President Obama is calling for an extension of the “payroll tax holiday” to stimulate economic recovery. But cutting the payroll tax only aggravates the problem of runaway entitlement spending that is wreaking havoc throughout the western world. What we need is a holiday from lies about Social Security.
The Social Security Act of 1935 was the first federal entitlement program. The term “entitlement” has a variety of definitions in political theory, but in everyday politics it means simply that Congress does not have to vote for annual spending increases for the program. If an individual meets certain established criteria, he or she is “entitled” to receive the benefits. With Social Security, you are entitled to certain benefits if you reach a certain age and have (with your employer) “contributed” payroll taxes into the system.
The fundamental problem with Social Security is that is a “defined benefit” pension system masquerading as a “defined contribution” program. Politicians have been understandably more reluctant to raise taxes (euphemistically called “contributions”) than they have been to raise benefits. The inevitable result has been promises that far exceed resources.
It is true that part of the problem was demographic—that life expectancy in 1935 was 65, and has risen to 78. But the greater part of the problem has been demagogic, not demographic, as politicians use benefits to bid for votes. Even before the system began paying out, Congress extended pensions to spouses and surviving children in 1939. Benefits were extended to millions of previously-exempted workers in 1950. Cost-of-living adjustments were also added that year. A disability program was added in 1956, which today has become a long-term unemployment or welfare program. In the early 1960s, Congress lowered the retirement age. Ten years later, cost-of-living adjustments were made permanent, and minimum benefits were raised. The first serious effort to have contributions catch up to this runaway benefit train came in the 1980s, and they are not nearly adequate.
The problem is not new. Indeed, the very first recipient of Social Security benefits showed the problem. Ida Mae Fuller retired in 1940 after having paid twenty-two (and a half) dollars into the fund. She collected over twenty-two thousand dollars over the next thirty-five years. This is a lottery, not social insurance. While an extreme case, there is no doubt that the vast majority of Social Security recipients have received far more in benefits than they have paid into the system, because Congress has repeatedly added and extended benefits.