Social Security: Exposed for its Damnable Lies

Jonathan Plante
Activist, Contributing Author

Although the 2016 presidential election is over, my task of defending libertarian principles is not. If anything, the end of the 2016 president election makes my task even more important, as I would posit that the libertarian brand has suffered even more detriments: Gary Johnson did not receive the 5% of the popular vote he needed to help the Libertarian Party secure national major-party-status. Moreover, many politicians, pundits, and voters are blaming Johnson’s votes for ‘handing over the election to Trump.’ While this is not really true, it is still hurting the libertarian message. We need to use data, philosophy, and patience to defeat this stigma. I’m hoping my articles can help.

As promised in my first article, “Libertarianism in the Election Year of 2016,” I am continuing my articles that explain how I defended the libertarian principles. This one, in particular, explains the libertarian position of abolishing Social Security. Other than the article written by Derek Thompson, “No, Not Gary Johnson,” I have read many memes which compared Gary Johnson’s position of abolishing Social Security with the other presidential candidates – attempting to call Johnson ‘heartless’ for wanting to abolish a risk-free retirement mechanism for the elderly. However, the article by Derek Thompson and the memes portraying the libertarian position, both of which accused the position as heartless and one that would cause economic turmoil didn’t describe why libertarians want to abolish Social Security. That is what I set out to do when I discussed this topic with other people; and it is precisely what I am going to do in this article.

I. Compulsory Mechanism

Social Security is a mandatory, compulsory tax, taken out of workers’ paychecks. The fact that this is compulsory is troublesome enough for multiple reasons.

Most notably, any compulsory action is the opposite of freedom, as it is coercive. One of my favorite quotes from Friedrich von Hayek is in The Constitution of Liberty, in which Hayek states,

“Freedom is critically threatened when the government is given exclusive powers to provide certain services – powers which, in order to achieve its purpose must use for the discretionary coercion of individuals.”

This is very true of Social Security, as it is a mechanism by which the federal government has exclusive power over the primary source of retirement income for the elderly. The way in which coercion limits freedom is because it deprives workers of freedom of choice. Rather than allowing all workers to choose their own mechanism of investment and amount of which to invest, they are coerced into paying a fixed amount, to one source.

This exclusive power is bad not only in terms of freedom, but also is bad in terms of its effects on progress. Monopolies – even those outside of the government – prohibit and slow down any improvement over time, due to the lack of competition that causes innovation.

Another harmful effect that coercion has is in its tax structure. The federal government coerces its working-population to pay the social security tax. If you work for an employer, you pay roughly 6.2%; if you are self-employed, you pay the full tax of roughly 12.4%. (Please note: I did not explain this portion while I was informing people verbally, but I will do so here: I said ‘roughly’ because I am not accounting that these percentages could be less since a portion is contributed to Medicare and some people make more than the amount at which income can be taxed for Social Security.) That, in itself, is unfair to self-employed people. Because they choose to be self-employed, they have to pay a higher social security tax than do those employed by others (the employer pays the other half of the tax for the employees). This deters many entrepreneurs who want to be self-employed. In fact, prior to the Social Security Act being passed, approximately 80% over the working-class was self-employed; in 1940, only five years after the Act was passed, only 20% were self-employed; today only 5% are self-employed.

Moreover, I mentioned that the social security taxes are not used for the sole purpose of paying out beneficiaries. These funds are actually used to pay for other governmental activities, through use of the United States Treasury. This fact was actually very surprising to some those with whom I was speaking; most of them thought that the funds were only used to pay out benefits.

2

At this point, those with whom I was speaking got the point – as I’m sure that many of the readers do – that Social Security is compulsory; however, many of the people didn’t mind that Social Security is compulsory, because it provides this money back to those who paid in. This is where I posited the first question to those with whom I was talking about Social Security: Why should a person be forced to pay money into a retirement fund, when these people could potentially make more money investing it themselves in other ways – i.e. 401ks, stock market, etc.? The answer I received in response: “Because some people can’t afford to do that, and it’s risky. Social Security makes it fair for everyone.” I’m sure some of the readers might be thinking this, too.

While I couldn’t argue with the ‘riskiness’ of private investments, I could argue with the fact that it’s fair; it’s actually not, for two main reasons. The next sections describe how I proved it’s not as ‘fair’ as people think it is.3

 

II. Social Security Creates Disparities in Gender and Race

I find it hard to define the word ‘fair,’ because everyone has a different opinion of how to define it. However, I believe that all people can objectively agree that in order for a retirement mechanism – such as Social Security – to be fair, everyone should receive the same amount that they pay into it. This is where the first myth of Social Security lies: it does not pay out its beneficiaries equally, even though the beneficiaries paid the same amount to the fund.

These aforementioned inequalities are present for both women and African-Americans. Women who are married to men are required to pay for both their spouse and themselves, but only receive their own benefits. Additionally, and more disturbing to me, the National Center for Policy Analysis found that white males could expect to receive a return of forty-seven cents for every dollar he paid is Social Security taxes, while a black male of the same age and work-experience would only receive thirty-seven cents. The Social Security Administration’s reason for this is because the life expectancy of white males is longer than that of black males. Moreover, this is precisely one of the reasons why libertarians do not like Social Security, as it does not treat everyone equally in the eyes of the law; but rather, it provides certain classes with privilege.

6The people to whom I told this information gasped; they honestly believed that Social Security paid everyone out equally.

I then foreshadowed the libertarian solution, privatizing retirement funds. Rather than just simply stating it, I informed them of the benefits that a private retirement offers: it does not take into account gender, race, or life expectancy; but rather, it is impersonal, and looks at everyone equally. If its investments fail, everyone’s investments fail; if its investments succeed, everyone’s investments succeed.

