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Social Security Reform Thursday: Week Thirty-One -- Social Security A Burdensome Labor Cost.


Thursdays are good days for reform, because they fall between Wednesdays and Fridays. And reform is a long-haul process, not a fleeting event.

That's why WILLisms.com offers a chart or graph, every Thursday, pertinent to Social Security reform.

This week's topic:

Labor Costs and Social Security.

In an increasingly global economy, American workers and American companies, large and small, compete with workers and companies from every other nation on earth.

As noted earlier, labor costs are not simply wages alone. Labor costs include direct and indirect benefits. Social Security is one of those benefits that factors into the labor cost for an American worker. This labor cost hits small businesses particularly hard.


Right now, we're in a decent position on overall labor costs, relative to other countries (our wages and benefits are higher, relatively, than our labor costs), but Social Security costs are a significant burden on both employees and employers. At one point, Social Security contributions made some sort of sense, because there was a perception that the contributions were an investment in retirement. But, as those against reform remind us again and again, Social Security is "not a retirement program," it is an "insurance program."

A really lousy insurance program.

A really lousy insurance program that is mandatory.

A really lousy insurance program that is mandatory and would be considered unethical, if not criminal, if any private insurance company operated it.

No longer can any rational person have confidence that Social Security contributions are going toward a worthy cause. But those contributions are a very real labor cost. This waste of a labor cost is increasingly problematic in a globalized world, with global labor competition.

We could do better. And we will.

Many would "just raise taxes and be done with it" to solve Social Security's looming crisis.

This would be a mistake, as it would unnecessarily raise labor costs for the United States (without really raising any benefit to the worker or employer), lowering the incentive to hire new workers and retain older ones.

We should consider how to lower the Social Security payroll tax, thus lowering the cost of labor, while parlaying the remaining tax into boosting meaningful benefits for workers. Higher wages, higher benefits, with lower overall labor costs. It is a recipe for attracting the best and brightest workers and businesses to the United States, while keeping existing businesses from seeking cheaper (but, increasingly, highly skilled) labor elsewhere.

Why Social Security Cannot Continue In Its Present Form-

In 1940, Ida May Fuller received the first Social Security benefit check, for $22.54, after having paid forty nine dollars and fifty cents ($49.50) into the system. She ended up receiving a 46,000% return on her contribution.

It was a suspiciously untenable system from the very beginning, but the system worked because the demographics worked:

In the 1930s average life expectancy in the U.S. was 57 years. Setting the age for retirement benefits at 65 years meant the majority of people would die before becoming eligible to collect. Today, the average life expectancy is 76 years. By the middle of this century, the average American will live to be 82.

The demographics no longer make sense.

But personal accounts do:

The long-term history of the U.S. stock market lends credence to the idea that personal accounts would work as suggested. Over the past 80 years, shares of stock in U.S. companies, on average, have grown in value by more than 10 percent per year compounded. The inflation-adjusted compound rate of return has been 7.6 percent per year.

If these types of historical returns on investment are repeated in the future, personal Social Security accounts would grow into enormous sums. If the current Social Security taxes for a person who worked at minimum wage for his or her entire working life (about 45 years) were invested at these historical rates of return, it would grow to nearly $500,000. This would be sufficient to purchase a lifetime annuity paying about $37,000 per year.

If the current Social Security taxes for a person who worked at the average wage for his or her entire working life were invested at these historical rates of return, it would grow to more than $1.1 million. This would be sufficient to purchase a lifetime annuity paying about $90,000 per year.

Both of these figures compare quite favorably to both the average ($11,460 per year) and the maximum ($22,500 per year) Social Security benefit over the same timeframe.

It's foolish that we're not taking advantage of personal accounts to lower (or at least stave off the rise of) labor costs while boosting benefits to workers and the overall economy.

It is foolish, but if you examine the motives of the most ardent status-quoers, it becomes clear the reform of Social Security is a major battle in the post-Cold War insurgency.

Is it any wonder the left-over socialists still fighting on behalf of Marxism have made opposition to Social Security reform their primary objective?

Ironically, the Labor movement in this country, in its irrational and intractable opposition to sensible Social Security reform, is really just-- yet again-- harming its own cause.

For the sake of American jobs, let's reform Social Security. Sooner rather than later.

The clock is ticking.


Previous Reform Thursday graphics can be seen here:

-Week One (Costs Exceed Revenues).
-Week Two (Social Security Can't Pay Promised Benefits).
-Week Three (Americans Getting Older).
-Week Three, bonus (The Templeton Curve).
-Week Four (Fewer Workers, More Retirees).
-Week Five (History of Payroll Tax Base Increases).
-Week Six (Seniors Living Longer).
-Week Six, bonus (Less Workers, More Beneficiaries).
-Week Seven (History of Payroll Tax Increases).
-Week Seven, bonus (Personal Accounts Do Achieve Solvency).
-Week Eight (Forty Year Trend Of Increasing Mandatory Spending).
-Week Nine (Diminishing Benefits Sans Reform).
-Week Ten (Elderly Dependence On Social Security).
-Week Eleven (Entitlement Spending Eating The Budget).
-Week Twelve (Benefit Comparison, Bush's Plan versus No Plan).
-Week Thirteen (Younger Americans and Lifecycle Funds).
-Week Fourteen (The Thrift Savings Plan).
-Week Fifteen (Understanding Progressive Indexing).
-Week Sixteen (The Graying of America).
-Week Seventeen (Debunking Myths).
-Week Eighteen (Debunking Myths).
-Week Nineteen (Reform Needed Sooner Rather Than Later).
-Week Twenty (Global Success With Personal Accounts).
-Week Twenty-One (GROW Accounts: Stopping The Raid).
-Week Twenty-Two (Millions of Lockboxes).
-Week Twenty-Three (Support for Ryan-DeMint).
-Week Twenty-Four (KidSave Accounts).
-Week Twenty-Five (Latinos and Social Security).
-Week Twenty-Six (AmeriSave).
-Week Twenty-Seven (Cost Of Doing Nothing).
-Week Twenty-Eight (Chile).
-Week Twenty-Nine (Entitlement Spending Out Of Control).
-Week Thirty (Reform Better Deal Than Status Quo).

Tune into WILLisms.com each Thursday for more important graphical data supporting Social Security reform.

Posted by Will Franklin · 1 September 2005 03:44 PM


This weeks Reform Thursday is particularly cogent. Thank you once again for a great read!

Posted by: Bill at September 1, 2005 08:42 PM

Great Reform Thursday!...

Posted by: Zsa Zsa at September 1, 2005 08:53 PM

Do you think there has been any progress?...

Posted by: Zsa Zsa at September 1, 2005 08:56 PM

GROW Accounts will likely pass. And that's a decent first step. But it's only a first step.

Posted by: Will Franklin at September 1, 2005 08:58 PM