Whilst reading a discussion on the state of Social Security I noticed some conceptual errors, which if not corrected, could lead to very bad results.
Social Security is not a welfare program. It is not a wealth redistribution program. It was created in FDR’s time as a one size fits all retirement fund. Every working person is forced to pay a percentage of their income into it so that upon retirement, they will continue to live in a life style similar to the one they had before retirement. At the time this idea was sold to the public, pure redistributive Socialism and welfare simply were not acceptable ideas in polite society.
If someone from a conservative view point puts forth an argument that applying a means test is a way to save Social Security, a way to turn it into a ‘social safety net’, they are buying into a deadly shift in the ground rules of the argument. Once you agree your pay out from Social Security need not reflect your pay in, you have left the field of play. You have handed the game over to the Socialists and made Social Security a welfare program. It becomes yet another redistribution program ‘for the poor’.
No one should fall into that trap. Social Security is an alternate to private retirement savings plans. It was created out of a mind set that said individuals are not adult enough to save for their own retirements. It was created out of a mind set that said private entities could not be trusted to hold such investments and pay them back as promised.
The terms of the discussion we should be taking part in is that not only are these statements false, they are disastrously, blatantly false. When a private program fails, some number of people are indeed harmed. When the time comes to pay the piper on the Government program, millions upon millions of people will be screwed out of their retirement savings.
We can also make the argument that politics has allowed the entirety of Social Security to become an enterprise so flawed that if similar actions occurred in a private company, they would be decried as criminal offences. Individuals carrying out such schemes would be compared to Bernie Madoff. They would be worse than Bernie: by comparison he ruined the lives of a very small number of Americans, not many tens of millions. Social Security proves yet again that the government is incapable of running pretty much anything. If you want a disaster, let the politicians run it.
When the collapse finally arrives and the Ponzi scheme can go no further; when the taxpayer can no long bail out a failed scheme and hide the criminal nature of it all, I very much hope thousands are indicted for the crime. Every person who served in Congress and the Senate who voted to raid the program or undermined the T-Bills on which it rests and every bureaucrat who ever worked for the Social Security Administration who went along with the fraud deserves a long prison sentence.
We need to give poor Bernie some company after all, and he can learn how it is done by the real Pro’s.
As of December 2011:
In France “Social Security” refers to the system for the government to pay for healthcare.
In the UK, “Social Security” refers to a welfare payment paid to people who don’t qualify for unemployment benefits, or disability benefits but are unable or unwilling to work.
I take it “Social Security” in the USA has a different meaning.
In practice “social security” always refers to something that was introduced to buy the votes of the poor. It may take different forms in different countries but its purpose is always the same.
The US system was sold and the law passed as a ‘pay as you go’ system. The government takes X% of the dollars from each paycheck I earn through my life; it then guarantees me a return based on my pay in. It was not a welfare system because everyone was equal and everyone got out returns based on what they paid in. It was not ‘to each according to his need’. It was however very paternalistic. It is a very different system… people are forgetting that however, some of them ‘conveniently’ and they are attempting to morph it into a welfare system.
Whether it is a welfare or paternalistic retirement savings program does make a difference in the way you look at it. If it were a welfare program, then of course the government can do whatever it wants to take savings from A and give them to B. But if it is a forced retirement savings program, then if the money has gone missing… a criminal offence has been committed.
Can I ask what happens in America to people who don’t work and never pay in? I don’t mean recently unemployed or sick but here, regardless if you never work a day in your whole life, you will still get housed and kept, even paid to produce ever more kids for the rest of us to support. When you officially ‘retire’ you will get pension credits and all sorts of related benefits not available to those who have paid for themselves, and you, all their lives. No wonder the country is in a mess, at least the American system seems more insurance related in that what you get out relates to what you pay in.
The idea that SS benefits are usefully connected to payroll taxes paid in has been a fraud for decades.
