- The Washington Times - Wednesday, August 17, 2005

Seventy years ago this past Sunday Social Security was signed into law. This anniversary will bring out assertions of how successful it has been and how important it is to never touch it. Among the most prominent claims of beneficiaries will be “We paid our Social Security taxes; we earned our benefits.”

That has a ring of truth to it, provided one is not misled by the word “we.” After all, we as a society ultimately pay for everything. However, just because it is true for us, viewed as a collective unit, does not mean is true for each of us. But unfortunately, beneficiaries of Social Security’s massive intergenerational income redistribution misuse “we” language to sidestep the issue of how much they have gained at others’ expense. This distorts our understanding.

To illustrate, suppose two of us share a program’s benefits, but I pay a disproportionate share of the taxes. In one sense, we paid for our benefits. However, that masks an essential aspect of what happened — you benefited at my expense.

Whatever could be said of “us,” you could not honestly say “I paid for my benefits,” especially if my benefits also were smaller. But that is Social Security, for those not yet retired.

From Social Security’s inception, with each of its many expansions, those already retired paid no new taxes and those near retirement paid more for only a few years but received increased benefits throughout retirement. That necessarily meant someone else had to pick up the rest of their tab. Those who paid were substantially different than those who received.

“We” language hides the fact Social Security’s start-up phase and each subsequent expansion has benefited those older at the expense of later generations. In fact, it has lasted so far only because it has been repeatedly expanded. In each expansion, a new cycle of older Americans got benefits greater than their costs, leaving the bill for those coming later.

That great deal for early beneficiaries is also the source of Social Security’s current financial problems. As it runs out of new revenue sources it can raid to make good on benefits it overpromised, it cannot be sustained.

This distinction between those who pay and those who receive is also behind the aversion of some to any consideration of private retirement mechanisms. Any such approach forces consideration of a system where individuals finance their own retirement benefits, requiring abandonment of the sleight-of-hand by which pay-as-you-go systems look good now by imposing huge but unrecognized burdens on later generations. Opponents spin such a move toward more honest accounting as proof it is a bad deal. But it is just a scam to make a comparison in which we must pay with private saving whose immense costs are assumed away in the status quo.

Looking at Social Security’s finances as of a certain future date reflects a similar bias. Ignored are amounts owed to those who will have paid but haven’t yet got all of their promised benefits.

Such arbitrary cut-off dates must misleadingly make any private retirement mechanism, which leaves no such burden on later generations, seem worse by comparison.

“We paid our Social Security taxes; we earned our benefits” is heedless that benefits far exceeded the taxes paid by millions of recipients, forcibly imposing costs on future generations. Later generations must get rolled by not only paying for their benefits but also for the unfunded benefits of earlier retirees.

So when Social Security’s anniversary brings out such claims, remember that a more accurate version is “we got more than our share already; you pay the taxes to make those over-commitments good.”

Gary M. Galles is professor of economics at Pepperdine University, Malibu, Calif.

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