July 29, 2014

But I Paid Into It…

Critics on the left have quite correctly pointed out that Tea Party activists who oppose President Obama’s “socialism” are hypocritical in that they do not oppose Social Security for themselves. The most common rebuttal to this criticism is usually something along the lines of Social Security being fundamentally different because the recipients pay into it. However, this argument is no different than arguing for a right to steal your younger neighbor’s car because an older neighbor has stolen yours. Allow me to explain.

Most people are aware Social Security has begun paying out more in benefits than it collects in payroll taxes. However, it had run surpluses for decades that most beneficiaries honestly believe is funding the shortfall until the demographic imbalance caused by the baby boom evens out. Since they “paid into it all of their lives,” supporters of Social Security distinguish it from Aid to Dependent Children or other wealth transfer programs. Inherent in this thinking is both factual inaccuracy and flawed logic.

First, even if those surpluses had gone into a “trust fund,” no one disputes Social Security has always been a predominantly “pay-as-you-go” program. In other words, the overwhelming majority of the money collected from payroll taxes went to fund benefits for current beneficiaries. Thus, payroll taxes were taken from one group of people and paid out to another, just like public welfare.

One might argue that the surpluses generated previously meant that at least part of the money being paid to current beneficiaries was their own money, held in trust for their retirement. However, this is also completely untrue. The surpluses have not been held in cash since 1939. Instead, when the program runs a surplus, the government is legally obligated to use the money to purchase U.S. Treasury bonds, which are nothing more than securities documenting that you have loaned the federal government money. So, by law, any surplus collected in payroll taxes for Social Security must be lent to the federal government (which immediately spends it on operating expenses). In return, Treasury Bonds are put into the trust fund.

For those who remember and decry this change in 1939 as a betrayal, remember that the FDR administration had also taken the U.S. off the gold standard (domestically). Had the government continued to merely hold reserves in cash, the reserves would have been outstripped by inflation by the time the benefits were payable to most beneficiaries.

Most people think of the treasury bond arrangement as the government putting their money into a “secure investment” that will pay them interest with very little risk. However, this is logically absurd. Treasury bonds are not “an investment.” An investment is a loan or advance of capital made in the hopes of earning interest from a producer of goods or services. The fundamental question anyone asks before risking their money with a bond issued by a private business is “How are you going to pay me back?”

The answer that would be given by a private sector business would be, “By using the capital you have loaned us, we are going to expand our productive capacity. With the new products we will produce and sell, we will be able to pay back your investment with interest and still make a profit.” Thus, if you purchase a bond issued by a computer manufacturer (i.e. lend it money), then the computer manufacturer is able to repay you with interest out of the new computers it was able to produce with the money it borrowed from you.

However, the federal government does not produce computers. The federal government does not produce anything. So, how does it answer the question, “How will you pay me back?” There is only one answer: “We will tax people in the future to pay back your loan principle and interest.”

Thus, even the so-called “trust fund” does not represent a store of your own money, held in trust for your retirement. 100% of your money was spent the moment it was received by the government. Most went to underwrite the benefits of current beneficiaries. The rest was spent on other government boondoggles and replaced by promises to repay you by taxing other people. Not one dime of current benefits represents a “payback” of one’s own money. Social Security is every bit as “socialist” as Aid to Dependent Children, Medicaid, Medicare, or any other government transfer of wealth. Where do you think it got its name?

There is a bit of irony here that probably also escapes most Americans. While the federal government’s modus operandi for many years now has been to merely pay off the interest on its debt and issue new debt to cover the principal as bonds come due, let’s consider what would happen if they actually started repaying the principal on their bonds.

The longest term bond is a 30-year Treasury note, which means you loan the government the money for 30 years. Suppose that in 1970, you were a 34-year-old, dutifully paying your Social Security taxes. Most of your money went to pay current beneficiaries, but a small portion (your share of the surplus) went into 30-year Treasury notes. In 2010, you are one year from retirement and ask the government, “Where are you going to get the money to pay back the principal and interest on that 30-year Treasury bond?” As bizarre as the answer might seem, the answer would be, “Why, from you, of course.”

