We Must Shed Light on the True Nature and Immoral Foundations of Social Security
FEBRUARY 01, 1995 by HANS SENNHOLZ
Politicians love it because it buys votes and re-elections. They fear it because it may spell defeat and ruin to those who dare to question its meaning and reflect upon its consequences. It raises all kinds of political double-talkers who falter every time it is merely mentioned.
Social Security was born of politics as a full-employment measure of the Roosevelt New Deal. As such it failed dismally, for mass unemployment is still with us, plaguing several million Americans. Instead, it has become the most powerful political welfare system ever devised, delivering trillions of dollars from the working population to some 30 million persons along in years. The Medicare system, which was added in 1965, provides comprehensive healthcare coverage for more than 35 million people age 65 and over. Altogether, 45 million Americans, almost one out of every six, partake of one or several kinds of programs. More than 130 million taxpayers are forced to pay for it.
The Social Security Act was signed by President Franklin D. Roosevelt in 1935. The first retirement benefits were paid in 1940 to Ida May Fuller of Vermont. She had paid in a total of $24.95 and got back $20,897 before her death in 1975. Later retirees who made full use of Medicare reaped six-figure amounts.
Social Security is a giant welfare system although its beneficiaries are quick to call it an insurance program. “I paid in, I contributed, ! earned my benefits.” This is the most common argument in defense of the system. In reality, simple calculation easily ascertains that most beneficiaries withdraw in several months what they contributed. The maximum contribution from 1937 through 1949 amounted to one percent on $3,000 annual income, or $30 a year. In 1950 it rose to 1 1/2 percent, or $45, and thereafter continued to creep up in small increments. Few old-timers, if any, contributed more than $1,000, with interest on interest, during their working years. Living in retirement now, and having received the equivalent of their contributions from the system, they are drawing public assistance for the rest of their lives.
Every political transfer system divides society into two distinct social classes: the beneficiaries of the transfer and the victims who are forced to bear the costs. It creates insoluble political and economic conflict which grows with the magnitude of the transfer. The Social Security System is the source and breeding place of the most poisonous and virulent social conflict, a conflict that is growing steadily as the victims become aware of the burdens placed on them.
While the first generation that launched the system won the prize and carried off a fortune, all others who follow are condemned to square the account. The Social Security Amendments of 1977 greatly raised payroll taxes to cover the rising costs and create a $4 trillion surplus in the Social Security Trust Fund. Since 1977 tax rates and tax basis have risen nearly every year and now amount to 15.3 percent of gross wages up to $60,000, or $9,271.80 a year.
Young people are forced to contribute much more than they can ever expect to draw out. They face the distressing choice between suffering the losses inflicted by the first generation and shifting the burden to future generations through ever higher taxes on them. Yet, no matter how frantic the shifting, it does not square the account.
The dilemma is giving rise to numerous reform proposals. Most merely are new concoctions of the same old transfer system, searching for new victims for old beneficiaries, reorganizing the bureaucracy and appointing new administrators. There can be no genuine reform of the Social Security System until we become aware of its true meaning and significance. To this end the following proposals may shed some light and return to the basics of a moral order:
1. Information to Recipients—To restore a commonplace truth and realism, every recipient of Social Security benefits should be informed of the nature and source of his benefits. Every check should carry a stub that reveals the dollar amount contributed to the System by him and his employer and the cumulative amount of benefits received by him as of that check.
2. Means Test Applied—When the total benefits exceed the contributions made during the productive years, the recipient should undergo a means test. A millionaire who has received an amount equal to his contributions should receive no more. A poor retiree who is lacking the means of support should continue to draw his benefits. But they should be truthfully called “Social Security assistance.”
3. Parent and Child—When Social Security assistance seems to be called for, the children of a retired worker should be given an opportunity to contribute to the support of their parents. As the parents are responsible for their children, so are children responsible for their parents. No Social Security System should eradicate this moral law and Biblical commandment.
4. Freedom of Choice—Social Security builds on legislation, regulation, taxation, and all means of force. Tolerating no resistance it exacts an ever-growing share of individual incomes. If it could be made to suffer just a modicum of freedom, it would permit recalcitrant members to depart and find their own security. Millions of Americans are waiting anxiously for the day when they will be free. They would forego all promises of benefits in the future for the joy of freedom today.
Reformation is a work of time. A national institution, however wrong and harmful it may be, cannot be totally changed at once. We must first shed light on its true nature and, above all, reveal its immoral foundation.
Hans F. Sennholz