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OfflineAncalagon
AgnosticLibertarian

Registered: 07/30/02
Posts: 1,364
Last seen: 7 years, 9 months
The Social Security Abomination: A Primer
    #3151606 - 09/18/04 07:02 PM (12 years, 2 months ago)

Is Social Security the most destructive government program ever devised?

I want to tell you about a woman who lives in a two-bedroom condo. She never owns more than one car (it's usually an old one). She doesn't indulge in luxuries, dine out, or travel (except to see her family). She buys only necessities and tries to save for the future.

But she's self-employed and her income rises and falls. Like most self-employed people her income bounces from one tax bracket to another. Quarterly tax payments and emergencies combine again-and-again to wipe out her savings.

She will retire soon and Social Security will be her only income. But it won't pay her bills. She will have to sell her home. She will go from independent living to living with her children. I believe the government has impoverished her.

It's hard to view these facts any other way. She lived frugally. She saved. Emergencies took some of her savings (but that's part of what savings are for). Taxes wiped out the rest. And the Social Security tax was the most destructive tax of all.

The money Social Security took from her is precisely the money she would have saved for retirement, and she would have done so conservatively. That is her nature. And even with the most conservative investments the power of compound interest would have grown her savings into a mighty sum, more than enough to pay her bills.[1]

  • She could've kept her home.

  • She could've traveled and enjoyed the kind of experiences retirement is supposed to bring.


Now she will have few, if any of those experiences. And she will probably have little or nothing left when she dies.

  • Nothing to leave her children and grandchildren.

  • Nothing remaining from a life of toil.


This person is my mom.

But it could be your mother, or millions of other mothers and fathers who have tried to be responsible, to live frugally, and to save, but who have had what would have been their savings taken from them by Social Security and other taxes.

The Social Security excuse
The politicians tell us Social Security protects us from our own failure to save. Indeed it does in many cases, but it also robs lower and middle-income families of the means to save.[2]

Even this might not be so bad if Social Security provided a better rate of return than a simple savings account, but it doesn't. Social Security provides a lower rate of return than even the most conservative investments.[3] It robs responsible savers, like my mom, of the opportunity for an affluent retirement, for the benefit of people she doesn't even know -- people who may not have been as responsible with their own money as she was with hers.

Is this fair? Should my mother be punished for the sake of irresponsible people?

It's hard to see why, especially since the strongest proponents of Social Security are also the strongest advocates of government welfare programs. Why don't these welfare proponents advocate that irresponsible savers be required to go on state or local welfare (or seek support from private charities, as I would prefer) when they become too old to work? If their goal is to protect irresponsible people from themselves, why do they insist that responsible savers, like my mother, be relegated to an existence that's no better than welfare?

For a son who loves his mother -- who knows how hard she's worked and how frugally she's lived -- the state of affairs created by Social Security is pretty hard to take.

And when I consider that her children will soon have to take up the slack for the living expenses Social Security benefits can't pay, it becomes downright infuriating. This amounts to just another federal tax, an unrecognized tax, but a real one nonetheless.

The politicians have their excuses, of course, but they don't hold up. They tell us Social Security protects not only those who fail to save, but also those who fail to diversify their savings, and who thereby risk losing their retirement money to the potential failure of their unwise investments.

On the surface, this line of reasoning makes sense. I could see why people might embrace this argument. Just think of all those Enron employees who put most of their savings in their own company's stock. But let's be honest here -- this is just another way of saying that prudent people should be punished for the benefit of imprudent people.

Diversification
There really is a solution here. One doesn't have to be a stock-market whiz, a real estate genius, a commodities trader, nor do they have to rely on luck.

The importance of diversification is well known. Therefore, the failure to do so is simply reckless (if you don't believe me, check out Harry Browne's online book Fail-Safe Investing[4]).

And while the politicians tell us Social Security protects us from our failure to diversify, they're being reckless as well. In years when the Social Security program takes in more than it pays out, the politicians place the excess funds in only one investment -- government bonds. This is not conservative diversification, it is risky concentration.

The politicians tell us their own failure to diversify is okay, because the bonds in the Social Security "trust fund" are backed by the "full faith and credit" of the federal government. There is no risk of loss. But where will the government get the cash to redeem those bonds? It can only come from taxing tomorrow's workers. And if there aren't enough workers earning enough money to redeem the "trust fund" bonds, Social Security will fail.

Worse still, the government bonds accumulating in the so-called "Social Security trust fund" aren't enough to cover Social Security's future liabilities, even if the government could reasonably expect to have enough future revenue to redeem the bonds, which it cannot, as I will explain below.[5]

Government is not a magical entity, immune from the laws of reality. The truth is that governments can and do go bankrupt. This is exactly the fate Social Security faces.

