Understanding the Social Security scam

[natedogg]

In order to understand the Social Security scam you must ask yourself "What is the program supposed to do?" Or in the case of defenders, what is it you believe Social Security accomplishes?

Two of the most common answers are:

1. provide destitute seniors something to live on
2. act as a mandatory retirement savings program for all

Muddying the waters is a standard and brilliant government tactic when it comes to protecting massive programs and Social Security has been no exception. It comprises several different programs at this point so it's hard to pin down a strict purpose.

Let's assume that you believe the main purpose of Social Security should be to give destitute seniors something to live on, i.e. welfare for the elderly.

That's a great idea. Feeding impecunious retirees is a laudable goal.

However, as soon as you frame Social Security as a welfare check for the aged, you realize instantly the implementation is crazy. This "welfare" system is sending checks to Warren Buffett! The majority of the checks are cut to people who are not destitute! And the kicker is that the tax which ostensibly funds the program (it doesn't, see below) is levied on those who can least afford it! It is a system that takes money from the struggling working class and gives it to a class that is mostly comfortable retirees along with a few that are broke.

Social Security as welfare fails miserably. Anyone can see that there is a better solution to feed starving retirees.

So let's try framing Social Security as a mandatory retirement savings program instead. This is where the scam really gets exposed.

The first thing you should know is that Social Security taxes do not fund Social Security checks. This is hard to believe, I know, because we've all been told differently, but it's true. Revenues from Social Security tax are not in any way earmarked, saved, held aside, locked away, or anything else.

The Supreme Court case Fleming v. Nestor (http://www.ssa.gov/history/nestor.html) established that the taxes you pay for Social Security are just another tax and the revenues are not distinct from the general fund. Furthermore, this case established that the government has no binding obligation to pay you one dime of a Social Security benefit. Of course, they promulgate a false sense of entitlement by referring to the debt as an "obligation", but it is not an obligation.

But wait, they are tracking the revenues and outlays and the trust fund aren't they? There *must* be something tying my Social Security taxes to the actual outlays, right? It's all internal accounting shenanigans. Your Social Security Taxes might as well be labelled "The Silly Tax" and the revenues would be as closely tied to SS. It's all part of the charade to keep us complacent about the 15.3% payroll tax. The bottom line is that the govt revenues go into a big pot, and they cut Social Security checks out of that pot, and they make some notes about it for internal accounting purposes. The so-called excess revenues that should be in the trust fund (more on the trust fund below) are just a spurious categorization of general funds.

What this means is that there is no legal or regulatory connection, none whatsoever, between what you pay into Social Security and what you get out of it. [em]Benefit calculations do not take into account the amount of tax you paid.[/em] This should be indication enough that it's not a retirement savings plan. Your Social Security taxes are just another tax. Your benefit is entirely up to the whim of a future congress. They are not bound.

You may think this makes it hardly sound like a retirement program and more like a general benefit or giveaway, while providing cover for an unconnected burdensome tax. And you'd be right.

So much for being a retirement program but it get worse, because there's a "trust fund" myth foisted on the public. The myth serves to perpetuate the notion that it is a retirement savings program. Simply using the word "trust fund" implies as much. It gives people the impression that there is a huge asset ready for disbursement to all the people who paid into it. It implies that your money has been earmarked and kept safe. But that is entirely false.

Instead of real assets, there is a note from Congress that says "We promise that a future congress will continue to fund this program". That's all there is. And the note itself is only there to further the pretense that there is some kind of relationship between your Social Security taxes and the benefit coming to you. But there's no relationship. It's just internal accounting shenanigans.

And these taxes that are disingenuously labelled as Social Security tax are levied disproportionately on the poor. A single mother living on $10,750 a year pays $1500 in Social Security tax, with no way out of it. It's taken right off the top before she can even start making deductions. And since I've already shown this tax for the lie that it is, any reasonable person can see this is outrageous.

