Book Notes: "Social Security"

Shortly after reading the section discussing social security in Free to Choose, I had a discussion about the dangers and misnomers of Social Security with a friend.  Since this is an example of something we were reading translating directly into water cooler talk, I thought it was a good subject for this post.

The Friedmans do a very good job of pointing out that Social Security has some of the best PR in the history of politics.  We are to believe that social security represents some sort of retirement plan that is managed by the government.  Many of us believe that the money we pay into social security somehow impacts or helps to dictate the money we will receive when we retire.  Some of us are naive enough to believe that the money taken from our paycheck and our employer as a social security tax is actually set aside and is waiting on us to retire.  None of the statements above are true.  As the Friedmans point out, “Social Security is in no sense an insurance program in which individual payments purchase equivalent actuarial benefits…Social Security is, rather, a combination of a particular tax and a particular program of transfer payments.”  If social security was discussed in its true form, voters would be up in arms!  If you only remember one thing from this entire post remember this:

What we call social security is actually a tax program and a welfare payment program.  These two programs have nothing to do with each other.

The Friedmans go further and attack each of these separate components.  First, the tax portion is a regressive tax that actually discourages work.  A tax on any behavior discourages that behavior.  A tax provides a financial incentive to avoid the behavior.  The social security tax is, “…a flat rate on wages up to a maximum, a tax that is regressive, bearing most heavily on persons with low incomes.”  The poor pay a larger portion of their paychecks into the social security system.  When it’s time to collect, they don’t get a larger portion than a Bill Gates or a Rush Limbaugh.  How would this play in today’s political discussions?

The payments of the second program in social security are not based on how much is paid into the system or by any individuals financial standing.  There is a list of examples in this section of the book, but I will use one specific example to illustrate this:

A woman who has never worked, but is the wife or widow of a man who qualifies for the maximum benefit , gets precisely the same amount as a similarly situated woman who, in addition, qualifies for benefits on the basis of her own earnings.

According to social security laws, a woman can simply marry into the benefits.  I wonder how today’s liberals would feel about that.  Further, I wonder if there is any chance social security could be passed today if it was honestly debated.

Social security will soon be modified in some manner.  It simply won’t work paying out today’s benefits from today’s workforce.  We need to work hard to point out that social security is really a tax program and a benefit program cleverly hidden in a pretty package.  There will be many solutions for social security discussed over the next few months and years.  If we call it what it is, we stand a better chance of either repealing it, or fixing it correctly.

For Next Week: I want to cover up to “A Voucher Plan for Elementary and Secondary Schooling” in Chapter Six.  Have a good week!