SS benefits are indexed to inflation. The money paid in isn’t (can’t be, obviously). The increased amount of benefits cannot have been earned.
Suppose, over the next two years, the massive monetary expansions made to prop up the banking system and cover the enormous Federal deficit finally erupt into hyperinflation of Zimbabwean magnitude – say 100,000,000%. All previous payments into the system will be devalued to approximately nothing.
Will the system stop paying out? No. It will pay out from current revenues. If benefits continue to vary per previous payments into the system, it will be purely a political act,
as those will have ceased to exist.
This is an extreme scenario, but it differs only in degree, not kind, from the present operations.
Keep in mind that what I described is what the Camel’s Nose of the American system looked like in the 1930’s. Socialists have been busily trying to reconstruct the language to make it something different ever since. I am not actually sure to what extent they have succeeded, but I do know that for generations we have had crooked politicians raiding the Social Security fund to back their vote getting spending plans.
This is the point we have to pound home. Government cannot run a pension plan. Government is far more dishonest than the private sector and on top of which, can legislate its actions to be ‘legal’ where the same action in the private sector would land people in prison.
The raid by the Democrats on Social Security has been insidious. The “Social Security Trust Fund” in a “lock box” is an obvious fraud. But the Social Security Disability Program and the Supplementual Security Income program have been cemented into place under the radar.
The Clintons added thousands of Administrative Law Judges to the appeal system to distribute funds (buy votes) to those they deemed “disabled.” Obama was in the process of adding many more judges but has been checked by the Republicans winning the House.
These “judges’ decisions are vastly expanding a retirement system into a welfare program.
The politicians and bureaucrats can hide behind the bromide that it is the law.
SS may have started out as a “pay-as-you-go” system, but it has been a very long time since that has been the case. In fact, even at the beginning it was not based on amounts paid in. The lucky ones at the beginning got full benefits even though they had paid in almost nothing, and as Rish Rostrum said benefits have been indexed to inflation for decades. If it were truly based on contributions the benefits would have been actuarially based, but that has never been the case, not even on Day 1. And, of course, the “contributions” have always been gobbled up by the federal government and spent on whatever it liked; there has never been a “lockbox”. (The government takes money out of its left pocket, puts it into the right pocket from where it is spent, gives the left pocket an I.O.U. and calls it a “lockbox”. Anyone who believes that charade is either a fool or a fraud.) And the Supreme Court long ago ruled that there is no contractual right to SS benefits; the government can reduce or even eliminate them any time it chooses. It is very much a welfare scheme, paid out of current revenues and subject to the whim of government.
It is also a Ponzi scheme, and if that’s not a “wealth distribution program” I don’t know what is. We would be much better off to acknowledge the truth, treat SS “contributions” as the taxes they truly are, eliminate the fiction of the “lockbox” and means-test benefits. Even that probably isn’t sustainable, but the current system definitely isn’t, and it’s better to deal in the truth than pretend to believe in an obvious lie.
Actually even FDR’s lawyers did not claim that Social Security was a “retirement fund” Dale. Although yes the political B.S. was that it was (but that is not what they said when before the Supreme Court).
Even they admitted that Social Security was a welfare program and that the “contributions” was just a tax (that was put in the general government coffers), there never has been a “trust fund” it is all a lie.
It was defended as part of the “general welfare” concept – as you know the New Dealers (like the Progressivers they were) held that the “common defence and general welfare” were not the PURPOSE of the specific powers granted by Article One, Section Eight to the Congress – but that there was a catch-all “general welfare spending power”.
Of course once one accepts that (which the courts eventually did) limited government is dead – stone cold dead (that was the whole point of the argument). Instead one gets the out of control monster than the modern Federal government is.
If government can spend money for anything that it believes is for the “general welfare” then it is truly game over.
Actually it would be honest to just fund the whole scam at of general taxation (as Australia and New Zealand do) rather than pretend there is a special fund with “contributions” (and all the other lies the establishment tell).
