Tuesday, December 14, 2004

It's a Social Program, Not a 401(k)!!

Number three in a continuing series.

Myth #4: Social Security is a pension or an insurance plan. (Reality: Social Security is a social program, the only social program that is so well funded and secure that it will not need a dime of additional Federal taxes for decades.)

We often hear of Social Security as a pension plan or an insurance plan. Comparing Social Security to private employer pension plans gives rise to a number of misleading and alarming observations about Social Security’s desirability. First and foremost is the charge that the individual worker gets a bad investment deal out of the system. My favorite barking mad Libertarian P.J. O’Rourke offers the typical argument:

"And if we're age twenty-four to sixty-two, we can expect a return of between -0.34 percent and -1.7 percent, and might be better off leaving the money in our old jeans and going through the closet when we retire."

Then there’s the "Ponzi Scheme" charge, named after the famous swindler who offered big dividends to investors, paid for by the investment of newer investors. Here’s O’Rourke again in the same article:

"Charles Ponzi made a profit on this, and so does the U.S. government. Social Security payroll-tax receipts have always been greater than Social Security benefit payments and will continue to be until about 2013, when the baby-boom sucker pool retires. The federal government has taken this surplus revenue, spent it and given the Social Security trust-fund IOUs in return."

(SIDE NOTE: I urge people to read O’Rourke’s article. See how many logical fallacies and statements of objective falsehood you can find. I’ve found 37 so far.)

These arguments would be more persuasive if Social Security was in fact a pension or insurance plan or a 401(k). But it's not any of those. It’s not a personal investment. It’s a government social program that happens to be funded largely through a special levy of payroll tax. Don’t believe me? I don’t blame%2

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