February, 1990

Fruits of Thought

Social Security Reform

With many produce employees paying more in Social Security taxes than in income taxes, the debate over Social Security is one produce people must pay careful attention to.

Fundamentally, a program such as Social Security is necessary because, as a society, we are unwilling to have our elderly citizens suffer terribly due to financial problems. If it was acceptable to have old people die of starvation because they were poor, we wouldn’t need Social Security.

Of course, the curiosity about this is that most Americans are not poor during their working lives and so, if we don’t take away their savings with inflation and high taxes, most people should be able to save enough money to fund their own retirements, particularly in combination with private pension plans. But, the truth of the matter is that many people will not do so. Many people, perhaps most people, will spend every dime they make, and if they make more they will increase their lifestyle by spending more. Saving is an alien word to many.

Now, I am a bit uncomfortable with the idea that we should force people to save, after all we are speaking of individual’s lives. The trade-offs between savings for retirement and consuming now are intensely personal. Let’s imagine someone whose child has gotten into a very expensive but very fine school. The tuition might represent all the money that parent might have been reasonably able to save that year. By what standard do we go to that parent and say that you cannot spend that money on tuition, rather, you must save it for when you are 65? It is something I have enormous problems trying to defend. These decisions are difficult ones, and I have to believe that individuals working closer to the situation are more likely to make good decisions than is Washington to make good decisions for these people.

O.K., so let’s put aside the question of whether government should be involved in doing this at all. Let’s just ask if the Social Security system is the best way to achieve the goal of forced savings.

I would say it is not. What if instead we create an IRA-type account, but make it mandatory? In other words, instead of paying into Social Security, we require every employer to pay an amount equal to what is currently paid to Social Security by the employee and the company, and suppose we say that the employer must forward these funds into some type of mandatory IRA, selected by the employee. It could be at a bank or a brokerage house or other financial institution. Then we require that this account cannot be invaded for any reason until some special retirement age, however, we also make clear that this is the employee’s fund, to go with the employee in the event of job changes, early retirement, etc.

The benefits of a plan such as this are many: 1) It would be a fairer plan. Under the current law, a couple can work all their lives, contribute to social security all their lives, then be killed in a car accident the day before they are to start collecting, and all their money would be taken by the government. Under my plan, the money is their’s, not the government’s. As such, it would go to their heirs. 2) The money raised in such a plan would be available for productive investment in the private economy. 3) Citizens would feel a greater stake in society when they get their monthly statement showing what they own. 4) Citizens would understand that they have an active role to play in managing their resources and planning for retirement. They wouldn’t become passive and feel that the government is going to handle it all for them. 5) The massive Social Security bureaucracy wouldn’t be needed. And the inefficiency of collecting money from everyone merely to give it back to everyone would be avoided. 6) Social Security would no longer be a political football for politicians to use to gain political advantage by proposing higher benefits or lower taxes. 7) People would see a direct connection between their work and their future prosperity by noting the deposits in their account each month. 8) The government would not be able to use fluctuations in Social Security revenues to hide the general budget deficit. 9) It will make people realize that there is no such thing as a free lunch and that their prosperous retirement depends on their earnings today, not on the whims of political fortune.

Of course, this proposal would not solve every problem in the world. Some people will still reach retirement without adequate resources and so, if we want to avoid suffering, we will have to help these people. But a program of mandatory savings such as the one I propose would take care of the overwhelming majority of the population, making the remaining problem sectors of the population more isolated, more manageable problems.

I believe the greater value of a program such as this is its ability to influence the quality of our citizens. A society such as ours depends on people who are strong and independent. To the extent that we can structure our national institutions to encourage this self-sufficiency, we help to encourage the growth of those qualities necessary to ensure the survival of our republic.

The produce industry deals with a lot of people who are marginal members of American society, from migrant workers on the farms to lumpers in the markets. It is surely in our interest to see these people included in the circle of citizens capable of sustaining American liberty.  pb