A Stitch in Haste

In acknowledgement of Social Security's seventieth anniversary, here's a blogpost of mine that was originally published on January 27, 2005.

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Sometimes opponents of Social Security reform take this sort of tack: "Yes the system faces some challenges based on the demographics of the Baby Boom, but that's temporary. The system itself is a success and should not be fundamentally changed."

Does this look like a success to you?

Year...........OASDI Tax Rate
1937-49.............1.000
1950-53.............1.500
1954-56.............2.000
1957-58.............2.250
1959................2.500
1960-61.............3.000
1962................3.125
1963-65.............3.625
1966................3.850
1967................3.900
1968................3.800
1969-1970...........4.200
1971-72.............4.600
1973................4.850
1974-77.............4.950
1978................5.050
1979-80.............5.080
1981................5.350
1982-83.............5.400
1984-87.............5.700
1988-89.............6.060
1990-2005...........6.200

And of course, your employer has faced those same rate hikes right along with you (or, for the self-employed, those rates are simply doubled).

A "success"?

Need more? Try this:

Year.........Wage Cap
1937-50.......$3,000
1960...........4,800
1970...........7,800
1980..........25,900
1990..........51,300
2000..........76,200
2005..........90,000

I ask again, does this look like a "success" facing a temporary "challenge" caused by the Baby Boom? (Complete annual data here.)

Just one more: here is the product of the two numbers (i.e., the maximum annual Social Security tax a worker had to pay):

Year.....Max Tax
1937.......$30
1940........30
1950........45
1960.......144
1970.......327
1980......1316
1990......3181
2000......4724
2005......5580

If my math is correct, that's almost an 8% average annual increase in the maximum tax paid. Almost 8% more, every year for 68 years, with no end in sight.

I ask yet again: A "success" facing a temporary "hiccup"?

Part of the reason the crisis is now being acknowelded as real is because the politicians are, finally, beginning to realize that Social Security has essentially "maxed out" the possible tax burden (except for those who advocate scrapping the wage cap altogether, which would represent the single biggest tax increase in American history).

Compare and contrast: Some opponents of reform sneer that Medicare is actually in worse shape than Social Security. But of course there is no Medicare "crisis" — yet — because the Medicare tax is "only" 1.45% of wages (again, matched by the employer, but with no wage cap). There is plenty of room for the tax-and-spend crowd to start hiking the Medicare tax rate (which of course will catalyze more generous benefits, and so on, and so on, and so on, until there is indeed a real Medicare "crisis").

In other words, to socialists and redistributionists there's never a crisis until there's nothing left to tax.

POST SCRIPT: Also don't forget the increase in the retirement age, another "tweak" to the "successful" system.

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My Social Security archive can be found here. Those celebrating, either foolishly or fraudulently, Social Security's anniversary include Economist's View, Nitwit Planet.