However, the most socialist aspect of Social Security is not that it represents a transfer of wealth. It is that the program is mandatory. The only way for the government to accomplish a transfer of wealth from one party to another is to force people to participate. This is why George W. Bush’s proposal to “privatize” Social Security would not have made it any less “socialist.” People would still have been forced to participate; only they would now have the option of handing their money over to W’s tax-subsidized buddies on Wall Street rather than to the federal government. Imagine if he had been successful in implementing this in 2004.

Free market capitalism and socialism truly are opposites, but the fundamental difference is one of rights, not economics. True free market capitalism recognizes every individual’s right to keep the product of his labor and dispose of it as he sees fit. Social Security denies this right. It must be responsibly phased out, without cutting off present beneficiaries, and replaced with nothing. That prospect should scare no one at this point. With a government that is $14 trillion in debt and planning to borrow more every year for the foreseeable future, I would trust the most irresponsible individual I know before the federal government – with his retirement money and mine.

Check out Tom Mullen’s book, A Return to Common Sense: Reawakening Liberty in the Inhabitants of America. Right Here!

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© Thomas Mullen 2011

Comments

  1. liberranter says:

    >"But I only want to get back out of it what I paid into it…"

    I'm sure if you're like me, you cannot count the number of times you've heard Americans of all ages and from all walks of life spout off some version of this line whenever the issue of Social(ist) (In)Security is brought up. Such responses aren't confined simply to the "blue collar" class, but, surprisingly, emanate from people who should definitely know better. (Case in point: my own father, who turns 80 in two weeks and who is FINALLY retiring from his private CPA practice after 55 years, makes some version of this claim with regularity, along with the frequent statement "but they HAVE to keep Social Security going – they PROMISED!" Now if someone who is a college-educated financial professional and who definitely ought to know better can cling to such juvenile nonsense like a baby clings to a security blanket, then what hope is there for the rest of the country?)

    Simple fact, folks: Socialist Insecurity is the financial crack cocaine on which generations of Americans have become hooked, a financial drug that, like the real thing, has led them to abandon responsibility for their own financial well-being in their twilight years. So deeply rooted is it in our socioeconomic fabric that to even suggest doing away with it is going to cause massive panic, even after it "officially" goes bankrupt. Worse still is the fact that as long as the dollar remains a fiat currency and as long as the Fed continues its digital counterfeiting/inflation stoking, there is NO WAY that the dollar will hold sufficient value over time to allow anyone to use it as a stable basis for retirement (or for anything else, for that matter). Couple this with the punitive taxes imposed upon savings of cash in amounts above a certain arbitrary amount kept in "regular" savings accounts that don't have IRS sanction, and you've robbed Americans of any ability to save for their future outside of the State's confiscatory, destructive framework. The bottom line is that unless or until a stable gold or silver-based currency is restored, doing away with socialist insecurity is only half of the battle.

  2. elmo49vera says:

    >Everything you said is true. The glitch is that the gooberment took enough out of my paychecks for thirty-five years that I couldn't afford to invest in Microsoft or one of the other high yield stocks or bonds.
    Socialist, of course Social Security is socialist, everything that the gooberment has done since the thirties has moved us toward socialism.

  3. Anonymous says:

    >After 43 years of being forced into this Ponzi scheme, you can best believe that I want the money that was stolen from me and my employers. Give it to me in a lump sum and I will go away.

  4. liberranter says:

    >After 43 years of being forced into this Ponzi scheme, you can best believe that I want the money that was stolen from me and my employers. Give it to me in a lump sum and I will go away.

    I certainly understand the sentiment, but the sad fact is that whatever money you or I paid into the scam over the course of our working lifetime went right back out of it to pay then-current beneficiaries. Any lump sum equivalent to what you paid into the system over that period would have to come out of the wallets of those at the bottom of the pyramid now being forced to pay into it. I, for one, would be reluctant to steal from someone else in order to compensate for my own losses.

  5. Anonymous says:

    >"I, for one, would be reluctant to steal from someone else in order to compensate for my own losses."

