The Truth About Social Security

Apr 16th, 2011 | By | Category: Politics & Current Events

The economist, Robert Samuelson, has an interesting take on Social Security:  He calls it ?welfare.?  Here is why:  First, it taxes one group to support another group, meaning it is pay-as-you-go and not a contributory scheme where people?s own savings pay their later benefits.  Second, Congress can constantly alter benefits, reflecting changing needs, economic conditions and politics.  Let?s think about this provocative thesis.

First, a few thoughts about the Social Security Trust Fund.  Since the 1940s, Social Security has been a pay-as-you-go program.  Most benefits are paid by payroll taxes on today?s workers; in 2010, those taxes covered 91% of benefits.  The trust fund?s $2.6 trillion would provide only 3.5 years of benefits, which totaled $700 billion in 2010.  Congress has repeatedly altered benefits.  Indeed, from 1950-1972, it increased benefits nine times, including a doubling in the early 1950s.  In 1972, it indexed benefits to inflation.  Samuelson writes that ?Contrary to the Obama administration?s posture, Social Security does affect our larger budget problem.  Annual benefits already exceed payroll taxes.  The gap will grow.  The trust fund holds Treasury bonds; when these are redeemed, the needed cash can be raised only by borrowing, taxing or cutting other programs.  Second, the connection between Social Security and the rest of the budget is brutally direct.  The arcane accounting of the trust fund obscures what is happening.?  Samuelson concludes that Social Security is in fact ?welfare.?  Benefits shift; they are not strictly proportionate to wages but are skewed to favor low-wage earners?a value judgment reflecting who most deserves help; and they are not paid from workers? own ?contributions.?  The US therefore continues to foster the folly of seeing Social Security as an ?earned? benefit for 54 million Americans.  It is not an earned benefit and it is not separate from the rest of the budget.  The reality of Social Security is brutal and reflects a much deeper problem about the US budget?the subject of the next Perspective.

See Samuelson?s essay in the Washington Post (7 March 2011).

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