Like clockwork in the media we have the periodic spectacle of the "Social Security debate." One party or candidate proposes timidly a partial voluntary privatization of Social Security. This is the followed by the other party or candidate taking extreme umbrage at the suggestion that the Social Security "net" for elders will be dismantled, and old people will starve on the streets. The hallowed spirit of FDR will rise up and haunt us until we restore his holy system once again. We can make it work, so the argument goes, if we just raise the retirement age to 79 and increase payroll taxes by another 50%. I for one am sick of the spectacle, and here's why.
Let's first discuss a few common myths regarding Social Security:
1. Social Security is NOT a benefit; it is a tax--That right, just ask the IRS. and they will tell you that Social Security is indeed a tax. Furthermore, the courts have declared the only way Social Security can be interpreted as constitutional is if it is a tax.
2. Your Social Security payments are not guaranteed-- There is no requirement that the government pay you your social security check. Congress can cancel, abridge, or alter the social security system anytime it wishes. This was summed up nicely by the courts in Flemming v. Nestor which said "entitlement to Social Security benefits is not a contractual right." Theoretically, you could pay your social security taxes all of your working life and then be denied the monthly checks. While this is unlikely, you notice that the government is always increasing the retirement age. Eventually you will only be able to retire at 85 and get 50% fewer benefits.
3. There is no Social Security Trust Fund--Contrary to what you hear from the media and politicians, no trust fund exists (it is only an accounting entry). All Social Security taxes are sent directly to the government's General Revenue Fund and is spent by Congress on anything they want to. Even if there is a surplus (more collected than paid out in benefits), Congress can spend it and write an IOU to Social Security. Congress (Republicans and Democrats) have looted the surpluses from Social Security over the last 75 years, and all that is left are useless IOUs.
4. Social Security "benefits" are taxable--One of the more hilarious aspects of Social Security is that if you work after you retire (say part-time) and earn depending on your filing status more than $25,000-32,00, your social security payments will be taxed. LOL!!! And you thought this was a generous benefit from your government. Instead, it is really a system to keep you in poverty.
5. Social Security is a Ponzi-Scheme--According to Wikipedia, "a ponzi scheme operation pays returns to separate people from their own money or money paid by subsequent people, rather than from any actual profit earned." That pretty much sums up Social Security, which pays current recipients with money from taxes collected by current workers. Social Security is a ponzi scheme that Bernard Madoff would envy. Is it all right that the government is operating the largest ponzi scheme in US history?
Now that we have discussed various misunderstandings concerning Social Security, allow me to show why it is such a bad deal for Americans and keeps them poor. First off, the rate of return on your Social Security contributions is incredibly low (estimated at 1-2% nominal return) as compared to the investments. There was a famous example of county employees in Galveston, Texas, who were fortunate enough to get out of paying social security taxes. Instead the county set up an alternative plan and invested their monthly contributions in safe low risk investments. The results were startling and are reported in a GAO report. Assuming a worker made $50,000 and paid into Social Security, their monthly check was $1,302. Under the private alternative plan set up by Galveston County, that same employee received $6,843. Now which plan would you like to participate in? So you rely on Social Security, you will be able to afford dog food (perpetual poverty), but if you have a private plan and would be able to afford filet mignon (comfortable and dignified retirement).
Another major negative of Social Security is that when you die, you cannot leave your children any inheritance, which prevents families from building generational wealth. Social Security will only pay $255 as a one time death benefit. If you had a private plan, you could leave your children at least something, but the government can't allow this. This is especially true for groups which have a lower life expectancy (e.g. obese individuals, etc.). Why would our government deny people this opportunity? Because if the overwhelming majority of the population were financially independent, they would not be welfare slaves to the government. Instead, the Social Security system has created a generation of welfare dependents who are no longer free and independent. They no longer care about the Constitution and Bill of Rights. All they want is their monthly checks. And you wonder why America is gradually becoming a welfare police state?
So after hearing all of the above facts, you may ask why people defend Social Security and resist any change to the system? After all, they don't benefit from this system. In fact, the only entity which profits from this illegal system is the government which uses the surpluses as slush funds and keeps people in poverty. To me the answer is relatively simple: People have been so dumbed down by public education and the media that they are very susceptible to government propaganda. The public has been indoctrinated into believing that Social Security is a benefit and protects people from poverty. And as Joesph Goebbels noted, all you have to do is repeat the same propaganda over and over, and gradually people will believe it. The situation is so dire in the US that people will fight for the current Social Security system that even when it is the instrument of their own enslavement. Now that's good propaganda--convincing slaves to demand their chains!
Black Swan Insights