    Stealing is as much a part of our nature as breathing, friend. When will we accept this? Judging by all of the stupid ideologies and religions that we employ to justify our misguided and stupid behavior, I'd say "never."

  6. Tracy says:

    >I agree with this. Here's the way I see it: the governments, not just federal but state and local too, have stolen from me all my life. They didn't, as some claim, make an agreement with me to provide certain services in exchange for a percentage of what I produce, then another percentage of it when I spend anything. No, they basically said to me, "we will take what we want from you. If you resist or try to hide any assets from us, we will imprison or kill you." Then the government apologists told me, "but they are providing all these services to you, in return." Dubious, poorly ministered "services" that I do not want from them and can do a far better job of providing for myself, or trading with others to provide for me. These "services" are always designed in such a way that they benefit the government far more than they benefit me, if at all.
    So I can understand people who say they just want back what they paid in. I want back what I paid in too, with interest. Not to mention damages for all the crap I have suffered from them, all my life.
    But here's the problem with that: as mentioned, government doesn't produce anything. As George Washington said, government is force. Therefore, since they don't produce anything, they don't own anything. How can they pay us back? They can't. The only way a bank robber can repay what he took after he has spent it, is to go rob another bank.
    That is not fair for the first victim, but that is just the way that it is. The buck (pun intended) has to stop here.

  7. Anonymous says:

    >At 35 years old, and with roughly 20 years of working (and paying taxes and SS) under my belt, I would gladly, at this point, welcome the option to cut my losses and opt out of the system entirely. No pay in, no pay back.

  8. liberranter says:

    >At 35 years old, and with roughly 20 years of working (and paying taxes and SS) under my belt, I would gladly, at this point, welcome the option to cut my losses and opt out of the system entirely. No pay in, no pay back.

    Even many of us with a couple of decades on you would gladly do the same. Of course we will NEVER be allowed to do so (at least not until the complete collapse of the system), for to opt out of the system is to deny the Regime the control over us that it requires to sustain its power. Social security has always been less about plundering for revenue than about depriving working Americans of control over their long-term economic futures and forcing them to put themselves at the mercy of the State in their most vulnerable years.

  9. Tom Mullen says:

    >Hello Friends,

    Great comments all around. One of the arguments that I made in my book is that there are no true "moral dilemmas" when it comes to civil society that are not created by government. Here is one: Social Security legally sanctions one generation to steal from the next, justified by the fact that each generation has been stolen from itself. My analogy of "the right to steal a younger neighbor's car because an older neighbor has stolen mine" attempted to illustrate this.

    I have also thought of another solution. I'd even be willing to keep on paying Social Security taxes and not collect the benefits, working until I drop if I have to, on the condition that my children would be released from the program. While I recognize that it is not up to me OR my children to make decisions for them, but up to the state, I "respectfully suggest that this could help the all-good, all-loving state out of its present financial difficulties, which of course are all caused by greed in the private sector. :)

  10. Anonymous says:

    >""It must be responsibly phased out, without cutting off present beneficiaries, and replaced with nothing. ""

    So, you want to rob me to pay some beneficiary, because he was robbed?

    Weren't you the one who preached about the neighbor?

    No way! SS must just die, right off.

    And, I want my money back. As someone above mentioned, a thief can have a trouble paying back what he stole. There is a way to help him, though.

    This is why I shall have a right to put that thief (everyone on gov't paycheck, who never raised the issue of SS being wrong), into a debt prison (those in supreme court, congress and executive positions of decision-making), and have them work till the day they die, or pay back all they took from me by force, with interest, adjusted for inflation. If they die before paying it off, so be it.

    But knowing how rich these thieves become of my sweat, I thing many would prefer to sell their possessions and thus shorten their prison time. See where I am going with this?

    Thieves do not just annihilate the wealth they take. They hide it. There is no need to go after them and to try hard to find it. Let the thieves themselves bring it back, in exchange for their stinking lives.

    I do find your own solution to be admirable. But, why should I be the victim and why should my torturers walk away with my money?
    I would agree to your way, but only after all thieves are in debt prison.