Social Security: The Scam That Keeps on Taking

Alex Epstein rightly decries the fraudulent premises of Social Security:

Social Security is commonly portrayed as benefiting most, if not all, Americans by providing them "risk-free" financial security in old age.

This is a fraud.

Under Social Security, lower- and middle-class individuals are forced to pay a significant portion of their gross income — approximately 12 percent — for the alleged purpose of securing their retirement. That money is not saved or invested, but transferred directly to the program's current beneficiaries — with the "promise" that when current taxpayers get old, the income of future taxpayers will be transferred to them. Since this scheme creates no wealth, any benefit one person receives in excess of his payments necessarily comes at the expense of others.

Under Social Security, every aspect of the government's "promise" to provide financial security is at the mercy of political whim. The government can change how much of an individual's money it takes — it has increased the payroll tax 17 times since 1935. The government can spend his money on anything it wants — observe the long-time practice of spending any annual Social Security surplus on other entitlement programs. The government can change when (and therefore if) it chooses to pay him benefits and how much they consist of — witness the current proposals to raise the age cutoff or lower future benefits. Under Social Security, whether an individual gets twice as much from others as was taken from him, or half as much, or nothing at all, is entirely at the discretion of politicians. He cannot count on Social Security for anything — except a massive drain on his income.

Frankly, I'm expecting never to see a dime of return on my Social Security "investment," and to have scarcely any opportunity to save in my life. Taking four hours of my workweek away from me every week for the Ponzi schemes of older and larger generations is immoral to the borderline of criminality.

Hands Off Harrop

Nobody wants to upset the imposing beast of a retiring Me Generation, and Froma Harrop joined that nobody with her Sunday column:

What should we do about Social Security?

"I would just say, 'Let's sit on this,'" Baker answers. If come 2030 Americans see problems looming, he adds, "we can do something."

Much could change in over 20 years. Productivity gains have helped fewer workers pay for more retirees in the past and could in the future. And longer life spans may also alter the dynamics.

"How long into their lives should someone born in 2020 work?" Baker asks. "I have no idea."

The Baker whose prescription Harrop takes without question is Dean Baker, "a founder and director of the progressive Center for Economic and Policy Research," and his advice is premised on the assertion that 2017, when the Social Security system will have to start dipping into its trust fund, "means zero to the program." Of course, it does mean something to the people whose government likes to spend in the red and will have to come up with the money to honor the IOUs that wholly constitute that fund.

For the sake of argument, though, let's assume that 2041 — when the trust fund bonds will run out — is the danger date. I find the Baker-Harrop balance of risk and lead time, well, convenient. Rather than address a structural problem thirty-plus years in advance — establishing a new strategy with plenty of time to assimilate and a large retiring generation to maximize the benefits of any reform — the guardians of Social Security would have us sit back and watch the Boomers inch their way to octogenarianism in the hopes that something will just come up. (Sounds like the General Assembly method of budget planning, no?)

Now it becomes conspicuous that Harrop glides right through the assertions that really require further explanation, such as the suggestion that "productivity gains have helped fewer workers pay for more retirees in the past and could in the future." What past? When? If she means a time when advances in farming enabled a family to feed more of its elders, I'm not sure the observation applies. At best, the economic mechanism seems likely to have something to do with workers' earning more (because more productive) and therefore being able to pay more in taxes for retirees' benefit.

Or consider this: "How long into their lives should someone born in 2020 work?" That looks like an admission that the age of retirement will have to be pushed back, but for future generations — TBA. My fellow young(ish) adults might join me in wondering why there's no calculation of balance. If Baby Boomers were to wait five years for Social Security benefits, maybe we'd only have to wait ten, instead of twenty-five, or whatever it will prove to be when we reassess things mid-century.

Hands off Social Security, Harrop insists, at least until the Boomers have gotten their share. It's their last chance to stick it to those who've followed them, after all.

The Privileging of Elderly Unemployment

The very first time I lost a critical portion of my income, I did look into the possibility of catching the edge of Rhode Island's safety net to keep my family from sinking further into the debt that continues to prevent our eyes from turning to the financial future. Now, I haven't even bothered to consider it, because I learned that having even the supplemental income of a part-time job reduces one's unemployment "benefits" to zilch. In his apparent drive to become infamous, Rep. Thomas Slater (Providence; guess the party) has successfully maneuvered through the House a privileging of one form of supplemental income:

Under current state law, Social Security benefits are considered "disqualifying income" for those filing for unemployment. In one instance, a woman recently told the House Committee on Finance, an unemployment benefit of $130 per week for which she was eligible was slashed to $6 because her Social Security benefits were counted against her.

