Social Security Is Welfare — Laissez FaireLaissez Faire

Robert Samuelson makes some good points about Social Security in his latest column. His bottom line: Social Security is welfare.

No surprise, this has drawn the ire of the system’s supporters. Dean Baker of the Center for Economic and Policy Research comes to Social Security’s defense. I’m not going to go through the entire post, but two points are worth commenting on.

The first is a purely factual issue. Baker accuses Samuelson of dishonesty for claiming that “Millions of Americans believe (falsely) that their payroll taxes have been segregated to pay for their benefits and that, therefore, they ‘earned’ these benefits.” According to Baker, “Payroll taxes have been segregated. That is the point of the Social Security trust fund and the Social Security trustees report.” He goes on to say, “Under the law, no money can be paid out in Social Security benefits unless the Trust Fund has the money to pay for them.”

Baker is technically right. But he’s leaving out a critical part of the story.

Samuelson was making a point that I’ve discussed here in the past: the money you pay into Social Security today isn’t saved and invested in order to fund your future retirement. It’s handed out to current retirees. Social Security is an income transfer program, whose only justification is the supposed right of the elderly to live at other people’s expense.

Yes, there is a Social Security trust fund, but what’s in it is not money taken from you and set aside for your retirement. That money has been spent. What’s in the “trust fund” is just a bunch of government bonds. AEI’s Andrew Biggs explains:

While the trust fund has a $2.5 trillion balance it can call on to pay benefits, this fund won’t be of any help to the taxpayer. When Social Security goes to redeem bonds in the trust fund, the Treasury must raise taxes, cut other programs, or borrow the money—exactly the same steps as if there weren’t a trust fund at all.

So much for the “trust fund.” The second point I wanted to comment on has to do with whether people receive more in Social Security benefits than they pay in to the system during their working years. Samuelson says that if you look at Social Security and Medicare together, the average couple receives far more in benefits than they pay into the system. This, he thinks, is part of the evidence these are welfare programs. Baker objects:

Okay, this is a really nice trick. Remember we were talking about Social Security? Note that Samuelson refers to “lifetime Social Security and Medicare benefits.” It wasn’t an accident that he brought Medicare into this discussion. That is because. . .this average earning couple would get back less in Social Security benefits than what they paid in taxes.

I suppose that’s a point for Baker. It is true that although historically most people have “come out ahead” in Social Security, things are changing. But isn’t this a pyrrhic victory? How long will Social Security remain popular if its rallying cry becomes, “You won’t get back anything close to what you paid in: We promise!”?

Baker seems to be in this position: Either people do get back more in Social Security than they pay in, in which case it is welfare, or they don’t, in which case they are suckers.

In fact, both Baker and Samuelson go off the tracks here. Samuelson is right that Social Security is welfare—but it is irrelevant whether people pay more into the system than they get out.

Think of it this way. Say someone works for fifteen years, paying taxes all along, with some of those taxes going to support welfare recipients. Then one day he loses his job and ends up becoming a welfare recipient. Regardless of how much he paid to support welfare in the past, the fact is that today other people’s money is being taken from them and given to him. It’s still welfare.

The same goes for Social Security. Remember, Social Security is not an investment and it does not pay returns. There is no connection between the taxes you pay today and what you later receive in benefits. The idea that there is a link is pure make-believe.

The size of your Social Security paycheck is not determined by how much was looted from you during your working years. It’s determined solely by the willingness of politicians to loot your children and grandchildren.