Should Social Security Be Untouchable? No!

Social Security has become a third rail in American politics.  Why?  Because old people vote.....in droves!  The American Association for Retired Persons, better known as AARP, is the largest interest group in America and claims more than forty million members.  If you are the political party that messes with Social Security, or Medicaid for that matter, it will most probably end in political suicide. 

After reading a Brookings Institute analysis on the question, Isabel Sawhill said that Social Security should be "untouchable."  One of the reasons Sawhill gives is that because it's paid for by the payroll tax.  This plays into her third reason, which is that the seniors should be owed their money that they put into the system.  I would first like to point out that Social Security is a "pay-as-you-go" system.  This Social Security Administration (SSA) even admits it.  The way the "pay-as-you-go" system works is that the money made by today's workers goes to today's beneficiaries.  You do not have your own personal Social Security account where your payroll taxes go.  This is bolstered by the fact you don't have a right to Social Security.  I can't emphasize this point enough.  Back in 1960, the Supreme Court ruled in the case of Flemming v. Nestor that American citizens do not have the contractual right or guarantee to receive Social Security.  This court ruling has not been overruled since then.  Although it would theoretically be political suicide, Congress can, at any time, eradicate Social Security and there would be nothing the American people could do about it.

Sawhill's other argument for making Social Security untouchable is that seniors are a vulnerable group that cannot afford to have their incomes further curtailed.  She says that the richer seniors who make an average of $75K should chip in more.  Obviously, with the "progressive" tax system we have in place (e.g., income tax is a progressive tax), the rich aren't putting in their fair share and they need to be milked dry.  Although Brookings Institute is a centrist think-tank, I'm surprised at the Left-leaning slant on this one, not to mention highly annoyed.  The Left loves to talk about equality with their income redistribution, but what history teaches us is that when we implement such policies, people do turn out equal........equally miserable! 

The problem with Social Security is much like having a small crack in your kitchen ceiling and there are some drops of water dripping.  Although it's not going to hurt today, it's going to cost a lot more if you wait until your entire kitchen is flooded.  As Sawhill points out, this is the second year that Social Security is collecting less in revenue than it pays in benefits (i.e., it has caused a deficit).  With the retirement of the Baby Boomers, it is going to cause the elderly support ratio to decrease to the point where there will be less workers than beneficiaries to the program.  If we don't want Social Security to cause financial ruin for America, something will need to be done because the status quo is insolvent.

But don't worry......Sawhill has some ideas.  She proposes to raise the retirement age.  That's fine.  The GOP has already proposed that.  With the increase of longevity in America, it's not an unreasonable idea.  However, it's only a short-term solution.  Increasing the retirement might delay the problem, but it won't solve it.  How about raising payroll taxes?  Wait, did she just really offer that as a solution during the worst economic recession we have seen post-Great Depression?  Payroll taxes hurt both the employee and the employer.  If the employee is struggling financially as it is, why make it more burdensome?  It sounds fun to stick it to employers.  After all, those rich fat cats have more than they need.  Here's a reality check about economics that the bleeding-heart liberals forget.  Rich people have capital.  Capital is what is required to either start or expand business.  By increasing the payroll tax, you are essentially causing further unemployment.  And you guessed it.  Unemployment is hurting the poor more than anyone.

Instead of gradually increasing the retirement age or the percentage the average American pays in the payroll tax, how about we gradually chip away at the Social Security Administration to the point where it's non-existent?  The program itself is the problem because it perpetuates the entitlement mentality brought on by the Nanny State.  Cato Institute expert Jagadeesh Gokhale says the following:

Entitlements and the taxes to fund them both alter key economic decisions that individuals and households make — and these "distortions" result in costs which add up. More generous and early entitlement benefits induce earlier retirement by the most experienced workers. Larger entitlement benefits and higher payroll taxes also induce workers to work and save less. Retirees also consume their wealth faster leading to lower national saving. With shorter working life spans, younger generations choose to acquire less education and skills, opting instead to enter the work force early at lower wage levels. So, adopting more generous entitlements with higher taxes leads to economic choices that are socially and economically undesirable — choices that favor getting less education, working less, saving less, and retiring earlier. This is the case even when those choices may be the right ones for individuals and households given the incentives from government policies that they face.

His solution?  It'd be the same as mine.  Scaling back on Social Security and other entitlement programs would give incentive for people to pursue further education.  Also, it would incentivize people to save more money and put it into private accounts.  If you put into Social Security, you will, at best (and that'd be a miracle unto itself), break even.  If you put into a private retirement account (PRA), you would actually end up making money by investing in low-interest bonds because the investment has a low risk, meaning that even if economic hardship came along, you'd still come out ahead in the long-run.

In summation, if we don't want the kitchen to be flooded, we need to consider serious Social Security reform.  And you what that means, Sawhill?  Social Security cannot be untouchable.