Is Social Security Fair?
November 14, 2008
Social Security has become an unfair system that burdens the
poor, often to help the rich. My explanation begins with a question
for you, the reader: If the government promised fifty years ago
to give ten million dollars to each retiree, would you feel obligated
to take a second or third job in order to help the current government
keep this promise that you didnt make? No? Then we agree
that we are not obligated to keep all promises made by past generations
or past governments. Of course, nothing so extreme has been promised,
so what about the promises made when Social Security was first
implemented in this country?
To start with, lets drop the pretense that it is or
ever was a retirement "trust fund." The money is not
and never was invested or set aside. It's used to pay current
retirees, and if there is any excess left over that amount is
"invested" in treasury securities. In other words,
the government just spends the money and promises to repay it,
which is merely a promise to somehow make future workers pay
enough to support this 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 essentially a welfare program by definition,
because money is taken from current taxpayers to provide benefits
for recipients. Some senior citizens need our help, so I dont
object to my money being used to help them survive. But given
that it is a welfare program, shouldn't it be means-tested? If
it is not we inevitably have those who are poor working to give
money to some who are wealthy. 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 dont think so.
According to federal government information online, as of
October 2012 there were 56.58 million individuals receiving Social
Security benefits totaling $64 billion per month, for an average
monthly check of $1,131. Figures for total income of retirees
is harder to find, but a report prepared for congress shows that
fully 25% of people over 65 live in a household with over $59,000
of annual income. This does not include the value of government
services which are not direct cash payments, like Medicare. It
also does not reflect the value of second homes and other non-income
assets which could be used as income if sold.
Now, $59,000 annually, which is almost $5,000 monthly, does
not make one wealthy by any means, but it is also nowhere near
poverty level. This is especially true when medical care is mostly
paid for and taxes are lower (investments, the primary source
of income for most retirees, do not incur payroll taxes, unlike
earned income). So losing those $1,131 monthly Social Security
checks would not impoverish many in this group. That same report
mentioned above shows that almost 10% of those aged 65 or older
are living in poverty, but this includes many who receive
Social Security checks every month (more than 90% of people in
this age group get SS benefits). That's an important point, as
I'll show in a moment.
What do all of these figures menan? One thing worth noting
is that those who work and live in poverty get to pay for senior
citizens who are not in need to live a better lifestyle. Draw
the line where you like (there are millionaires getting monthly
checks as well), but if we assume that retirees in the top 25%
of income would be fine without the help, we arrive at a figure
of about $192 billion annually spent unnecessarily. That is a
massive transfer of wealth from young to old and from poor to
middle-class and rich as well.
There are scams that rip off social security money, like the
one reported on by the Treasury 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
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 not set up to help only those who need
help, 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 scheme would someday be in trouble.
Now it has become a way for the old and the wealthy to take from
the young and poor.
I advocate (perhaps uselessly) dumping the social security
system entirely. It would be better to give help to those who
need it from general tax revenues, rather than hide the nature
of this supposed "retirement fund" scheme. Then we
might even resolve some of the poverty among the elderly, rather
than use the money to fund better retirements for millionaires
and others who do not need the money.
I cant blame recipients for not liking my analysis,
or for taking what they can get. They've been told over and over
that this is a kind of "right" or "contract."
But 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."
Since those payroll taxes are being collected for now, one
could argue that they're going to be spent one way or another
in any case. Thus a retiree who still works, has a business,
or otherwise makes a decent amount and pays taxes on that income
might see those social security checks as a kind of tax refund.
In any case, and 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
Let me propose an analogy to make this clearer...
Suppose some pandering politician in one of the poorest countries
on the planet had sold investors cheap unrealistic bonds thirty
years ago that now were maturing at a value of a million dollars
each. If you were one of the investors, would you try to enforce
payment in full today knowing that to pay these off the current
government would have to take half of the average citizen's $600
annual income take it from people who were not alive when
the promise was made? No? Then heres 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?
Note: This is part of a series. You can find all of
the pages listed and linked to here:
of Wealth to the Wealthy