Sunday, February 13, 2011

Social Security system a trap foisted on public

Published in The Tennessean, Sunday, February 13, 2011

Social Security system a trap foisted on public

by Richard J. Grant

Among politicians, there is an old saying that “perception is reality.” This actually applies to any form of human action. People act upon what they believe to be true, which is not necessarily the same as what really is true. This does not protect them from unintended consequences. But from a politician's perspective, what counts is what voters believe at the time that they vote.

This helps explain why government has a tendency to grow. Political leaders and administrators, whether elected or unelected, find it easier to gain the support of those who come to depend on them for income or protection. To hold power, and whatever personal satisfaction that brings, a politician must compete not only with other politicians, but also with the empowerment that each individual finds through personal liberty and a rich array of private alternatives in the pursuit of happiness.

Many politicians have found that they can tip the balance in their favor by closing off some of those private alternatives to individuals. Direct assaults on a voter's individual rights would be as well-received as surgery without anesthesia. But with skillful application of the right political anesthesia, a politician can lead voters to purchase their own gold-plated handcuffs and to wear them gratefully.

The Social Security system did not come into being as a result of any demand from voters. In fact, given the ethic of the time, most Americans would have seen such general dependence on government as offensive – though the experience of economic depression created sympathy for narrow assistance to those who were old and poor. The real incentive to create such a dependency structure was felt by certain politicians and by the bureaucrats who would be paid to administer the system.

The president had a particular system in mind; and congressional leaders managed to put together a coalition to pass the original Social Security Act in 1935. With the act in place, next came the sales job on voters. The new Social Security Board advertised heavily, just as government agencies advertise to manage our perceptions today.

In order to pass the constitutional smell test, the Social Security taxes initially were called what they were, taxes. The portion deducted from the visible wages was called an income tax, and the portion attributed to the employer was called an excise tax on wages paid. But to ease the program's acceptance by the public, these taxes were advertised as “contributions,” as if to an old-age insurance policy. Also, the taxes were introduced gently, with each rate at 1 percent of wages (for a total of 2 percent), later rising in scheduled increments.

Voter resistance was reduced by the low starter rate and the illusion that the employer bore as much as half the tax burden. To this day, most employees do not perceive the reality that they bear virtually all the tax burden associated with Social Security. They believe that the employer's portion is like an extra gift – something for nothing. But the employer's portion of the tax is part of the cost of employing the worker. The cash paid in taxes would otherwise be available to be paid in wages or other benefits. The worker is usually unaware of what he is losing, which means that he does not perceive the full cost of Social Security. And this is only the beginning.


Richard J. Grant is a professor of finance and economics at Lipscomb University and a scholar at the Tennessee Center for Policy Research. His column appears on Sundays. E-mail: rjg@richardjgrant.com

Copyright © Richard J Grant 2007-2011

Link: On the burden and viability of Social Security