III. Income Redistribution

After I discussed how much inequality there is in the Social Security payments, I followed-up it up by stating that Social Security is not a retirement fund mechanism; but rather, it is a mechanism by which income is redistributed.4

As previously mentioned, Social Security does not take into account how much one pays in, as it pays out unequal amounts to different genders and races. However, it doesn’t stop there: it also pays out more to some classes than those classes pay in. This is done in an attempt to make the disparities between economic classes more equal, because the federal government determines how much each beneficiary ‘ought’ to receive, regardless of how much he or she paid in to the system. In essence, if John paid more in social security taxes than did Dan, but the federal government determines that Dan needs more money because John has other sources of income, the federal government will give Dan more than it gives to John.

1This is dangerous, because these criteria of ‘need’ are unknown to those paying the taxes or even the beneficiaries. This leads to a type of arbitrary system – I use the term ‘arbitrary’ because the criteria upon which the federal government assesses the term ‘need’ might change, depending upon how much lobbying by special-interest-groups occurs. Therefore, this type of system is in the hands of lobbyists, rather than in the hands of those who paid into the system in the first place.

The point about lobbyists really stuck with those with whom I was speaking – as they were mostly millennials – but what really got them was the next thing about which I spoke: Social Security may not even be around when my generation (millennials) are eligible.

IV. Social Security’s Solvency

The main reason why, as of now, Social Security may not be around when my generation is eligible, are for the following reasons:

– Social Security’s “trust-fund” will run-out by 2033.

– Social Security currently has an unfunded liability (is paying more out than it is collecting) of $25 trillion.

-Boston University economist Laurence Kotlikoff estimated that in order to pay off this unfunded liability, federal taxes would have to increase by 64%.

-The ratio of social security taxpayers to beneficiaries has dramatically decreased: In 1950, it was 16 to 1; today it is 2.9 to 1.

-By 2034, it is expected to drop to 2 to 1.8

I articulated my sense of urgency and fear for of the fact that there is approximately 6.4% of income (a little less when Medicare is factored in) has been taken away from me for several years, will continue to be taken away from me in the future years, and I may not ever receive it back – never mind the fact that I could have used this money to invest in a much more profitable investment. I then asked a question: “Why should we be funding a system which gives us no choice, which pays out beneficiaries unequally, funds other government excursions of which we may not approve, and, above all, we may never receive? This fear was now felt with those with whom I was speaking – as I hope it is for those reading this.

The question that was now asked of me was, “So now what do we do? How can we change this?”

V. Solution: Privatized Options

As most people know, there are several options which could be taken such as tax-exempt IRAs, annuities, stocks, bonds, or other forms of investments. The important thing to consider is having the choice: not only the choice of which mechanism, but also the choice of how much to save. That, above all, I believe should be left to each individual person – not the government. I also reiterated that the governmental Social Security pays out according to its definition of ‘need,’ and pays more to white men than it does to black men or women; therefore, privatizing Social Security would provide people with not only more freedom of choice and control, but also equality in returns. Most of those with whom I was speaking agreed that they wanted more control over their retirement funds. However, they were skeptical of how a privatized retirement system would work.

I then described an important experiment in Chile – which was designed by Milton Friedman, a libertarian economist, and other University of Chicago economists – in which 90% of its workers moved from a government-controlled retirement program similar to the United States’ Social Security, to private retirement accounts. The result was that for the past thirty-years, these workers received an 8 % return a return that is more than what both Chilean and American retirees received from their Social Security type program.

I then said to those with whom I was speaking, “If Chile achieved these kind of results, imagine what the United States could achieve if it could experiment with that type of retirement arrangement. We could achieve similar, or even better results. Don’t you agree.” Overwhelmingly, the answer was “Yes.”

VI. Conclusion

The main goal of my discussion with people was defend why libertarians want to abolish Social Security, how it wouldn’t cause ‘economic turmoil,’ how it’s not ‘heartless,’ and to describe the solutions that libertarians have.

Throughout my discussion with people, and within this article, I made it very clear that Social Security is a very unequal system which provides more to certain races and genders, and which provides payments unequal – more or less – than what people paid in. I also made it clear why it’s important that the individual, and not the government has the right to determine how to save, and how much to save, for his or her retirement – the right of freedom of choice.

Moreover, I also described the libertarian alternative and how it is has worked in another country for over thirty years – disproving Derek Thompson’s claim that abolishing Social Security would cause ‘economic turmoil.’ One thing I did not mention until the end was that the having a private option for retirement allows people with the flexibility to borrow against the funds; Social Security does not. This is a paramount benefit for those who need a quick source of cash. In Social Security, it is just being spent on other governmental functions.

After I summarized the conversation with those with whom I was conversing, they were surprised how much they did not know about Social Security or retirement. It also made them more open to hear more of the libertarian principles, and we discussed those – which I will describe in future articles. In fact, I am humbled to say that due to long conversations about libertarian principles, some of these people told me that they were converting to libertarianism. I told these people that they weren’t ‘converting’ per se, but rather, that they ‘found’ that they were libertarians. That is precisely what happened to me, and I am happy that I was able to help others find their beliefs, too.

That is all I have for now. In my next article, I will talk about a related topic, Medicare.

In liberty; and may freedom, always, ring:

J. W. Plante

2 thoughts on “Social Security: Exposed for its Damnable Lies

  1. Informative article. I didn’t understand how a woman contributes for 2 when married.
    As someone about to retire, how do you propose to remove contributors from SS without hurting us. I have been paying into the system for 45 years and depend on current contributors to pay me back because our government spent my money.

    Like

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