Legislation was approved today by the House of Representatives to strike the "disqualifying income" provision of state law that is currently financially penalizing this particular category of the state's unemployed.

Sponsored by Rep. Thomas C. Slater (D-Dist. 10, Providence), the bill (2007 - H5296) will bar Social Security benefits from being considered "disqualifying income" when applying for unemployment. Rhode Island, one of only seven states that still counts Social Security benefits against unemployment, deducts half of the individual's Social Security benefit from the total of unemployment compensation.

"The current provision of state law is just flat-out wrong and unfair," said Representative Slater. "People work for years to become eligible for Social Security benefits. Receiving those benefits should not be a penalty when these individuals find themselves unemployed. This section of law can be financially disastrous to those people who are collecting Social Security but who also need to work and who lose their jobs."

To be honest, I was ultimately relieved back when I was denied the crutch of public handouts, and further consideration since then has led me to admit that a system would be ridiculous that strove to guarantee a level of income, rather than just a last-minute buffer from rock bottom. But even moderating this view, why is it that those receiving Social Security — most of whom aren't any longer supporting child-inclusive households, and who are more likely than the average not even to have mortgage payments — require enhanced protection from "financial disaster"? It would seem that, if anything, a handout of one kind is more properly counted against a handout of another kind than is income from productive labor.

How to Host a Social Security Bake Sale

By the way, while we’re on the subject of the URI College Republicans, I’d like to propose a new format for the Social Security Bake Sale that they hold as part of “Coming Out Conservative” week. Social Security Bake Sales are supposed to point out the unfairness of exsting social security system by requiring underclassmen (representing young people) more for the same goods than upperclassmen (representing old people).

Let me suggest this slightly more complex, but more accurate, Social Security simulation…

• Seniors will be charged $1.00 for a baked good. They get to pick up their purchase immediately.
• Juniors will be charged $1.50 a baked good that is the same size as a senior baked good, but have to wait until one hour after paying before picking it up.
• Sophmores will be charged $2.00 for a baked good that is half the size of a Senior/Junior baked good, and be required to wait two hours before picking it up.
• Freshmen will pay $3.00 for their baked good. They have to wait three hours after paying before picking up their purchase. Except that if the Seniors/Juniors/Sophmores have already bought out the entire supply by the time the waiting period has ended, a freshman gets nothing. And of course, there are no refunds.

Re: Sheldon's Scaring the Seniors

You've gotta love political mathematics. Sheldon Whitehouse, from Marc's post below:

We can protect Social Security too. We just need the courage to tell the voters we�re going to lift the limit on Social Security withholding from $90,000 to $120,000. That makes a lot more sense than cutting benefits and we can keep Social Security solvent for decades to come.

I haven't looked at the specifics in a while, but I don't recall anybody suggesting that the looming Social Security crisis is any nearer than "decades." (The number that pops into my head until problems start to arise is 2027, with the true crisis some time after that, but I don't have the time to research it right now.) In other words, I could declare that all we need to do is nothing to "keep Social Security solvent for decades [plural] to come."

Senator Chafee's PAYGO Proposal & Automatic Tax Increases

Senator Lincoln Chafee is once again trying to pass off his preference for high tax rates as "fiscal responsibility". This is from a recent press release on the Senator's campaign website...

Leading deficit hawk, U.S. Senator Lincoln Chafee today joined with Senator Bill Frist and Senator John McCain to co-sponsor legislation that will help get federal spending under control by establishing a Presidential Line Item Veto. Like Senator Chafee's proposed Pay-As-You-Go approach to the federal budget, this will help return fiscal responsibility to the federal government and ensure that our legacy to our children is not billions and billions of dollars of debt.

We'll take up the line-item veto a little later. For now, let's discuss the "pay-as-you go" proposal, also known as PAYGO.

The problem with Senator Chafee's most recent version of PAYGO was that it placed no limit on the overall increase in Federal spending. It only limited spending on the creation of new programs. PAYGO 2005 didn't apply to already existing entitlements -- or their automatic increases. (According to statistics quoted by Isabel Sawhill of the Brookings Institution, entitlements now account for 53% of the budget, a total that grows each year.)

