Loren Lippincott
Frustrations ran high recently in our nine-member Legislative Appropriations Committee as we struggled to find ways to cut the state budget. The volume of voices began to rise until one of our members spoke up with the rhetorical question we all ought to be asking as we consider the spending of tax dollars: “What is the purpose of government?”
Over 90 percent of the bills we pass each year have a fiscal impact (in other words, they require the use of taxpayer dollars), which should cause everyone to ask, “How are you using the money you take out of my pocketbook and who or what is getting it?”
Let’s look at the federal government’s handling of YOUR money in past decades and see the success (or lack thereof) of its stewardship of your resources.
In 1935, in the depths of the Great Depression, the Democrat party had a supermajority in both the U.S. House and Senate! They also had Franklin Roosevelt in the White House. That was the year Social Security – a mandatory government program to financially assist people in their senior years – was born. This was a commendable idea, but the longterm consequences have been devastating.
Since 1935 to the present day the money put into an individual’s Social Security account in the form of a “forced investment” has averaged a 1.23 percent return. Meanwhile the annual rate of inflation has averaged about 3.5 percent. This means your money has lost 2.27 percent of its value every year.
By comparison, the S&P 500 Index has averaged a 10.35 percent gain each year from 1935 forward. (The Standard and Poor Index is a broad fund invested in the top 500 companies in America, and is a common measure of our country’s financial health). Obviously that’s a much greater return than Social Security’s paltry 1.23 percent!
So, let’s try a thought experiment. Let’s say a person at age 16 saves $2,000 a year for just the next six years, accumulating a total of $12,000 by his 21st birthday. If he then invests that money in an S&P 500 Index fund IRA where it grows tax-free until retirement age, how much money will he have at age 65?
Using the “Rule of 72” showing compounded return on investment (with a 10 percent annual return), let’s look at what happens to that $12K. By age 28 our young investor would have $24,000. With compound return at age 35 it would grow to $48,000; by age 42, $96,000; age 49, $192,000; age 56, $384,000; age 63, $768,000; and at age 65 that $12,000 initial investment would have grown to $1 million. Left alone until age 70 it would grow to $1,536,000.
The initial investment would have doubled over six times, whereas with the government handling the money it wouldn’t have doubled even once, and it actually lost value when figuring in inflation.
After 1935, the next time the Democrats had a supermajority in Congress was in 1965 with Lyndon Johnson in the White House. That was the year Medicare and Medicaid – programs aimed at helping the elderly and poor with their health care needs – were born.
Let’s look at their track record. In 1954 – the year after the Korean War – our nation’s budget was 69 percent military spending, 24 percent HHS entitlements and 7 percent interest on our debt. Today the military makes up only 14 percent of our budget, while Social Security, Medicare/ Medicaid have exploded to 75 percent of mandatory spending and just the interest on our debt is 17 percent. Our entitlement programs are speeding us toward insolvency.
Meanwhile, LBJ’s “war on poverty” has resulted in $22 trillion spent on welfare (Three times more than the U.S. has spent on its military since 1776) and has done nothing to eliminate poverty. A similar effort by NYC Mayor Ed Koch in the 1980s cost $4.5 billion (The price tag of a naval aircraft carrier at that time) and resulted in zero change in poverty numbers.
As Winston Churchill once said, “However beautiful the strategy, you should occasionally look at the results.” By that metric, these well-intentioned social programs have been a disaster for Americans.
Loren Lippincott represents Legislative District 34 in the Nebraska State Senate. Read his column in the Nance County Journal.