Two short opinion line blurbs in today’s Wichita Eagle will leave readers who believe what they say with a dangerous belief. Here’s the first:
“Social Security is socialism, and guess what? It works.”
The second, in part reads “Social Security is not socialism. It is insurance. I paid into it for 47 years before collecting a dime at age 65.”
First, whether social security is “socialism” is not really important. That word is over-used today in ways that are far removed from its proper and original meaning.
How does Social security work? A little background first.
On a “Yahoo Answers” forum, someone wrote this in an attempt to explain how Social security works: “Instead the govt. takes charge of that money and invests it for us.” This statement is false in any meaningful sense. What the government does with the social security tax revenue it collects is to first write checks to people who are collecting social security. It then loans the rest to other government agencies, who promptly spend it. The Social Security Administration receives bonds from the government agencies it lends to, but these agencies will have to pay back these bonds with future tax revenues. This isn’t investment in any meaningful sense. It’s just delaying the collection of taxes to future taxpayers.
Presently, Social Security collects more in taxes than it pays in benefits. But that will start changing soon. In fact, this day is fast approaching. According to the Cato Institute: “[Congressional Budget Office] reports that the Social Security surplus, originally expected to be $80-90 billion this year and next will shrink to $16 billion this year and just $3 billion next year (essentially a rounding error) as a result of the recession and rising unemployment. And those estimates may be far too optimistic. In February of this year, for example, Social Security actually ran a deficit — spending more than it took in through taxes and interest combined.”
Once the Social Security system starts running a deficit, Congress will be forced to do something. The basic tools Congress has are to raise taxes and reduce benefits. Congress will probably always make the Social Security system “work,” in the sense that benefits will be paid. Whether these benefits are paid at great expense to younger workers in the form of high taxes, or whether benefits are reduced, or whether benefits are paid in dollars whose value is greatly reduced by inflation remains to be seen.
For more information, visit these sources:
Project on Social Security Choice at the Cato Institute.
Social Security Reform Center, a project of the Heritage Foundation.
I expect a combination of all three: higher taxes, some form of means testing, and payment in depreciated Federal Reserve Notes.