To meet the requirements of PAYGO, the automatic growth of established entitlements like Medicare and Medicaid (Social Security is defined as "off-budget" and not considered for the purposes of PAYGO) would have to be offset by either yearly tax-increases or yearly cuts in existing programs -- real cuts, not just reductions in the rate of growth or limits on new spending.

Brian Riedl of the Heritage Foundation explains why a PAYGO program that ignores entitlement spending would almost certainly force automatic tax increases...

While PAYGO allows current entitlement programs to grow on autopilot, it would likely lead to the expiration of the current tax cuts. Merely retaining the tax relief that Americans now enjoy would, under PAYGO, require 60 votes in the Senate and a waiver in the House. To avoid this supermajority requirement, lawmakers seeking to prevent tax increases would have to either: A) raise other taxes; or B) reduce mandatory spending by a larger amount than has ever been enacted. Option A is still a net tax increase (raising one tax to avoid raising another), and Option B is probably politically unrealistic.

The NEA: There They Go, Again!

Peter Byrnes of the Liberty Files blogsite notes another clear example of the hypocrisy behind the NEA teachers' union political positions, this time on Social Security reform:

In any case, I heard on Bill Bennett's "Morning in America" today that the NEA has stepped outside education to oppose any privatization of the Social Security system. It would seem that the NEA has no dog in this fight. Not so.

Here are the NEA positions on privatization, among other issues. Follow the links. It's all there. And here is an explanation of the inner workings of the NEA. Read the whole thing. It's easy to follow.

The NEA opposes privatization of accounts, but the funny thing is that they have members in various states who opt-out of social security to enjoy the benefits of private retirement accounts. So, on its face, the NEA wants to deny the rest of us the very same thing that its members are permitted. hypocritical enough to be sure, but the NEA is not just about politics. Like any liberal parochial organization, it is about itself to the exclusion of its members.

The President's plan will most likely involve mandatory participation in the social security system, which means that employers, not the state, will likely be participating in making a defined contribution to their employees' retirement. That means that where the teachers have opted out of Social Security, they are back in, and thus there is less salary from which the NEA can collect member dues. But more to the point, the NEA's ability to bargain for the defined benefit plans for teachers' retirements--a happy source of revenue--would be gone.

The NEA seems to get that. Check this from their site:

Mandatory coverage of public employees would increase the tax burden on public-sector employers. Ultimately, these increased tax obligations would lead to difficult choices, including reducing the number of new hires, limiting employee wage increases, reducing cost-of-living increases for retirees, and reducing other benefits such as health care.

Ignoring the granny-scaring for a moment, the bottom line is that the NEA is concerned that there will be fewer members for them, or in any case, less salary for them to prey upon.

The NEA is in this because member benefits affect their bottom line. Whereas requiring teachers to be more knowledgeable than their students on the matters which they teach them was a problem for the NEA, so too will be reforming a retirement system which currently benefits them. But this union needs to be seen for what it is--an organization that exists for itself, not for the advancement of students, nor even for the future financial security of teachers.

There they go again, focusing once more on their own self-interest which has no connection to delivering excellence in education.

Oh, but it doesn't stop there.

Consider this recent story from right here in Rhode Island:

Having helped some 200 inner-city students do better in a special charter school than in other public schools, Rick Landau has announced that he will step down as chief executive officer of Providence's Textron Chamber of Commerce Academy.

The reason? Teachers'-union leaders are furious at him for trying to protect his school's role as an engine of innovation.

In struggling to keep together a team of excellent teachers, Mr. Landau took aim at the sacred cow of "bumping" -- a practice in which public-school teachers with seniority hold on to their jobs during a layoff through the dismissal of teachers with less seniority, even at other schools, regardless of how well they perform.

Mr. Landau asked his Textron Academy teachers to explore setting up a separate bargaining unit after it seemed that six of them -- a third of the teaching staff -- might be laid off so that teachers from other Providence schools could be shipped in. The teachers'-union leaders made it clear that they would allow no such innovation...

Mr. Landau had argued, correctly, that his school could not fulfill its mission unless it had the best teachers possible -- regardless of their status in the public-school bureaucracy...under Mr. Landau's leadership, Textron Academy established standards, raised test scores, and improved literacy.

Now all this may be at risk...

America faces an ongoing crisis in the non-performance of our public education system. You can read here, here, here, here, and here for other examples where the actions of teachers' union go against the best interests of students, taxpayers and the long-term competitive strength of our country.