However, you are right about the politics of the whole thing.
The government (and the vermin in the schools and universities and so on) pretend that Social Security is a “retirement fund” (at least they pretend that till they are before the courts) so why not pretend to take them seriously?
So in releation to the politics of the whole thing – you are bang on target.
Indeed recent events prove you to be correct.
The Dems (in the Senate – as well as the Marxist-in-Chief in the Whitehouse) are trying to replace the payroll tax (sorry the “contributions”) with a special “temporary” (even they admit the “temporary” tax would last ten years – really they indeed it to be eternal) on the rich.
That, sadly, is the real alternative to the payroll tax (in the eyes of the left) – another tax increase on the owners of small business enterprises.
Not the big corporations (there would be no increase in the Corporation Tax – of course the rate is nominal, the loopholes mean that the likes of General Electric and so on pay little or nothing), but those business enterprises that file under the income tax – i.e. the privately owned bussiness enterprises.
George Soros (with his off shore accounts) would not be hit – and neither would Berkshire Hath…. (no real problem for Warren B. – he cares about his corporation more than anything else).
But fatal for small business owners.
If I’m not mistaken, Social Security is already means tested in a stealthy fashion. One’s lifetime contributions are run through a formula to determine the old age benefits, but this formula is weighted so as to give more benefits to low earners than to high earners. Also, below a certain income level the benefits are not subject to Federal income tax; above that level they are. Also, I seem to remember reading somewhere that the income tax generated from taxable Social Security benefits doesn’t go to the general fund but is remitted to the Social Security fund. So it’s already means tested, just through the back door instead of the front.
If I’m not mistaken, Social Security is already means tested in a stealthy fashion. One’s lifetime contributions are run through a formula to determine the old age benefits, but this formula is weighted so as to give more benefits to low earners than to high earners. Also, below a certain income level the benefits are not subject to Federal income tax; above that level they are. Also, I seem to remember reading somewhere that the income tax generated from taxable Social Security benefits doesn’t go to the general fund but is remitted to the Social Security fund. So it’s already means tested, just through the back door instead of the front.
Sorry, I should have wrote “…this formula is weighted so as to give more benefits per dollar of contributions to low earners than to high earners.”
A couple of clarifications on some points in the comments. First off, Social security has three distinct pieces – the “retirement” portion, a survivor (widows & orphans) portion and a disability portion. In all cases, you have to have participated in the program to claim benefits, with the exact degree of participation varying depending on the program. The only adults who can claim any SS payments without having paid in are qualifying dependents – surviving spouse and disabled adults who claim from their parent(s) and were disabled before reaching working age. The typical example here would be disabling mental retardation.
Other than the recent expansion of qualifying disability, SS is operationally well defined. While in the early years it was possible to claim benefits off a very short work history, since everyone currently in the system has been in it for their adult working lives the pension portion really isn’t gameable in any meaningful way. You can’t even double dip into it (military retirees are not covered during their service, and assuming they work after leaving the military there are serious clawbacks to any SS benefits). As a piece of technical government policy it is actually pretty solid work. It only falls down at the macro-level (a pay-go system cannot provide significant income with only 2-3 people paying taxes per beneficiary).
All of the following solutions will substantially eliminate these problems: Reducing benefit payments by 5% AND increase the retirement age to 70 over time; increasing both the employee and employer contribution immediately by 1.1% for income up to $106,800 (its current limit); reducing benefit payments by 5% AND increase both the employee and employer contribution immediately by 0.05% each year for the next 20 years for income up to $106,800 (its current limit); removing the $106,800 limit and count all income towards the SS tax; decreasing the cost of living adjustment by 1% per year AND raise the retirement age to 67; or taxing income over $106,800 at 3%, index the retirement age to longevity AND decrease cost of living adjustment by 0.5% (http://eng.am/oTlck2).