Saturday, July 31, 2010

1: Social Security Retirement: Why is a "Pay-in" Called an Entitlement?

Almost 75 years ago, the Social Security Retirement system was created in the The Social Security Act of 1935 by then U.S. President Franklin D. Roosevelt and the Congress. A part of the New Deal legislation, the "pay-in" or contributory retirement system arose from the Great Depression of the 1930s. The retirement system was established to prevent hardship due to loss of jobs and business closings for future working people, particularly older employees and those injured on the job.

Many plans were proposed to alleviate hardship in the 1930s, including a Hollywood "Ham and Eggs" plan to dole out $30 to each elderly person each Thursday. Dr. Frances Townsend proposed $200 per month to non-working elderly. "Kingfish" Huey Long, former governor and senator of Louisiana, promoted a "Share the Wealth" pension of $30 per month for those over 60 years old earning less than $1,000 per year and with no more than $10,000 in assets.

The first Social Security check was mailed to Ida May Fuller of Ludlow, Vermont in 1940 at the end of the Depression. While the intention was prevention of future hardship due to unemployment during a later depression, the fund also created a source of revenue for the government.

Social Security Retirement actually is a tax, paid by both employee and employer, to the Federal government with each work paycheck. In 2000, the tax was 6.2% of salaries up to $76,200. Those who earn more than $76,200 are expected to establish private retirement accounts, individually or through their employers. Independent Contractor "employees" also are expected to provide for their own retirement

Social Security "pay-out" is described as an annuity type system. The government pays retired workers from the time of retirement until the worker-beneficiary and certain dependents are no longer living. The retirement age has been increased to extend the years of "pay-in" and lengthen the time to initial "pay-out" for workers who contribute to the retirement system. This of course makes work a necessity for older workers without other retirement savings.

Younger working contributors "pay-in" as older workers leave the workforce and get their "pay-out". Government statisticians note that originally 25 workers "paid in" for each retiree "pay-out", but by 2002 only 3.25 workers "paid-in" per retiree. This may be significant for the future of the fund. Could this reflect other trends in employment and retirement, increases in workers funding their retirements outside of the social security system or choosing not to contribute, for example, more independent contractor "employees", more early retired work-injury disabled, high unemployment and shifts to welfare from the workforce?

The ruckus over Social Security as a "burdensome entitlement" program is disturbing to older workers who have paid in and await their retirement, particularly with current higher unemployment rates. The seeds of this misunderstanding of the "pay-in" retirement fund as "entitlement" can be found in the language of the original act.

The expressed intention of the Act to provide for the "general welfare by establishing a system of old-age benefits, and by enabling the several states to make more adequate provision for aged," describes the retirement fund for aging workers. However, the 2009 revision extends the Social Security Act beyond contributory pension fund to include "blind persons, dependents and crippled children, maternal and child welfare, public health, and the administration of their unemployment compensation laws; to establish a Social Security Board; to raise revenue, and for other purposes".

This general welfare fund language extends the "pay-in" pension fund beyond its "pay-out" pension purpose. These are the "entitlement" issues which clearly overextend the fund into phenomenal amounts the fund could not possibly pay-out per worker pay in.

The worker who "pays in" is "entitled" to the pension fund "pay out". It is frightening to think Congress would attempt to base a enormous general welfare fund of non-contributory benefits on the per paycheck pension "pay ins" of workers participating in a retirement fund.

The Social Security Act no longer is easily accessible on government information online. The Library of Congress Thomas Jefferson "Thomas" legislative online search index did not include "Social Security Act of 1935", "Social Security Act", "Social Security Administration" as successful search terms as of July 31, 2010.

(The ad above by the Social Security Board, 1935, Library of Congress, and other historical facts, are found in JW Markham "Social Security Act of 1935" in Major Acts of Congress, Vol 3, BK Landsberg, Editor, Macmillan, NY, 2004.)

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