Barack Obama is a graduate of Harvard, taught constitutional law at the University of Chicago, was a US Senator, and is the President of the United States. He has brigades of economic advisers available for counsel. Given all that, you would expect that, surely, he would know the simple principle of a pay as you go system. Apparently not.
Talking about the Social Security, pay-as-you-go system, here's what he has to say:
"The vast majority of Democrats on Capitol Hill would prefer not to have to do anything on entitlements, would prefer frankly not to do anything on these debt and deficit problems. If you're a progressive that cares about the integrity of Social Security, Medicare/Medicaid then we have an obligation that we make those changes required to make this sustainable in the long term."
To correct the misconceptions and mistakes in Obama's statement, a few facts.
**Medicaid/Medicare are financed by taxes from the general fund.
**Social Security is financed by a dedicated deduction from payroll checks and is paid to a single, dedicated purpose.
**Social Security is not a part of the general fund provided by taxes. It does not contribute to the national debt. It does not contribute to the deficit. It is not a part of the budget since it is an entirely separate, pay-as-you-go system.
**The best way to explain a pay as you go system is that you pay in one end what goes out the other end. You can't have a fixed input if you need a variable output.
Obama saying that we must make changes to Social Security to make it sustainable is hogwash. He's implying that we need to cut benefits to match the contributions, not realizing that it's a pay-as-you-go system, which can't go broke because, well, it's a pay-as-you-go system. The only changes that can be made to that kind of system, when the output falls below what's required, is to increase the input to match.
For Obama and his economists to assume that an arbitrarily determined, fixed input to Social Security, 6.2% payroll deduction and 6.2% employer addition, and contributions only up to a certain amount of income will always meet the varying requirements at the output end is asinine. It hasn't occurred to them that the variations in Social Security requirements must be matched by varying the input end.
This can be done by varying the percentage of payroll deduction and employer addition, and by varying the amount of the contribution base. For 2011, only income of up to $106,800 is subject to Social Security contribution. This is also an arbitrarily determined amount that can be varied as needs be. By matching the needs of Social Security to income level and percentage of contribution, Social Security can never go broke.
I realize that varying both ends to get a matched input and output is a much too complex concept for Republicans to understand, but I thought Obama was a Democrat. From what he says, he's beginning to absorb the subtle lies of Republican ideology to gradually, bit by bit, chip away at Social Security until their fondest desire is met -- the end of Social Security.
The Republicans understand one thing that Obama and his economists don't. They have tried to use the false issue of the debt ceiling to end Social Security, and even if they can't, they can try to bring it to a stop temporarily by delaying Social Security disbursements. Obama and his economists don't understand the effect of this, but the Republicans do.
Most of the 55,000,000 or so people who receive Social Security spend it necessarily on rent, utilities and food, and not much else, because that's all it affords them. Living so close to the bone, where every penny is already allocated for those minimal requirements means that just a week without the money to meet those requirements can put them on the street. End of the line. Just a short time without that income and they can't pay the rent, can't pay the utilities and can't buy groceries. It's ruination in the fullest meaning of the word.
Social Security was created from HR 4120, Title 1, Sec. 3, of 1935. It says that Social Security "Shall mean financial assistance assuring a reasonable subsistence compatible with decency and health." That would have to be above the poverty level. The amount needed to provide decency and health is the determining factor on the output end. That's what Social Security must disburse and that's what it must take in.
It looks like Obama, who is a wealthy man at $400,000 a year, and all of the Republicans in congress who want to end Social Security, and who are also wealthy at $174,000 a year, compared to the average of about $44,000, have become so immersed in their wealth that they have lost any comprehension of what it's like to try to live on a Social Security average of $1,200 a month.