We may consider each generation as a distinct nation, with a right, by the will of its majority, to bind themselves, but none to bind the succeeding generation, more than the inhabitants of another country. ~ Thomas Jefferson
I received my annual Social Security statement yesterday. The header, right across from the Social Security Administration logo, states in large letters, “Your payment would be about $2,267 a month at full retirement age.” I’m happy to hear that, or I should say, the SSA wants me to be happy to hear that. The six-page statement is sort of like a newsletter, which explains in friendly language all the ins and outs of retirement planning in light of my future eligibility for social security benefits. It even explains how I can create a mySocialSecurity account at www.socialsecurity.gov/myaccount.
Now I suppose that all this information would be wonderful if these prospective benefits resulted from a voluntary annuity. In fact, social security does not work like an annuity, and it is anything but voluntary. The newsletter reminds me that as a self-employed person, I pay 15.3 percent of my earnings to fund social security and medicare benefits. These tax payments do not fund my benefits, as they would if social security operated as an annuity program. They fund benefits for current retirees, just as my retirement benefits will come from future payroll taxes for people working when I’m not.
The rationale behind social security was that elderly people would not have to worry about having enough to get by, or endure poverty during the last years of their lives. Yet the Social Security Administration warns on the front page of its newsletter:
“Social Security benefits are not intended to be your only source of income when you retire. On average, Social Security will replace about 40 percent of your annual preretirement earnings. You will need other savings, investments, pensions or retirement accounts to live comfortably when you retire.”
That takes the security out of the program, I would say. Why would I pay into a program that returns far less than I could earn if I invested the money myself, and that provides no security with the little it does pay out? The answer to that one is easy: the Social Security administration forces me to turn my money over so it can cover payments to current retirees.
No generation ought to lay burdens on the next, or do anything to limit the next generation’s ability to enjoy what it has earned. Would parents impose such conditions on their children? Even worse, should parents force their own children to support them? In that way, the people who imposed payroll taxes for Social Security and Medicare in the Federal Insurance Contributions Act (FICA) made irrecoverable mistakes. They intended that these taxes never be repealed. In fact, they proudly pointed to their accomplishments when they laid these burdens on their children.
Moreover, no one who enacted these taxes ever admitted the mistake.
By contrast, if young people decide they want to lay taxes on themselves to support their parents, without any idea that these taxes ought to persist indefinitely, that kind of inter-generational transfer would be justifiable. That is not the case with FICA taxes. The people who imposed the taxes, and the people who pay the taxes, are not the same people. Moreover, the people who imposed the taxes dishonestly called them payments for an insurance program, suggesting that each generation shall fund its own retirement benefits and medical care in old age.
Talk about a big lie. If the people who laid these burdens were honest about their project, they would never have built something so indefensible and wrong. If they were honest about their project, they would have made each generation bear its own burdens. They would not have designed a system of taxation and transfer payments whereby a generation has to pay its own way as its members raise families, and transfer large amounts of its earnings to the previous generation. This type of coerced transfer, where one generation lives off another, cannot last. Politicians always say, “Let’s think about our children.” Alright, let’s do that.