The Social Security Swindle

President Obama’s debt reduction commission has been making headlines with tough talk about making difficult decisions to slash the federal deficit.  Co-chairman Erskine Bowles says “The era of debt denial, and the denial of its consequences, is over… we have started an adult conversation that will dominate the debate until the elected leadership in Washington does something real.”

Bowles and his posse started that conversation?  Really?  I could have sworn conservatives were talking about it years ago, while giddy liberals ran up the national credit cards and snapped “I won!” in response to every suggestion of restraint.   What a pity we couldn’t have heard the adult thoughts of Erskine Bowles at the beginning of the Obama presidency, a trillion dollars ago.  In fact, it would have been swell to hear more about “debt denial” back in 1996, when he was Bill Clinton’s chief of staff.

Among the recommendations of the debt reduction commission is an increase in the retirement age for Social Security, hiking it to 68 by 2050 and 69 by 2075, along with less generous cost-of-living increases. Social Security will not exist, in anything resembling its present form, by 2050.  Depending on how the numbers are crunched, it is arguably going bankrupt right now.  It will no longer be arguable within ten years. 

Even if we play along with the fiction that Social Security will still be around forty years from now, these reform suggestions make a continuing mockery of a failed system.  Workers pay thousands of dollars into a system for a paltry return, which is not their property – it is paid by the government, which, as the current debate makes clear, can adjust the terms of repayment at any time.  The government has raided the Social Security “trust fund” before, and will do so again. 

While Social Security is commonly thought of as a kind of “investment account,” it’s actually a scheme in which a dwindling number of currently active workers support each retiree.  There is no safety deposit box at the Treasury with your name on it.  No account bearing your Social Security number accepts the withholding from your paycheck and patiently generates interest until you retire.  Even the nature of these paycheck deductions is shrouded in childish evasions, quietly pulling money away before you ever see it, and pretending employers are obliged to “match” your “contributions.”  Every nickel an employer pays to have you around is part of your salary, and every nickel of it that vanishes from your paycheck is a tax.

The unfunded liabilities of Social Security are unimaginably huge.  It would currently require about $17.5 trillion dollars to pay all promised benefits, even after subtracting future Social Security tax receipts.  In other words, the promise of Social Security costs $17.5 trillion more than its income stream can provide. Raising the retirement age changes this calculation… but it also takes something that is already a bad deal for retirees, and makes it worse.  We will soon reach the point where only vampires born during the Civil War are eligible to collect benefits.

There is no way to “save” this system.  The math will never work out.  It’s really just another tax pipeline, sucking money away from the private sector into the government, which occasionally pauses to scratch its head and wonder how it will ever pay for its unsustainable commitments.  The “adult conversation” will begin when politicians stop pretending otherwise, and begin discussing exit strategies for a younger generation that deserves a chance at building their own retirement plans… which they will both take responsibility for, and own.