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Social Security's Sham Guarantee (workers have no legal contractual/property rights to any benefits)
Cato.org ^ | 5/29/05 | Michael D. Tanner

Posted on 05/29/2005 8:43:24 AM PDT by Libloather

Social Security's Sham Guarantee
by Michael D. Tanner
May 29, 2005

Michael Tanner is director of the Cato Institute's Project on Social Security Choice.

How many times during the recent debate over Social Security reform have you heard someone refer to Social Security's "guaranteed benefit"? The AARP says "Social Security is the guaranteed part of your retirement plan." Nancy Pelosi, the Democratic leader in the House, touts the system's "guaranteed retirement benefit." The liberal activist group ProtectYourCheck.org, headed by former Clinton chief of staff Harold Ickes, is running ads calling Social Security "a guarantee you earned."

But Social Security benefits are not guaranteed.

They are not guaranteed legally because workers have no contractual or property rights to any benefits whatsoever. In two landmark cases, Flemming v. Nestor and Helvering v. Davis, the U.S. Supreme Court ruled that Social Security taxes are not contributions or savings, but simply taxes, and that Social Security benefits are simply a government spending program, no different than, say, farm price supports. Congress and the president may change, reduce, or even eliminate benefits at any time.

As a result, retirees must depend on the good will of 535 politicians to determine how much they will receive in retirement. And what could be less guaranteed than a politician's promise? In fact, Congress has voted to reduce Social Security benefits in the past. For example, in 1983, Congress raised the retirement age.

Benefits are not guaranteed economically because the government doesn’t have the money to pay them Social Security will begin running deficits in just 12 years. Overall, the program is facing unfunded obligations of roughly $12.8 trillion. That means that it has promised $12.8 trillion more in benefits more than it can pay. If we do nothing to reform the program, then -- by law -- Social Security benefits will eventually be cut by 26 percent.

The only guarantee with Social Security is that younger workers will not receive what they have been promised.

There is one glimmer of hope. President Bush and others have proposed that younger workers be given the choice of privately investing a portion of their Social Security taxes through personal accounts.

The worker would own this personal account. It would be the worker's property, and no politician could ever take it away. Because the account belongs to the worker, it would be fully inheritable. When the wage earner dies, the money can flow to his or her relatives.

Under the current Social Security system, when you die, the government simply gets to keep every penny you've paid into the system.

While there are no guarantees with private investment, history has shown that American capital markets provide a much better rate-of-return over the long term than Social Security. Workers who choose personal accounts could reasonably expect retirement benefits much higher than what Social Security can actually pay them.

In fact, a middle-income worker who put his or her half of the Social security payroll tax (6.2 percent of wages) in a personal account, invested in a typical portfolio of 65 percent stocks and 35 percent bonds, would likely receive more in retirement than even what Social Security erroneously promises.

The sales pitch for personal accounts should boil down to the following: It's your money. You've earned it.


TOPICS: Crime/Corruption; Culture/Society; Editorial; Government
KEYWORDS: benefits; cato; contractual; guarantee; legally; no; property; rights; security; sham; social; socialsecurity; whatsoever; workers
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1 posted on 05/29/2005 8:43:26 AM PDT by Libloather
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To: Libloather

Depending on Social Security is the "riskiest" retirement scheme of all.


2 posted on 05/29/2005 8:46:33 AM PDT by weegee ("Do you want them to write a piece about how great the military is?" Elizabeth Bumiller - NY Times)
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To: Libloather

This kind of rhetoric seems like an equation for losing elections to me. The GOP needs to be emphasizing that benefits are guaranteed for current retirees and older workers.

This plays right into Hillary's game plan of scaring the elderly so much so that they're ready to jump in front of a moving train for her.


3 posted on 05/29/2005 8:46:46 AM PDT by nj26
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To: nj26

You can't will your social security money to someone who is not your spouse (even if you live with an elderly sibling).

If you die before retirement, that money is not "yours".

Short of it is that money is not yours.


4 posted on 05/29/2005 8:51:25 AM PDT by weegee ("Do you want them to write a piece about how great the military is?" Elizabeth Bumiller - NY Times)
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To: nj26

I still want to know who will pay the 12.8 Trillion regardless of what happens.


5 posted on 05/29/2005 8:53:18 AM PDT by EQAndyBuzz (Liberal Talking Point - Bush = Hitler ... Republican Talking Point - Let the Liberals Talk)
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To: Libloather

I take Uncle Sam's word for it.


6 posted on 05/29/2005 9:07:58 AM PDT by ANGGAPO (Layte Gulf Beach Club.)
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To: EQAndyBuzz

"I still want to know who will pay the 12.8 Trillion regardless of what happens."


To paraphrase Scrooge:

"Are there no printing presses? Are there no dies to mint coins?"


7 posted on 05/29/2005 9:08:31 AM PDT by steampower
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To: Libloather

bookmark


8 posted on 05/29/2005 9:09:33 AM PDT by chaosagent (It's all right to be crazy. Just don't let it drive you nuts.)
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To: Libloather

"They are not guaranteed legally because workers have no contractual or property rights to any benefits whatsoever."

Even if there were, it would mean nothing. The government has the power to impair contracts. That's what bankruptcy is all about.