More to the point, this is the fate you and I face. No matter how much we might wish Social Security will work, it is ultimately doomed to go "belly-up." Here's why.

Why Social Security will collapse on us
Birth rates have declined in recent decades so there will be fewer workers tomorrow to pay yesterday's retirees. This means there will soon be more people taking money out of Social Security than paying money into it.

Add this to the ever-growing interest payments on the non-Social Security component of the ever-growing national debt, and you have a recipe for government bankruptcy and economic disaster. But even that isn't the end of it.

Medicare also faces future funding problems that will only be worsened by the current move to provide a prescription drug benefit. None of this can be sustained.

One government study estimates that total taxation must rise to more than 80% to keep the government solvent.[6] Since that level of taxation could never be collected, government must inevitably default on its promises in one way or another.

The most likely form of default will be a continual increase in the retirement age (though the problem is so severe that other benefit reductions may also be required). The retirement age has already been raised to age 67. The retirement age increase phase-in began this year. Individuals retiring this year (2003) will begin receiving checks at 65 years and 1 month old.

This means that more and more Americans will be working deeper and deeper into their supposed "golden years," only to retire to enfeeblement and illness.

It also means, more grimly, that more and more Americans will die without receiving any payments at all from Social Security. Stated bluntly, but accurately, raising the retirement age means hoping some people will die so the government won't have to pay them what the politicians promised them.

But what does the government really owe us?

The true nature of Social Security
The Supreme Court has already ruled, in Fleming v. Nestor (1960), that American citizens have no right to any particular Social Security benefits. Investment in a private retirement account gives you a property right in your savings, but the taxes you pay to Social Security give you no rights to anything but what the politicians arbitrarily decide to provide.

This means that Social Security really isn't a "retirement plan" at all. Social Security taxes are never invested in real assets, and none of us actually own any part of the so-called Social Security "trust fund." Instead, Social Security is really just a tax combined with a welfare program for the elderly. The program's name and description disguise its true nature.

What is the purpose of this disguise? The purpose is trickery. The trick in this case is a specific kind of scam called a pyramid scheme. Pyramid schemes are illegal, and for good reason. The key to a pyramid scheme is to give a large chunk of the money received from new investors to earlier investors. This makes it appear that the investment is incredibly lucrative. This huge return to the early investors attracts still more investors, and convinces early customers to reinvest. And so it goes for a while until the money from new investors has to be spread too widely among old investors. At this point the scam artist stops paying benefits and skips town with a huge pile of cash.

It may be hard to accept, but Social Security was designed in exactly this way, and for exactly the same reason.

Ida Fuller was the first American to receive Social Security benefits. She paid exactly $70 into the system, but received more than $12,000 from it over the course of her lifetime.[7] All but $70 of her benefits were taken from the wages of other people -- people like my mother.

Needless to say, Ms. Fuller was delighted with Social Security. She and the other early beneficiaries of the program represented a huge voting block that supported the politicians who created and sustained the program.

Now the returns on Social Security are not nearly so good. They cannot compare with even conservative private investments, and many people will actually receive less than they paid into the program.[8]

If this were a normal pyramid scam, it probably would have collapsed already, but this particular confidence-game has the coercive power of government to keep it going. Because government can compel the people (at gun-point if necessary) to pay for the program, new "investors" have no choice but to participate. Unfortunately, all-too-often these folks have also become big political supporters of the program in the desperate hope of eventually retrieving at least some of what they had already paid into the system.

Meanwhile, the eventual calamity just grows larger and larger.

Buying votes is one of the ways politicians have benefited from this system -- any incumbent office holder can go a long way toward securing repeated re-election simply by pledging to protect Social Security benefits. But the politicians have also benefited from the program in another way.

By setting Social Security taxes at a rate higher than is required to support current beneficiaries the politicians have provided themselves with a huge pile of cash they can spend on other things.[9] This is the equivalent of the huge pile of cash with which the confidence man skips town. The politicians use the money they "borrow" from Social Security to fund other programs, to reward friends, punish enemies, buy votes, and aggrandize their own power.

And it doesn't seem to matter much to them that the money can never be paid back, perhaps because most of them won't be in office when the bills come due. They will have skipped town, leaving my mother, her children, and her grandchildren, holding the bag.

This is why I call Social Security, "The most destructive federal program ever devised."

  • It has robbed many of our parents and grandparents of a prosperous and secure retirement.

