by Dale Coberly


Obama once offered to cut Social Security as part of a Grand Bargain with the Republicans.  Now he says he thinks Social Security ought to be expanded.

The Committee for a Responsible Federal Budget (CRFB) answers him with their usual list of reasons why Social Security is going to ruin the country. [  here   ]

I am going to try to explain to you what’s wrong with this picture.

The most important thing to understand is that Social Security is not welfare.

The government does not pay for it.  The rich do not pay for it.  The workers who will get the benefits pay for it. It is a mandatory savings and insurance program.  Workers are required to save about 6% of their wages by means of the FICA deduction from their paycheck  In return, these savings are protected from inflation and market losses. And they are insured against personal bad luck including a lifetime of low wages (being unable to save enough),   Their savings earn an effective interest directly from the growth in the economy through “pay as you go” financing, so that in retirement workers will get back about three times as much as they put in.

Roosevelt thought it was critical that Social Security be paid for by the workers themselves and not be welfare, “so no damn politician can take it away from them.”

But the “damn politicians”  have been telling the Big LIe for eighty years, and now everyone talks about Social Security as if it IS welfare.  The enemies of Social Security have always understood that calling SS welfare, or even turning it into welfare, is the first step to taking it away from the workers.  But it is only recently that the Left has decided to “save Social Security” by turning it into welfare.

I think this has happened because the Left has bought the Big Lie.  After hearing so much about the “looming XX Trillion Dollar Unfunded Deficit!” they have decided that the only way to save Social Security is to find the money to close the deficit,  and since the only people in America who have money are the rich, it’s “obvious” that the way to save Social Security is to tax the rich.  [This is not to be confused with Bill Clinton and Newt Gingrich’s grand bargain that the “obvious” way to save Social Security was to raise the retirement age… so the poor would not be able to retire when they get too old to work.]

Just the other day  Michael Hiltzik  (LA Times) , a friend of Social Security, discovered that Social Security can be “saved” by any or all of a large number of new taxes on the rich.

I can see why CRFB thinks Social Security is going to ruin the country.

But here is what they all forget:

The “looming XX Trillion Dollar Defict” can be closed entirely, simply by letting the workers save an extra one tenth of one percent of their pay each year in Social Security.  This would amount to an increase in the SS “tax” of about one dollar per week (in today’s terms) each year while wages are going up over ten dollars per week each year. Because wages are going up ten times as fast as the tax, the increase in the tax each year would never be felt as more of a burden than one dollar per week would be felt today.  And the tax increase would not go on forever.  About twenty years should see us through the demographic changes (increasing life expectancy, lower birth rates, and slower growth in wages) responsible for the actuarial deficit.  At that time workers would be earning about two hundred more dollars per week in real dollars, while putting away twenty dollars of that toward a longer, richer retirement.

I am not sure I understand the people who think an extra dollar per week each year is more than workers can afford to save for the food and shelter they will need when they are too old to work.  Or why they think “the rich” will be willing to pay ten times that much for someone else’s retirement (there are more workers than there are rich people).   Possibly they are just fixated on the Justice of making the rich pay for the poor.

Maybe they are right about the justice, but it’s a bad bet to expect the rich to pay.  It’s always a bad bet to bet everything you have on the chance that you’ll get lucky.  By not letting you pay that dollar per week while demanding the rich pay for your retirement, they are guaranteeing the rich won’t rest until they destroy Social Security entirely.

As for “expanding” Social Security…

Social Security was designed to be as small as possible, so people would be free to invest the rest of their money in the ways they think best, while Social Security provides insurance in case their other investments come up short.  Most people today have a great deal more money than their grandparents had.  When they say they don’t have enough to save they mean they just don’t know how to stop themselves from spending every dollar they make. Those who truly don’t have enough are the ones who need Social Security the most… even if they have to find an extra dollar a week to pay for it.

If there is some reason to expect that in the future those other investments or pension plans will come up short for everyone, putting more money into Social Security would be a good idea.  But only if the workers pay for it themselves.

Another dollar a week

CRFB says that the Sanders plan to expand Social Security would eventually cost 1.3% of payroll (which they pretend would come out of general taxes and force the government to cut programs… “for the children”). 1.3% of payroll would be about twelve dollars per week for the average worker in today’s terms.  Six dollars from the worker and six dollars from the employer is not an unreasonable amount to save for a more comfortable retirement.  But that twelve dollars can be reached by the time it is needed just by saving an extra one dollar per week per year for twelve years.

By that time wages will have increased about one hundred and twenty real dollars per week.  The employees six dollars, plus the twelve dollars (by then) that closing the actuarial deficit will cost, means that instead of a $120 raise, the employee will have to get by with only about a hundred dollars more each week than he has today while saving an extra.twenty dollars (through the FICA “tax”) that he will get back three times over when he retires.  Calling it a “burden” is simply foolish.  It’s an increase in living standard both while working and in retirement.

But trying to get the money by imposing new taxes on the rich will cause the rich to fight to destroy Social Security entirely.

The workers need to hear and understand

This is really all I should have to say.  I know many people won’t believe that “one dollar per week” will do the job.  I can show the arithmetic, and it has been checked by experts,  but somehow people don’t believe arithmetic if it disagrees with something they have always been told.  I could try to give detailed answers to what they think they believe, but I am afraid that at the end of the day the Right will just know that Social Security is bad, and the Left will just know that the rich should be made to pay for it.

The Right wants to destroy Social Security by calling it welfare.  The left wants to destroy Social Security by turning it into welfare.  I’m sure the workers are smarter than both of them, if given the chance.  But they need to hear about it, and they will need to have it explained to them by someone better at that than I am.