Subject: Defining the Debate: Wrong Problem; Wrong Focus
Robert Reischauer writes:
"It is an unpleasant, yet inescapable, reality that there are three, and only three, ways to close Social Security's long run fiscal deficit."
Making sure that the Social Security system can pay full promised benefits into the foreseeable future is the wrong problem and the wrong focus.
If all we want to do is make sure that full benefits are paid as promised, there is of course a fourth solution. We can just print the money. Of course we'd have hyperinflation, but the "system" would be saved.
The real issues are much deeper than making sure that full promised benefits are paid. Only a fully funded retirement system of individually funded private accounts -supplemented with a means tested safety net funded with progressive general taxes can address the real problems presented by Social Security:
I. Social Security is Detrimental to our Nation's Economic Growth and Prosperity
A. Because Social Security is a pay-as-you-go wealth transfer system (instead of a fully funded wealth creation system), its high payroll tax takes away a substantial amount of current income that could and should be used for investment and uses it for current "excess" consumption above what is necessary to prevent poverty.
B. Because of demographics, the amount of current income that has been shifted away from current investment to current excess consumption has been increasing (i.e., higher payroll taxes) and will likely increase further in the future.
C. Census Bureau household real median income data show a progressive decline in real median incomes for all household age groups under age 45. For those age groups over age 45, the increase in real median incomes is progressively lower for each younger age group.
D. Proposition: A wealth transfer system such as current Social Security should be used only to the extent necessary to eradicate poverty. It should not be used to fund other excess consumption. However, a fully funded, wealth creation retirement system can be used to fund consumption above poverty levels.
II. Social Security is an Immoral Tax
A. Social Security contains a welfare component (higher wage replacement rate for lifetime lower earners), but funds this welfare component with regressive taxes on wages alone instead of with progressive general taxes.
III. Social Security is a Destroyer of Class Mobility
A. Forcing middle-class taxpayers to bear the burden of Social Security's welfare component and exempting the wealthy from this burden petrifies the existing economic class structure.
B. Social Security's high payroll rate makes it impossible for many persons to build the capital necessary to enable them to improve their economic situation.
C. Social Security's high payroll rate means that there is an extra barrier to entry for entrepreneurs (mom & pop operations) to overcome on the way to competing with established businesses. This supports economic inefficiency, meaning that established businesses can keep excess profits, further leading to the gap between rich and poor.
IV.. Social Security is Unfair to Current Workers
A. Social Security takes money from poorer, less well off, younger families and gives it to more affluent older persons.
B. Younger, poorer persons who pay money for the benefit of current more affluent retirees cannot count on receiving full benefits when they retire.
|V. Social Security is Anti-Family and Anti-Parenting
A. Social Security is funded only by the human capital investment of parents who raise children. Only children become workers and only workers pay payroll taxes. The return on this human capital investment is shared with non-parents, i.e., persons who did not make the additional investment in human capital necessary to provide for their benefits.
B. Social Security's effect on the larger economy (criticism 1) above, contributes to the requirement that families have two wage earners, which impacts on the quality of parenting parents are able to provide.
