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Social Security Nonsense

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If you want to see a good example of liberal or progressive thinking on fiscal policy, read this article in the Philadelphia Inquirer entitled “Social Security Is Not Headed for Disaster” by Barbara R. Bergmann, who serves as professor emerita at American University and the University of Maryland.

The thrust of Bergmann’s article is that Social Security is not headed for disaster because the federal government is a big government in a nation of lots of rich people who can be taxed whatever amounts are necessary to fund the Social Security program indefinitely into the future.

That’s also the argument that liberals make with respect to the entire welfare state — that there is so much wealth in the United States that the federal government can use its vast taxing powers to continue imposing and raising taxes to whatever extent it needs to continue funding the ever-increasing expenditures of the welfare state.

Unfortunately, Bergmann didn’t mention the case of Greece. I wonder what she would say about Social Security and the entire welfare state in that country.

You see, in Greece statists took the same position — that government spending on welfare could go on increasing forever. Of course, Greek citizens on the dole, like American citizens on the dole, absolutely refused to consider any reduction in their dole.

Well, it got to a point in Greece where the amount being spent far exceeded the amount being collected in taxes.

So, why not just continue raising taxes?

Because the government sector depends on a vibrant private sector in order to survive, much as any parasite needs a vibrant host to survive. If the private sector shrinks to nothing, there are no more taxes that can be collected, which means no more Social Security or any other welfare dole.

The problem for the parasite is this: how to keep the host vibrant and still suck as much blood of him as possible. If too much blood is sucked out of the host, he dies. That means the parasite dies too.

So, the government can tax up to a certain point but if it continues to confiscate increasing amounts of wealth and income from the private sector, it ultimately destroys the source of its loot.

As taxes are raised, businesses that are barely making a profit go out of business, laying off workers. Those workers go on the dole, which means higher taxes to fund them, which means more businesses going out of business. Moreover, wealthy people stop producing wealth and instead look for ways simply to preserve what they already have. Increasingly, the private sector shrinks and ultimately gets to a point where it cannot sustain the enormous taxes that are being imposed on it.

That’s what happened in Greece. And when spending began to exceed tax revenues, instead of reducing spending, which the dole recipients would not permit, the government just went on a huge annual borrowing spree to keep the dole going. For a short time it worked. But as the government’s debts mounted, things finally got to a point where no one would dare lend it any more money.

The Greek government was busted. Sure, it could levy a massive confiscatory tax on everyone, including the rich, which many statists want it to do. It could seize savings accounts, businesses, and homes to continue paying the doles. But then what? What does it do then? The host is dead. And that means the parasite is dead too.

Closer to home, I wish Bergmann had talked about those cities in California that are going bankrupt. Why is that? Why can’t they simply tax everyone 100 percent to fund their obligations and pay their debts? Why not seize their homes and businesses? What’s all that private wealth good for if not to fund the government? It’s because they know that that would work only one time. Then what? Who do they tax next year when there isn’t anyone left to tax?

Undoubtedly Bergmann would say that the U.S. government is different from the Greek government and those California city governments in that it is a bigger government that has more wealthy people to tax. But that implies that no matter how much the federal government spends, there is always going to be enough money in the private sector to fund it. It implies that that private sector can sustain any amount of federal expenditures.

With all due respect, that’s ridiculous.

Right now, the federal government is spending more than a trillion dollars a year more than what it is bringing in with taxes. Like the Greek government, it continues to borrow the difference, adding to the mountain of federal debt that hangs over the American taxpayer.

Why doesn’t the government simply raise taxes to cover that difference rather than go further into debt? Because the more it raises taxes on the private sector, the more it threatens to destroy the host. It is an implicit recognition that there is a limit on the amount of taxes that can be imposed on the private sector.

Moreover, as the Greeks have learned and as American cities have learned, debts ultimately have to be paid back. And the only way governments have to repay their debts is through taxation. By borrowing the money, the day of reckoning is simply delayed.

In her article Bergmann mentions the Social Security “trust fund,” which is designed to make Americans falsely believe that their Social Security taxes are placed into a fund for their retirement. To Bergmann’s credit, she pierces right through that sham. There is no trust fund and there never has been one. Social Security is a straight welfare confiscate-and-transfer program, one that taxes the young and productive and gives the loot to people to whom it does not belong.

Bergmann suggests that the government can raise Social Security taxes to whatever extent is necessary to keep the system going. Oh? What if that means imposing a 90 percent tax on the income of young people for the rest of their lives? Would Bergmann say that’s okay?

The fact is that Social Security, like all other aspects of the welfare state (and the warfare state) are in deep crisis. After 80 years of all this socialism, the chickens have come home to roost. Medicare, Medicaid, public schooling, paper money, the Federal Reserve, farm subsidies, foreign aid to dictatorships, and all the rest. They’re all in crisis, which is why they’re always in need of “reform.”

The only question is: Are Americans going to let this alien, socialist system that was imported onto our shores in the 1930s take us down, or are we going to embrace libertarian principles before it’s too late?

This post was written by:

Jacob G. Hornberger is founder and president of The Future of Freedom Foundation. He was born and raised in Laredo, Texas, and received his B.A. in economics from Virginia Military Institute and his law degree from the University of Texas. He was a trial attorney for twelve years in Texas. He also was an adjunct professor at the University of Dallas, where he taught law and economics. In 1987, Mr. Hornberger left the practice of law to become director of programs at the Foundation for Economic Education. He has advanced freedom and free markets on talk-radio stations all across the country as well as on Fox News’ Neil Cavuto and Greta van Susteren shows and he appeared as a regular commentator on Judge Andrew Napolitano’s show Freedom Watch. View these interviews at LewRockwell.com and from Full Context. Send him email.