Social Security turns 86 this year. It was introduced on August 14, 1935 as part of the New Deal under President Franklin Roosevelt and was intended to solve a 34% non-farm unemployment rate that left older people destitute and unlikely to be hired. The program passed with 2% of Democrats and 33% of Republicans opposed.
Initially, Social Security only received 1% of wages and benefits could be inherited. As the Social Security website describes:
“Flat-rate repayments were made to estate workers who died before age 65 or before they received at least the equivalent of their taxes plus interest.”
Now the government collects 12.4% of workers’ wages up to a fairly high cap, and the Social Security benefits that go unclaimed are lost forever.
Systemic inequality is when systems within society predispose an unequal outcome regardless of personal bias. Social security rules are an example of systemic inequality.
After being forced to save 12.4% of their wages, seniors who die young cannot pass on benefits to their heirs. This loss of Social Security benefits upon death is particularly detrimental to minority workers, as they have a statistically shorter life expectancy.
In addition, they cannot start receiving benefits earlier without being punished. Filing before full retirement age will reduce your benefits and filing after full retirement age will increase your monthly benefits.
With a full retirement age at 67 for those born in or after 1960 and the CDC reported a life expectancy at birth for black or African American males of just 72.2, you can easily see the predisposition to unequal outcomes.
Forced savings, penalized early filing, and the lack of inheritances all allow for a worse outcome for minorities and help keep the families of minority workers in poverty. Black or African American families today would have more money if their parents had been allowed to save and invest the 12.4% of the lifetime wage rather than losing it to Social Security.
Making things “right” or “fair” is always difficult. There are no easy solutions. However, if we take someone’s earnings and give him nothing in return if he dies young, we create a system prone to unfairness.
The most dangerous form of power is coercive government power that compels you to do something, no matter how bad the consequences are for you and your family. When you are able to make voluntary choices, you have the freedom to decide for yourself which risks you want to take.
Liberals joke about the privatization of Social Security by calling the idea “risky.” The “Cry Wolf” project claims that:
“Throughout American history, virtually every legislative initiative for progressive reform has been achieved only after bitter struggles by citizens, workers and advocates demanding fundamental rights and protection. In both cases, they were met with claims that the proposal will “destroy jobs,” create a stifling government bureaucracy or curtail economic growth.”
They cite Social Security as an example of progressive reforms that have met outcry but supposedly have had no bad results. They have a social security quotes page. It presents the quotes as if they are not true simply because Social Security has expired and the world has not ended. But alas, they all came true. Here are two from Alf Landon, the 1936 Republican candidate for president:
“There is a good chance that the money they pay will be used for current shortages and new extravagances. We will struggle enough to carry out an economic program without flooding the treasury with workers’ money…
“The fact will be in almost all cases that the entire tax will either be borne by the worker or by the consumer through higher prices. That’s the history of all those taxes. This is because the tax is levied in such a way that if the employer wants to stay in business, he has to shift the tax to someone else.”
Social Security has gradually taken over about a quarter of federal spending. Social security legislation has been amended and adapted 46 different times. The most significant changes came in the Social Security Amendments of 1983. Social Security currently has more than 2,700 different rules that enrollees must follow.
Initially, Social Security only received 1% of wages. Currently, the government collects 12.4% of workers’ wages up to a fairly high maximum.
In 1940, 159.4 workers paid into the system for every retiree who received benefits. By 1975 that number had fallen to 3.2.
We need to go beyond good intentions and create public policies that actually work. The first step in building a viable system is to recognize that Social Security as it exists today is a failure anyway.
If you look at Social Security as a system of taxation and redistribution, it takes from a single male worker from a minority and gives it to married white women who never contributed.
If you think of Social Security as a forced retirement savings program, it produces such a terrible return that we might as well invest in gold.
Neither lofty goal is worth pursuing in this current format. Social security as we know it must be abolished and replaced by a better system.
There are many methods to do this. For example, if liberals were willing to privatize half of the contributions and conservatives were willing to use the other half as a safety net for only those retirees with the least resources, the system could be saved and privatized. I’m not sure if either faction is willing to make that compromise, but it would be in everyone’s best interest.
Each year, the Heritage Foundation evaluates all the countries of the world using their Index of Economic Freedom, and has found that a high score in economic freedom correlates with almost every positive measure of a country. What is interesting to note is how many of the countries with high economic freedom or lower debt and lower deficit have also privatized their social security systems: Hong Kong, Australia, Switzerland, United Kingdom, Sweden, Netherlands, Denmark, Chile, as well as a host of others.
In those countries with privatized Social Security retirement accounts, citizens are doing well rather than barely being lifted out of poverty. Their legislation can be used as a model for compromise in the United States. Here’s how we can implement the best of each way of looking at Social Security.
Broadly speaking, the employee’s 6.2% contribution would be deposited into a hereditary private retirement account. There would be both safeguards for risk range for investment choices and protections for gradual safe withdrawal rates during retirement. More than 30 countries have examined good models for privatized social security.
The remaining 6.2% provided by the employer would be collected as tax and used to fund the retirement of anyone underfunded from their own contributions. This would provide a safety net and a minimum retirement income. Rather than taking from those who die young and giving to those who live longer, income would be redistributed among low earners and also protect retirees from catastrophic losses.
In the beginning, participants nearing retirement had nothing in their private accounts. But gradually, almost anyone with a private account would retire with more money than current Social Security benefits.
The biggest challenge is getting from here to there. The transition will take time, and we have lost more than a decade since these changes were first proposed.
During the transition from our current system to private accounts, there is only half of the revenue to support those retiring through the safety net. The rest start by funding the next generation’s private accounts and free up the other half for a better social network. The easiest way to shoulder that burden is to test Social Security and withhold benefits from the richest half of retirees.
We need a private system. Then the money you put in it belongs to you and it is not spent on someone else’s pension.
It’s hard to think about, but a generation has to be heroic. Earlier generations had to fight world wars or survive the Great Depression. We must fight the leviathan of Social Security. We are called to make sacrifices to help privatize the system for future generations.
Means testing is unfair, but it is necessary. We have been dealing with shortages for decades. Whenever you live years above your means, you must compensate by living years below your means. Someone has to cushion the blow financially.
The price we pay is only worth it if we can end Social Security as we know it and put America on a firmer financial footing.
Wealth Assessment Social Security is better than the alternative proposed tax increases.
First, it reduces the benefits for the wealthy, which would best satisfy both political parties.
Second, unlike the tax increase, income testing eliminates benefits for those who already have their wealth, not those who build it up.
For the sake of the country, I would be willing to give up social security in favor of the privatization of the pension. However, as long as Social Security continues to be a burden to future generations, I intend to file my share. After taking the money, I plan to save it for or gift it to my grandchildren, as I imagine they will need it.