There will continue to be thoroughly mediocre performance in our public education system as long as the teachers' unions retain their ability to dictate both ridiculous management rights which block excellence and outrageous compensation terms which bleed dry the financial resources of our communities.

Social Security Reform Debate: Hypocrisy, Misinformation & Why Change is Necessary

As you continue to listen to leading politicians debate the merits of Social Security reform, consider the points raised in this editorial.

The Left strongly opposes Americans controlling their own retirement funds through personal accounts...

Three million federal employees, including members of Congress, invest pre-tax dollars into personal retirement accounts, which they control. Instead of Social Security, federal employees use the [Thrift Savings Plan] TSP, which allows them to allocate their retirement investments among five options, any of which beats Social Security's meager two to three-percent return. TSP 10-year average returns range from 5.45 percent for the international stock index fund to 11.99 percent for the domestic stock-index fund.

Individually owned, privately invested accounts yield greater retirement security: TSP proves it. So why does Senator Kennedy want to deny workers the same ownership rights and higher returns that he enjoys? Because he knows such ownership will change people's policy preferences. If the value of retirement nest eggs were tightly linked to individual earnings and long-term stock-market performance, people would demand a freer economy to pump up economic growth and stock performance. Freer markets deflate Big Government, which threatens the Left � but freer markets pay off handsomely for the individual...

Ownership motivates people to think long term and to maximize the value of their assets. People act differently with borrowed goods than with owned goods; nobody washes a rental car, for instance. But the Left wants to keep working Americans in the Social Security rental car precisely because they know people tolerate more government when ownership rights are restricted. The Left views private retirement accounts as the biggest threat to Big Government since Ronald Reagan. And they are right.

That's the real reason Senator Kennedy is fighting to stop ordinary Americans from having the same ownership rights over retirement funds that he has.

Here are some websites of organizations supporting social security reform:

National Center for Policy Analysis
Cato Institute Project on Social Security Reform
Heritage Foundation
Institute for Policy Innovation
Social Security Choice, a project of The Club for Growth
Freedom Works/Citizens for a Sound Economy

Here are some specific articles:

David Hogberg on Music to Reformist Ears

Be Not Afraid: Social Security reform is no radical idea

James Glassman on A Battle over Likes, Not Numbers

Peter Ferrara on AARP's Agenda

The Heartland Institute on 'Transition Costs' for Social Security Reform an Illusion

Stephen Moore on Two Financial Futures for Social Security

Alan Reynolds on Myths About Social Security

Various editorials by Free Enterprise Fund

Donald Luskin on Call it a "Lockbox!"

James Glassman on Hypocrisy From AARP on Social Security

Dan Balz on Social Security Stance Risky, Democrats Told

Brendan Miniter on The Democrats' welfare-reform pitfall has lessons for the GOP on Social Security

Star Parker on Why is the NAACP against Social Security reform?

Lisa De Pasquale on NOW is on the Wrong Side of the Social Security Debate

Peter Ferrara on Social Security Sellout

Jamie Dettmer on Social Security Reform

Tod Lindberg on Shaping the debate on Social Security Reform

Prez's Press Conference

Watching the President's press conference, I've reached one clear conclusion. Middle-aged reporters making six-figure salaries don't care about the future of social security.

Democratic Social Security Rally

Some high-profile Democrats are coming to Rhode Island this weekend. The occasion: a rally to drum up political support for social security tax increases and/or benefit cuts targeted to impact younger citizens, the only programs the Democrats support. Will anyone at the rally ask what younger voters will be getting in return for being forced to give up more in order to receive less?

UPDATE:

Interestingly, the original post that I linked to announcing the rally has disappeared from the rifuture.org website. Here's a link to the "Ocean State Action" website with an announcement about the rally (at the moment).

Also interesting, here (at the moment) is Ocean State Action's final statement on social security reform.

Congress should keep the promise of Social Security and take the small, common sense measures necessary to keep Social Security healthy without benefit cuts, risky private accounts or borrowing.

(The boldface is in the original). Over the next few months, expect "common sense measures" to become codewords for tax increases and benefit cuts targeted against younger citizens.

Full Benefit Plans are Full of It

Uber-consultant Dick Morris� New York Post column on social security has a problem. The 2nd reform option is misleading.

Option B � No increase in taxes. A later retirement age. The current level of benefits.

