Social Security: A good and moral deal?


Social Security and its future have been in the news lately. Supporters promote it as one of the best examples of successful government programs, and denigrate its critics as pessimists.

Locally in the campaign for United States Congress from the fourth district of Kansas, one candidate promises to defend the current system, while another has spoken approvingly of Wisconsin Congressman Paul Ryan and the reforms recommend in his Roadmap for America’s future.

Many of the arguments in favor of Social Security and strengthening the system revolve around the issue of fairness, even casting a moral tone. So what about the fairness of the Social Security system?

In Slaying Leviathan: The Moral Case for Tax Reform, author Leslie Carbone looks at the economic impact of Social Security and its payroll taxes on middle income people:

Payroll taxes actually have the bizarre effect of leaving families less able to ensure what they are specifically purported to provide — security in old age. According to The Heritage Foundation, Social Security’s inflation-adjusted rate of return is a paltry 1.2 percent for an average household of two 30-year-old earners, each making just under $26,000, with children. This family will pay about $320,000 in Social Security taxes (including their employers’ share) and can expect to receive about $450,000 back in payments (1997 dollars, before taxes, assuming that they begin collecting at age 67). Had this typical family allocated the same amount to conservative private investment vehicles, such as traditional retirement accounts, they could expect to enjoy a real rate of more than 5 percent per year before taxes, or $975,000 (1997 dollars). Social Security taxes of $320,000 cost this family $525,000.

Social Security is not a very good investment, as we now see. It’s even worse — cruel and unfair, we might say — when workers pay into the system for years and then die shortly after starting to receive benefits. If people owned their own retirement savings, they could pass these assets on to their heirs or anyone else they choose.

An argument often used against privatizing the Social Security system is that people will have to make investments in stocks and bonds. Securities markets sometimes go down, as they have recently, and sometimes do not perform very well for long periods. So the Social Security supporters ask: Do we want Americans’ retirement security dependent on such uncertain investments?

It’s true that markets go up and down. But over the long term, the direction has been up. Young workers do not need to be concerned about the performance of the market over the next few years. Their time horizon is measured in decades.

Furthermore, over long periods of time, the performance of securities markets is closely tied to the performance of the American and world economies. If markets do not perform well over time, it is almost certain that the economy is underperforming too. Such a poor economy makes it even more difficult for young workers to pay the taxes necessary to pay the Social Security benefits that retirees will demand. Those young workers will have to pay, as there is no Social Security trust fund that can be drawn upon, despite the claims of its backers.

It’s contrary to economic freedom and personal liberty for the government to force Americans to participate in a retirement program. Forcing us to participate in one that performs as poorly as Social Security is a tragedy, not a mark of kindness and moral superiority.


3 responses to “Social Security: A good and moral deal?”

  1. sue c.

    I have seen two reliable sources claim that SS will end in 2017 or 2037. Most people 55 and younger know it won’t be there for them!

    The choices our country and legislators need to make will be hard. The people of this country must realize we can’t keep “kicking the can down the road.”

    Ryan has a good plan. Better than anyone else’s. But it will likely hurt. As it will in doing nothing.

    Politicians are fearful of making hard choices. They need to garner those votes from the entitlement crowd. Which grows everyday.

  2. Great post, Bob! Social Security is a disaster, morally and fiscally. Thanks for spreading the word, and thanks for the plug!

  3. Lauren

    I spent a summer at The Heritage Foundation researching Social Security and Medicare reform, and as a young person who may not see the benefits of my FICA taxes, I get really excited about this topic!

    Social Security reform is not a sexy issue, but it’s one I’d like to see many more politicians discuss. Better yet, I’d like to see politicians stick their necks out, point out the stats and specifics, and frame the issue in way that people can’t refuse: we’re forced to put money into Social Security that would give us a much higher return elsewhere.

    In July 2008 Paul Ryan spoke at the Youth Entitlement Summit and wowed us all with us understanding of the entitlement deficit and courage to consider radical ideas. I hope his new idea gets people talking – and encourages other politicians to stick their necks out. It takes a strong leader to stand the political heat and propose radical changes.

    Bob, thank you for addressing the issue.

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