SOCIAL SECURITY - Shredded to the Bone?
- Rohan Naval
- Jan 29, 2022
- 3 min read
Social Security refers to a government program created in 1935 by President Franklin Delano Roosevelt. A staunch progressive, he saw the programme as necessary to help America’s elderly population after their retirement. When FDR was elected president in 1933, the country was in a dire state, owing to the Great Depression — over half the country’s elderly population was unable to support themselves. Various states had set up pension programs before 1930, but only less than 3 percent of eligible citizens actually received these benefits, according to Insuring the Essentials by Barbara Armstrong. Given the massive changes that have been made to the program since then, it is necessary for us to look at how the program has evolved, and ask “Has it changed for the better or the worse?”
When social security was introduced in 1935, it came off of the wave of the “social insurance” movement, where politicians followed the teachings of Henry Seager, a professor at Columbia University. He proposed a government-led insurance plan, where all tax paying citizens contribute to help protect a certain category of people in society. Then the Social Security Administration (SSA) first started by assigning Social Security Numbers (SSN’s) to citizens, and by 1937, the program had started collecting payroll taxes. The program continues to exist, and has paid out more than $7.4 trillion.
However, this program was doomed to fail from its inception. The system works as such: the working population of the United States pays into Social Security via the taxes collected through the program. However, Milton Friedman, a Nobel-Prize winning Economist, chronicles the problem as such:
“Social Security is the result of a bad tax system,
with a bad way of distributing welfare.
This yields nothing but bad results.”
The data seems to support his claim: The Heritage Foundation reports that the average household of four will receive only 1.23 percent of their investments as social security, adjusted for inflation. Hence, we must analyse why the tax system, as well as the distribution of Social Security, is flawed.
Additionally, not only is the payroll tax a regressive one, but the tax also discourages firms from employing more workers. These taxes go into two different funds, namely the Old-Age and Survivors Insurance and the Disability Insurance. Presidents as far back as the 1960s have used these funds for other purposes such as domestic expenditure, with the promise of “repatriation.” Although recent years have seen some increases in these returns, such as the $83 billion that the fund gained besides taxes in 2019, the fund always remains volatile depending on the investments of the government.
Furthermore, the tax is not occupation-specific. No two people work the same job, and in addition, the government does not have the competency nor the scope to understand these nuances on an individual level. Hence, we must recognize that when choosing a retirement plan, we must see the effect that a person’s work has had on their life, which is where the role of private life insurance may play a bigger role.
Similar to current discussions about Medicare-for-All, Social Security is a government program that relies on the fact that there is a sizable population contributing to the program, and this discards the possibility for an “optional” government plan. Hence, we must realise that similar to many other problems in the US, this system must be passed on to state and local governments who are much more politically stable and less financially vulnerable, with a federal database to continue the verification system currently in place.
This is seen in how 6.6 million (28 percent) of all local and state workers are not covered by Social Security, but rather pension plans operated at the state/local level. A good example of a similar system that can be used is the Guaranteed Retirement Account, a system used in the UK. This system has a much lower operating base (given that the UK has a much smaller population), and it allows consumers to integrate private and government pension systems. We must realise the potential that the concept of Social Security has, but also realise that such programs are better dealt with by governments closer to the people they represent.
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very good work, keep it up! - Zoopi