Issues > Social Security

Social Security should be the #1 issue on the mind of every young American. It is a program that affects our lives far more than most appreciate, and if its impact were more fully realized and understood, there would be marches on Washington to free ourselves of the yoke that has been placed upon us.

It is a program that began modestly, and with good intent. A 2% tax (1% from the employee, 1% as the "employer's contribution") on the first $3000 of income. The maximum contribution, in 2006 dollars, was approximately $800.

But over the past 70 years, that tax rate has been increased again and again, so that today it stands at five times its original rate. A person earning only $20,000 a year has over $2000 "contributed" in his name to Social Security Retirement annually. A family earning $50,000 sacrifices over $5000 a year.

It also means that for over five weeks out of the year, you are working only to pay your Social Security tax. All for a single government program, which is primarily devoted to a single service: paying out money to retired persons. Many households lose nearly as much or more to Social Security Retirement "contributions" as they do to their entire Federal Income Tax liability. This one program has grown to constitute one-fourth of all federal revenues, and one-fifth of all federal spending.

And what have we lost in the process? Freedom. The freedom to make our own choices with the fruit of our labor. The freedom to apply our wealth where it will benefit us most, and not where the federal government insists that it must go. The freedom to

The most obvious loss of choice with regard to our "contributed" money is the inability to invest it and put it toward our own retirement. The inability to use it to build wealth, rather than being required to purchase "Old Age and Survivor's Insurance."

Less obvious are the opportunity costs of this sacrificed income. Many Americans carry some amount of high-interest debt. The benefit they would receive from putting an additional 10% of their income towards that debt, avoiding further interest, far outstrips the value of contingent retirement benefits. For the family facing foreclosure, that additional money could be the difference between paying their mortgage and keeping their home, and being thrown into the street. Or that money could provide the means to take a shorter mortgage or loan, and avoid the considerable additional interest that would result from borrowing money over a longer term. In these instances and many more, the taxpayer's finances would benefit more in the long run by using that money to avoid unnecessary interest and loss. But they're not given that choice.

Is there risk in allowing people to keep their own money? Of course. Just as there is risk in allowing people to manage their own mortgages, or balance their own budgets, or buy their own cars. We can't, and shouldn't, expect the federal government to insure us against our own bad decisions, especially not by forcing all of us to give up 10% of our working lives for a single program.

More importantly, there is risk in giving up our rights to that 10% to Social Security. There are the opportunity costs identified above. There is the higher interest that could be earned in the open market. And Social Security itself contains a major risk. Should you die too early or without the right kind of dependents to survive you, then you will have transferred the value of years of labor to Social Security, without receiving anything in return. What could have been an estate to leave to ones heirs instead becomes a transfer of wealth to someone who simply managed to live longer than you.

What, then, should be done to reform Social Security for the better? The problem with most proposals is that they actually reform Social Security for the worse: a combination of a higher tax rate, a higher income threshold, a higher retirement age, lower benefits, or even the elimination of benefits for certain retirees. These proposals take a program that has been made progressively worse over seventy years, and make it a little worse still, particularly for younger Americans (who get to pay higher taxes in return for lower benefits).

Ideally, I would support a pure opt-out system: individuals who don't wish to participate in Social Security would not be forced to do so. This is the most pure and free approach. Unfortunately, the Ponzi-esque nature of Social Security makes it impossible to engineer such an immediate transition. Private accounts are a good alternative, continuing the tax but allowing individuals to retain an actual property interest in their earnings. I firmly believe that any change in Social Security that makes the program more onerous in one way should, at the same time, make it less onerous in another. For instance, if we were to phase in a sufficiently large cut in benefits, combined with a hike in the benefit age, we could actually cut the tax rate. Americans wouldn't receive as much in benefits from SS during retirement, but they could have greater control over their money during the 40 years leading up to it.

Whether through making the system optional, or permitting for private accounts, or by reformulating the system to cut the Social Security tax burden, we need reform that allows Americans more freedom of choice with the money they earn. I am not particular about precisely how that freedom needs to be reinstituted, because I am very particular about seeing to it that we do not continue to repeat the cycle of the last seventy years yet again.

Young Americans need a voice in Congress when it comes to entitlements like Social Security. We are looking forward to three or four decades of a weighty payroll tax, one that carries heavy opportunity costs and unenforceable and questionable benefits on the far end, and we should be heard. Hank Johnson is not going to be that voice. I will be.