Americans’ perceptions of where tax dollars are spent are notoriously wrong-headed. According to a 2011 CBS/New York Times poll, only 9 percent of Americans can correctly ascertain that the federal government devotes less than 5 percent of the budget to foreign aid (the actual figure is 0.6 percent). Most wildly overestimate the amount. Twenty-one percent of Americans could identify the range of welfare spending within 10 percentage points — and only a quarter could do so with Social Security funding. These misperceptions are significant. Although the vast majority of Americans claim to support spending cuts to reduce the budget deficit, only 38 percent can name a program they would be willing to cut. The “bloated government” theory holds great sway over the voting public. Just where this bloat occurs is less clear.
If we wanted to start the process of cutting back on government spending, where should we look? How about the largest program on the books: Social Security. At 22 percent of federal spending, Franklin Roosevelt’s signature program consumes more tax dollars than any other program, including defense, welfare and health care spending. It is thus reasonable to direct our criticism at our national pension scheme. But the program’s size alone is not a sufficient reason to start making cuts. Perhaps Social Security deserves every dollar it gets.
Then again, perhaps not. The program is based on shaky theoretical grounds. For the past 70 years, it has been accepted that the state has a legitimate interest in requiring working Americans to pay their entire lives for the benefits of retirees (through the payroll tax), whether they support Social Security or not, in order to receive their fair share by the time they reach their late sixties. But it is not at all self-evident that mandatory, subsidized income from the government is an integral feature of the modern state. Yes, saving for retirement is good. But at a certain point we must question whether the self-sufficient citizen the Founding Fathers had in mind is compatible with a policy that assumes semi-dependence on the government as its default position. Government bureaucracy is no replacement for prudence and common sense.
Certainly, some seniors need financial assistance. But Social Security, in its current form, is not need-based. Indeed, it’s more an expression of an underlying political philosophy — one that would prefer to take choices out of citizens’ hands in order to minimize poor decision-making — than a pension program. The logic behind the eight-year-old initiative demonstrates a fundamental mistrust in the ability of Americans to responsibly save for their retirements, as well as an unfounded fear that careless seniors will grievously hamper the economy if they haven’t saved enough. The Depression-induced panic that inspired Social Security is understandable, but it’s high time to replace Roosevelt-era ideologies with ones more suited to our political tradition of individualism and responsibility.
In the end, however, it does not matter what theoretical justifications Social Security may or may not have. The reality is inescapable: according to current estimates, by 2037 the program will become insolvent, unable to pay for the benefits of retirees. The reason is simple. Social Security is a pyramid scheme. The money collected from the working population’s payroll taxes is not invested or grown in any way — it goes directly into the pockets of current retirees. As the ratio of working population to retired population decreases (a product of longer life spans), it becomes more and more of a burden on the rest of the country to support its (beloved) senior citizens. Eventually, the burden becomes unbearable. All reserves will be dried up, and Social Security will be unable to meet its obligations.
There are generally two ways to approach this problem. One way is to raise taxes to continue to pay benefits at the current rate. Another is to start cutting back on benefits or reform the program entirely. The second option shows more promise. It is rarely wise policy to increase the tax burden on working individuals in order to shuffle cash to another segment of the population, especially one that may have private retirement accounts of their own. And we should insist and expect that individuals shoulder the responsibility of saving for their retirement. As unpalatable as it may seem, we should accept the freedom of citizens to choose how and when to spend their money. Finally, full or partial privatization of Social Security, should we feel compelled to keep some form of the program, would involve investment rather than simple transfers of wealth, in turn generating more economic growth and growing the pot of available benefits.
It is beyond the scope of a single article to fully explore all the alternatives to the current form of Social Security. All I can reasonably hope to accomplish is to point out the unsound theoretical justifications for the program and the urgent need for reform. Proposals to raise the retirement age — or otherwise slightly reduce the current burden — are merely temporary fixes that fail to address the root issue: massive transfer schemes are inefficient and inexcusable wastes of government resources. The nearly $800 billion that our government spends on Social Security is better spent on infrastructure, education or even other — more targeted — welfare programs.
Russell Bogue is an Opinion columnist for The Cavalier Daily. His columns run Thursdays.
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