The subtitle of this book by Sylvester J. Schieber is “The Unraveling of the U.S. Retirement System.” The book is neither a fun nor easy book to read (unless you are a compulsive accountant). However, you should consider the book if you want to know about the history and current status of Social Security and other retirement plans. Sadly, I must say the book does not have easy answers for how we can get our politicians to address some daunting problems. The dust cover explains, “Social Security is projected to deplete its funds in the 2030s. Pensions from previous generations have either disappeared or been completely reengineered…Americans are faced with the conundrum of how to pay for a growing retired population with dwindling financial resources.” The author believes privatizing part of Social Security would be a good first step, but has given up on that idea because politicians have made it a toxic idea.

I consider the most important part of the book to be a series of quotes made by Barack Obama at a roundtable discussion with the editorial board of the Washington Post four days before his first inauguration. “As soon as the economic recovery takes place, then we’ve got to bend the curve and figure out how we get federal spending on a more sustainable path…We are going also to have a discussion about entitlements and how we get a grasp on those…As bad as these deficits that have already been run up have been, the real problem is with our long-term deficits, actually, have to do with our entitlement obligations…So we’re going to have to shape a bargain. This, by the way is where…some very difficult issues of sacrifice, responsibility, and duty are going to come in because what we have done is kick this can down the road and we are now at the end of that road. We are not in a position to kick it any further…I have told my folks, to some consternation on their part, that we have to signal seriousness in this by making sure that some hard decisions are made under my watch and not under somebody else’s because the usual game is to say, ‘well, here’s what is going to happen but, by the way, it just happens to start in the ninth year from now.’ What we have to signal is that we are willing to make hard decisions now.”  (This passage is on pages 373-374 of the hard cover book I read. I’m providing a link to the full recorded statement.)

The quotes from Mr. Obama are consistent with a statement in Chapter 24 that summarizes the problem with Social Security. “Put plainly, Social Security has become a bad deal. Now, policymakers must rebalance an underfunded system in the near future or it will not be able to pay out already promised benefits.” Policy makers must either raise taxes or cut benefits. The son of Huey Long became a U.S. senator, and had a reputation for blunt talk. He explained that raising taxes was off limits to legislators unless they could raise taxes on those who did not count much in reelections. “Don’t tax you, don’t tax me, tax the fellow behind the tree.” The “fellow behind the tree” are the young workers and not the older Social Security recipients who would vote to kick the legislator out of office if they had the audacity to suggest benefits should be reduced. (Remember the political ad depicting Congressman Paul Ryan pushing an elderly person in a wheel chair off a cliff after he suggested Social Security reform.

The book is worthwhile for anyone interested in the history of FDR’s role in establishing Social Security. It mentions that many people blame Roosevelt for creating a welfare program. FDR would have argued about that. He disagreed with the “pay-as-you-go” funding in the package being sent to Congress. He said it “…would pass on costs and financing obligations to future Congresses and, by, extension, taxpayers…” He opposed expanding the “dole,” and predicted the problem we face today. There are a shrinking number of people working and paying into the system while the number of beneficiaries expands. The system has become, and will continue to be increasingly, a “dole” for the elderly.

FDR envisioned that his signature program would be supplemented by personal accounts. He said, “Social Security can furnish only a base upon which each one of our citizens may build his individual security through his own individual efforts (private annuities).” He explained in the statement he released when he signed the program into law August 14, 1935. “We can never insure one hundred percent of the population against one hundred percent of the hazards and vicissitudes of life, but we have tried to frame a law which will give some measure of protection to the average citizen and to his family against the loss of a job and against poverty-ridden old age. This law, too, represents a cornerstone in a structure intended to lessen the force of possible future depressions. It will act as a protection to future Administrations against the necessity of going deeply into debt to furnish relief to the needy.”

FDR discovered a section of the package that stated the program would be running significant deficits after 1965 and that government subsidies would be required beginning around 1980. He was angry and said, “This is the same old dole under another name. It is almost dishonest to build up an accumulated deficit for the Congress of the United States to meet in 1980. We can’t sell the United States short in 1980 any more than in 1935.” He lost the battle about his opposition to how the program would be funded, but he condemned the immorality of running up large unfunded liabilities. Arthur Altmeyer explained, “It is a mathematical certainty that the longer the present pay-roll tax remains in effect, the higher the future pay roll tax must be if the insurance continues to be financed wholly by pay-roll taxes (and) …will eventually necessitate raising the employee’s contribution rate later to a point where future beneficiaries will be obliged to pay more for their benefits than if they obtained this insurance from a private insurance company.”

The prediction came true. The employee paid one percent of the first $3000 of earnings ($30 a year) when the program began. Employees now pay 6.2 percent to the 2013 cap of $113,700 ($3100 a year if you earn $50,000 or a maximum of $7049), and the employer is required to match that amount. The amount paid by employees is double taxed since it is not deductible from income tax. Self-employed people pay the full 12.4 percent, although they can deduct half of the “contribution” as a business expense from taxable income.  Higher-income Social Security beneficiaries pay taxes on their Social Security income.

I don’t want FDR to get away without blame for the problems with the program. A reporter challenged him about potential adverse economic effects shortly after passage of the law. FDR responded, “I guess you are right on the economics, but those taxes were never a problem of economics. They are politics all the way through. We put those payroll contributions there so to give the contributors a legal, moral, and political right to collect their pensions…With those taxes in there, no damn politician can ever scrap my Social Security program.”

FDR was correct, and no politician has been able to make even a small change to the program. Efforts to change the cost of living calculations have inspired a full-scale negative advertising campaign by AARP. President Clinton was moving toward “…letting workers invest part of their Social Security taxes in the stock market…” and was being called “the gravedigger of the New Deal.” The Lewinsky scandal sidelined his press to reform Social Security. President George W. Bush proposed allowing younger workers to voluntarily put part of their Social Security taxes into private accounts and, in a classic case of political exaggeration, was successfully accused of wanting to privatize Social Security. President Obama apparently decided against taking on the tough task of reform after advisors told him it was bad politics to propose either raising taxes or reducing benefits. He has even resisted ideas put forward by others.

This review has ignored wealth of information in the book about company and private retirement plans. Read the book if you are interested in the history and current status of those plans.