Insurance Or Handout?

June 13, 1960

Politicians are very generous in “doing something for our senior citizens,” but none tells us at whose expense. The only merit of the Forand bill is that it emphasizes how flagrantly “social security” has been turned into a political football. The benefits have been increased in every election year—1950, 1952, 1954, 1956, and 1958. Even in the nonelection year 1959, 173 bills were offered in Congress to liberalize old-age benefits; so far this year 79 more have been introduced.

This political exploitation has been made possible largely by the semantic device of calling the old- age pensions “insurance,” which has been correctly described as “a stroke of promotional genius.” The term was made plausible by levying nominal “contributory” taxes. As Franklin D. Roosevelt once put it: “We put those payroll contributions there so as to give the contributors a legal, moral, and political right to collect their pensions and their unemployment benefits. With those taxes in there, no damn politician can ever scrap my social-security program.”

‘THEY PAID FOR IT’

The result today is that the overwhelming majority of commentators in the press, even conservatives, believe that the present recipients of old-age pensions under the OASI scheme have “paid for” the “insurance” they are getting, and consider it an outrage that a man should have to retire from gainful employment at 65 in order to be eligible for his pension. “It is unjust,” according to one recent (and relatively moderate) editorial in a prominent newspaper, “to force them into unwelcome idleness on pain of losing the insurance income bought with deductions from their paychecks and the contributions of their employers.” A less restrained columnist has written: “This imbecilic penalty on grit and gumption bedded in the social-security law screams for redress.”

Now this is a clumsy provision. It does encourage economic waste and premature idleness. But with the present scale of pensions, some restriction like this is unavoidable to prevent the system from going broke or proving ruinous. Ray M. Peterson, associate actuary of the Equitable Life Assurance Society, has pointed out that to remove the limitation on earnings of eligible pensioners would increase outlays immediately by $2 billion a year and would require additional taxes of 1 percent of covered payrolls.

He calculates that for the vast majority of married couples who entered the system initially or became eligible later by amendments, the value of the benefits they now get, measured actuarially, is $10,000 to $22,000 greater than the value of the combined employee- employer social-security taxes paid. This difference is pure gift. Moreover, so far from its being related to need, the higher the recipient’s previous earnings, the greater the subsidy he gets!

TIME FOR REAPPRAISAL

As one actuary puts it privately: “Sometimes I think it would be a brilliant educational stroke to shame these advocates of the elimination of the work test by allowing them to get the amount of pension their taxes have financed and let them earn all they can between age 65 and 72, because that pension would really be about $5 a month. Then maybe some of the high-income groups and journalists would quit yelling about eliminating the work test, one of the few features that keeps the Social Security Act from exploding in our face.”

The Social Security Act cries for re-examination. It adds nothing to our national output of goods and services; it is merely a device for redistributing income. It gives heavy benefits to the present aged and loads the cost onto the present young. As Peterson declares: “There is probably no other legislative enactment that commits future generations to greater obligations than our Social Security Act.” Even the official actuaries of the system place its “unfunded liabilities” at some $350 billion. A former actuary, W. Rulon Williamson, places them in excess of $650 billion. The system promotes inflation. Its long-run tendency must be to discourage voluntary saving and self-provision and to increase dependency on government.

The minimum immediate need is to appoint a new advisory council to study the subject in every aspect.