I recently read a letter to the editor about Social Security in the Wall Street Journal that irritated me. Not the letter writer per se, but more by the Wall Street Journal choosing to print a letter that perpetuates a widely perceived myth about Social Security.
The letter was simply this: “Oh, please don’t blame older Americans for “eating up the budget” through payments of Social Security and Medicare benefits. It is the federal government that raided the Social Security Trust Fund. Older Americans have contributed to this for years. Where is the money now?”
The problem with this letter writer is that they really just don’t understand the truth that people who have paid into Social Security are getting many, many more times the actuarial value than what they put into it. It’s not a simple misunderstanding on this. It really, truly is just a flat-out lie that people who put 30-40 years worth of payments are merely getting back just what they put in.
The politicians need this lie to survive because they risk alienating a large voting bloc of older Americans if they merely even suggest that Social Security needs reform. But it does; the egregious state that Social Security is hidden by the way the federal government accounts for it. They even have a special name for it. Social Security is repeatedly described as a pay-as-you-go (“PAYGO”) system, which gives credence to something that is terribly incorrect. PAYGO is not a system at all; rather it is a method of reporting that hides earned realities, making it totally unacceptable to accounting professions, the SEC, and virtually everybody outside the government.
Calling it PAYGO helps to perpetuate the fallacy that beneficiaries are merely receiving what they paid into to. I don’t want to pick on the poor letter writer, as she doesn’t seem to really know how Social Security works (or hasn’t worked). But the Wall Street Journal should know better.
I suppose it is fitting that the 1936 Bulletin announcing Social Security ends like this: “What you get from the Government plan will always be more than you have paid in taxes and usually more than you can get for yourself by putting away the same amount of money each week in some other way.”
This is why we have accrued trillions in unfunded liabilities such as Social Security. If it sounds too good to be true, it probably is.