A reader — one of many similar — recently wrote in to complain \u201cThey tell us that Social Security and Medicare are broken. The fact is the government used that money for wars and should have left the money in the so-called lock box. … I\u2019m incensed that those programs are called entitlements. I paid into both, and I am entitled.\u201d<\/p>\n
She\u2019s entitled … so we should stop calling them \u201centitlements\u201d?<\/p>\n
Beneath this linguistic confusion surely lurks a thought — a thought probably shared by many Americans: that Social Security is an insurance program. American workers are required to pay \u201cpremiums\u201d into the program, while their employers match those \u201ccontributions\u201d — all diverted from what the worker could otherwise take home and invest for him or herself.<\/p>\n
An annuity is thus formed, an \u201cinvestment yielding periodic payments during the annuitant\u2019s lifetime, for a stated number of years, or in perpetuity,\u201d administered by the federal government, which thus incurs an obligation to pay it all back.<\/p>\n
It\u2019s a lovely idea, and there\u2019s no doubt politicians going back at least as far as Franklin Roosevelt have gone to considerable pains to convince Americans this is exactly what\u2019s going on. It\u2019s so less warm and cozy, after all, to say the \u201cSocial Security tax\u201d was just another general purpose tax, spent as it came in on wars and Solyndra subsidies and locking up pot smokers, while in the meantime Social Security CHECKS are nothing but welfare payments to the unemployed elderly, directly transferred from the paychecks of today\u2019s young workers — as long as we have some left.<\/p>\n
The notion that \u201cIt\u2019s insurance …it\u2019s an annuity\u201d is far more attractive, the only teensy problem being that it\u2019s not true.<\/p>\n
A maiden lady from Vermont named Ida May Fuller — a classmate of Calvin Coolidge — received the first Social Security check, check number 00-000-001, in the amount of $22.54, dated Jan. 31, 1940. She had paid into the system for a mere three years before filing for benefits. Because \u201ccontributions\u201d at the time were mere pocket change compared to today\u2019s levies, most such early recipients lived long enough to receive far more than they paid in.<\/p>\n
How did the government do this? By investing those nickel-and-dime \u201cpremiums\u201d in oil wells or railroad bonds or soybean futures that happened to skyrocket in value? Nothing of the sort. Social Security was a Ponzi scheme from the start, transferring payments from those who signed up later to those who were first on board, allowing the whole shebang to be marketed as Pie in the Sky Till You Die.<\/p>\n
No one went to Aunt Ida after she\u2019s received her first few checks, after all, and said \u201cSorry, you\u2019ve now gotten back everything you paid in.\u201d<\/p>\n
Whether participating in Social Security withholding is actually mandatory is a topic for another day. I\u2019ll just point out that it says at the top of the form W-4 \u201cRequest for Withholdings,\u201d not \u201cRegistration for Mandatory Withholdings.\u201d It\u2019s far more convenient for courts to be able to toss out questions of what you were \u201cat liberty\u201d to do or not do, you see, if they can say, \u201cYou voluntarily subjected yourself to the terms and conditions of the program when you voluntary signed these forms; no one held a gun to your head.\u201d<\/p>\n
We certainly understand there\u2019s no little pile of money stored in some obscure Washington pigeonhole with our name on it. Otherwise any participant who dies a few months after reaching age 65 would have a whole lot left in his or her \u201caccount.\u201d Can you make out a will to leave the remainder of the funds in that personalized Social Security \u201caccount\u201d to your surviving spouse or child? Or course not.<\/p>\n
But it\u2019s worse than that. It\u2019s not even a guaranteed annuity.<\/p>\n