Convention Chaos, Funded by You!

As the 2012 political conventions come to a close, we reflect on the great moments of shady vote results and multi-day infomercials, all partially funded at tax payer expense.

We saw Republican party bosses disenfranchise the duly elected delegates of a candidate from taking their seats at the convention and centralize authority in the central committee–something that doesn’t seem in keeping with general Republican principles of small government and states’ rights.

We saw a Democratic party convention chair call for a voice vote three times as he stood in disbelief of the vote result–then call the vote for the outcome that was assuredly per-determined by party bosses before consulting with…you know, the actual party delegates.

Republicans adopted a platform which seems to support an outright ban on abortion, not providing for the usual exceptions from pregnancies resulting from incest, rape, or where the mother’s life is endangered.

Democrats played a video suggesting that Americans all “belong” to the government.

We’re frankly sickened by such displays on both sides. It’s a sharp contrast for the party of the current president, who compares himself to Abraham Lincoln, to be stating that it’s the American people who belong to government. Lincoln wrote famously that government was “of the people, by the people, and for the people.” In our Declaration of Independence, Thomas Jefferson wrote that people are endowed by their Creator with inalienable rights and that government’s purpose is to secure these rightsand to derive its just power from the consent of the governed. In short, the American people lend government its power–it is not for the government to determine what freedoms to permit its people to enjoy.

Both parties received approximately $18 million taxpayer dollars to pay for convention expenses. In a time when the national debt tops $16 trillion and our national checkbook has nothing but red ink in it, this is a slap in the face to Americans who work and pay taxes.  Both major parties are fully capable of raising funds to pay for their convention events, the fact that they don’t have to disadvantages smaller parties who aren’t able to qualify for tax payer funds.

Our suggestion? Next April when you file your taxes, don’t check off the boxes to contribute to the Presidential Campaign Fund. If the two major parties want to host circuses of conventions, free of sensible and meaningful policy debate, then they should raise their own funds instead of relying on taxpayer contributions.  While the Presidential Election Campaign fund is a voluntary contribution on your tax forms, its time for our political parties to stand on their own, raise their own funds for conventions, and publicly disclose the source of the funds they raise.

Note: Freedom Forge Press does not endorse either party or candidate. But from the tone of this article, you probably knew that already!

Social Insecurity

Last week the Associated Press reported that people now starting to receive Social Security benefits will–for the first time–receive less in expected benefits than they have paid in payroll taxes. 

The chart is easy to follow:

In 1960, the average American paid about $36,000 in payroll taxes over a lifetime of work. With each paycheck, workers “contributed” 3% (with a matching 3% “contribution” from their employer) on the first $4,800 of wages. We say “contributed” because they had no choice, as the government forced them to do pay the taxes into the system.

Think about this for a moment and figure out the math.  If a person is taxed at 3% on the first $4,800 they earn, then in 1960, the total Social Security tax bill would have been $144, or about $2.77 per week.  In exchange, the average worker who paid in $36,000 received checks for $259,000. Not a bad deal at all!

Unfortunately, you can probably also see the immediate problem with this formula.  If a worker pays in $36,000 and receives $259,000, where is the difference coming from? The Social Security Administration states that the program has never been significantly funded by general income taxes.  And that has been true–but it won’t be for long.

The only way to balance out the math is for far more workers to be paying into social security than there are receiving payments from social security.  In 1960 there were 5 workers paying in for every person receiving checks.  Consider the change from 20 short years earlier when there were a whopping 42 workers paying into the system for every person receiving checks.

Unfortunately as time marches on and people (not unfortunately!) live longer and the population growth rate slows, we find fewer workers paying into the system for every beneficiary; 3.2 for every recipient.  By 1980 the government realized it wasn’t pulling in enough in payroll taxes to continue funding the program.  The tax rate jumped 70% from a 3% payroll tax rate to a 5.08% rate on the first $25,900 of income.

Again, double check the math. 5.08% on $25,900 is $1,315 or $25.30 per week.  Although the tax rate only went up 70% over the 20 year period, a person paying “the max” saw his/her payroll taxes increase by a whopping 813%! Talk about paying your “fair share.”  More money is being funneled into a system that is still going bankrupt with each check written.

The gap between the red bar (taxes paid in) and the green bar (benefit checks) is literally a transfer of wealth from current workers (a.k.a. future retirees) to current recipients.  In other words, as each generation of workers pays in, they receive money from future tax payers, and they receive less in benefits relative to the amount paid in.

Some politicians have compared Social Security to a Ponzi scheme. And drawn fierce criticism for making the comparison.  Unfortunately, the term is correct, and this is precisely what Social Security is.  Here is a simple Wikipedia definition:

A Ponzi scheme is a fraudulent investment operation that pays returns to its investors from their own money or the money paid by subsequent investors, rather than from profit earned by the individual or organization running the operation. The Ponzi scheme usually entices new investors by offering higher returns than other investments, in the form of short-term returns that are either abnormally high or unusually consistent. Perpetuation of the high returns requires an ever-increasing flow of money from new investors to keep the scheme going.

The system is destined to collapse because the earnings, if any, are less than the payments to investors. Usually, the scheme is interrupted by legal authorities before it collapses because a Ponzi scheme is suspected or because the promoter is selling unregistered securities. As more investors become involved, the likelihood of the scheme coming to the attention of authorities increases.

Unfortunately, with this Ponzi scheme, there is no help from legal authorities to put an end to it. The AP report shows that in 2010, the average Social Security recipient will have paid $588,000 in taxes, yet is estimated to receive only $555,000 in benefits.  The current rate (excepting a temporary tax reduction) is 6.2% on the first $106,800 of income or $6,621 per year from both employer and worker.  The rate of taxation increased 106% from 1960 with the maximum collected amount increasing nearly 4,500% over the $144 from 1960.

Notice the gap between the red bar and the green bar in the chart. The gap will have to be balanced by either a benefit cut or higher taxes.  The math is inescapable.  We say “Bravo!” to politicians who actually have enough of a spine to speak about the need for entitlement reform. To politicians who make base attacks on others seeking to fix the problem, we say “Shame on you!”  Social Security is destined for change whether it’s intentional now and done with reforms in mind that could preserve some portion of the program for people truly needing help instead of having no choice but cut benefits or hike taxes.

The real tragedy here is the lie perpetrated by government to make people think that government is the only solution and to force people into the system with no alternatives or way to opt out.  This limits freedom for everyone and perpetuates a cycle of dependency that will be very painful to break in having people return to being responsible for their own future.

Clearly the myth that “social security will be there for you” has taken its toll. A recent survey of retirees confirms that 40% of Americans age 55 and over have saved LESS THAN $25,000 for their retirement, over a 40 year lifetime of work.  With such a low savings rate and with Social Security’s promise becoming an empty one that pays the average recipient less than he/she contributes, we can see a bumpy road ahead where the longer we wait to fix the problem now the more painful the solutions that will be necessary down the road.