program consumes the largest share of the federal budget? What program
is predicted to go belly-up in short order by every knowledgeable
observer? What program are the leaders of both parties committing
to protect until it bankrupts the country and destroys what's left
of inter-generational amity?
answer, of course, is Social Security, the long-running insurance
fraud created by Franklin D. Roosevelt. Don't expect the new Congress
to touch it, however. The two parties are committed to defending
it to the death the death of us.
political scams go, it's hard to top Social Security. It has imposed
a prosperity-crushing tax bite on everyone, promoted financial irresponsibility
in the middle class, and torn apart the generations. It has lessened
the respect any civilized society should have for its elders, even
turning some of them into greedy lobbyists. And it has expanded
government's reach beyond what any free society should tolerate.
The program doesn't even provide security.
9% of Americans age 18 to 34 think that Social Security will pay
them anything when they retire, according to a poll by the group
Third Millennium. And three fourths don't even believe the program
will exist by then. As a result, people have to rely on private
savings programs. That is as it should be. But the younger generation
pays more into the program than it does in personal income taxes,
and that amounts to theft (and I say that as someone much closer
in age to the recipients than the young).
Social Security flat income tax is masked by calling it a "contribution"
(no, Clinton didn't invent this euphemism), and by making employers
pay half, which still comes out of the employee's paycheck. When
the program began in 1937, Social Security's revenues comprised
10% of total government take. Soon it will reach 40%, most of the
growth having taken place since 1970.
program raises four times as much money ($479 billion) for the central
state as the corporate income tax ($118 billion), and only 15% less
than the personal income tax ($562 billion). In 1950, the Social
Security budget was 1/17 the size of the Defense Department's. But
since 1991, it has beat out the military as the largest program
in the federal budget a dubious honor.
myth survives that current payments are stored in a "trust fund,"
as Democrats have claimed for years. In fact, today's workers pay
today's retirees, with any spare funds handed to the Treasury for
immediate spending. The financial instruments received in return
are simply claims on the hapless taxpayers of the future.
is Social Security an annuity as Richard Armey of Texas recently
claimed for there is no payment difference for people who are going
to live longer. There is only an arbitrary benefits formula slightly
connected to what was paid. In short, the program has more in common
with insurance fraud than market insurance.
Security also manufactured a phony "right" to leisure from age 65
onward. In 1930, that age surpassed the average life expectancy,
which was 58 years for a man and 61 years for a woman. Today, millions
of potentially productive, high-income older people are living off
struggling young people.
program has also created perverse political divisions among the
old, middle aged, and the young. The government has relieved the
middle aged of the responsibility of taking care of their parents.
That, in turn, has made them less respectful of the older generation
in general. The fiscal squeeze has also made euthanasia the murder
of the elderly respectable in some quarters.
people have even begun lobbying to keep their parent's Social Security
cash flowing, so future bequest money won't be spent during retirement.
on Otto von Bismarck's earlier scam, Social Security was irrational
to begin with. It was based on the premise that government is a
better manager of funds than private individuals and financial institutions.
Naive is not quite the word for that notion.
a part of America's vast and sprawling Transfer State, Social Security
redistributes money between the generations, and promotes the idea
that we don't need to plan ahead because the government will care
made political sense for the slippery FDR, however. He could bribe
some voters with other people's money, buttress his Mussolinian
view of the state, and pose as a savior of the weak and infirm.
How fitting that today's younger generation curses his name for
starting the Social Security chain letter.
pyramid schemers included the Reagan administration's commission
led by Alan Greenspan, which "saved" Social Security with frequent,
automatic tax increases into the next century. No leader in either
party will speak out against Social Security. Doing so is supposed
to be political suicide. But so angry are the American people at
all welfare, that the time may have arrived when it isn't.
Republicans, even those with a conservative reputation like Newt
Gingrich, passionately defend the program. When Clinton's budget
director Alice Rivlin suggested slightly cutting the rate of increase
in benefits during the campaign, the Republicans went nuts. They
attacked the Democrats for wanting to cut spending.
politicians had better wise up. The aging of the population guarantees
that something will have to be done about the Social Security mess.
Now even the Congressional Budget Office says the scheme will go
belly up during the lifetime of younger workers. The natural inclination
of politicians will be to "reform" the system without disturbing
the powerful interest groups which benefit from it. This tendency
should be resisted. Better to declare the program a mistake, and
can be done in four steps.
we need means testing of Social Security, to cut spending and so
that everyone knows it's welfare, not insurance. This political
taboo must be broken. It would take only a few high-profile speeches
by a leader with the courage to make a difference. Cutting out the
well-to-do is a start.
we need to raise the retirement age to 70, at least. This will help
end the catastrophic New Deal myth that our professional lives should
end during what is increasingly the prime of life.
we need a British-style buy-out system, where people give up future
claims on previously paid taxes in exchange for lower taxes now.
Not everyone would go along. But enough people would to make a difference.
Sure, we would have to admit that all the paid-in money was spent
long ago, but that's a benefit.
we need to end taxes on savings and investment. After that, retirement
money can come from burgeoning pensions and private savings plans
in the free market. Even in the absence of tax cuts, 401K programs
are booming. Abolishing all these taxes would cause an explosion
in lifetime savings. Also crucial is eliminating all taxes on bequests
unrealistic? It may seem so right now. But political climates can
change very fast these days. And unlike the weather, we have control
over it. Political leaders backed by intellectual leaders who understand
the disaster of Social Security should begin the debate now. Any
politician, whatever his partisan loyalties, who refuses to deal
honestly with the issue should be punished.
transition will not be easy. But even a rough transition beats bankruptcy.