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.
Just a couple of thoughts I would like to include in this discussion. First you did not mention that the employer is required to match the employees contribution which would then double the contributions made on behalf of the employee. The social security program is NOT voluntary so if an employee were allowed to invest for their own futures they would be deriving interest /dividends so in a sense the government is including this component of income in their social security benefit payments. When the social security program was adopted the life expectancy was considerably shorter then it is today so that more then anything else is why the fund will probably run out if there are no fixes. However, I must say this government of ours always seems to find the money for providing medical care and other aid for illegals, disproportionately funds the U.N. (even when they pass laws against us), provides unbelievable foreign aid to nations that are not exactly our friends. So even if the government pays out more to retired citizens then these workers paid in during their work careers SO WHAT, given the boondoggles that the government spends money on.
Oh I agree on your points regarding employer match, non voluntary, etc. I have written about social security numerous times (entitlement reform is one of my pet issues), but in this instance, I was annoyed at the WSJ. As we are heading into an active 2016 and we face an SSDI shortage in 2016 that will coincide with the presidential election, we are already beginning to see pop up as narratives (again) the idea that Social Security is “perfectly solvent” and the “cash in equals the cash out”. This letter was a little snippet of that which will be oft repeated over the next 17 months. I know the WSJ knows better, so I was irritated at their seeming willingness to perpetuate some of the falsities. Expect me to write much much more on Social Security, the true entitlement deficit, etc over the coming months.