  • It has done the same to those of who are still working today,

  • while imposing on many of us the extra tax of having to help our parents and grandparents with the expenses Social Security can't pay.

  • It has robbed parents of the estates they could have left to their children, and children of the inheritances that otherwise would have been theirs.

  • And it has left a debt to future generations that will impoverish them to an alarming degree.


Social Security may have helped some people, but only at the cost of harming many, many more.

I, for one, am worried about the people Social Security has harmed. I care about my mother, her children, and grandchildren. When people praise Social Security for the help it has given the imprudent and irresponsible they are also, without realizing it, cheering the harm done to people like my family. They overlook what will happen to the imprudent and irresponsible when Social Security collapses, or the inevitable harm politicians will do by cutting Social Security benefits so much that they're even more worthless than they are now.

When these realities are factored into the equation can we really say that Social Security is a positive accomplishment?

Solutions
So what can be done to end the harm caused by Social Security? One approach would be a partial privatization solution similar to the one Chile enacted when its own "pyramid-style" retirement program ran into trouble. Chile created private retirement accounts into which forced withdrawals from workers wages were deposited. This new program has resulted in a solvent system with better returns and more security.

It has also expanded the capital available to the private economy, resulting in economic growth and rising wages.[10] The economist Martin Feldstein has estimated that a similar program would result in about $10 trillion in economic growth over twenty years if enacted in the United States.[11]

This would obviously be a great improvement, but it has its drawbacks.

Any government-mandated savings program will come with regulatory strings attached (as is true in Chile), even though the money is held in private accounts. The politicians will want to "protect us from ourselves" by regulating the kinds of investments we can make, but this merely begs the question of "who will protect us from the politicians?"

  • Retirement account regulation would become a growth industry for lobbyists, with various companies and sectors of the economy vying to craft regulations that benefit themselves while harming competitors.

  • Still other groups will lobby for socially responsible investing regulations, or environmentally sound investment rules.


This could prove disastrous in the long run. As the investment funds grow the entire economy could become politicized.

Even the politicians understand the dangers of this. It's one of the major reasons the Social Security "trust fund" has never been invested in anything but government bonds.[12] The sums of money that pass through the "trust fund" are so large that politicians would soon gain the power of life and death over the entire economy if those funds were invested in the stock market instead of government bonds. But the same basic problem would inevitably arise through regulation under a partial privatization model along the lines of Chile.

Another approach avoids this problem entirely -- end the Social Security tax entirely. Let people retain their money to save, spend, or invest, as they see fit, and gain the benefits or suffer the consequences of their own actions. Utopia is not one of the options here.[13] We can either submit to the inevitable disasters that come from allowing politicians to control and spend other people's money, or we can take our fate into our own hands.

Ending the Social Security tax would, of course, leave the government with huge obligations to those who are already on the program (or who soon will be). How would these obligations be met?

Facing reality
The first thing we have to accept is that this problem is inevitable. Sooner or later we'll cross this bridge. The sooner we do it, the better. The demographic realities of a low birthrate and an aging population make it inevitable that the government will not have the income to meet its Social Security obligations. They are going to have to cut benefits. Who will take up the slack when they do?

Families will (just as mine is planning to do), and churches and charities will have to step in to help those who have no families upon whom they can rely. The point needs to be stressed that this state of affairs is inevitable. Massive benefit cuts are going to happen, no matter what course we follow. The real questions are,

  • "How can we limit the damage?" And,

  • "How can we help families and charities more effectively pick up the ball dropped by government?"


Returning to a small, constitutionally limited federal government -- Downsizing DC -- would be a big help.

  • The resulting spending cuts would enable the elimination of the federal personal income tax, and provide families and charities with huge new sources of revenue to address the problems created by massive government failures, like Social Security.

  • Ending the Social Security tax at the same time would provide families with another source of income with which to assist their loved ones and prepare for a better retirement than Social Security could ever provide.

  • And finally, the federal government could auction off assets it doesn't need to meet its limited constitutional functions. The politicians could use the proceeds from this auction to meet some of their outstanding Social Security obligations.


Government holdings are huge: millions of acres of land, thousands upon thousands of buildings, barrels and barrels of oil, tons of valuable equipment, gold, and much, much more. No one knows how much these assets would bring in, in an auction conducted over a period of several years, but it would certainly make a considerable dent in the overall Social Security obligation.

Once these steps are taken, the problem could well be behind us permanently. Personal savings and wealth would begin to explode, and the future would look very bright indeed. My family and I hope to see that day.

