Turning Social Security Into Welfare

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By on December 8, 2017 in Retirement with 0 Comments

You likely have heard that Senator Rubio (R-FL) is putting Social Security at risk.  He is – just not in the way you are generally hearing.

Rubio On Social Security

The standard story is Sen. Marco Rubio (R-Fla.) appeared on Politico Playbook to discuss his ideas on tax reform before an audience of policy analysts and lobbyists. He told that audience that he believed that we can manage the growing deficit with reductions to Social Security and Medicare.

That interview has problems. He is dealing with the wrong issue, with the wrong order of magnitude, on timetables off by decades, with the wrong tools. It is a lot of wrong, much of which I deal with elsewhere.

An Odd Unfollowed Idea

Here, I want to highlight an odd policy contradiction, one that will eat at the foundations of the program.

On one hand, he complains that Social Security is a driver of our nation’s debt, and yet he wants to create a subsidy for the program out of the general fund. Strangely enough, he would alter a program which doesn’t add materially to the debt into a welfare program that would.

Specifically, Rubio believes that the government should pay for the Social Security contribution of lower-income workers. That sounds a lot like the Earned Income Tax Credit, which was created in 1975 specifically to offset the high cost of Social Security taxes. That credit has grown to more than $70 billion per year. Apparently this offset isn’t enough.

Welcome to the Rubiocon

There is no coming back. This type of cash infusion will make Social Security the welfare program that FDR specifically rejected. He demanded a self-sustaining form of insurance because he knew that welfare is a matter of politics, not of rights. He didn’t want – and I don’t want, for that matter – politicians like Sen. Rubio telling me who needs and who doesn’t need benefits.

Social Security has changed greatly since the time of FDR.  Yes, it has become more of an income transfer than it was intended.  That transfer, however, occurs between people who have contributed and people who expect to collect benefits. Senator Rubio’s transfer is between people who collect benefits and children who haven’t even been born.

Social Security Isn’t Welfare

The program intentionally takes money from people who are in poverty, and gives it to people who aren’t remotely close to it. The highest benefits go to the person who had the best job over the longest career. Senator Sanders for example collects vastly more than the poor senior that he promotes.

While transaction may seem to introduce a moral question, it is actually the outcome of intentioned political design. Payroll taxes serve to give workers a legal, moral, and political right to benefits. FDR said contributions are politics through and through. Sanders’ paycheck is more because he contributed more.

The Problem with Public Funding, and the End of Social Security

Paying Social Security from general revenue means that every year Congress will debate how much the subsidy should be expanded and where the needs of the elderly fit into the politics of the day. It introduces the question: are the needs of the elderly more important than student loan reform, repairing infrastructure, and debt reduction? At some point, you will find that benefits are reduced – as Sen. Rubio suggests – as a means to offset spending elsewhere in the budget.

These debates would be brutal. Every year politicians would have to justify the cost of a system which is not universal, much less equal. The cash flows are indefensible as a public expense.  The system provides greater benefits to children of the affluent than children of the poor.  It gives housewives 50 percent of what their husbands get.  The rules even exclude those Americans with the kind of work records that create need in the first place.

Even if politicians could sell the country on its function, the costs of the program would explode as politicians expand access to benefits. Today about 94 percent of the work force is covered by Social Security. Over time, the remaining 6 percent, including the fabled workers of Galveston County, Texas, would demand equal access to the system. Housewives would want to join the system on equal terms. We are talking about adding millions of beneficiaries to a system which is bleeding financially.

Insurance should manage uncertainty, not create it. Social Security serves people for an average retiree over 20 years.  Do you really want every new retiree guessing at the winds of politics over that time horizon?

Invitation to Disaster

The denizens of D.C. are not trying to fix Social Security.  They are trying to allocate its brokenness.  Some want to shift the cost to current workers.  Others want to shed cost of current retirees.  Still more believe the rich should carry the burden.  Senator Rubio believes that the cost of preserving his promise to current beneficiaries should be carried by our children.

The views expressed by authors are their own and are not the views of FedSmith.com.

© 2019 Brenton Smith. All rights reserved. This article may not be reproduced without express written consent from Brenton Smith.

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About the Author

Brenton Smith (A.K.A. Joe The Economist) writes nationally on the issue of Social Security reform with work appearing in Forbes, FedSmith.com, MarketWatch, TheHill.com, and regional media like The Denver Post.

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