The New Ideas Blog

I know I’ll get flack for this one, because social security is seen as somehow sacred. The truth is that it has become a rip-off. To start with, let’s drop the pretense that it is or ever was a retirement “trust fund.” The money never was invested or set aside. It was a promise by government that it would force future workers to give money to those who paid taxes now. It has in part become yet another way to transfer wealth from the poor and middle class to the wealthy.

A question: If the government promised decades ago to give a million dollars to each retiree, would you feel obligated to take a second or third job to keep this promise that you didn’t make? No? Then we agree that we are not obligated to keep all promises made by past generations or past governments. Now what about social security?

The money is taken in and “invested” in treasury securities. In other words, the government just spends the money and promises to repay it, which again is merely a promise to somehow make future workers pay enough to support this Ponzei scheme. If you “invested” your 401K money in loans to yourself that you spent now, would anyone take it seriously when you said you had a retirement fund?

Social security is a welfare program, because money is taken from current taxpayers to provide benefits for recipients. Some old people really need our help, and so I don’t object to some of my money being used to help them survive. But given that it is a welfare program, should a waitress at a restaurant in New Jersey be made to pay for wealthy retirees drinks as they lounge on the beach in Florida? I don’t think so.

It was hard to find much information online about how many wealthy people receive social security, but after some searching I found a few government charts. As of 2006, there were about four million recipients who made more than $65,000. That’s not wealthy, but it is much higher than the average household income. In other words, these people had no need for welfare.

Apparently the average Social Security benefit for retired workers is $1,100 per month. I’ll leave it at that, although I suspect that wealthier recipients get more on average, since they probably paid the maximum into the system. In any case, based on this conservative analysis, this means that about $53 billion per year is transfered from the working Americans to those who don’t really need it.

How many do need it? According to the Ludwig Von Mises Institute, “The idea that ordinary people save too little to fund their retirement is unfounded. Several recent studies indicate that most people make adequate provisions for their retirements.” They went on to quote studies which showed that only 12 percent of retirees are risking poverty in retirement without social security. Understand that this means those who work and live in poverty get to pay for the other 88% to live a better lifestyle.

Now, about 600 billion will be paid out in social security in 2009, with 88% of it, or $528 billion going to those who would be fine without it. That is a massive transfer of wealth from young to old and from poor to rich as well.

There are scams that rip off social security money, like the one reported on by the Tresury department in 2005. They found that the owners of 36,000 single-shareholder ‘S’ corporations paid themselves no salaries at all in 2000, though each had operating profits of more than $100,000. This was most likely to avoid paying social security taxes on $13.2 billion in profits. That means they legally underpaid about two billion in social security taxes.

Then there are the thousands of retiring teachers in Texas who worked one day as a janitor in order to qualify for both their generous governmental pensions and social security. The Government Accountability Office (GAO) reported on this legal loophole in 2002 and 2003, and estimated that it cost $2.2 billion in additional benefits. The one-day pay stub from cleaning the bathrooms (if they even did the work) qualified each teacher for about $113,000 in benefits.

But these abuses are not the primary problem. The problem is that the system is a fraud, and there is no trust fund. The first benefit check was paid out in 1940 to Ida May Fuller, who collected $22,889 in benefits after paying $49.50 in taxes into the system. That should have been a clue that this ponzei scheme would someday be in trouble. Now it has become a way for the old and the welathy to take from the young and poor.

We need to dump the social security rip off entirely. Although I am not a big fan of welfare programs (they often discourage initiative), I still think it would be better to give help to those who need it from general tax revenues, rather than hide the nature of the social security system and continue it in order to maintain benefits for all those recipients those who lobby effectively.

Note: Links to all posts and pages on how money is transferred from the poor and middle class to the wealthy can be found on the page: The Redistribution Of Wealth To The Wealthy

Further discussion: What about those who receive this welfare called social security? I can’t blame them for not liking my analysis, or for taking what they can get. They have been told over and over that this is a kind of “right” or “contract.” Actually, in Flemming v. Nestor, 363 U.S. 603 (1960), the Supreme Court ruled that “there is no contract right to receive Social Security payments. Payments due under Social Security are not “property” rights and are not protected by the Takings Clause of the Fifth Amendment.”

At the moment those social security taxes are being collected, and one could argue that they’re going to be spent one way or another in any case. So a retiree who makes a decent income and pays taxes might see those social security checks as a kind of tax refund. The truth is that despite any moral qualms, few of us could refuse free money, so who can cast the first stone?

On the other hand, taking from what has already been collected by a government is one thing, but advocating and voting for more of the same certainly makes one more of a participant in the crime. If you look closely at this, you cannot escape the fact that the only way you get your money is if government takes it from those who are now working, many of whom are working for less than $20,000 per year and paying $3,000 of that in social security taxes.

Suppose some pandering politician in Somalia had sold cheap unrealistic bonds thirty years ago that now were maturing at a value of a million dollars each. Would you sue the country to force it to pay? Would you do it knowing that they would have to take half of the people’s $600 annual income - people who were not alive when the promise was made? No? Then here’s another question for you: If workers make $8,000 or $18,000 - at what income point would you no longer feel bad about voting for politicians who promise to take money from the poor or middle class (or anyone) to give to you?

My ebook:

Tags: social security rip off, trust fund, wealthy

This entry was posted on Friday, November 14th, 2008 at 8:00 am and is filed under Political Ideas. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.