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The Successes and Failures of Social Security

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One of the oldest, largest, most popular, and most expensive government programs is Social Security.

After appealing to the “general welfare” clause of the Constitution in a speech to Congress in June of 1934, Franklin Roosevelt appointed a Committee on Economic Security to report and make recommendations on the task of “furthering the security of the citizen and his family through social insurance.” The report of the committee, issued January 15, 1935, urged the establishment of a social-security program, stating, “A program of economic security, as we vision it, must have as its primary aim the assurance of an adequate income to each human being in childhood, youth, middle age, or old age — in sickness or in health. It must provide safeguards against all of the hazards leading to destitution and dependency.”

Roosevelt sent a message to Congress two days later requesting social-security legislation. Bills were introduced in the House and Senate the same day. Roosevelt signed the Social Security Act into law on August 14, 1935. The program was the crown jewel of his New Deal.

The original Social Security Act included not just federal old-age benefits but also grants to the states for the blind, for dependent children, for public health, for maternal and child welfare, and for unemployment compensation. It has since been amended and expanded to include Medicare, Medicaid, the State Children’s Health Insurance Program (SCHIP), and Supplemental Security Income (SSI).

In addition to keeping the elderly out of poverty by providing them with retirement income, Social Security was intended to withdraw older Americans from the work force to free up jobs for younger workers and ensure that buying power would remain strong in times of high unemployment.

But that’s not all. Although Social Security initially covered a much smaller part of the work force than it does now, Roosevelt had other plans from the very beginning:

I see no reason why everybody in the United States should not be covered. I see no reason why every child, from the day he is born, shouldn’t be a member of the social security system. I don’t see why not. Cradle to the grave — from the cradle to the grave they ought to be in a social insurance system.

But even if the motives of Roosevelt, Frances Perkins (his secretary of Labor), Barbara Armstrong (executive director of the committee that wrote the Social Security plan), and Wilbur Cohen (one of the founding fathers of Social Security) were pure as the wind-driven snow, it wouldn’t change the fact that Social Security is an intergenerational wealth-redistribution welfare program. It has always been a system that takes money from those who work and gives to those who don’t, that seizes wealth from some Americans and bestows it on others.

Roosevelt falsely promoted Social Security to Americans as a “savings account for the old age of the worker,” with “contributions” made by employers and employees from payroll taxes “held by the government solely for the benefit of the worker in his old age.”

As John Attarian, author of Social Security: False Consciousness and Crisis, explained,

Social Security’s architects and promoters made it their business to present it as “retirement insurance” under which one pays “insurance premiums” or “contributions” to “buy” protection from old-age destitution, with one’s “contribution” “held in trust” in a “trust fund” which will pay “guaranteed” benefits which, having been “paid for” by the “contributions,” will be paid “as a matter of earned right,” as America keeps its “compact between the generations.” Although all of this is demonstrably false, and Section 1104 [in Title XI of the Social Security Act] explodes the “guarantee” and “earned right” (as Flemming v. Nestor proved), this sixty-five-year propaganda campaign succeeded all too well. Most Americans, especially the increasingly numerous and politically powerful elderly, accept this tissue of myths as reality.

Failures

To most Americans Social Security is a retirement plan, an insurance program, an investment account, or a government 401(k). In many cases it is the only thing they are counting on to provide them with income when they retire.

In this respect, Social Security is a failure. There is no trust fund, lock box, insurance policy, or retirement account. And there is no contractual right to receive benefits.

Social Security has failed to be solvent. The program was “rescued” in 1983 with a combination of benefit cuts and tax increases. Since 2010 it has needed to be “saved.” The program had a deficit of $174 billion in 2011. It has trillions of dollars of unfunded obligations. The IOUs in the “Trust Fund” represent revenue that must be collected a second time, since the Social Security taxes that were initially collected did not go to retirees.

Social Security has failed to maintain its promised maximum tax rate of 3 percent (on employers and employees) on income up to $3,000 a year. “That is the most you will ever pay,” said a 1936 government pamphlet.

Social Security has failed to provide an adequate return on investment. The aforementioned pamphlet says that “what you get from the Government plan will always be more than you have paid in taxes.” Although that was true at one time, it is no longer the case. According to a Congressional Research Service report by Geoffrey Kollmann and Dawn Nuschler, “Social Security Reform” (October 2002),

For workers who earned average wages and retired in 1980 at age 65, it took 2.8 years to recover the value of the retirement portion of the combined employee and employer shares of their Social Security taxes plus interest. For their counterparts who retired at age 65 in 2002, it will take 16.9 years. For those retiring in 2020, it will take 20.9 years.

