Phase Out Social Security
by Ari Armstrong, December 2, 2004
Social Security faces a crisis. Under current rules, the number of retirees will rise relative to the number of workers, resulting in trillions of dollars of unfunded promises. The program is expected to run a deficit starting in 2018.
More fundamentally, Social Security violates economic liberty by dictating how people spend their earnings and plan for retirement. The program imposes a regressive tax of 12.4% on income up to $87,900 per year, and it forcibly redistributes nearly half a trillion dollars annually. Social Security should not merely be tweaked to solve the demographics problem, it should be phased out.
Social Security can be gradually phased out by continually raising the age at which benefits are paid or by incrementally reducing benefits. Those measures can be implemented singly or together. Benefits could be held constant for current recipients and reduced for new retirees. Benefits could also be reduced for current or future retirees by means-testing, starting with cuts for the wealthiest.
Supporters of Social Security argue the system is necessary to prevent the elderly from dropping into poverty. However, those who advocate forced wealth transfers to the poor should logically support phasing out Social Security and turning to a means-tested welfare program. Nevertheless, any coercive welfare program violates economic rights. Free markets, low taxes, and voluntary charity are effective and ethical anti-poverty measures.
President Bush's plan should not be adopted, because it would impose mandatory, regulated accounts. The coercive investments would be subject to political power plays, political correctness, and interest-group warfare.
Bush's proposal is a type of "opt out" plan in which workers are allowed to reduce their payments to Social Security in exchange for a reduction of future benefits. However, people could be allowed to opt out without being forced into mandatory, regulated accounts. Yet any sort of opt-out plan is likely to result in hefty short-term deficits that would have to be covered with reduced spending elsewhere, higher taxes, or deficit spending. The phase-out plan is clearer in its goal and less vulnerable to corruption.
Phasing out Social Security would avert the impending crisis and restore a large measure of economic liberty. It would dramatically reduce the forced redistribution of wealth, lessen the financial burden on the working poor and middle class, and encourage financial responsibility and increased real savings.
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A more detailed explanation of Social Security and proposed reforms may is also available.
For additional analysis, please see Social Security: Collected links.