Harry Reid Says Tea Partiers Are “Anarchists” and “Fanatics”

Today the US Senate began debating the House-passed bill that would fund government operations through December 15 in a “continuing resolution” budget process and also defund the Affordable Care Act, also known as Obamacare. The Politico reports Senate Majority Leader Harry Reid, referred to Tea Party advocates and conservatives as “fanatics” and as “anarchists.”

Point of order, Mr. Reid. An anarchist believes that there should be no government. But the chart below captures government spending on a per capita basis since nigh unto the beginning of the Republic. (Yes, the chart is adjusted for inflation.) Clearly there is no lack of government presence in our everyday lives. The 20th Century, with the rise of the liberal progressive movement, saw an explosion of federal spending and a far expanded role for Uncle Sam. Even to the point where the FY 2013 US Government budget is nearly twice the level of spending that was incurred to finance World War II.

So to refer to people who believe in budget reductions and a more modest role for the federal government as “anarchists” clearly fails to establish any logical nexus with reality. Ah, but this is politics and budget making in Washington DC! What hath logic and reality to do with budgets?!

But as you see the line of spending per person marching ever upward, the numbers don’t tell the complete story. What is the government doing with all this money? As progressive statists like to ask, “if it weren’t for the federal government, who would build roads?!” But the federal government doesn’t spend any considerable portion of its budget on road-building.

Nearly 65 percent of the federal budget goes to transfer payments–a literal taking of money from some and distribution to others. These are the big item programs that many are familiar with: Social Security, Medicaid, Medicare, and paying interest on the existing national debt. These programs require no annual appropriation from the Congress, no debate on program effectiveness, no debate on financial sustainability, and no debate on appropriate spending levels. The annual budget growth for these programs is as close to being “on auto pilot” as one can get.

To the 65 percent of the budget above, another 25 percent pays for defense expenses. A large military presence with over 900 installations and more troops deployed outside of the US in non-combat operations than in combat roles is a debate for another day. (E.g., for an unknown reason, the US maintains approximately 9,000 troops in the UK–perhaps to colonize our former mother country?)

If you’ve done the math, then you know that there’s only about 10 percent of the overall federal budget pie left. That’s 1 dollar for every 10 collected for federal support of education, federal law enforcement, even to build all the roads that the progressives insist we must pay higher taxes for. This is the portion of the budget Congress actually debates on an annual basis with any real impact to spending.

This is the small part of the budget that funds the IRS to produce Star Trek parody videos and harass the Tea Party that Harry Reid loves so much. This is where the Department of Homeland Security finds billions of dollars to stockpile more ammunition per person than the US Army. This is where the Environmental Protection Agency finds money to harass farmers. This is where NASA is funded not to conduct manned space missions but to engage in Muslim outreach, to make them feel better about their historical contributions to science. This is where the NSA finds funding to violate the Bill of Rights’s Fourth Amendment guarantees against government spying on its own law-abiding citizens. And on, and on, and on.

All of these things are examples of government encroachment on our freedom to conduct our everyday lives without government interference. We believe one of the things that has made America great is the power of the individual to strive to make the world better–using his or her individual freedom and a free marketplace. So we hope that Mr. Reid can forgive us if we have a very difficult time believing that he has any credibility whatsoever when he starts a food fight at the lunch table and calls anyone a “fanatic” or an “anarchist” who simply wants to curb the federal government’s ever-increasing lust for more money and more power at the expense of individual freedom and liberty.

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.