The whole thing is a giant smokescreen to enable the government to justify onerous taxes on the poor and middle class and then fund massive giveaways to the rich.

Social Security is often mis-characterized as a pyramid scheme by detractors, but this could only be accurate if there was an actual pile of money resulting from the scheme that will go to the early contributors. There is no such asset.

So, to summarize:

1. It fails miserably when we frame it as a welfare program. It is in fact nearly the opposite of a welfare program, transferring money from the working poor to the wealthiest class of people.

2. If we frame it as a retirement savings program we see that there's no savings happening by any definition of the word.

3. The "trust fund" is a lie, and in fact is a convoluted pretense designed to reinforce a mistaken belief about the relationship between your Social Security taxes and Social Security benefits.


So, what is GOOD about Social Security?

A good number of retirees in penury are able to feed and clothe themselves because of Social Security checks. But this minor good can be achieved in a more effective way, although it wouldn't provide a nice smokescreen for taxing the hell out of the working class. Defending the Social Security status quo requires cognitive dissonance and double speak. The Social Security apologists rely on various fallacious spins.

Here are a some typical apologist positions:

1. The trust fund really is an asset. Just as when you purchase a good, your networth hasn't changed. You now own the good.
response: This is patently disingenuous. The trust fund is more like an accounting of how much you spent on hookers and blow. I'd really like to have one of these apologists point me to the "assets" that the trust fund purchased and how the govt will liquidate it in order to pay my checks down the road.

1.b An extension of the argument above is that if they didn't have a tax surplus to spend, they would just borrow the money, as if spending levels are something that happen in a vacuum. I'll let you work through that prevarication on your own.

2. Without Social Security, there is a moral hazard created for those who would be foolish and not prepare for their retirement.
Response: This is a common defense, but it is a red herring, since Social Security does not save their money anyway, and there are plenty of other ways to address this moral hazard.

3. The number of recipients who need that money for basic necessities is greater than you think.
response: this implies a false dilemma. DUCY? I'll let the apologists hang themseves on this one if they want to try pursuing it.

5. Saving for retirement together as a group creates a safety net,whereas individual retirement savings can be wiped out due to bad luck.
Response: If it was a retirement savings program the apologist might have a point here. But this answer assumes the antecedent because there is no real savings going on. Even so, the individual bad luck problem is easily solved with private annuities. But what if the annuity company goes bankrupt? That's what insurance is for. Hell you could make annuity companies buy a government backed insurance plan similar to FDIC if it makes you feel better, but this group safety net argument is just a red herring. There are plenty of ways to solve it without ripping off the poor.

6. "Hey, canada has a trust fund. don't tell me we can't do it."
response; Canada's trust fund is miniscule compared to ours, and they invest it in a foreign market (ours).


which brings me to

7. We just need to lock up the trust fund with real assets and it will be fine.

response: I have explained before why it wouldn't even be possible to have a trust fund even if we wanted to but I'll recap:

1. Holding onto the cash simply ensures a negative return due to inflation.

2. Investing it in the market ensures government control of industry and creates a huge moral hazard for our decisionmakers, as the investment choices of the trust fund would be the biggest prize available to lobbyists and industry. Furthermore the investment directors have little incentive to do their job well. For an excellent example of what happens when you put government bureaucrats in charge of investing your retirement fund, check out the history of the CalPers fund.

3. Investing it elsewhere (such as in foreign treasuries like Canada does) is not politically feasible, nor is it a safe investment since the US is the safest place for capital (yeah yeah I know it's looking shaky right now). Even if those objections were overcome, we return to the same moral hazard as #2, but in this case we have foreign governments vying for the trust fund prize instead of domestic rent-seekers. Hardly an improvement. And the investment decisions would be politically motivated instead of taking into account what is the best investment, which defeats the purpose.

Bottom line, Social Security is a scam from any angle, and in every case where the perceived goal of Social Security is used as a defense, there is a better way to achieve that goal.

natedogg