A 75th birthday for Social Security not a happy one

Social Security turned 75 on Saturday. But with fiscal problems looming, are its future birthdays numbered?

Today is the seventy-fifth anniversary of Social Security.

Only an unreconstructed reactionary (that is, a classical liberal) would, at this late date, be opposed to Social Security Act of 1935.

My purpose here is not to go over that issue, however. It is to comment on a recent Washington Post article on Social Security.

We must credit the Washington Post for recognizing that the real issue is the degree to which current payroll taxes fall short of expenditures. The Social Security trust fund is merely a commitment to use general funds to make-up the shortfall. The fund is simply IOUs (promises) to use those funds to a particular extent.

But the government would be free to use general funds even absent the trust fund. Furthermore, any legal obligation to use those funds in this particular way is as good as the word of Congress – that is, it can be changed at any time.

I dismiss as mysticism all talk of intergenerational obligations when they are imposed by morally arbitrary statute. I have said for years (since I was 12, actually) that I did not want to pay the tax and that I would be willing to forgo benefits if I could stop paying the tax. (My tax-payments would have, if invested, even with the recent financial meltdown, given me a better to-date rate of return.)

Now look at what some modern-day Social Security fans are saying:

“A new group, the Strengthen Social Security Coalition, which includes the AFL-CIO, the NAACP and the National Committee to Preserve Social Security and Medicare, asserts that the president’s two choices to chair the panel, Democrat Erskine Bowles and Republican Alan Simpson, “sent a clear message. Social Security is on the chopping block.” The groups’ list of what changes are unacceptable is longer than what it would consider: no increase in retirement age; no reduction in benefits; no “means testing.” Rather, they say, the adjustments should come from the revenue side. Though the possibilities are not specified, they include raising the payroll tax rate, raising the ceiling for income on which benefits are paid or finding a new revenue source, such as the estate tax or a new financial transactions tax.”

The Coalition particularly hates the idea of “means testing.” Why? Because if that principle is introduced then taxpayers will begin to look at the program as a redistribution scheme – perhaps even a welfare program – and subject it to greater scrutiny. African-Americans might also begin to think that they pay disproportionately in many senses, not the least of which is that they die at a younger age and thus get fewer (or no) benefits but pay a regressive tax.

(However, the government does indirectly means-test. Social Security benefits are subject to a progressive income tax. What one hand gives the other hand takes away.)

The social consensus for Social Security, built in part on illusion, political and economic ignorance, propaganda, and communitarian mysticism, would crumble.

But it will crumble no matter the short-run fixes modern-day New Dealers might come up with. Americans will begin to see the inconvenient truth as more and more of the federal budget is taken up by Social Security and Medicare.

Unfortunately, the Washington Post – like all good moderate, sensible people – advocates a “balanced” approach: raise taxes and cut benefits for new recipients. The moderate wisdom is to say ditto for every governmental fiscal problem. Suffice to say combined taxes at all levels of government are already quite high, at least if we care anything about individual liberty.

I am not insensible to the problem created by millions of people relying on the system for retirement income, especially those near retirement age. But this is where the cynicism of the dogmatic New Dealers comes into play. By denying the obvious problems they make sudden unexpected cuts more likely. This just makes the problem of reliance worse. The nation needs to prepare now for the radical transformation of the entitlement state.

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