Information Connection: Social Security

What is Social Security?

by Mark Lamendola

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

More about Social Security

This costly program is funded by a payroll tax deduction of about 15%. The fact that the govt needs to lie about this tells you something. It lies by pretending that the employer pays half and the employee pays half. Some people actually believe this lie, which means they also believe employers have unlimited funds for payroll. The fact is a unit of labor can cost only so much before the employer can't get a positive return on that unit of labor. So if a payroll tax is $1, that's simply $1 the employee won't be taking home.

Social Security is one of the largest taxes people pay. It's not as large as the inflation tax, but it's still large. Compare it to the 1040 tax, and it's huge. Less than half of all wage earners pay any 1040 tax. The purpose of the 1040 tax is not to fund the government, else the IRS would not spend multiples of an alleged tax bill just to presumably collect it. The purpose of the 1040 tax is to provide a (very) thin excuse for the existence of the IRS. From IRS misconduct over the years, we know its purpose is to subjugate the populace through systematic abuse and terrorism.

Social Security is a flat tax (with a cap, making it highly regressive). Why politicians campaign on replacing the 1040 tax with a flat tax is truly a mystery. If you abolish the 1040 tax and replace it with nothing, federal revenue will increase. And we already have a flat tax. Half of American wage earners pay 0% 1040 tax while still paying 15% SS tax.

The reality on Social Security is it's a way to impoverish people and create a situation of dependency. The fact that it was created by the 3rd worst President in US history tells you something important about it. This program is also the kind of government activity that is expressly prohibited by the 10th Amendment. In other words, it's flatly illegal.

So why doesn't CONgress restore lawful government or at least end this illegal Ponzi scheme? The short answer is now people are dependent upon it. Untangling this mess will not be easy.

One solution to the illegality of the SS is to legalize the SS program. Doing so would require a Constitutional Amendment. Unfortunately, merely making it legal does not solve the looming funding shortfall as demographics change.