Saturday, August 24, 2013

The Entitlements Question


For a long time I have been following the political arguments about Federal Entitlements pro and con. It is not an easy problem to deal with and the political rhetoric is not helping. There is a difference between welfare like food stamps in the farm subsidies and entitlements like Social Security and Medicare.

Welfare comes in many forms and is an out and out give away for a variety of reasons. One is to help the poor and the other is to promote a segment of the business world like farming, energy, transportation, and others. Our federal government gives away a lot of money in the altruistic endeavors.

Entitlements like Social Security and Medicare are a form of insurance that people pay into through out their working lives and are thus entitled to the benefit payments when they qualify. In the beginning the Social Security trust fund was a separate thing from the Federal budget. It was supposed to be invested and draw good interest for an ever growing fund to support citizens when they retire. Then politicians noticed this giant fund sitting all alone and moved into the budget to show a balance that wasn’t there. Bad idea!

It was also an easy way to sell Treasury Bills and all of the Trust fund is invested in T’ Bills supporting our national debt. Everyone knew that when the baby boomers start retiring that one day we would have to start paying off some of those T bills and the day has come. Soon more people will be leaving the work force than entering it. That should solve the unemployment problem except for the fact that many baby boomers are relying on Social Security for their retirement and need to work part time to make ends  meet. I get almost $1,200 a month from SS and that would not be enough. Thank God for my pension and investments.

Added to this problem is that politicians found that increasing the benefit to retired people with the cost of living increases [COLA] was a way to curry favor from voters.  It worked but it wasn’t paid for. Well not entirely paid for but we did have an increase in our payroll deductions. As a minister I filed Self-employment Taxes and had to pay in the 15.3 percent of my wages to SS and Medicare. That was a lot of money for me to pay quarterly and there were no deductions that would lower it.

Now there are some politicians who are using the word entitlements as bad thing and are trying to get rid of them. While something needs to be done about the cost to the federal budget cutting off a lot of retirees who depend on this paid for insurance benefit is not fair. To do nothing about this problem will also not be fair for the whole thing will collapse. This is one of the most difficult questions facing our country and we need to work together to solve it.  Sadly it looks like co-operation in Washington is not going to happen any time soon.


  1. Good points you make. A "public pension" (my term) is necessary because eventually people wear out and CAN'T work any longer. But because we're living longer and healthier, it doesn't seem unreasonable IMO to nudge up the retirement age. "Means testing" is another possible solution to keeping SS solvent, but then it would be denying SS in later years to people who have ALREADY paid for it. It would be like an insurance company not paying a legitimate claim. Fair?

    And here's something you don't hear discussed much: The baby boomer bubble won't last forever. There will come a point in 30-40 years when all us boomers will have left this earth and of course will no longer be drawing SS (except in Chicago ;) while there will be a slowly GROWING pool of workers paying into the system. (Unlike many parts of the world our population here in the US is still growing.) The intersecting lines of payors to payees will cross again (to the positive) and in theory we should once again have a yearly surplus. The trick will be to keep the SS System solvent until that time.

    And you're right again about partisan politics. All the noise coming out of the Tea Partyers on the crazy right and the "Occupy" fringe on the wacko left will drown out the sane voices in the middle. It's frustrating.


  2. Chicago ??? O yes those voting from the grave will also draw SS for their kids ;)

  3. The National Insurance system in the UK is somewhat different in the way payments are collected, but we face similar problems with an ageing population, and with an increasing number of expensive medications. The statutory retirement age to qualify for a full state pension has already been raised from 65 to 67 to help cope with this, but things aren’t getting much better. Hopefully, as Doug says, once the ‘bulge’ of the baby-boom generation has passed, things will ease.
    There is also the factor of increasing immigration, which tends to be largely made up of younger people; immigrants are rarely popular among ordinary folk (I’m sure it’s the same in the US), but politicians are aware that they have their part to play too.

  4. Perhaps we should legalize the undocumented here and make them pay taxes and SS