Origins of the Socialist Insecurity Tax
by Ari Armstrong, April 1999
Too often, people lose their sense of history. This is true of government programs, particularly when they've been around since before most of us were born. The Social Security tax is for many a natural part of life. Where did this tax come from? What was its purpose? What should we do now to reform it? A reprint of the original notification introducing the program may serve to set the scene:
Beginning January 1, 1937, your employer will be compelled by law to deduct a certain amount from your wages every payday. This is in compliance with the terms of the Social Security Act signed by President Franklin Delano Roosevelt, August 14, 1935.
Why was this tax ever started? Perhaps it was to provide charitable assistance to the elderly poor. But if the purpose of the tax was to provide charity, why did it pay every elderly person a pension, rich or poor? Charity must not have been the reason for such a pervasive tax.
Perhaps the Social Security system was meant to compel people to save adequately for their retirement. However, Social Security has nothing to do with savings. Money is taken from the workers and paid directly to the elderly. There is not and never has been a "trust fund." If the view of the government officials was that people are too stupid or childish to save for their own retirements, thus requiring the guidance of "Daddy State," why didn't the government simply mandate a savings program? The transfer program merely dampens the economy by diverting funds away from real investment. The tax, then, does not seem to have been imposed to solve problems of savings, either.
The most likely explanation for the passage of the Social Security Act is that the country was in the midst the Great Depression, unemployment was high, and pushing the elderly workers out of the labor market made room for others to get jobs.
Perhaps the Social Security tax was also imposed merely to bring the United States closer to the socialist ideals of the communists in vogue at the time. (Similar policies also arose in the fascist countries.)
Social Security, then, was never a good idea. It was passed as a political expediency, with no view to the damage it would visit upon future generations.
Today's younger generations will bear the full burden of this socialistic system. The early recipients of the tax didn't have to pay a dime into the system. So long as each generation of workers grew larger and larger, those drawing the benefits made out pretty well. Unfortunately, the generation of Baby Boomers is quite large, whereas subsequent generations are relatively small. Thus, the children and grandchildren of the Boomers face a tremendous tax burden in the coming decades, with the amount of wages needed to fund the system projected to grow from the current level of around 15% to double or triple that amount.
So now what do we do? The best solution is the simplest: raise the age at which benefits are paid by three (or four) months every year, indefinitely into the future, until the system is phased out.
Some reformers, including Bill Clinton and many in the Republican Party, want to impose mandatory, regulated savings accounts on top of the Social Security system. Such accounts are frequently touted as a way of "saving" Social Security. This is political legerdemain. The Federal government has promised everyone that they can draw money from the Social Security system (which means from younger workers) at a certain age. This financial burden is not going to somehow go away simply because younger workers are also forced to invest more of their money in government-regulated accounts.
The only way to avoid the disastrous economic consequences of leaving the system intact is to cut somebody's expected benefits. The most feasible way to do this is to phase out the system over a period of decades. The younger generations will still bear the brunt of the hardship -- they've been caught at the base of the pyramid scheme. But at least they will lose a much smaller portion of their earnings, and they will remain free to spend what remains of their income as they see fit.