NEWSROOM
Commentary Articles
In The News
News Releases
Experts



Media Inquiries

Kim Cloidt
Director of Marketing & Communications
(510) 632-1366 x116
(202) 725-7722 (cell)
Send Email

Robert Ade
Communications Manager
(510) 632-1366 x114
Send Email


Subscribe



Commentary
Facebook Facebook Facebook Facebook

Contribute
Your participation will advance liberty. Join us as an Independent Institute member.



Contact Us
The Independent Institute
100 Swan Way
Oakland, CA 94621-1428

510-632-1366 Phone
510-568-6040 Fax
Send us email


Interested in working with us?  Click here for more information.

Commentary

The Flaws of Social Security


     
 Print 

Last month, in recognition of the program’s 75-year anniversary, the Social Security Administration put out a statement by President Obama declaring his administration’s dedication “to strengthening our retirement system” and to preserving “this program's original purpose in the 21st century.”

But what was the original purpose? Social Security was first devised not by Franklin Roosevelt, but by Prussia’s autocrat Otto von Bismarck, as a way to co-opt socialists, ensure the loyalty of the people to the regime, and finance militarism.

The American version of the program is hardly different. In the United States, too, the Social Security tax is used to pay for government programs that have nothing to do with retirement. Far from being an investment program, Social Security is a pay-as-you-go operation where new revenues are spent immediately and future entitlements are funded exclusively through the promise to tax workers in the future, many of whom haven’t even been born yet. It is taxation without representation in the most cynical sense.

The program is patently unsustainable, despite what its proponents tirelessly claim. For many years, Social Security took in more than it paid out, with the remainder squandered on whatever other political priorities were pressing—war, social welfare, bailouts and the like. It was through dirty tricks like these that Congress produced illusory budget “surpluses” in the 1990s.

But no more. According to the Congressional Budget Office, Social Security will pay out more than it brings in this year—six years ahead of projected schedule.

This cannot be maintained. As the U.S. population gets older, we are headed for a mathematically inevitable financial calamity. There were about sixteen workers for every one retiree in 1950. Today there are just over three. As a 29-year-old, I can expect the ratio to be 2 to 1 by the time I retire.

For many years, the federal government continuously “fixed” Social Security by cutting benefits, increasing the retirement age—in Bismarck and FDR’s times, many or most died even before they were eligible—and, most conspicuously, by raising the tax rate. Even Ronald Reagan, conservative tax-cut hero, increased the tax burden on America’s workers through Social Security. When the program started in the 1930s, it was a 2% tax. Now it’s over 12%, if you account for both the employer and employee’s shares—or if you look at the self-employed.

Among other problems, this program is incredibly regressive. Retired Americans are the wealthiest age demographic, and young workers are the poorest. Most workers spend more on Social Security than income taxes. What’s more, black Americans die about five years earlier than whites, so collect much less than they put in comparatively.

Social conflict and intergenerational tension are just two of the underlying costs of the program. But for every working American, there is also the huge burden on personal finances. The lost opportunity in actual investment is obscene. A first step to dealing with the problem is recognizing its scope. The Independent Institute’s new Government Cost Calculator can help.

MyGovCost.org will tell you, based on education level, age and income, the personal financial cost you can expect to incur from the federal spending, as well as break it down programmatically. For example, to finance Social Security, a 22-year-old just out of college making $30,000 can expect to be looted $86,611 over the course of her lifetime—which could have yielded a nest egg of $621,342 if privately invested. Someone at forty-five with a high school degree and making $70,000 can look forward to forking over another $105,485 to the government. If he were to begin investing that cash, he could expect an estimated return of $346,555, instead of whatever crumbs will be available when he retires a generation from now.

Presidents Bush and Clinton both recommended partial “privatization” schemes, but that’s not the answer, either. Forcing young Americans to invest in politically connected Wall Street firms while still paying through taxes for today’s retirees does nothing to diminish the injustice of Social Security. Indeed, had Bush’s plan succeeded, the financial collapse in 2008 would have likely disrupted the scheme enormously and the free market would be under even more fire than it is today. A silver lining to the program’s insolvency is that the blame will more easily fall where it belongs—on the welfare state.

Instead of trying to “save” this horrible program, as politicians of both parties perennially propose, we should end it. Short of simple abolition, the program should be phased out, beneficiaries should be paid out of the general fund as with any other welfare program (which is at least honest accounting) and young people should be free to opt out of the tax with the full understanding that there will be no government retirement check for them when they hit old age. There won’t be anyway.


Anthony Gregory is Research Fellow at The Independent Institute. His articles have appeared in the Christian Science Monitor, Bloomberg BusinessWeek, San Diego Union-Tribune, Portland Oregonian (AZ), Contra Costa Times, The Star (Chicago, IL), Washington Times, Salt Lake Tribune, Tallahassee Democrat, Albany (NY) Times Union, Raleigh News and Observer, Florida Today, and other newspapers.

HabeasNew from Anthony Gregory!
THE POWER OF HABEAS CORPUS IN AMERICA: From the King's Prerogative to the War on Terror

As perhaps the most important legal protection, habeas corpus has a rich history from medieval England to modern America involving opportunistic power plays, political hypocrisy, ad hoc jurisprudence, and many failures in effectively securing individual liberty. Learn More »»






Home | About Us | Blogs | Issues | Newsroom | Multimedia | Events | Publications | Centers | Students | Store | Donate

Product Catalog | RSS | Jobs | Course Adoption | Links | Privacy Policy | Site Map
Facebook Facebook Facebook Facebook
Copyright 2014 The Independent Institute