The Big One

May 26, 2004 • Commentary

Much of this election year’s rhetoric has been about Iraq, terrorism, and the economy. Understandably, Americans may think that the importance of their vote stops at the water’s edge of these issues. They would be wrong. The stakes are much higher.

This election is also about choosing between two overarching philosophies: Should individuals be free to choose and be responsible for their own actions, or should these liberties be the role of government? This is a big one. The stakes are high. One side will lose.

Government power and authority increase during times of conflict and economic pain. And when the conflict ends, government power does not recede to its original position. As a result, the role of government advances with each new conflict. The Great Depression is illustrative. During this period unemployment reached 22 percent, the stock market virtually imploded and GDP fell by about 25 percent. America was on her economic knees.

In response, President Roosevelt ushered in the New Deal and its flagship program, Social Security. Although at that time large government programs were anathema to the frontier spirit of our young nation, Roosevelt, in his First Inaugural Address on March 4, 1933, asked for authority “… as great as the power that would be given me if we were in fact invaded by a foreign foe.”

From Social Security’s beginning in 1935 until now the system has grown to be the largest government program in the world, paying 47 million beneficiaries each month and covering about 156 million workers. Yet, over its 69‐​year life its depression‐​era financing has not fundamentally changed; benefits are still provided by taxing workers’ payroll. Because of increasing life expectancy and falling birth rates, the number of workers per beneficiary has declined from 16 to 1 in 1950 to just about 3 to 1 today, a downward trend that is expected to continue at least through the middle of this century.

Our government’s response to these demographics has been to raise the maximum payroll tax from $90 in 1950 to $10,900 today. And now, for about 75 percent of working couples, their payroll tax is greater than their income tax. Under current law the payroll tax is scheduled to increase each year; tax increases are on auto‐​pilot. Even though the payroll tax has ballooned in the post‐​war period, future taxes are expected to be less than future benefits by about $4.4 trillion, or $43,000 per family. That’s how much each family would have to give the government today, along with mandated rising payroll taxes, to afford scheduled benefits.

Benefits received from paying the tax have also increased–but by less. And given that one normally receives benefits because of paying taxes, a link can be made between the two. From this perspective, one could earn significantly higher benefits by investing the same tax dollars in the growth of our economy through participating in our capital markets, just as is routinely done in employer‐ and union‐​sponsored defined benefit plans as well as 401(k) plans and IRAs. Saving and investing part of the payroll tax in our markets is what is commonly called privatization of Social Security.

President Bush, as a candidate in 2000, suggested that each American should have this opportunity. No forcing, just the freedom to make a choice. Individuals would have significantly more control over their retirement planning and decisions and, importantly, be responsible for their own actions. Government’s role would recede.

Senator Kerry apparently sees it differently. During the Democratic presidential primary debate in Iowa on Jan. 4, 2004, Kerry said: “I will never privatize Social Security.” Compared to the Bush proposal, the senator’s statement suggests that Americans would have fewer choices, less control over their retirement planning, and less freedom of choice. The government would provide, and be responsible for, much of your retirement income, and shelter you from the risk of making your own decisions. Government’s role would advance.

What is it about a political philosophy that argues that individual behavior, choice, and freedom should be the role of government? Is it because government is wiser than the individual? Is it because the individual must be protected from himself? Is it because if one were empowered to make decisions for himself and his loved ones, then the government would play a lesser role? What is it?

As you listen to both presidential candidates express their vision for the country, consider these questions. Philosophical opponents need a playing field on which to marshal their forces and compete. The fundamental policy differences concerning the role of government versus the individual in a free society will likely be played out this election year on the Social Security reform field. The stakes, indeed, are very high. One side will lose.

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