A Layman’s Stab at Social Security Reform

Things aren’t looking good for the President’s Social Security plan if this story is to be believed. Now, I don’t do much in the way of thinking about nitty gritty policy stuff here, because a) I don’t know that much about it and b) it doesn’t really interest me. But what I can do passably well is “interrogate” (as the po-mos say) the underlying premises of arguments.

One of the underlying premises of the push for Social Security reform is that the system is in “crisis” and will soon begin to spend more money than it takes in. Now, folks on the left have questioned the math, but the more fundamental point, it seems to me, is that everyone is taking as a given that SS must be funded by way of FICA (payroll) taxes.

But why should this be so? Why not fund SS out of general tax revenue? The deceit at the heart of Social Security has always been that by paying FICA taxes you are “investing” for your retirement. But this is nonsense. Decades of government propaganda notwithstanding, SS is a wealth transfer program like welfare. It takes money from one group of people (young workers) and gives it to other groups of people (retirees, the disabled, their dependents, etc.). There may have been compelling reasons for pitching it as an investment plan, but basic honesty compels us to admit it ain’t so.

Now, it seems to me that two things fall out of admitting that SS is a welfare program of sorts. First, there’s no reason, in principle, it couldn’t be funded from general tax revenue (sales, income, personal, corporate, or whatever). Second, it could be given only to those who need it. Once you’ve given up the fiction that people are investing in their own retirement, you no longer need to maintain that they’re entitled to a return on their “investment.” Eligibility for SS could be determined based on need (and “need” could be defined more or less generously), which makes sense, since the whole purpose of the program was to keep the elderly out of poverty. Retired millionaires don’t need that extra couple hundred bucks a month.

Funding SS out of general tax revenue would also address another problem: the FICA tax is one of the most regressive taxes we have (especially when you take into account the cap on income that is susceptible to FICA taxation). A progressive income tax (or even a flat tax) would be fairer and simpler.

I assume (contra libertarians and many conservatives) that it is meet, right, and just that society should provide assistance to those who need it. There’s no shame in admitting that Social Security is a program by which we extend aid to those in need. On the contrary, the fact that it has for so long been portrayed as a kind of investment scheme actually gives rhetorical ammunition to critics who want to privatize it (If it’s “your” retirement, why shouldn’t you be able to decide how it’s invested?). Being honest about its purpose would seem to allow for greater flexibility in determining how it might be reformed.