics are also driving Social Security toward insolvency. After World War II, America enjoyed a Baby Boom, but those Baby Boomers didn’t have as many kids. The result, as the Social Security Administration puts it: “After 2014, cash deficits are expected to grow rapidly as the number of beneficiaries continues to grow at a substantially faster rate than the number of covered workers.”

In 1950, there were 35 million workers paying Social Security taxes and 222,000 retirees collecting it—a 159.4 to 1 ratio.4 That eventually stabilized by 1975, at about 3.2 workers to every retiree. Now, with Baby Boomers retiring and job growth near zero, that ratio has begun plummeting.

In 2010, the number of beneficiaries (roughly equal to new retirees minus deaths) grew by 1.5 million, while the number of workers grew by 700,000. From 2000 to 2010, the number of recipients grew by 18.2 percent, while the number of payers grew by less than one percent.

This trend is only going to accelerate. By 2031, SSA forecasts there will be one Social Security retiree for every 2.1 workers.

This is unsustainable.

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