Let’s Retire Social Security on its 65th Birthday: A Moral Way to Abolish This Destructive Scheme

by | Sep 14, 2000

This month marks the 65th “birthday” of the Social Security Act. Most people retire at 65, after accumulating wealth through decades of hard work and saving. It’s high time that America “retires” Social Security itself — cease its operation. Its administrators deserve not a gold watch, but scorn. Why? Because the system is a massive […]

This month marks the 65th “birthday” of the Social Security Act. Most people retire at 65, after accumulating wealth through decades of hard work and saving.

It’s high time that America “retires” Social Security itself — cease its operation. Its administrators deserve not a gold watch, but scorn. Why? Because the system is a massive fraud, one that violates individual rights and breeds insecurity.

Today most people know Social Security is not truly a pension system, that there’s no trust fund and that for 65 years government has spent payroll tax proceeds immediately on current retirees and other programs.

Payments to today’s retirees come from taxes on today’s workers. New workers are needed in the future to keep the scheme going. Not wanting to appear anti-elderly, few people are willing to call Social Security what it really is: a pyramid scheme.

But it’s worse than that, because people are compelled to participate in it. Worse still, you are forced to pay more as time passes. The payroll tax has been raised 17 times since 1935, from 2 percent in the beginning to 12.4 percent today.

Why? In 1935 life expectancy in the United States was only 61 years. Today it’s 76 years, so the average period of retirement is 11 years. In 1950 there were 16 workers for each retiree. Today there are only three. By 2025 there’ll be only two and by 2050 only one.

If current benefit levels are to be maintained in the future, the payroll tax must continue rising — to 20 percent by 2025, when there’ll be just two workers for every retiree, and to 40 percent by 2050, when there’ll be just one.

In addition to taking more and more, Social Security returns less and less. Today’s typical retiree receives a rate of return well under 5 percent, and it will get worse. In contrast, since 1935, stocks in the United States have returned 10.2 percent a year. Bonds have returned nearly 6 percent.

Social Security has denied workers the freedom to keep their own earnings and invest them profitably to provide for a secure retirement. Thus, it’s not only anti-elderly but anti-worker and anti-saver, too.

To the extent Americans enjoy any retirement security today it’s due to the role of savings, investments and private pensions, in spite of Social Security.

Over the past 65 years people have contributed voluntarily to private pension plans, annuities and personal retirement accounts. Now totaling nearly $5 trillion, these savings have been invested primarily in the securities of productive companies. Every private pensioner owns his saved assets.

During the same 65-year period Social Security has forcibly taken $10 trillion from savers while establishing no trust fund and amassing a liability to future retirees of $8.1 trillion — nearly two times the national debt.

Politicians today speak of “saving” Social Security. Last May, Republican presidential candidate Gov. George W. Bush described it as “the single most successful government program in American history.” But its only “success” has been its power to bilk savers on a massive scale. A compulsory pyramid scheme shouldn’t be “saved” or “reformed.” It should be shut down.

To his credit, Bush concedes Social Security is bankrupt and he proposes a partial privatization, with 2 percent of payroll taxes diverted to private accounts. Workers could keep more of their earnings, invest it in markets and own their assets. But it’s not nearly enough. The system should be abolished. But how?

Here’s one solution. In the coming year, the U.S. government could easily issue bonds in the amount of the total Social Security liability ($8.1 trillion), deposit the bonds in the accounts of all current retirees and payers of the payroll tax (to the extent of their payments to date), abolish the payroll tax and close the system. The bonds could be freely traded or sold to meet retirement needs. To pay interest on the bonds and eventually repay them, government could sell assets (such as publicly owned land and enterprises) and reduce other expenditures. There would be an immediate saving of $400 billion a year in Social Security payments alone. Yes, the result would be a rise in the official national debt, from $5 trillion to $13.1 trillion. But the bond plan merely recognizes a promise government has made already. It doesn’t boost its total obligations. The bond plan recognizes it would be wrong to default on benefit payments retirees have come to rely on.

But it’s also immoral to perpetuate such a scheme. This proposal would enable Americans to enjoy a fully private, secure and moral pension system

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Dr. Salsman is president of InterMarket Forecasting, Inc., an assistant professor of political economy at Duke University and a senior fellow at the American Institute for Economic Research. Previously he was an economist at Wainwright Economics, Inc. and a banker at the Bank of New York and Citibank. Dr. Salsman has authored three books: Breaking the Banks: Central Banking Problems and Free Banking Solutions (AIER, 1990), Gold and Liberty (AIER, 1995), and The Political Economy of Public Debt: Three Centuries of Theory and Evidence (Edward Elgar Publishing, 2017). In 2021 his fourth book – Where Have all the Capitalist Gone? – will be published by the American Institute for Economic Research. He is also author of a dozen chapters and scores of articles. His work has appeared in the Georgetown Journal of Law and Public Policy, Reason Papers, the Wall Street Journal, the New York Times, Forbes, the Economist, the Financial Post, the Intellectual Activist, and The Objective Standard. Dr. Salsman earned his B.A. in economics from Bowdoin College (1981), his M.A. in economics from New York University (1988), and his Ph.D. in political economy from Duke University (2012). His personal website is richardsalsman.com.

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