Roanoke Times
Copyright (c) 1995, Landmark Communications, Inc.
DATE: TUESDAY, April 6, 1993 TAG: 9304060386
SECTION: EDITORIAL PAGE: A-5 EDITION: METRO
SOURCE: JAMES K. MORGAN
DATELINE: LENGTH: Medium
ROTTEN DEAL
THERE is a lot of talk about what a problem Social Security is soon to become. The villain is said to be the Social Security recipient, especially the "rich" ones making more than $30,000.This villain is taking much more out of the system than was contributed, and the younger worker will be sacrificing more of his income to keep this undeserved money going to the recipient. Soon the younger worker will have no choice but to revolt.
But is this the case?
Consider:
An individual or a couple earn a total of $55,500, and 7.65 percent is deducted from their paychecks. Their employer contributes another 7.65 percent, for a total of 15.3 percent. If these individuals are self-employed, they contribute 15.3 percent of their income, or $8,492.
If they contribute this same amount of money from age 30 until age 65, they will contribute $297,220. If the federal government kept the money, and at age 65 paid them 6 percent interest on the money when they reach age 65, they would receive $17,883 annually and the government would keep the $297,220.
If the government were to keep this money in a trust fund to be used only for Social Security, but had the option of borrowing all this money completely and paying 6 percent per year to the fund, that $8,492 after 35 years would be worth $1,001,574.
If this money grew no more in contributions from the individual, it could still pay him or her $51,210 per year for 20 years, or until age 85. If the same individual, at age 65, received 6 percent return and the government kept the $1,001,574, the individual would receive $60,694 annually.
Presently the maximum payout by Social Security is about $12,000 per year for an individual and another $8,000 if that individual has a spouse. So the most the government pays out is less than $19,000. What a great deal?
An individual or couple earn a total of $30,000, taxed at the same 15.3 percent rate or $4,590. After 35 years, this would total $160,650. If this amount were invested at 6 percent per year, it would total $546,765.
If it grew no more in contributions from the individual, it could be paid out at $27,680 for 20 years, or until age 85. If the government kept the $546,765 and paid the individual 6 percent on the money, he or she would receive $32,806 indefinitely.
The problem is not the people drawing money out of Social Security. In fact, they get a rotten deal. The true villains are:
1. The press that perpetuates myths such as this.
2. The government that uses the money for purposes other than what it was intended, and then blames the recipients. Government then justifies taking back a great deal of these "benefits" through taxation.
3. Recipients who over the years squander their funds with no savings, and then say it's government's responsibility to care for them.
What are the solutions?
Use any and all money drawn from taxpayers for Social Security only. If this money is used for any other purpose, it should be borrowed from the fund at the current interest rate the government would pay to borrow from any other source, and it must be paid back. The Social Security fund would have ample funds to pay all eligible recipients indefinitely.
At the current rate of taxation, it should build enormous surpluses to the point that the tax rates could be reduced for the younger worker. In fact, in time it should become a self-perpetuating trust fund requiring no further contributions.
James K. Morgan lives in Roanoke.