Seeking An Honest Social Security Fix

X
Story Stream
recent articles

"It's easy to criticize Social Security but how would you fix it?" ask defenders of the most popular middle class entitlement ever invented by a German dictator. Here's how.

Rest easy, this is not another fruitless rant about privatization. Congress will never get its sticky fingers out of the Social Security cash flow, so there's little chance that money forcibly taken from employees' paychecks will end up in individually owned retirement accounts. Privatization will occur only for people smart enough to realize that FICA deductions are just another tax that will be long spent by the time they retire.

Today's crisis comes from the fact that current payroll taxes can't cover current Social Security payouts while the so-called trust fund that was supposed to kick in when that happened has been looted by Congress, leaving only IOUs that have to be made good from general tax revenues.

Tinkering at the edges by bipartisan theatrical groups like the National Commission on Fiscal Responsibility and Reform may make good talk show fodder but few believe a blue ribbon panel is going to do anything but provide cover for posturing politicians. Slowly raising the retirement age as well as the payroll tax rate and cap can buy some time, but that well-worn approach is nearly out gas. Only a complete reassessment of the purpose of the program and its place in society has any hope of digging us out of the hole we're in. And that starts by honestly calling things what they are.

Social Security is not an "insurance" program. Social Security is not a "pension" program. If it were either, everyone running it should go to jail. Quite simply, Social Security is an inter-generational tax and welfare scheme. Facing up to that truth is 90% of the battle as doing so would transform the debate into two separate problems that actually have rational solutions: How do we want to tax ourselves and who should we give welfare to? Honest people can disagree on the answers to these questions but honest people cannot pretend that Ponzi schemes can be propped up forever.

So, who do we want to give welfare to? All but doctrinaire Libertarians generally agree that stepping over starving people in the street is a worse evil than having the government confiscate a bit of our wages to alleviate their suffering, provided this forced charity is dispensed in a way that doesn't create moral hazard. Thanks to Bill Clinton, the Aid to Families with Dependent Children program was reformed to the point where it's actually functioning pretty well, and at a tolerable cost to the taxpayer.

The next step is to do the exact same thing with Social Security. Only truly impoverished elderly Americans should receive a monthly Social Security check. Rich retirees should not get one. Corporate executives, retired unionists, and government employees with comfy defined-benefits pension plans should not get one. Middle class Americans with healthy IRAs and 401(k)s should not get one. We can all argue about what the right income threshold should be to qualify for the old age dole and how generous we should make the monthly payments, but a strictly means-tested approach to distributing welfare to the aged is the only honest way to fix Social Security.

Before MoveOn.org and its minions call for Greek riots in the streets, please note that this is already happening. It's just being done stealthily through the tax code, rather than openly and honestly.

To those who say "I paid into Social Security for years and all I want is what I'm entitled to," I reply, "You've been robbed - get over it." If you want to know who robbed you, it's called Congress. If you're angry about that then go into the voting booth and throw them out. Meanwhile some poor young fry cook at McDonald's is having his wages garnished to support the lifestyle of tennis playing Botox dowagers in Palm Springs. Is this right?

Which brings us to the question, how do we want to tax ourselves? Right now we have two parallel tax systems, each an abomination. The personal income tax has become so perversely progressive that 50% of filers pay nothing while 1% of filers carry 40% of the burden. Conversely, the payroll tax has become so perversely regressive that the working poor have to cough up 15% of their meager earnings, if you include the employer's portions of Social Security and Medicare, while the rich hardly notice that payroll taxes exist. Why not combine the two into a single flat tax on all sources of income - no deductions, no exceptions - simple enough that everyone can file their tax returns on a postcard?

And here lies the answer that reveals the hopelessness of seeking honest solutions in Washington. The Congressional business model thrives on the proliferation of complex and perverse transfer payment schemes precisely because the best way Congressmen can extract campaign donations from a frightened and enraged electorate is to promise to protect us from the depredations of complex and perverse transfer payment schemes.

That is the larger problem plaguing America. The only solution is to return to the constitutionally limited government of strictly enumerated powers that allowed We the People to build this once-great nation.

Bill Frezza is a fellow at the Competitive Enterprise Institute, and a Boston-based venture capitalist. You can find all of his columns, TV, and radio interviews here.  If you would like to have his weekly columns delivered to you by e-mail, click here or follow him on Twitter @BillFrezza.

Comment
Show commentsHide Comments

Related Articles