What is Social Security?

The Social Security system is the American way of administering a general levy under the guise of a social insurance program that provides old-age benefits for retirees and their survivors, disability insurance for workers and survivor benefits for dependents.

The Social Security tax is the largest single tax the average American pays. It is not a flat tax, though it appears to be. All flat taxes are regressive--that is, they take a disproportionate share of disposable income from the average wage earner than as opposed to the high wage earner. Social Security exacerbates regressivity by adding a cap instead of a floor to the tax.

We classify Social Security as an entitlement program. Congress has set eligibility criteria. If you meet the criteria, you are entitled to the benefits.

As social insurance, the system does more than provide a base of income for the retired worker. It purposefully redistributes wealth from productive members of society to those who are less productive. The idea is to adjust for distributive injustices and other inequities in society. It's also supposed to provide financial relief to many who might otherwise have to provide full support to aging or disable relatives. Because it is a pay as you go system that relies on an ever-increasing body of people to pay into it, Social Security has a natural limit to its ability to meet any of the goals set forth for it. And, because it creates a significant drag on the power of current wage earners to save or invest, it perpetuates dependency. It is a bad plan. The United States Government has passed laws against any individual, corporation, or other non-government organization that attempts the same kind of Ponzi scheme. The Federal Racketeering laws grant an exception, by fiat, to the Social Security System.

How do we finance Social Security?

We don't. Social Security payments go directly into the general treasury. From there, payments go out to beneficiaries. There is no Social Security fund. The general treasury writes IOUs against the money collected for Social Security, and then counts the money as though it were still in the general treasury. This results in a false "government surplus," which is--in reality--a deficit.

Social Security tax is slightly lower for wage earners than it is for the self-employed--by a fraction of a percent. The common myth is that an employer pays half and the employee pays half, but this simply is not true--that half and half method of accounting simply hides the fact that the employer has so many dollars to allot to a given position, taxes included. The Social Security tax "paid" by the employer is just a component of the overall wage package. The Social Security tax diminishes the earnings of the wage earner twice as much as stated. Whether those earnings would have gone toward savings and investment is a matter of conjecture, but savings rates were far higher when the Social Security tax was far lower.

As bad as Social Security is, it does have some good points that merit rolling over into a plan that would fit within the boundaries of both our laws and rational thought. For example, it is the primary source of income for a small portion of our elderly and the very poor. For many families facing hardship following a death, disability or unanticipated retirement, the program lightens their burden. Social Security also protects nine out of ten workers and their families and provides benefits each month to more than three million children.

So, while it would appear the sane thing to do is simply end Social Security and continue to pay those who now depend on it, there are complications to that course of action. Whatever system replaces Social Security will need to address those complications.

The government should not direct any sort of investment program with these funds, as that would lead to abuse. Privatization does not provide the non-retirement benefits. So, what kind of system should we come up with?

Perhaps such a system will consist of a social responsibility tax (5%) and a mandatory 401k contribution (10%), which would result in more disposable income for each worker. It would also result in far cheaper capital for businesses in America (and others who borrow from American banks). The resultant increase in wealth would contribute to shorter working hours and fewer social ills in our country. The Social Security system as it is now is anything but social, and anything but secure.

Information on Social Security is readily available. Dial (800) 772-1213 to reach a representative, or visit http://www.ssa.gov/SSA_Home.html