Tuesday, September 6, 2011

Why I Now Oppose Social Security Privatization

I have read of some Republican Presidential candidates (Romney and Gingrich) advocating social security privatization, which George W. Bush failed to sell in his second term, thank goodness for that, even though I supported it at the time. These candidates have not thought it through. Social Security has never really been a fiscally sound proposition, hence Rick Perry's ponzi scheme comment. It depends on an ever increasing number of workers to stay solvent. Further, its benefits are not guaranteed, which rubs people the wrong way. (H/T Daily Caller) Despite the impressive sounding name, "social security retirement account," try searching for that term on the official ssa.gov website and see the result above. That's because such a thing is non-existent. Don't believe me? Here is what the government itself says about the matter on the Social Security Agency website, discussing Fleming v. Nestor.
More so than general federal income taxes can be said to establish "rights" to certain government services. This is often expressed in the idea that Social Security benefits are "an earned right." This is true enough in a moral and political sense. But like all federal entitlement programs, Congress can change the rules regarding eligibility--and it has done so many times over the years. The rules can be made more generous, or they can be made more restrictive. Benefits which are granted at one time can be withdrawn, as for example with student benefits, which were substantially scaled-back in the 1983 Amendments.
And from the previously linked Supreme Court decision.
2. A person covered by the Social Security Act has not such a right in old-age benefit payments as would make every defeasance of "accrued" interests violative of the Due Process Clause of the Fifth Amendment. Pp. 363 U. S. 608-611.
(a) The noncontractual interest of an employee covered by the Act cannot be soundly analogized to that of the holder of an annuity, whose right to benefits are based on his contractual premium payments. Pp. 363 U. S. 608-610.

(b) To engraft upon the Social Security System a concept of "accrued property rights" would deprive it of the flexibility . . .
A key tea party principle is adherence to keeping the federal government within the limits set by the constitution, applying the plain meaning of the document. Expanding the scope of social security to include private accounts has constitutional and other problems.
  • Current participation is constitutional only under the general power to tax granted Congress. A private account would not fit that definition.
  • If private accounts were added, the only constitutional provision under which to compel participation is under the taxing authority. But that would give the government the authority to seize the proceeds for whatever purpose it saw fit.
  • Is it a stretch of the imagination for the government, as a "shareholder" to require firms who receive investment dollars to promote social welfare and environmentally friendly policies. The scope for abuse is so great that I am surprised the left hasn't embraced this idea as their own.
  • How can we argue that Obamacare is unconstitutional, while turning around and advocating participation in another social welfare scheme, just because an individual is employed?
  • What will compel the government to pay up, when the bill comes due. See Fleming v. Nestor above.
What's a proper tea party view of social security, which is clearly headed towards insolvency? We should start with the concept that the nature of the program codifies an inherent contradiction; namely that its purpose is to alleviate poverty in old age, but its structure is an entitlement to all income groups. The contradiction has now landed in the accounts payable column; against an account that lacks sufficient funds. The only reasonable approach is to gradually reduce the scope of social security to its original intended purpose. (If you doubt that it was the original purpose, read Helvering v. Davis.) Social Security should not be a part of the calculation used by the middle class to determine their ability to retire; national policy needs to wean them from that notion so that they realistically invest in their own future. To this end, I propose saving social security for its intended purpose by reducing its scope, to include changing the definition of "old age" to conform with modern realities. Here a few ideas, some of them from my article on John Stossel's federal budget.
  • Reduce Social Security outlays as follows:
- Price index initial benefits (the current CPI overstates inflation, increasing pay outs unnecessarily)
- Raise the normal retirement age
- Cut Social Security disability program by 10%
  • Means test social security
- I would explicitly use the internal revenue code on means testing to return these taxes to the social security trust fund. From a big picture accounting view, this makes no difference, but it would send the message that we are saving social security for those Americans who need it most.

I think we should ask Republican candidates for President how they square their constitutional opposition to Obamacare with a desire to privatize social security.

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