The Social Security Scam

by Ryan McMaken

Since the extinction of those Barry Goldwater types, the issue of ending social security as we know it has rarely reared its head. Most presidential elections consist of presidential candidates hurrying to convince the program's recipients that benefits will not be cut. In fact, many candidates seem willing to pluck out their own eyes rather than see any reduction in social security benefits. Social security has been an amazing program that just refuses to die or even just be criticized. Unlike social security, welfare programs strictly intended for the poor are often a subject of contention. In 1994, many Republican candidates actually won elections after promising to cut welfare benefits. In 1995, Bill Clinton, a Democrat, signed a bill refusing welfare benefits to some recipients who didn't find jobs. He got re-elected a year later. Some folks out there doesn't like welfare. There are deep economic and geographic divisions between those who support and those who oppose welfare. We know who's for it and who's against it.

Who opposes social security? I once heard that there were some libertarians somewhere out west that opposed the program. Other than that, the field seems pretty empty. The brilliance of social security is that it avoids the potential social divisions which might cause some resistance to the program. One cannot point to any social class that stands in general opposition to social security. There is certainly no region that is known for its opposition to the program. Certainly social security will be more important to a candidate campaigning in a state with a lot of old people like Florida or Arizona, but you never hear about a presidential candidate emphasizing his anti-social security platform in, say, Nevada. There simply isn't a place where there aren't a lot of people who are eligible for the program at some point in the future. Everywhere you go there are plenty of people who can't wait to receive that first check.

The absence of these political divisions helps to solidify the foundation of political support for the social security program. In the past, welfare programs have faced opposition from those who foot the bills. After the Civil War, Southern workers paid for pensions for Union soldiers. The Southerners resented it. In modern times, Americans in rural areas and small towns tend to pay for the welfare programs that support many urban dwellers. They too resent paying the bills for others. The resentment often translates into political opposition. The Democratic party opposed the soldier pensions in the 19th century. The Republican party has opposed social welfare programs in the 20th century. Where's the opposition to the social security benefit?

Since those who pay for the system are diffused throughout the social classes and geographical areas, no natural anti-social security constituency has ever formed. Added to this is the fact that most people welcome the prospect of getting checks themselves someday. Many Americans still believe in the mythical "trust fund" that supposedly holds our money as we wait to retire. They think that they get back the money that they paid into the system during their working lifetimes. The reality is that people generally use up the money they paid in within five years. Every dime received in social security benefits after that point is paid for by some working stiff in a cubicle somewhere. The idea of the social security entitlement has permeated all levels of American society. Most everyone is a potential recipient and most everyone is OK with it. "Social security mom" doesn't have quite the stigma that "welfare mother" has. Social security is supposed to be something you earned. Good for you.

The other group that absolutely loves the social security program is government itself. The program guarantees that a constant stream of tax dollars flow through Washington so that all the politicos and bureaucrats can skim a little off the top. Thanks to creative government accounting, social security funds are de facto general revenues, and they have the potential to benefit every government agency. Thanks to social security taxes, campaigning politicians can make a lot of talk about cutting income taxes yet still promise greater social security benefits. They all know that anything other than a massive income tax cut would be only a drop in the bucket compared to the steady stream of payroll tax money that flows into the government coffers. As a result, the pro-social security forces are so widespread and so diffused through the population, that it seems that no opposition could ever arise.

Problems for the system will begin to come when revenues start to get tight. As the retired population begins to overwhelm the working population, payroll taxes will have to rise in order to keep the retired folks fat and happy. If one wishes to actually collect revenue though, taxes just can't keep going up every time social security needs a few extra bucks. Changes in eligibility will have to be made. As has already begun to happen, the minimum age of eligibility will creep up. In the age of water skiing and ice climbing 70-year-olds it will become more and more difficult to justify benefits for everyone who has attained retirement age. Also, it is likely that some kind of income cap will eventually be put in place. It will be hard to justify sending social security checks to Aunt Maude on her Carnival cruise liner while the agency is scratching for cash. If an income cap comes to pass, it will prove to be a crucial development in social security policy. Such a development would change the incentive structure in social security. The program would begin to take on the look of a program that was paid for by people who planned for retirement to benefit the people who did not plan for retirement. Taxpayers would begin to feel the sting of paying for benefits that they might never receive. Of course, all that such a development would do is expose the reality of social security that has always existed. It has always been a program which benefited people who worked less and saved little at the expense of those who worked often and saved a lot. The deception which the program is founded on has contributed to the public's perception of the program as just a big savings program with government oversight. As the program begins to get needy for cash, the big lie will be harder to keep alive. It will become clear where the money is coming from and where it's going. As politicians tell us that the more well-off retired people must sacrifice their benefits for the more needy retired, resentment will begin to build and the social security myth will begin to die. Those who saved will find that they are paying for those who did not. The program will look more and more like the welfare program that it has always been. Its founders were ingenious enough to include all retired instead of just the poor retired in order to give the "trust fund" nonsense some credibility. It's never been more than a welfare program though, and it should be labeled accordingly.

The prospects for anything of the sort happening in the near future are pretty scarce. Having made a big issue of it in the presidential campaign, George W. Bush might feel the need to pay it a little lip service before his term ends. It would be political suicide to take any meaningful action, though. There's a lot of talk in the media about how the system is supposed to run out of money in thirty years. They don't mention the fact that most everyone in government will be dead or in diapers thirty years from now. Unless something cataclysmic happens in the very, very near future, Congressional action is unlikely. For those with libertarian sensibilities though, the sooner the social security system has money problems the better. Only when average working American wake up to the fact that social security takes from those who work and gives to those who don't (or never have) the better off we'll be. Until then, those folks in Washington will continue to take our money, give us a tiny bit of it back, and a we'll all think we're getting a great deal.

Ryan McMaken is a graduate student in American politics at the University of Colorado. He edits the Western Mercury.