A later retirement age is a cut in benefits. If you are forced to wait longer before you can start taking (your) money out of the system, you receive less than you would have if you had started earlier.

Be aware of this point. In the coming months, different plans for providing �full benefits� indefinitely into the future will be proposed. Almost all of them will involve benefit cuts hidden by a redefinition of the meaning of �full�.

The RI Legislature and Social Security

Today, the Rhode Island legislature will officially declare (pdf format) that all generations of Rhode Islanders oppose any partial privitization as part of social security reform. The resolution endorses no plan for actually fixing social security, it simply declares no partial private accounts, not now, not ever.

The resolution is very Orwellian in talking about paying �full benefits for all generations of Americans � today and tommorrow�. For future generations, �full benefits� will be a full piece of a shrinking pie. If you oppose all privatization, the only options are to continually raise taxes and cut benefits into the future. All proposals floated so far impose higher tax-burdens and bigger benefit cuts on younger Americans. Since the resolution goes out of its way to say that it is speaking for all generations, it begs the question of upon what basis the government feels justified in placing disproportionate burdens on younger citizens.

Here are a few of the possible rationales�
1. The government owns all income, therefore there is no issue of fairness involved. The government can do with its money what it wants.
2. It is the norm in our society that the younger generation eventually helps care for the older. Higher taxes and reduced benefits for younger people are simply the bureaucratization of an already existing norm.

A final irony: In the RI Senate, this particular piece of legislation comes out of the �Committee on Constitutional and Gaming issues�. Apparently, the RI legislature doesn�t want people betting their future on those risky private accounts, when they could be betting it at a casino instead!

Rhode Island�s Democrats and Social Security

A February 3 Projo article has the essentials of the positions of the Rhode Island Congressional delegation with respect to Social Security reform.

To sum up: James Langevin says that the government needs to take more from people and give them less. Jack Reed says that the government needs to take more from people and give them the same or less. Patrick Kennedy says that the government needs to take more from people and give them the same.

All three want to raise taxes. The euphemism they use is �reductions in permanent tax cuts� (Jack Reed) or �repealing all of the Bush tax cuts� (Patrick Kennedy). The article says Langevin agrees with Kennedy that �Social Security payroll tax increases should be off the table�. Focusing narrowly on the social security payroll tax presumably implies that Langevin would not oppose raising other types of taxes, i.e. repealing other tax cuts.

Kennedy opposes generally slowing the rate of benefit increases (generally slowing benefits is favored by Senator Lincoln Chafee, among others). The article contradicts itself on Reed�s position on benefit cuts. Here�s the direct quote�

I'd like to avoid any cuts," particularly in the form of shifts in how benefits are calculated, Reed said.But he said he would be open to debate on a wide variety of possible cuts and tax hikes

Does Senator Reed want to avoid cuts, or is he open to debate about cuts? Again, Langevin is disappointingly vague here. He says �he would rule out reduced benefits for the wealthy and a higher retirement age.� This does not rule out reduced benefits in the form of slowing cost-of-living benefits, the benefit cut that would have the greatest impact on the youngest taxpayers.

Isn�t there something fundamentally wrong with a system that needs to take more and more from people in order to give them less and less?

Senator Chafee and Social Security

According to Monday's Projo, Senator Lincoln Chafee�s plan for fixing social security, without relying on private accounts, is simple. Raise taxes and reduce benefits.

The tax-increase comes in the form of raising the (admittedly arbitrary) cap on income subject to social security taxes. No social security tax is paid on individual income after $90,000. Chafee wants to raise the cap to as much as $200,000. Were you building a system from scratch, there would be little to complain about here, provided you picked reasonable tax rates.

But we are not building a system from scratch. Older citizens who spent 0 years paying taxes on income above the current cap will be treated exactly the same as younger citizens who might spend 10, 20, or even 30 years paying extra taxes. How will they be compensated for their extra contributions?

And, according to Chafee�s proposals, younger tax-payers will not even be treated the same. They will be treated worse. Chafee wants to slow down the yearly cost-of-living increases in Social Security benefits. So, although young people will be paying more, they will receive fewer benefits over the long run.

Any incremental plans to save social security will be a variation on this same theme: raise taxes and reduce benefits. And like Senator Chafee�s plan, most will try to hide the fact that they will disproportionately impact younger taxpayers. If the government is going to ask young people to pay more and receive less, is it not it reasonable to offer them something like personal accounts to offset their lost income?