Natalie Cole blew the roof off Yoshi's in Oakland last weekend. In that intimate setting, it was like she was singing in our living room.
Her signature piece toward the end of the show is a duet she sings with her late father, Nat King Cole. As I sat there with goosebumps, marveling at this timeless bond between father and daughter, I found myself thinking about Social Security and how, in its genius, it links the generations.
I've been paying into the system for exactly 50 years since my first job on a Vermont road crew at age 16. Next month, at age 66, I start collecting benefits myself. My parents, now in their nineties, have been receiving Social Security for 32 years. For the last 32 years of the 50 that I've been contributing, we could say that my contributions have been going to help support my parents. I'm self-employed, so I pay both halves of the bill which amounts to about 12.4 percent of my income up to a cap of $106,800. That costs me $13,243 per year.
Plus, I pay both halves of Medicare, which adds up to another 2.9 percent with no cap. I start getting some of that money back now, but I really get more satisfaction from the thought that I have been effectively helping to support what Social Security has been paying my parents all these years.
We Butlers haven't exactly made out like bandits, but it's a system that has served us well even if I get hit by a bus before reaching my life expectancy. Me being dead will help support the system, and my wife will get to enjoy the spousal benefit. A study conducted at MIT a few years ago calculated that, in the aggregate, Social Security participants wind up making the equivalent of 5.5 percent on their lifetime contributions, and that's not bad for a government guaranteed investment that keeps pace with inflation.
Social Security will need to be shored up, of course. The average American lifespan is increasing at a rate of three months per year, so there's no way we can continue to offer Social Security benefits that start as early as age 62. We will have to extend the starting point at which people receive benefits. Then, we can consider raising the tax or raising the income cap to which it applies.
The last real fix of the Social Security system occurred in the early 1980s when Ronald Reagan initiated what was the largest percentage tax increase in the nation's history. Thanks to his foresight, there is a $2.5 trillion reserve in the system today. It may be true that only about 50 percent of Americans pay income tax now, but everybody pays a Social Security tax starting with their first dollar of wages.
This year marks the cross-over year when outflow trumps the inflow, but there's plenty more where the shortfall came from. This crossover point is not a surprise or a reason to panic. Anticipating it was what prompted the establishment of the trust fund in the first place. The trick will lie in fighting the political battle between raising the percentage tax, increasing the income cap or curtailing benefits. Meanwhile, the current fund will keep us afloat until 2037 - adjusted this year down from 2041. We could wait the 27 years to address the problem, but I would sleep a little better if we could eat the elephant one bite at a time - starting now. It's not exactly "unforgettable."
CORRECTION: Last week's column included a factual error. The senior vice president fired for calling everyone's attention to the Lehman Brothers accounting was not an Ernst & Whinney employee. He worked for Lehman Brothers.