9 posted on 05/29/2005 9:13:06 AM PDT by Brilliant
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To: steampower

We need a constitutional amendment authorizing the government to seize the property of politicians to make good on the social security promise.


10 posted on 05/29/2005 9:14:15 AM PDT by Brilliant
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To: nj26

1/2 the seniors are going to vote Republican in spite of the scare tactics. Yes, you have to educate that any change would be on a volunteer basis, but you need to educate the younger voter. This should be a prime issue for winning GOP votes in the 20-30 something crowd.


11 posted on 05/29/2005 9:17:00 AM PDT by NavVet (“Benedict Arnold was wounded in battle fighting for America, but no one remembers him for that.”)
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To: Libloather

May FDR, JFK and LBJ BURN in HELL!


12 posted on 05/29/2005 9:18:32 AM PDT by zzen01
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To: Brilliant

"We need a constitutional amendment authorizing the government to seize the property of politicians to make good on the social security promise."

That is brilliant!

However, it is far more likely that the government will make old tires legal tender.


13 posted on 05/29/2005 9:19:09 AM PDT by steampower
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To: Libloather

So, there we have it. Private investment funds are personally owned, while Social Security is just another 15% tax on all wages paid with no benefits owed.


14 posted on 05/29/2005 9:33:41 AM PDT by shellshocked (They're undocumented Border Patrol agents, not vigilantes.)
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To: nj26

"The GOP needs to be emphasizing that benefits are guaranteed for current retirees and older workers.
"

They are? Maybe by politics, but certainly not by law.


15 posted on 05/29/2005 9:34:22 AM PDT by shellshocked (They're undocumented Border Patrol agents, not vigilantes.)
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To: nj26

Attacking Social Security will only result in a tax hike. No one; not even the guy who kicked in a few bucks during a summer job in high school is going to accept being ripped off. The truth is that we have a choice to make. Either Social Security is a real program; or, we must admit that we have a regressive income tax structure where those on the lower end face a top rate in excess of 50%. That admission is only going to lead to one thing; and the "private account" B.S.(what is private about a public program?) is not what I am talking about. The logical result is to apply the tax to all income - it is after all just a tax - totally disconnected from benefits, or any specific government program.


16 posted on 05/29/2005 9:35:48 AM PDT by ARCADIA (Abuse of power comes as no surprise)
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To: Brilliant

"That's what bankruptcy is all about. "


Actually, bankruptcy is a Biblical and Constitutional item designed to prevent the enslavement of the people through financial control. Debt is a horrible thing and had been used throughout the ages to usurp control over the people. It is the people’s means of preventing such control.


17 posted on 05/29/2005 9:38:38 AM PDT by shellshocked (They're undocumented Border Patrol agents, not vigilantes.)
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To: ANGGAPO

It is a cruel and disingenuous assertion to so severely misread -or mis-report, those cases. Cases like these turn on their particular and specific facts. Such an assertion is beneath contempt. Resort to dishonesty is the surest indicator that the case being argued is fallacious.


18 posted on 05/29/2005 10:06:26 AM PDT by middie
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To: Libloather
I would posit that the pension system at United probably had a lot more in common with Social Security than with the "private funds" with which people want to replace SS.

With a 401K or IRA, each investor has his own account, to put into high-risk or low-risk investments as he sees fit. If market conditions change so that low-risk accounts don't pay very much, one can still avoid risk by accepting the lower return. There's a significant risk of hitting bumps along the financial road, but they're generally not apt to be excessively big.

With a defined-benefit pension plan, however, things are more problematic. When things are going well for a company and its investments, making the required pension payouts is no problem. Unfortunately, when things go badly, there's no 'flexibility' to absorb losses. If a company's promised benefits are supposed to yield the equivalent of a 5% return and there are no safe investments that do so, a company will either have to put money in risky investments or else start bleeding money out of its own pockets. Unfortunately, the latter approach will often end up making the company less productive in the marketplace, meaning that such payments will bleed off a larger and larger portion of its revenues as it goes into a death spiral.

The situation of a company that offers a defined-benefit plan is much like that of a trader who works on margin. When things go well, they go really well, but when things go bad, they go kaboom.

While it is true that Social Security is backed by the U.S. government, the government can't produce wealth which the economy does not. If the economy lags, the portion of the economy that's drained for SS payouts will increase, and as this drain increases, it will drag down the economy further.

To view things another way, think of the U.S. economy as a tree farm and SS as being the harvest. If it takes an average of ten years for a tree to reach harvestable size, one can sustainably harvest 10% of one's trees yearly. If the amount of wood one has to harvest is fixed, however, then if there's a bad year it may be necessary to harvest more than 10% of the trees to meet quota. Once this happens, it becomes more likely that one will also have to harvest more than 10% next year (since there will be fewer trees producing wood). Eventually, one will run out of trees.

19 posted on 05/29/2005 11:26:26 AM PDT by supercat (Sorry--this tag line is out of order.)
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To: supercat

Then it's time to expand the tree farm. We have taken deindustrialization way too far.


20 posted on 05/29/2005 11:55:14 AM PDT by ARCADIA (Abuse of power comes as no surprise)
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