Notes
1. Financial author Harry Browne provides an excellent analysis of the superiority of private investments of all types over Social Security on pages 81-84 of his book "The Great Libertarian Offer." For a good overview available on the web see www.socialsecurity.org/pubs/ssps/ssp-18es.html. You might also want to try the Social Security calculator at http://64.124.99.110/.

2. See "The Impact of Social Security Reform on Low Incomes Workers" at www.socialsecurity.org/pubs/ssps/ssp-23es.html.

3. Footnote 1 provides support for this point, but for a good overview of this issue as it specifically relates to women see "The Benefits of Social Security Privatization for Women" at www.socialsecurity.org/pubs/ssps/ssp12es.html.

4. Harry Browne also has an investment alternative. "Fail-Safe Investing: Life-Long Financial Safety in 60 Minutes." This is a very inexpensive online or "web-book" from the New York Times best-selling financial author and former Libertarian Presidential candidate that provides a financial plan that virtually guarantees a risk-free investment plan. Over the past 33 years the portfolio based on this investment plan has had only four losing years, and the worst of those (in 1981) brought a loss of only 6%. The average yearly gain was 9.2%. Visit www.LibertyFree.com to learn how to acquire a copy.

5. For a good overview of the shortfall see "Social Security: Facing the Facts" at www.socialsecurity.org/pubs/ssps/ssp3es.html.

6. See Bipartisan Commission on Entitlement and Tax Reform, "Final Report to the President" (Government Printing Office, 1995). Also "Generational Accounting: a meaningful way to evaluate fiscal policy" by Joel Kotlikoff of Boston University, Alan Auerbach of the University of California, Jagadeesh Gokhale of the Cleveland Federal Reserve Bank, Journal of Economic Perspectives, Volume 8, Number 1, Winter 1994, pages 73-94.

7. See page 18 of The Social Security Fraud by Abraham Ellis, Foundation for Economic Education.

8. See page 89 of The Social Security Fraud by Abraham Ellis, Foundation for Economic Education.

9. See "The Trust Fund, the Surplus, and the Real Social Security Problem" at www.socialsecurity.org/pubs/ssps/ssp-26es.html.

10. See "Chile's Private Pension System at 18: Its Current State and Future Challenges" at www.socialsecurity.org/pubs/ssps/ssp-17es.html.

11. See "The $10 Trillion Opportunity" at www.socialsecurity.org/pubs/ssps/ssp7es.html.

12. See report of Congressional Budget Office: "Acquiring Financial Assets to Fund Future Entitlements" at www.cbo.gov/showdoc.cfm?index=4324&sequence=0.

13. The phrase "Utopia is not one of the options," comes from David Bergland, author of Libertarianism in One Lesson.


--------------------
?When Alexander the Great visted the philosopher Diogenes and asked whether he could do anything for him, Diogenes is said to have replied: 'Yes, stand a little less between me and the sun.' It is what every citizen is entitled to ask of his government.?
-Henry Hazlitt in 'Economics in One Lesson'


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Invisibleluvdemshrooms
Two inch dick..but it spins!?


Registered: 11/29/01
Posts: 33,808
Loc: Lost In Space
Re: The Social Security Abomination: A Primer [Re: Ancalagon]
    #3151676 - 09/18/04 07:31 PM (12 years, 2 months ago)

It's a shame so few grasp this.


--------------------
You cannot legislate the poor into prosperity by legislating the wealthy out of prosperity. What one person receives without working for another person must work for without receiving. The government cannot give to anybody anything that the government does not first take from somebody else. When half of the people get the idea that they do not have to work because the other half is going to take care of them and when the other half gets the idea that it does no good to work because somebody else is going to get what they work for that my dear friend is the beginning of the end of any nation. You cannot multiply wealth by dividing it. ~ Adrian Rogers


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Offlinezappaisgod
horrid asshole

Registered: 02/11/04
Posts: 81,741
Loc: Fractallife's gym
Last seen: 6 months, 7 days
Re: The Social Security Abomination: A Primer [Re: Ancalagon]
    #3151716 - 09/18/04 07:58 PM (12 years, 2 months ago)

Great job Anca. One of the most insidious elements of the Soc Sec/Medicare scam is that half of the money taken is hidden from the electorate in the form of employer matching contributions. Your pay stub only shows HALF of what it costs you. Most people on payrolls have no idea of the real cost.
I'm almost 50 years old and if they promise not to take any more money I'll consider what they have already taken a loss and never ask for a nickel back. Worst president ever? FDR.
On a personal note for your mother, there is something called a reverse mortgage in which she can stay in the house and receive money from the equity. The property will obviously become encumbered to the extent that she receives money for it but at least she won't have to leave.


