Michael Tanner, CATO Institute scholar on Social Security

Michael Tanner, CATO Institute scholar on Social Security and noted author, addressed the MO Libertarian Party convention in Wentzville at its banquet on June 7.

“Social Security is 67 years old”, he noted, “It is time for it to retire”.

Mr. Tanner described the financial minefields that lay ahead for Social Security and Medicare. Shortly after 2015 the Social Security system will be unable to pay its obligations with current year tax. At that point, he noted, Social Security tax rates would have to rise from the current 12.4% to over 18%.

Within a decade it would have to rise again and by mid-century yet again. Mathematically, the ultimate Social Security tax rate would have to be 82% to sustain the program with current year tax receipts. “I would suggest the social order would have changed long before then”, Mr. Tanner noted.

“And you think it can’t happen here?” Tanner asked. “Germany’s marginal tax rate is 42% for its program. And you wonder why they’re building Mercedes Benz plants in Alabama rather than Bavaria”.

Of course, this is not the worst of the news. These forecasts are based on the government’s own “intermediate” economic forecast, between its “pessimistic” and “optimistic” versions. The problem is, the intermediate forecast is a rosy prognostication. It assumes no recession and no wars, both of which were violated recently.

But this is not the worst of the news, either. The money has already been spent despite claims of a Social Security “Lockbox” or “Trust Fund”. There is a vault in West Virginia containing bonds the government writes to itself against the general fund. Upon maturity of the bonds, the government rolls them over via an accounting transaction.

So the amount you and your employer pay in Social Security tax above the current year program obligations has disappeared into the general fund. It has reemerged as a Cowgirls Hall of Fame or iron girders in a bridge in Pennsylvania over the Monongahela.

“The Supreme Court has established that Social Security is on the one hand a tax, and on the other a welfare program, and Congress can reduce or eliminate the welfare side of it any time they want to”.

And that’s not the worst of it, either. Medicare is going broke even faster.

The Social Security tax hurts the poor especially hard since this tax frequently exceeds their income tax. “If you were to retire on Monday, you could expect perhaps a 1% return on your Social Security tax payments”, Tanner noted. “For those retiring later, the returns are likely to be negative. For this reason, we don’t have a Social Security crisis in 2017, we have it next Friday since you will not even recoup your payment this pay period”.

Social Security is fraught with unintended inequities beginning with negative returns for young workers. “In a private system, if you died prematurely, you could leave your residual to your heirs, while in Social Security, you cannot”.

There is a distinct advantage to living longer to collect more Social Security benefits. “At every income level, whites outlive blacks. And women tend to outlive men. Social Security has become a lifetime transfer payment from poor black men to rich white women. If we had set out to devise a social program today, I doubt we would want it to work like that”, Tanner pointed out.

Moreover, consider two households identical in every respect except that one contains a high wage earner with a wife who does not hold down a job, while the other contains a husband and wife who both work. With two wage earners the second household could be paying twice the Social Security tax than the former household, yet the benefits could be exactly the same.

Why are some politicians so vehemently opposed to allowing Americans to invest 2% of the 12.4% Social Security tax in the stock market? “In the 1930’s 10% of Americans were invested in the stock market; in the 1990’s that number had climbed to 50%; imagine an America in which every lathe operator, waitress or truck driver is invested. Who is Ted Kennedy going to demonize then regarding capital gains tax cuts”?

“Moreover, Social Security and Medicare touch everyone in America. Take that away, even for some, and Americans look at their paychecks and ask ‘what is all this tax for’”? With this, the lynchpin is removed and the fabric begins to unravel.

“It’s almost as if some politicians are on the bridge of the Titanic looking backward and saying, ‘Well, it’s been a great trip so far!’”. Libertarians can be thankful they’re on the Ship of Liberty instead of the Titanic. Our solutions lead to prosperity and not disaster.

For more information see www.socialsecurity.org, www.social-security.org, www.cato.org and of course, www.lp.org.