The year is 1935 and the Social Security Act is newly enacted. The idea behind the expansive program is to lift the large portion of elderly American’s out of poverty. The program initially set out to collect payroll taxes in 1937 with the first benefit payments being sent out in 1942; however, amendments were passed to begin payments in 1940. The pillar that the program was founded upon was to protect against any lost earnings. The reason this program was at the forefront of everyone’s minds at this day in age was because of lost income generated earlier in an individual’s life due to the Great Depression in the 1930s. Funding mechanisms in place allowed for immediate direct payments to those who needed it most – namely approximately 225,000 employees beginning in 1940. By 1949, those dependent on these benefits grew to over 3 million.
Following World War II, benefits increased as those depending on these payments increased due to inflation and the cost of living. The program also expanded the different types of employment beyond commerce and industry where only 6 of 10 jobs were covered with benefits. By the mid-1950s, nearly 90 percent of employees were now covered by Social Security. By 1960, the program and its amendments are virtually how we see it today. In the 1970s, the Congress established cost-of-living adjustments that would automatically increase to keep retirees from becoming poverty-stricken. Fast forward to today, the Social Security Administration notes that 37 million people, at a cost of $15 billion per month, are covered under the program and touts it as “the most successful domestic program in our history.”
An individual receiving payments in 1942, was averaging income generated from approximately 42 contributing employees. However, by 2035, a person receiving benefits will be funded by a stark two individual employees, forty fewer than 80 years ago. Therefore, an individual working in 2035 will need to contribute substantial amounts of their tax dollars to Social Security alone, not counting any other entitlement programs. In thirteen years, the buying power of a young professional today will greatly diminish to provide buying power for earlier generations.
Next, let’s consider the individuals who will be paying for these programs – today’s young professionals. The Boomer generation already has twenty-six times the wealth of their younger generations. Beginning in the late 1980s, individuals who graduated in high performing economies with low unemployment rates earned on average $100,000 more than those who graduated in low performing economies with high unemployment. With this finding, young professionals have suffered a double-dose of underperforming economies – the Great Recession of 2008 and the global pandemic that began in 2020. Therefore, it stands to reason that today’s young professionals are already going to make $100,000 less over the next twenty years. Add in the $39,300 of student loans that the average American has garnered in order to gain high paying jobs. From the starting gate, today’s young professionals will start out $139,000 behind that they will be paying for over the next twenty years.
On average, $139,000 spread across twenty years is nearly $580 of lost income per month. If these same individuals are then paying the price for half of the lifestyle of a Boomer, how much more will they be indebted without any chance of gaining traction in their finances? Lately, a topic highly debated has been the concept of student loan forgiveness. At the time of this writing, the United States has approximately $1.59 trillion dollars in student loan debt – whereas the Social Security Administration estimated that it will have paid out over one trillion dollars in 2021 alone.
Perhaps, the argument could be made for student loan forgiveness in a broad sweeping cancellation of the outstanding $1.59 trillion currently on the rolls. It would be equivalent to one year spent on Social Security while benefiting the young professionals of today, on average, $330 per month for the next ten years. This one year of cancellation could result in the same benefits as the enactment of the Social Security Act that brought so many millions out of poverty following the Great Recession for nearly a projected 100 years.
Sources:
https://www.ssa.gov/history/50mm2.html
The Next America
yphandbook 