The Wall Street Journal has a good editorial today entitled “The Social Security Crisis.” Excerpt:
Back in the 1930s, when the country was shaking off the Great Depression, it became apparent that the elderly were especially suffering — not only had they lost income and assets but there was no time for them to recoup. And so was born FDR’s greatest contribution to the welfare state. The notion was that Social Security would nick a little bit off everybody’s paycheck with a payroll tax and then redistribute that money to anybody over retirement age. The holding pen for this pay-as-you-go transfer was called, brilliantly if dishonestly, a “Trust Fund.”Demography made the whole arrangement work for a long time. In the 1930s there were 41 workers for every one retiree; the payroll tax could thus be set at a low rate — about 2% for the first $3,000 of earnings. . .
The article goes on to note how the ratio of workers to retirees has fallen over the years–how in 1950, it had dropped to 16 workers to one retiree and now it is just three to one.
The article makes this critical point:
The immediate problem is that payroll taxes during the surplus period that began in the 1980s were not saved in the mythical Trust Fund; instead the taxes were used to finance other government spending. . .