Despite the fact that your payroll taxes are called “federal insurance contributions,” they are nothing like insurance policy premiums because there is no policy, no contract, and no legal claim to benefits. Your payroll taxes are nothing special, just taxes. They’re spent right away on checks to current retirees and items in the general budget, like the war in Iraq and subsidies for mohair producers.
The money that comes out of your paycheck buys you nothing, not even a right to retirement benefits. That’s the upshot of the 1960 Flemming v. Nestor Supreme Court decision. Whether you’re going to receive a Social Security check from the government at all depends entirely on the good grace of folks like Tom Delay and Ted Kennedy. Social Security provides no “guarantees.” Every serious plan to make Social Security solvent involves higher taxes, smaller benefits, or both. You may feel that you’ve earned a right to Social Security benefits by paying all those taxes all those years, but all you’ve really got is a feeling, because the right, legally speaking, ain’t there. Social Security is not secure.
Personal retirement accounts, however, would give each worker genuine property rights to his or her retirement savings. The money that goes into a PRA goes straight from your paycheck into an account that you own. It’s not a promise; it’s property. Instead of paying taxes for missiles and mohair, you get a tax cut that allows you to save and invest for your own retirement. And because what you save is yours by right, you can, unlike Social Security, pass it on to your loved ones when you die. With PRAs, you literally own the source of your retirement security, and it cannot be held hostage, whittled down, or bargained away by future Congresses.
The fact that PRAs offer a real, legally‐binding right, while the status quo offers only cheap‐talk, is a thorn in the side of status quo‐ists like Paul Krugman. In a recent debate, the Cato Institute’s Michael Tanner pointed out to Krugman that Social Security offers no guarantee and turns retirees into supplicants hostage to the grace of Congress. In response, Krugman called the fact that retirees have no legal right to their retirement benefits a “fantasy problem.” Why? Because “the government can take lots of things away if it chooses to. Private property is a social institution, not a physical fact.”
What Krugman is saying is that there is nothing to stop the government from violating its citizen’s rights, and so genuine, legally‐binding property rights are only a paper assurance that adds nothing to retirement security. “Yes, the government might end up failing to pay the current schedule of benefits,” Krugman admits. But “the government might also levy prohibitive taxes, it might seize your property.” Krugman goes on to argue the real bulwark against government depredation is public opinion and political pressure. Because Social Security is so wildly popular with seniors, of which there are many, there’s little chance benefits will be “gratuitously reduced” by election‐seeking politicians.
But Social Security is so popular largely because citizens think they have real legal rights to their benefits because they paid taxes all those years. And they think it because the government has manipulated us into thinking it.
Political manipulation: that’s the function of a payroll tax dressed up as “insurance contributions” and the accounting mirage that is the “Old‐Age Insurance trust fund.” Roosevelt insisted that Social Security be funded through a special payroll tax rather than general tax revenue in order to create the perception of moral, legal, and political entitlement to benefits. Americans believe in private property and the sanctity of contracts. So Roosevelt, without scruple, told Americans that their payroll tax “premium” was “buying” an “insurance policy” with the government. He told Congress that the “old‐age insurance system” has created “individual accounts” for millions of workers who may be “likened to the policy holders of a private insurance company.”
“With those taxes in there,” Roosevelt once said in a candid moment, “no damn politician can ever scrap my social security program.”
Of course, there are no “policies,” “individual accounts,” “premiums,” or “insurance,” and there never were. Social Security is a regressive tax and a stream of government checks. The rest is an elaborate illusion meant to prejudice the democratic process and insulate Social Security against reform. The architects of Social Security “sought to foreclose the options of future generations” and had “designed social security to be uncontrollable,” observed eminent Social Security scholar Martha Derthick. Social Security became the “third rail” of American politics only by grafting on to deep American convictions about property, contract, and insurance.
It is therefore specious in the extreme to argue, as Krugman does, that legally‐binding property rights over personally owned retirement accounts offers nothing in security that the status quo does not already have.
The political vitality of Social Security‐as‐we‐know‐it was designed to be parasitic on the American commitment to property and contract. But parasites cannot be more secure than the host. If Congress fears to trespass on illusory property, it will not be bolder when encountering a real legal fence. Personal accounts — real ownership, real rights — offers in reality what the status quo offers only in appearance. The shadow, as Plato would remind us, is not more solid than the form.
Americans deserve real ownership, real property, and real retirement security. Unlike the slowly eroding status quo, PRAs offer Americans the real thing.