Making Economic Sense
Making
Economic Sense
by Murray Rothbard
(Contents
by Publication Date)
Chapter 18
The Social Security Swindle
Senator Daniel P. Moynihan (D-NY) has performed a
signal service for all Americans by
calling into question, for the first time since the early 1980s, the
soundness of the nation's
beloved Social Security System. A decade ago, the public was beginning
to learn of the imminent
bankruptcy of Social Security, only to be sent back into their
half-century slumber in 1983 by the
bipartisan Greenspan commission, which "saved" Social Security by
installing a whopping and
ever-rising set of increases in the Social Security tax. Any government
program, of
course, can be bailed out by levying more taxes to pay the tab.
Since the beginning of the Reagan administration,
the much heralded "cuts" in the
officially dubbed "income-tax" segment of our payroll taxes have been
more than offset by the
rise in the "Social-Security" portion. But since the public has been
conditioned into thinking that
the Social Security tax is somehow not a tax, the Reagan-Bush
administrations have been able to
get away with their pose as heroic champions of tax cuts and resisters
against the tax-raising
inclinations of the evil Democrats.
For the Social Security System is the biggest
single racket in the entire panoply of
welfare-state measures that have been fastened upon us by the New Deal
and its successors. The
American public has been conned into thinking that the Social Security
tax is not a tax at all, but
a benevolent national "insurance" scheme into which everyone pays
premiums from the
beginning of their working lives, finally "collecting" benefits when
they get to be 65. The system
is held to be analogous to a private insurance firm, which collects
premiums over the years,
invests them in productive ways that yield interest, and then later
pays old-age annuities to the
lucky beneficiaries.
So much for the facade. The reality, however, is
the exact opposite. The federal
government taxes the youth and adult working population, takes the
money, and spends it on the
boondoggles that make up the annual federal budget. Then, when the
long-taxed person gets to
be 65, the government taxes someone else--that is, the still-working
population, to pay the
so-called benefits.
Be assured, the executives of any private insurance
company that tried this stunt would be
spending the rest of their lives in much-merited retirement in the
local hoosegow. The whole
system is a vast Ponzi scheme, with the difference that Ponzi's
notorious swindle at least rested
solely on his ability to con his victims, whereas the government
swindlers, of course, rely also on
a vast apparatus of tax-coercion.
But this covers only one dimension of the Social
Security racket. The "benefits," of
course, are puny compared to a genuine private annuity, which makes
productive investments.
The purchasers of a
private annuity receive, at the age, say of 65, a principal sum which
they can obtain and which can also earn them further interest. The
person on Social Security gets
only the annual benefits, void of any capital sum. How could he, when
the Social Security "fund"
doesn't exist?
The notion that a fund really exists rests on a
"creative" accounting fiction; yes, the fund
does exist on paper, but the Social Security System actually grabs the
money as it comes in and
purchases bonds from the Treasury, which spends the money on its usual
boondoggles.
But that's not all. The Social Security System is a
"welfare" program that levies high and
continually increasing taxes (a) only on wages, and on no other
investment or interest income;
and (b) is steeply regressive, hitting lower wage earners far more
heavily than people in the upper
brackets. Thus, income earners up to $51,300 per year are forced to
pay, at this moment, 7.65%
of their income to Social Security; but there the tax stops, so that,
for example a person who
earns $200,000 a year pays the same absolute amount ($3,924), which
works out as only 2% of
income. That's a welfare state!?
Over the years, the government has vastly increased
the tax bite in two ways: by
increasing the percentage, and by raising the maximum income level at
which the tax ceases. As
a result, since the start of the Reagan administration, the rate has
gone up from 5.80% to 7.65%,
and the maximum tax from $1,502 to $3,924 per year. And that's only the
beginning.
The final aspect of the swindle was contributed by
Reagan-Greenspan & Co. in 1983.
Observing the high and mounting federal deficits, our bipartisan rulers
decided to raise taxes and
pile up a huge "surplus" in the non-existent Social Security fund,
thereby "lowering" the
embarrassing deficit on paper, while con tinuing the same stratospheric
deficit in reality. Thus,
the projected federal deficit for fiscal 1990 is $206 billion; but the
estimated $65 billion
"surplus" in the Social Security account officially reduces the deficit
to $141 billion, thereby
appeasing the ghosts of Gramm-Rudman. But of course there is no
surplus; the $65 billion are
promptly spent on Treasury bonds, and the Treasury adds that to the
stream of general
expenditures on $20,000 coffeemakers,
bailouts for S&L crooks, and the rest of its
worthy causes.
But Senator Moynihan, one of the authors of the
current swindle as part of the Greenspan
Commission, has blown at least part of the lid off the scam. At which
point, the Republicans
happily took up the traditional Democratic count that their opposition
has set out, cruelly and
heartlessly, to throw the nation's much revered elderly into the
gutter.
Senator Moynihan's proposal for a small roll-back
of the Social Security tax to 6.5 5% at
least opens the entire matter for public debate. Moynihan's motives
have been called into
question, but after we recover from our shock at a politician possibly
acting for political motives,
we must realize that we owe him a considerable debt. The problem is
that, while many writers
and journalists understand the truth and tell it in print, they
generally do so in subdued and
decorous tones, drenching the reader in reams of statistics.
The public will never be roused to rise up and get
rid of this monstrous system until they
are told the truth in no uncertain terms: in other words, until a
swindle is called a swindle.
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