Thoughts, essays, and writings on Liberty. Written by the heirs of Patrick Henry.

“Majorities, as such, afford no guarantees for justice… They [are] … likely to be equally — perhaps more than equally, because more boldly — rapacious, tyrannical and unprincipled, if entrusted with power. There is no more reason, then, why a man should either sustain, or submit to, the rule of the majority, than of a minority.”     Lysander Spooner

October 26, 2008

Social Security: The Betrayal Between Generations

by Stephen Littau

If you think the “bailout from hell” is going to be painful to taxpayers, wait until the bill comes due for Social Security, Medicare, and Medicaid. According to Dallas Fed President Richard Fisher, the unfunded liability for Social Security and Medicare sits at an incredible $99.2 trillion. This figure does not account for the myriad of other existing so-called entitlement programs or even consider future wealth redistribution entitlement programs Barack Obama and the Democrats wish to burden the taxpayer with.

The looming Social Security crisis is one which angers me to no end. If you are under 40, you should be angry too. The payroll taxes which are forcibly taken out of your paycheck by the federal government are given to current retirees. There will be little or nothing left when you retire but you will still be paying the bill for those who have benefited from your labors.

Yet anyone who dares to suggest even putting aside a small percentage of FICA withholding into private accounts is accused by the Left of trying to undermine Social Security. AARP and other such organizations run attack ads aimed at the elderly to make them believe they will be kicked into the streets if any such reforms are suggested by anyone who recognizes a need to reform the system.

Reason.tv is currently running a very entertaining, humorous, and informative animated series which explains exactly how royally we are getting screwed by this Ponzi scheme we call Social Security. Here are the first four episodes:

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6 Comments

  1. Stephen,

    “…There will be little or nothing left when you retire but you will still be paying the bill for those who have benefited from your labors….”

    What in the world do you think that you are saying here? Little or nothing left from what? If you mean the Trust Fund, it is not a collection of assets, but simply an authorization for the Treasury to borrow to make up the ss shortfall in any given future year. It will, in the future, be a simple matter of easy bipartisan legislation to remove the requirement for a TF balance to exist to enable borrowing, with no impact at all on the burden that the Treasury would face. The only real problems are political, in setting the inflexible mandated payout levels and the tax inflow levels. The mandated payout levels are essentially arbitrary, with no way to either accurately predict their effect or judge the correctness of one payout level vs another. If the predicted 2042 shortfall of about 28% were to turn out to be true, that would be amazingly close to breakeven for an open-ended system set so far in advance.

    How are you still paying the bill … if you are retired, and no longer paying payroll taxes?

    SS is and has always been a bad idea, but all the attempts to reform it have always made it worse. The real problem is that you cannot just save away your cash under a mattress (as an extreme case) because the FED will just depreciate it away.

    Regards, Don

    Comment by Don Lloyd — October 27, 2008 @ 6:56 am
  2. Don -

    Wow… where to begin. The Social Security TF is simply an accounting fiction. You acknowledge this. You fail to acknowledge that as fewer people pay into the system relative to the number of people collecting, the difference has to come out of general tax revenue or borrowing from the Fed.

    Considering the latter is the more likely of the two, and considering the inflationary effect of the massive borrowing needed, I could very well be paying not only a direct tax (income + payroll), but an indirect tax in the form of a weakening dollar. That indirect tax would continue even after I stopped paying the direct tax.

    Like Stephen, I’m under 40 and I’m pissed that I’m being used.

    Comment by Quincy — October 27, 2008 @ 11:00 am
  3. Don,

    I don’t think we are in disagreement but let me try to clarify.

    You are right, there is no “SS trust fund.” As part 4 of this series explains, payroll taxes are put into the general fund. As you pointed out, the FED will devalue the currency (by printing more money) and the politicians in the congress and the White House will continue to use accounting gimmicks to try to make the numbers work (accounting practices which would land accountants in private business in jail). The SSA may continue to make payments to us when we retire but the value of what we will get vs. what current retirees get will be greatly diminished. I would argue that at least indirectly, this is how we would be paying the bill even while no longer paying payroll taxes.

    I’m not sure what the solution is; all options I am aware of are bad. I think both Bush and Gore had it partly right in the 2000 campaign.

    Bush was right in advocating that at least a small percentage should be invested and owned by the individual worker as opposed to having someone else pay later. In theory, the percentage set aside by the individual would increase over time while the percentage being supported by other taxpayers would decrease. Gore was right that all payroll taxes should be set aside in “a lock box” instead of the general fund (as was originally intended when SS was enacted).

    I really don’t know what’s going to happen whenever it will be my time to retire. All I would advise is that anyone under 40 should not count on SS being there for them. Invest your own money and take responsibility for your own life.

    Comment by Stephen Littau — October 27, 2008 @ 11:13 am
  4. Quincy,

    You know what pisses me off even more? The fact that we don’t learn from our past mistakes. No matter how much government programs fail us, far too many of us demand even more government programs!

    We are still living with the ill effects of FDR and now we are about to elect another Socailist to put us further at the govenrnment’s mercy.

    Comment by Stephen Littau — October 27, 2008 @ 11:19 am
  5. Stephen -

    The problem is, in part, our humanity. It’s a sign of our human nature that we tend to give people credit for good things, but tend to ascribe bad things to faceless forces. In the case of the Great Depression, this causes people to get the cause and effect exactly backwards. Where the market, in the sense of the cloud of voluntary transactions, was a stabilizing force for good while the actions of people, FDR, the Congress, the Fed, were destabilizing forces that caused harm.

    Comment by Quincy — October 27, 2008 @ 3:16 pm
  6. Yet anyone who dares to suggest even putting aside a small percentage of FICA withholding into private accounts is accused by the Left of trying to undermine Social Security.

    And rightly so. If a system is going to be troubled by the balance of payments, decreased revenue is throwing jet fuel on the fire.

    Comment by Joshua Holmes — October 27, 2008 @ 9:55 pm

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