Paying for Mrs. Fuller

It’s time to wind down the Social Security Program

In 1935, Franklin Delano Roosevelt signed into law the Social Security Act, an insurance program designed to cover against what were then considered the greatest financial risks in American society: disability, unemployment, loss of spouse or parents, and, most notably, old age. At the time, the poverty rate among the elderly was over 50 percent — the Great Depression had wiped out the savings of many, and older citizens, whose best wage-earning years were behind them, were particularly hard hit. By funding the benefits of current retirees with income taxes on current workers, Social Security constituted a major windfall for its first generation of recipients; Ida May Fuller, the very first citizen to receive a Social Security check, paid $24.75 into the system and received back $22,888.92 over the course of her lifetime. In this manner, the program theoretically provided a way to spread out the pain of the Great Depression — each generation would pay some ever-declining amount to the previous generation until the entirety of that one monumental loss had been spread out across decades.

However, rather than slowly and widely distribute Great Depression losses, Social Security continues to this day forever kicking the can down the road for future generations to deal with. On some level, Social Security is a sensible insurance program. Unemployment and disability insurance are reasonable risks to insure against, and though some may argue that private markets are capable of providing such coverage, there can be agreement that this is, regardless of who provides it, a valuable service. But the bulk of Social Security — its old-age benefits — are of dubious value as a permanent feature. Old age is not a random calamity to be insured against — absent the prospect of death, one can be quite certain that a year from now they will be one year older. In this regard, Social Security is not acting as insurance. It constitutes little more than a forced savings program of the worst kind — not only is the rate of return on Social Security savings low because the money is invested in federal securities, but because the government can (and given it’s financial situation, must) change the program’s benefits over time, retirees can never be certain of what they will be paid. Rather than insure against a financial risk, Social Security manages to create risk in financial planning. As a means of helping the elderly, Social Security is horribly counterproductive.

Besides having a negative effect on our economic security, Social Security is destructive to our political processes.

It is in constant need of tinkering due to demographic shifts and changing life expectancies: Social Security has been amended roughly once every five years since its inception, wasting the effort of our legislators.

It allows politicians to hide deficits in discretionary spending: When Social Security is in temporary surplus, it is possible to produce a “balanced” budget simply by ignoring long-term commitments.

It is a source of tension for society, which must periodically play zero-sum welfare games to keep the program afloat. Our democratic processes are distorted by the self-interest of one generation in securing their piece of the pie (witness the speed with which the AARP will turn on a politician who proposes cutting benefits rather than raising taxes).

It is a drain on our economic well-being, disrupts our democratic government, and leaves us vulnerable to future catastrophic events — were we to suffer a major war, a new depression, a meteor strike, whatever — we would find it difficult to perform the same accounting sleight of hand and spread our losses. We must, at some point, pay off the loss that was incurred. It is not sensible to continue passing on the losses from the Great Depression onto the next generation.

We should establish a schedule of tax and benefit decreases that will wind down the old-age provisions of Social Security. The process can be as simple as the following: next year, we pay retirees 99 percent of their benefits and collect 100 percent of the taxes. The year after that, we pay out 98 percent of benefits and collect 99 percent of taxes, and the year after that, 97 percent of benefits and 98 percent of taxes and so on, slowly dissolving the program over the course of a century.

No one is begrudging Mrs. Fuller her Social Security payments — but let ours be the generation that finally pays for her retirement.