Social Security
Jan. 25, 2005
As I mentioned late last year, I am making an effort to make more political posts this year. The president seems to want to talk about social security. The first bill to enter the Senate in the new session will be a social security reform bill, so why not.
First I'll disclose my background on this issue. I assume that I will never be eligible for social security. Under the current rules, I will not be eligible to receive benefits until 2044 and the most optimistic projections suggest that social security will run out of money in 2042, just 2 years too early for me. I am planning for my retirement on the assumption that social security will not exist. On the other hand, I don't pay any money into social security because of the student employee exemption in the law. Therefore, right now, social security has no effect on me.
One of the biggest problems with the social security debate, to me, seems to be the problem of purpose. Social security started as a way of providing benefits for widows, orphans, and people who were too disabled to work. It was a safety net to help those people who are unable to participate in our economy and thus were doomed to poverty. Later, this benefit was also extended to the elderly. Thus, it would seem that the purpose of social security is akin to that of welfare - help out those who need money to survive and can't get it any other way. I believe we all have a moral obligation to help people who can't help themselves, however I'm open for debate on whether the government is the best agent for taking on this responsibility. If we assume the government should do it, then we should pay for this benefit out of the general government budget and normal tax rate. Why is there a special tax on wages just to pay for benefits to needy people?
Somehow, by some historical accident I can't fathom, social security accounts became synonymous with retirement, probably due to their connection with the elderly. People looked at social security not as a way to help others, but as a way to save for their own retirements. Thus, a special tax on wages is imposed which represents the amount of money you are saving for yourself. Your employer is obligated to match this amount. Thus, this tax is only applied to workers, and only those workers who receive a wage. Contractors , corporations, and other sources of income (such as capital gains) are not taxed. Self-employed people still have to pay, although they have to pay double since they are their own employer. Strangely, anyone who earns over $90,000 a year is exempt from the tax, under the assumption that they do not need the government to save for them. They make so much money that there is no need for them to save.
Is anyone else bothered by this strange disconnect? I fully support social security as a means to provide for the poor and destitute, especially the elderly poor, however the government does an incredibly bad job at planning for my retirement. Why are these tied together? Am I paying a tax which provides for myself in case I become poor later in life? Why bother?
Given all this, it seems the best thing we could do for social security is eliminate the fiction that it provides a retirement fund and just call it what it is: welfare for the retired and disabled. Scrap the regressive payroll tax and increase the regular income tax, both on corporations and individuals, to pay for it. Stop sending me a letter once a year telling me what my expected retirement benefits are going to be when I turn 65. I know that money won't be there then. Just tell everyone that the government will provide for you and keep you out of poverty if your retirement plans fail, but the income won't be enough for you to spend your golden years traveling or hitting the casinos. If the government wants to encourage good saving habits, put retirement education in every high school economics class. Increase the limit on tax-free IRA investments. Similarly, give a tax break to corporations with solid pension plans. Encourage growth and immigration. Oh, and here's a good one: pay down the debt so less of our tax money flitters away in interest.