Free Market Critiques of Social Security

Social Security Reform: A Free-Market Alternative

By George Reisman

The Revolution of 1935

By Gregory Bresiger

The Roots of the Social Security Myth
by John Attarian

Attarian's conclusion

A MODEST PROPOSAL

Social Security’s history casts grave doubt on the wisdom of having any government retirement program at all. Any such program is subject to pernicious dynamics. There is an inherent asymmetry whereby expansion is politically rewarded, but retrenchment is penalized. There is too an inherent symbiosis whereby the program serves the constituency, and the constituency protects the program. An entitlement mentality disastrously compounds these tendencies. It creates enormous political pressure to make benefit outlays fixed charges on the future, and thereby sharply constrains policymakers’ options. In any such program a conflict between a political demand for rigid benefit guarantees and an economic need for flexibility is inescapable. Sound public finance, sound money, small government, individual liberty and personal responsibility are all but predestined to lose out.

The truly wise course, then, is to reverse direction, to abandon government paternalism and put the responsibility for old-age provision on individuals themselves, where it belongs. Individual responsibility is the hallmark of a free society. Coerced transfers are by definition a denial of individual rights and liberty. As the trend in Social Security itself—from the initial paternalism of the New Deal to the far vaster loss of freedom under Social Security “reform” proposals—teaches, freedom, power and responsibility march shoulder to shoulder. The more responsibility for our welfare we shunt onto the government, the more power over us we give it, and the more freedom we necessarily forfeit thereby.

Moreover, Social Security has had a very corrosive and degrading effect on our national character. Instead of fostering fortitude and self-reliance, it has encouraged whiny dependence. It has made Americans first servile and then petulant in their relations with their government: tamely submitting to crushing tax burdens in their productive years under the deliberately-cultivated delusion that they were buying something for themselves, and in their retirement years, railing at any attempt, however innocuous, to trim benefits. Its zero-sum finance, whereby the beneficiary’s gain is inescapably the taxpayer’s loss, has made the old callous toward the program’s burdens on the young, and the young resentful of the old. It is telling that the sour epithet “greedy geezer” was unknown in America until the elderly mobilized in the 1970s and 1980s to protect Social Security.

We must jettison Social Security’s pernicious entitlement mentality. Benefits are paid because people apply for them, out of a belief that they are “entitled” to them. It is an inflation of rights beyond all reason and a flouting of justice to say that one is “entitled” to retirement, or anything else, at the expense of coercion of others, and a prior lien on their income. What should be done about Social Security is fairly clear.

(1) Repeal the Social Security Act and replace Social Security with a rigorously means-tested benefit, for current and imminent retirees only. Abolish the Social Security tax and finance benefits with general revenues. This one step would begin the process of treating this program for what it is, not insurance but coercive redistribution. Total benefit termination for current and imminent retirees is politically impossible. However, as should by now be clear, Social Security benefits are not sacrosanct or an earned right. There is neither a legal nor a moral barrier for applying a means test. The payroll tax’s true purpose was to create a mentality of entitlement and make the insurance analogy plausible. Abolition of this tax is essential for exploding the false consciousness. Those born after 1945 would lose their Social Security benefits and would have to recognize the OASDI taxes they have already paid for what they are—redistributive transfers. On the other hand, they would be free to make their own arrangements for old age with the money they now pay in Social Security taxes. A less severe option would be to permit people after 1945 to make a free choice between receiving their benefits or receiving tax lifetime exemptions equal to or greater than accumulated benefits.

(2) For those born after 1945, provide a means-tested old-age benefit similar to Supplemental Security Income. Political realities being what they are, some such federal benefit would probably continue to exist for the near future. We should, however, ultimately devolve an old-age safety net provision onto churches and families, which is where it properly belongs, and fund it through private resources voluntarily contributed. And to make the need for this backup benefit minimal, and facilitate its ultimate replacement with private measures, we should:

(3) Facilitate saving for old age. The $2,000 ceiling on contributions to Individual Retirement Accounts is far too low given both the inflation which has occurred since that ceiling was created and our need to save more. It should be increased to $5,000, and indexed thereafter for inflation. To maximize the incentive to save and invest for old age, and to let the money accumulate undisturbed, taxes on IRAs should be abolished, except for a penalty for early withdrawal. Moreover, there needs to be more flexibility for withdrawing the money before retirement and fewer penalities for doing so. Ultimately, the goal should be to institute a system whereby the tax code is not used to pressure any particular tradeoff between saving and consumption.

(4) Reform employee pensions. The question of how businesses and employees should handle pensions should be taken out of the realm of regulation and be governed exclusively by the law of contract. Workers urgently need the freedom to make contracts with their employers whereby they can put together the most mutually advantageous terms. With company consent, it should be possible for pensions to be made portable and vested in the worker.

This approach makes no promises of either taxpayer- funded security or affluent retirement through forced investment in stocks, as do the “reform” plans being advanced. But in dismantling Social Security it would avert a probable fiscal and economic disaster and political crisis as the baby boomers retire; relieve Americans of a huge tax burden; avoid a dangerous government presence in the stock market; reverse the trend toward totalitarian paternalism in America; and greatly increase Americans’ liberty and control over their own lives. If these are major American values, then this approach to Social Security reform serves them better.