I’ve contemplated Barack Obama’s plan to reform Social Security for long enough. I have only one question: why am I going to be disadvantaged just because I’m young?

Obama’s plan to address the coming Social Security funding gap does not call for reducing benefits or changing the retirement age. Rather, he proposes to eliminate the cap on taxable social security wages for people earning more than $250,000. Obama would also eliminate income taxes for any retiree making less than $50,000 per year.

For the next four months we’re going to be inundated with Republicans calling this a “soak the rich” plan. Democrats will accuse Republicans of defending “CEOs cashing out while workers lose their pensions.” But what you won’t hear is anything about how the baby boomer generation is about to march off into retirement ill-prepared and unwilling to make any sacrifices. The selfishness which has defined a generation will follow them to their graves.

How the Social Security Trust Fund Works.

The Social Security system is pay-as-you-go. Both the employee and the employer pay 6.2% of gross compensation up to a limit of $102,000, making the total Social Security tax 12.4%. For decades the Social Security system has collected more taxes than it has paid out. Excess taxes are “invested” in special securities issued by the federal government. These securities are held in the Social Security Trust Fund. As of May 31, 2008 the Social Security Trust Fund held U.S. government bonds totaling $2.297 trillion.

It is currently projected that Social Security tax receipts will exceed Social Security payments until 2017. At that point, the securities in the Social Security Trust Fund will be redeemed in order to cover the deficit between tax receipts and benefit payments. The Social Security Trust Fund is projected to be depleted sometime between 2042 and 2052, depending upon future economic growth.

The Social Security Trust Fund makes sense unless you think about it. We designate tax collections for specific purposes but then proceed to disregard where the money came from once its in the hands of the government. The federal government spends the cash it receives in exchange for the special securities it places in the Trust Fund as if they were ordinary tax receipts. Why are these securities special? Because they are simply promises from our parents to themselves that they would raise taxes when their children are old enough to pay them.

Taxes Up, or Benefits Down?

And now we’re at that point where debate needs to occur and decisions need to be made. If Social Security is reformed now, we have more time to spread the burdens across all segments of society. Unlike most things in society and government the Social Security System is easy to fix. The system is simply taxes coming in and benefits going out. The sacrifices may be difficult but the choices are simple. Either taxes go up or benefits are reduced.

And that is where I disagree with Obama’s approach. In his latest speech on Social Security reform Obama begins with a premise, “for generations, we have worked to keep a simple promise in this country – Americans who work hard their entire lives have earned the right to retire with dignity and security.”

I am fine with using that premise as the central point of a national discussion about the role of Social Security in society over next fifty years. That is not the debate that is occurring however. Barack Obama is not asking the nation to debate what it means to retire with “dignity and security” in the twenty first century. He is simply asking us to keep funding what “dignity and security” meant in the twentieth century.

The world has changed since FDR and the New Deal. The retirement that the Baby Boomers are about to enter into will be by far the largest mass affluent retirement in history. Significant numbers of Baby Boomers will not require Social Security payments to retire with dignity and security.

Obama’s attempts to frame the debate are instructive: “And what that means is, is that while you, most of the people here, paid Social Security on every dime you ever earned, you’ve got billionaires and millionaires who are paying only a tiny fraction — paying payroll tax on only a tiny fraction of their income. I’ve got a friend in Omaha — you may have heard of him — named Warren Buffett. He’s worth $56 billion. You know, if he’s only paying the first $100,000, that is .000001 percent of his income is he paying Social Security. I may have lost a couple of zeroes in there.”

Debating whether Warren Buffett’s taxation rate is high enough is absolutely legitimate. But lost in that debate is this simple question: Does Warren Buffett need the Social Security payments he’s currently receiving in order to retire with “dignity and security?” I don’t think so. Warren Buffett himself doesn’t think so: “And I would means test — I get a check for $1700 or $1900 or something every month. I’m 74. And I cash it. But I’ll eat without it.”

So why does Barack Obama think so? Why does Barack Obama think that I should pay Social Security taxes that end up in Warren Buffet’s pocket?

Soak the Rich? No, Soak the Young.

Obama has pledged to eliminate income taxes on retirees making less than $50,000 per year. Obama asserts that this will save an average of $1,400 for 7 million seniors.

Let’s compare a hypothetical senior citizen “earning” $50,000 and a thirty year-old earning $50,000. Under Obama’s plan, the senior would pay no federal tax and would take home $50,000 before state taxes. The thirty year-old on the other hand has $3,825 in FICA and Medicare taxes taken out. Next he has $4,386.25 plus 25% of the amount over 31,850 ($3,581) taken out, for a total of $7,967.

Thus, at the end of the year, under Obama’s plan, a senior citizen “earning” $50,000 still has his $50,000 to spend on hard candy and plaid shorts. The thirty year-old struggling with his first mortgage, student loans and car payments? $38,207. Its a good thing that Obama’s health care plan doesn’t make insurance mandatory because our hypothetical thirty year-old has nothing left over to pay for it.

In fact, Obama does recognize the economic situation facing many young people today. Thus, he offers a new American Opportunity Tax Credit worth $4,000 a year towards education. In order to receive the AOTC however, the student must perform 100 hours of public service a year. So, the senior earning $50,000 keeps his $7,967 by doing nothing more than drinking lemonade on the front porch with the Misses, but the student putting himself through college is required to spend a hundred hours a year cleaning up the pollution spewing from the senior’s Cadillac?

Conclusion

I don’t hate senior citizens or baby boomers. I recognize the necessity of funding a system which provides the ability for all Americans to retire with dignity and security. But I do think that the unfunded mandates and governmental debt that previous generations have left my generation to pay require an open and honest debate about the definition of retiring in dignity and security. With people living longer than ever, when should you be allowed to begin receiving Social Security payments? What level of payments is required to provide a dignified and secure retirement?

Given the demographic and economic situation in the United States today, what portion of the burden of funding Social Security should fall on those who will be working for the next 40 years? And how much of the burden should fall on soon to be senior citizens?

Barack Obama’s proposed distribution of that burden is unacceptable.