Tuesday, February 21, 2012

Ask RC: Is Social Security an old age insurance program?

No. While we are often encouraged to see it this way, the truth is that Social Security is a wealth transfer program, an entitlement program.  Money is taken from one person, and then given to another. To help us understand this it might be wise to go back to the beginning.

Social Security was a creation of FDR’s New Deal. On the income side it began with a payroll tax on employers, which was in turn matched by employees.  This money, however, was not set aside, invested, hidden under a mattress. No, it went right into the out-go side. A farmer can’t harvest his crop until after he grows it. With Social Security the aged harvested what they did not plant. My grandparent’s taxes, went, after Washington’s administrative cut, to checks written for their ancestors. The promise to them wasn’t that they would receive their savings back when they reached the appropriate age. Instead the federal government promised to tax the next generation, ad infinitum.

Washington showed its true colors when it, during the many years that it spent more money that it brought in, kept a budget for Social Security apart from the federal budget. When Social Security, because of the baby boom, began to run a surplus, Social Security’s income was brought into the federal budget. (Keep this in mind the next time someone suggests that for several years President Clinton ran a surplus. He did, in a manner of speaking. More money came in for several years than went out.  The promises to pay, however, far exceeded what was brought in. This would be as if I spent $5,000 on new furniture, while bringing in $3000. If my payments were delayed a year, and I spent only $2500 on my other expenses that month I could, though I shouldn’t, claim a surplus.)

That great big aardvark-in-a-python baby-boom bubble, however, is coming home to roost, as that generation approaches retirement. The cash they put in went to their parents, and to the annual budget. Washington did put IOU’s into a bank somewhere. Trouble is, what Washington means by IOU is, I Own You. That is, it is a promise to tax other people. Remember Washington has nothing that it did not first take from someone else.

Social Security has run headlong into three demographic walls. First is the baby boom already mentioned. Second is the pleasant reality that people are living much longer than they once did.  And thus, as in a Ponzi scheme, most Social Security recipients receive much more than they put in. Third, not needing actual children to care for them, thanks to the federal government, families radically decreased in size. And so we have fewer people paying for the needs of more people. Bankruptcy is inevitable.

What do we do? If push came to shove I would argue that we cannot accept Social Security. It is asking the state to take the wealth of others for our own gain. On the other hand, people were lead to believe, wrongly, that this was an old age insurance program. So I have no fervent beef with older people who depend on Social Security. I wish it were not so, but the greater wrong-doer here is the federal government.

If you are relatively young, however, you will not have to wrestle with the moral dilemma over whether to take Social Security. It won’t be there for you. When politicians insist that they will protect Social Security what they really mean is, “We’re going to keep taking your money, but we won’t have any to pay out to you.” No one ever wants to be in a position where they must trust Washington for anything. It is no insurance program. It’s a shakedown. Plan on being taken, but do not plan to receive. The Bible calls this going the extra mile, turning the other cheek. It’s what homeschoolers do every year, paying school taxes for schools they don’t use. The God of heaven and earth sees. And He, not Washington, it is who gives us our daily bread.


WhiteStone said...

Pretty tough reading. But pretty truthful. And with last year's HUGE govt spending, we're worse by far than we ever in our worst dreams expected to be, in terms of the tax burden now placed on our children and grand children. People don't want to see it, but it's there in plain view.

Anonymous said...

It was curious, as I was reading this, to think back to the 2008 presidential election where the Republicans were at the same time accusing President Obama of wanting to "redistribute wealth," all while advocating new social security plans, whereas social security is government redistribution of wealth, pure and simple.

Stand Fast,

Andrew Romanowitz