Opt out of Social Security

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Opt out of Social Security

by Ari Armstrong

This article originally appeared in the December 2, 2004, edition of Boulder Weekly.

The Democrats are right about one thing: George W. Bush and the Republicans ought not transfer Social Security payments to personal accounts.

Instead, the laughably named Social Security system, which violates economic liberty and slows economic growth, should be completely abolished.

I don't want Social Security benefits, and I once sent a letter to Congressman Mark Udall to that effect. Most people pay into the system not because they want to, but because if they don't the IRS will send men with guns to track them down.

Social Security violates people's economic liberty. It forces people, including the poor, to pay 12.4% of their income to retirees, including rich ones who spend the money to play golf in Hawaii. It prevents people from making their own decisions regarding their income and retirement planning. Social Security thus puts 12.4% of your working hours under the direct control of politicians in Washington, D.C.

The money you earn is yours -- it does not belong to politicians. Thus, the Republican plan also violates economic liberty. Politicians shouldn't force us to invest our money in accounts that they mandate and regulate. We should be left free to do with that income what we choose.

The usual reply is that Social Security helps the poor. If the purpose of the program is to help the poor, why then are all people forced into the program, whether they're poor or rich, whether they want the benefits or not?

Udall's web page says of the program, "Today its guaranteed benefits provide the primary source of income for 66% of Americans over age 65, and are especially important for the 42% of the elderly for whom Social Security is all that keeps them above the poverty line."

The term "poverty line" is misleading. A person who owns a house, new automobiles, etc. can live well on a fraction of the income earned by those just starting out without any property or savings. Net worth is much more important than income. Furthermore, families in which the elderly live with children can maintain a high quality of life without showing any "income" for the elderly.

Even by Udall's numbers, at least 58% of people don't need Social Security benefits to maintain a reasonably high standard of living, and some of those are rich. So why doesn't Udall advocate a system that helps only the poor? That would allow poor working families to keep significantly more of their earnings.

Because the elderly vote in such high proportions relative to the young, no politician will come out and say rich people shouldn't receive Social Security benefits. But why should the rich take the earnings of the poor? With means-testing, the tax could be cut dramatically, something that would help the working poor more than any government program could.

Something must be done. As Udall recognizes, "Social Security faces future demographic problems because retirement of the 'baby boom' generation will greatly increase the number of beneficiaries in comparison with the number of people paying into the system."

As Michael Tanner of the Cato Institute reviews, Social Security is expected to run a deficit by 2018. Without reform, the deficit will accelerate rapidly. Tanner adds, "Ultimately, Social Security's unfunded liabilities exceed $26 trillion." [February 3, 2005, update: Tanner now writes, "Overall, Social Security's unfunded liabilities total nearly $12 trillion, and the longer we wait, the worse it gets." This is the common estimate.]

I would welcome the reform of means-testing, though I believe welfare is better left to the states and best left to individuals acting voluntarily.

Two other reforms would phase out Social Security -- without replacing it with a system of mandatory, regulated accounts. These reforms could work independently or together.

First, the age at which benefits are paid could be increased over time. Eventually, as the age surpassed average life expectancy, the system would shrink to well-deserved oblivion.

Second, all workers could be allowed to opt out of the system right now. That is, people could choose to continue paying the tax and get benefits. Or people could choose to stop paying the tax, effectively get an immediate 15% raise, and forego the "benefits" of the national program. People who already take benefits could also be encouraged to opt out, thereby reducing the severe burden on today's workers.

Udall's main plan is to "develop a budget that will end the need to use Social Security revenues to pay for other programs." This amounts to putting a Band-Aid on a severed limb. There are only three ways the budget can be fixed to solve the $26 trillion problem, absent serious reform: massively cut federal spending in other areas, dramatically increase taxes, or incur huge deficits.

Udall complains that Bush's tax cuts "have made it necessary to use some Social Security revenues for other purposes... instead of reducing the public debt and so reduce the options for bolstering Social Security and Medicare in the future." Does this imply Udall would favor expanding the national debt to cover part of the $26 trillion in unfunded promises? The debt currently stands at around $7.5 trillion.

Bush and the Republican Congress have a historic opportunity to solve a monumental problem. Unfortunately, they reject economic liberty and instead back mandatory, regulated accounts. Bush could improve the system through means-testing or raising the retirement age, but the best, most immediate relief is to allow everyone to opt out of the system. Any temporary shortfall should be funded by cutting other national programs.

If Democrats actually cared about the poor -- rather than simply increasing the power of the national government -- they too would favor letting workers opt out and keep what they earn.


For additional analysis, please see Social Security: Collected links.

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