Workers entering the labor force today simply won’t live long enough to get back anywhere near what they pay in Social Security taxes.

Social Security has failed to maintain a realistic retirement age. The original age to receive full benefits was 65. For those born 1943–1954, the full eligibility age is 66. For those born after 1960, it is 67. Yet thanks to advances in technology and medicine, life expectancy has increased at a much faster rate, resulting in a booming population of senior citizens on Social Security. More than 10,000 people per day now become eligible to receive Social Security.

And of course, Social Security from the very beginning failed the test of constitutionality. The federal government has no authority whatsoever under the Constitution to establish a retirement system, a safety net, an insurance program, a pension plan, savings accounts, or investment vehicles; to provide disability, death, or survivor’s benefits; or to force all Americans to fund those things whether or not they want to participate. Yet the original Social Security Act passed the House of Representative on April 19, 1935, by a vote of 372 to 33. The Senate version was agreed to on June 19, 1935, by a vote of 77 to 6. The conference report to reconcile the two bills passed both houses of Congress by voice vote in August 1935. Fast forward to 2010. The very Republicans who talk the loudest about fiscal conservatism, following the Constitution, and limited government pledged to “protect our entitlement programs for today’s seniors and future generations.”

The successes

But despite all its failings, Social Security has had many successes. In fact, its successes outnumber its failings.

Social Security has succeeded in creating a national ID card without which you can’t open a bank account. There have been 34 versions of the Social Security card. Beginning with the 18th version of the card, issued in 1972, the legend “Not for Identification” ceased to appear, as it had since 1946.

Social Security has succeeded in creating a huge government bureaucracy. Four years after the program’s creation, some 12,000 employees worked in the Social Security Administration (SSA). Social Security benefit payments were $725 billion in 2011. It takes a lot of employees and a lot of money to administer the program. Administrative expenses of Social Security were a whopping $6.4 billion in 2011. The SSA is headed by a commissioner assisted by 10 deputy commissioners, nine assistant deputy commissioners, 40 associate commissioners, actuaries, lawyers, directors, inspectors general, and a staff of almost 66,000 employees. Although the agency is headquartered in Baltimore, Maryland, there are 10 regional offices, six processing centers, and approximately 1,260 field offices. It operates its own administrative adjudication system, which has original jurisdiction when claims are denied in part or in full. Decisions are issued by administrative-law judges and senior attorney adjudicators (supported by about 6,000 staff employees) at locations throughout the country.

Social Security has succeeded in launching the modern welfare state. On signing the Social Security Act into law, Roosevelt said that Social Security “represents a cornerstone in a structure which is being built but is by no means complete.” He valued the program so highly that he could say, “If the Senate and the House of Representatives in this long and arduous session had done nothing more than pass this Bill, the session would have been regarded as historic for all time.” Social Security is the single biggest spending category in the current federal budget. It is the cornerstone of the welfare state.

Social Security has succeeded in creating dependency on government largess. That, of course, always leads to larger, more-intrusive government and tighter government controls. Social Security killed the American tradition of individualism that was distrustful of big government and had resisted the adoption of European socialism that was already well in place before America’s Great Depression. To millions of senior citizens, Social Security is the only income they have. It makes them totally dependent on the government for their subsistence and wholly dedicated to maintaining and expanding the system.

Social Security has succeeded in delivering to the highest bidder a large voting block of senior citizens, who will flee any candidate who proposes to “reform” it. And it gives the government a formidable instrument to maintain the allegiance of the elderly.

Social Security has succeeded in discouraging private savings, since people can look to the government for income after they retire. That ends up reducing investment, job creation, productivity, and growth. Money that would be invested in productive private-sector activities is directed to the U.S. Treasury for redistribution instead.

Social Security has succeeded in shifting charitable activity from the private sector to the government sector, from families to the state, and from volunteerism to coercion. Throughout American history, private charities, churches, and organizations cared for the poor, the sick, the aged, and the infirm until government funds began to supplement and then supplant private giving.

Social Security has succeeded both in increasing the cost of hiring workers and in lowering real wages, because some or all of the money businesses pay in Social Security taxes could have gone to wages. If the direct labor cost budgeted for a particular job is $50,000, then the salary offered cannot exceed $46,446.81 because of the “employer’s share” of the Social Security (6.2 percent) and Medicare (1.45 percent) taxes that must be paid. How the salary is divided up typically doesn’t affect the employer’s bottom line. It is all a labor expense. However, under certain competitive labor circumstances, employers must absorb some of the tax, raising the cost of hiring and reducing the number of jobs.

Social Security has succeeded all right, but it’s nothing to brag about.

This article was originally published in the January 2013 edition of Future of Freedom.

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