--------------------


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Invisiblesilversoul7
Chill the FuckOut!
 User Gallery

Registered: 10/10/02
Posts: 27,301
Loc: mndfreeze's puppet army
Re: The Social Security Abomination: A Primer [Re: Ancalagon]
    #3151744 - 09/18/04 08:15 PM (12 years, 2 months ago)

During the summer, I worked a minimum wage job, and was trying to save up some spending money for the school year, but I just seemed to live paycheck-to-paycheck, even though I wasn't a very big spender. Even though I wasn't making enough money to pay income taxes, I still got fucked over by Social Security. The sooner we end this fucking pyramid scam, the better.


--------------------


"It is dangerous to be right when the government is wrong."--Voltaire


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OfflineAncalagon
AgnosticLibertarian

Registered: 07/30/02
Posts: 1,364
Last seen: 7 years, 9 months
Re: The Social Security Abomination: A Primer [Re: zappaisgod]
    #3151747 - 09/18/04 08:17 PM (12 years, 2 months ago)

Quote:

On a personal note for your mother, there is something called a reverse mortgage in which she can stay in the house and receive money from the equity. The property will obviously become encumbered to the extent that she receives money for it but at least she won't have to leave.



I did not write that eloquent article Zappa -- was an annonymous member of Downsize DC.

Quote:

Great job Anca. One of the most insidious elements of the Soc Sec/Medicare scam is that half of the money taken is hidden from the electorate in the form of employer matching contributions. Your pay stub only shows HALF of what it costs you. Most people on payrolls have no idea of the real cost.




Couldn't agree with you more. Pretty esoteric information, appreciate it.

Quote:

I'm almost 50 years old and if they promise not to take any more money I'll consider what they have already taken a loss and never ask for a nickel back.



I think you'd be in the vast majority if people were truly presented the facts on this issue. Unfortunately when any information IS presented on a large scale it is usually distorted and political(the two go hand in hand).

Quote:

Worst president ever? FDR.




It's very close between him and Lincoln.


--------------------
?When Alexander the Great visted the philosopher Diogenes and asked whether he could do anything for him, Diogenes is said to have replied: 'Yes, stand a little less between me and the sun.' It is what every citizen is entitled to ask of his government.?
-Henry Hazlitt in 'Economics in One Lesson'


Edited by Ancalagon (09/18/04 08:24 PM)


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Offlinezip
Stranger
Registered: 09/16/04
Posts: 6
Last seen: 12 years, 2 months
Re: The Social Security Abomination: A Primer [Re: Ancalagon]
    #3151799 - 09/18/04 08:42 PM (12 years, 2 months ago)

People are interested in socialist schemes only if they are on the receiving end of it.


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OfflineTao
Village Genius

Registered: 09/19/03
Posts: 7,935
Loc: San Diego
Last seen: 1 year, 5 months
Re: The Social Security Abomination: A Primer [Re: zip]
    #3151868 - 09/18/04 09:01 PM (12 years, 2 months ago)

Sorry to break it to you, but that is utter bullshit.


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InvisibleEvolving
Resident Cynic

Registered: 10/01/02
Posts: 5,385
Loc: Apt #6, The Village
Re: The Social Security Abomination: A Primer [Re: zappaisgod]
    #3151959 - 09/18/04 09:26 PM (12 years, 2 months ago)

Quote:

zappaisgod said:
Your pay stub only shows HALF of what it costs you.



The self employed (such as your's truly) pay the whole amount. The government terms it 'self-employment tax' and the going rate is 15.3% (** edit ** this is in addition to the income tax). That's 15.3% of my income that I am not able to put away for retirement. As people have less to invest in their retirement, they are more likely to become wards of the state during their senior years... But, that's 15.3% of my income that I will never see in benefits because the system will be bankrupt when I am ready to retire. That's 15.3% unavailable to be invested in instruments that would create new jobs. That's 15.3% unavailable to save for my childrens' college educations. That's 15.3% of my wealth produced that is being used to paper over the Federal deficits so the masses will be blissfully lulled into believing that the irresponsibility of the parasite class, ah, er... the political class is not as great as it really is.

It's a fucking Ponzi scheme, if it were run by any private entities in the same manner, those running it would be jailed for fraud and misappropriation of funds.


--------------------
To call humans 'rational beings' does injustice to the term, 'rational.'  Humans are capable of rational thought, but it is not their essence.  Humans are animals, beasts with complex brains.  Humans, more often than not, utilize their cerebrum to rationalize what their primal instincts, their preconceived notions, and their emotional desires have presented as goals - humans are rationalizing beings.


Edited by Evolving (09/18/04 09:32 PM)


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