Inflation Kills Social Security

     The ability of the United States Government to continue to provide Social Security benefits and when money will no longer be available to pay those benefits has been a topic of debate for longer than I can remember.  Lately, many remedies have been proposed for modifying Social Security.  Some of these include means testing, raising taxes on the wealthy and raising the age to receive benefits.  Unfortunately, I have not heard a plan to address one of the root causes of the benefit shortfall, inflation.
     The problem with inflation is simple if we look at the math.  Citizen John Q. Average gets his first job in 1972.  At that time, he earns an average salary, about $7500 per year.  That also means that he pays an average amount of about $550 per year of social security taxes.  Flash forward 40 years.  John Q. Average has now reached retirement age and begins taking his Social Security payments.  Because of inflation, his first monthly check is over $1200.  He receives more money in benefits in his first month than what he paid in his first two years!  In his first two years, he will receive as much in benefits as he paid in his first 20 years.  Because of the number of people that died before retirement age in the past and the baby boom,Social Security almost got away with this formula.  That doesn't work anymore.
     Since the time that John Q. Average started working, both wages and Social Security taxes have increased to address the solvency problem.  The math still doesn't work.  Young Susie Q. Public, who begins work this year, will pay about $2800/yr. in Social Security taxes (including her employer match).  If both inflation and Social Security benefits continue over the next 40 years as in the last 40 years, Susie's first monthly payment will be $7200.  Again, she will get more in her first month than she paid in her first two years.  We could reduce John's and Susie's benefits.  John's $1200/month in 2012 probably buys less than his grandfather's $200/month benefit did in 1972, especially of the items seniors buy most, food, fuel and medical care.  The problem with that is John and Susie should be able to expect a return after paying for all of those years.
     One of the keys to getting Social Security and Medicare costs under control is to control inflation.  Without inflation, John would get the same $200/month that his grandfather did.  That means that it would take three months for him to get back one year's worth of contributions.  His first twenty year's of contributions would make payments for almost five years.   By that time, natural attrition would make funding of future payments more likely.  As a Conscious Conservative, I can't believe that Social Security will ever be more than a Ponzi scheme unless the government first fixes inflation.