Systemic inequality in social security rules
Social Security turns 86 this year. Adopted on August 14, 1935 as part of the New Deal under President Franklin Roosevelt, it aimed to solve 34% non-farm unemployment that left the elderly destitute and unlikely to be hired. The program was passed with 2% of Democrats and 33% of Republicans opposing it.
Initially, Social Security received only 1% of wages and social benefits could be inherited. As the Social Security website describes:
“Lump sum refunds have been given to estates of workers who died before the age of 65 or before receiving at least the equivalent in benefits of their taxes plus interest.”
Now the government collects 12.4% of workers’ wages up to a high enough maximum, and unclaimed social security benefits are lost forever.
Systemic inequality occurs when systems within society predispose to an unequal outcome regardless of personal biases. Social Security rules are an example of systemic inequality.
After having been forced to save 12.4% of their salary, seniors who die young cannot pass on any benefits to their heirs. This loss of social security benefits upon death particularly disadvantages minority workers, as they have statistically shorter life expectancies.
In addition, they cannot start benefits earlier without being penalized. If you file before your full retirement age, your benefits are reduced, and if you file after your full retirement age, your monthly benefits are increased.
With the full retirement age at 67 for people born in 1960 or later and the CDC has reported life expectancy at birth for black or African American men at just 72.2 years old, you can easily see predisposition to uneven results.
Forced savings, penalized early deposit, and lack of inheritance all predispose a worse outcome for minorities and help keep working minority families in poverty. Black or African American families would have more money today if their parents had been allowed to save and invest the 12.4% of the salary for life rather than losing it to Social Security.
Making things “equal” or “fair” is always difficult. There are no easy solutions. However, when we take someone’s income and give them nothing in return if they die young, then we are creating a system that is predisposed to be unfair.
The most dangerous form of power is coercive government power that forces you to do something no matter what the consequences for you and your family. When you are empowered to make voluntary choices, you have the power to decide for yourself what risks you want to take.
The Liberals scoff at the privatization of Social Security by calling the idea “risky”. The “Cry Wolf” project claims that:
“Throughout American history, virtually all legislative initiatives for progressive reform have only come about after a bitter struggle by citizens, workers and advocates demanding basic rights and protections. In each case, they have been faced with claims that the proposal will “kill jobs”, generate stifling government bureaucracy, or reduce economic growth. “
They include social security as an example of a gradual reform that has sparked an uproar but has supposedly not had bad results. They have a social security quotes page. He presents the quotes as if they weren’t true just because Social Security has passed and the world has not ended. Alas, they all came true. Here are two from Alf Landon, the 1936 Republican presidential candidate:
“There is a good chance that the money they pay will be used for current deficits and new extravagances. We are going to have enough trouble carrying out an economy program without having the Treasury on the surface of the money drawn from the workers …
“The real fact will, in almost all cases, be that the entire tax will be borne either by the employee or by the consumer through higher prices. This is the story of all these taxes. This is because the tax is imposed in such a way that if the employer wants to stay in business, he has to transfer the tax to someone else.
Social security has gradually taken over about a quarter of federal spending. Social security legislation has been amended and amended 46 times. The most massive changes came in the Social Security Amendments of 1983. Social Security currently has over 2,700 separate rules that registrants must follow.
Initially, Social Security received only 1% of wages. Currently, the government collects 12.4% of workers’ wages up to a fairly high maximum.
In 1940, there were 159.4 workers contributing to the system for every retiree receiving benefits. By 1975, that number had fallen to 3.2.
We need to go beyond good intentions and build public policy that actually works. The first step in building a viable system is to recognize that social security as it exists today is a failure in all cases.
If you look at Social Security as a system of tax and redistribution, it takes out a single minority male worker and gives to married white women who have never contributed.
If you think of Social Security as a forced retirement savings program, it produces such a terrible return that we might as well invest in gold.
None of these ambitious goals are worth pursuing in this current format. Social security as we know it must be abolished and replaced with a better system.
There are many methods to do this. For example, if the Liberals were willing to agree to privatize half of the dues and the Conservatives were willing to agree to use the other half as a safety net for only retirees with the least resources, then the system could be saved. and privatized. I don’t know if either faction is ready to compromise, but it would be in everyone’s interest.
Each year, the Heritage Foundation rates every country in the world using its Economic Freedom Index and has found that a high Economic Freedom score matches almost every positive measure in a country. What’s interesting is how many countries with high economic freedom or lower debt and deficit have also privatized their social security systems: Hong Kong, Australia, Switzerland, UK, Sweden, Netherlands , Denmark, Chile, and a host of others.
In countries where social security retirement accounts are privatized, citizens are doing well rather than barely emerging from poverty. Their legislation can serve as a model of compromise in the United States. Here is how we might implement the best of each way of looking at Social Security.
Broadly speaking, the employee’s contribution of 6.2% would be paid into a private, inheritable retirement account. There would be both guarantees on the range of risks for investment choices as well as protections for gradual and secure withdrawal rates during retirement. More than 30 countries have approved good models of privatized social security.
The remaining 6.2% provided by the employer would be collected in the form of tax and would be used to finance the retirement of anyone with insufficient means from their own contributions. This would provide a safety net and provide a minimum retirement income. Rather than taking from those who die young and giving from those who live longer, this would redistribute income to low wages and also protect retirees from catastrophic loss.
Initially, participants approaching retirement age would have nothing in their private account. But gradually, almost everyone with a private account would retire with more money than current Social Security benefits.
The biggest challenge is to get from here to there. The transition will take time, and we’ve lost over a decade since these changes were first proposed.
When transitioning from our current system to private accounts, there is only half of the income to support those who retire using the safety net. The rest start funding next generation private accounts and free up the other half for a better social network. The easiest way to shoulder this burden is to check Social Security resources and deny benefits to the richest half of retirees.
We need a private system. Then the money you put in is yours and not spent on someone else’s retirement.
It’s hard to contemplate, but a generation must be heroic. Previous generations had to fight world wars or survive the Great Depression. We have to fight the Social Security Leviathan. We are called to make sacrifices to help privatize the system for future generations.
The means tests are unfair, but they are necessary. We are in deficit spending for decades. Anytime you have years of life beyond your means, you must balance it with years of life below your means. Someone has to take the hit financially.
The price we pay is only worth it if we can end Social Security as we know it and put America on a stronger financial footing.
Means-tested social security is better than the proposed alternative tax increases.
First, it reduces the benefits for the rich, which might better satisfy both political parties.
Second, unlike increasing taxes, the means test eliminates benefits for those who already have their wealth, not those who build it.
For the good of the country, I would be prepared to forgo Social Security in favor of the privatization of retirement. However, as long as Social Security remains a burden on future generations, I plan to lay down for myself. After taking the money, I plan to save it for or give it to my grandchildren as I imagine they are going to need it.