Social Security; P.L. Poirot

In effect, such royalties constitute a special tax upon a product which has to compete with other fuels for a market outlet. This tends to reduce the value of past [32 ] investment in the industry. It leaves the industry less attractive than before· as an outlet for productive re sources.Neither new capital nor new employees can find desirable jobs in an industry from which customers have been driven by a tax, even though the tax be levied in the presumed interest of those who have retired. A Lesson To Be Learned From a national point of view, it might not seem important what happens to the Anthracite Health and Welfare Fund or to its relatively few beneficiaries. But that point of view does not diminish the force of the blow to certain individuals. Nor should it diminish the force of the lesson for every other person in the United States. Lack of current revenue to maintain the promised rate of benefits is the sort of disaster which is likely to befall the beneficiaries of any poorly funded pension plan, whether it be privately or publicly financed.

Some advocates of broadened social security coverage may view the collapse of the anthracite fund as further evidence of the need to expand the federal program. But such a conclusion is unjustified. The failure of the secu rity program for hard coal miners stands as a warning against any and every promise of security and independ ence which rests upon a questionable claim to the prop erty or future productivity of other persons. Regardless of the· current economic outlook, there are no competitive industries in the United States today which have been guaranteed a prosperous future. No [33 ] company, nor any industry, controls the buying whims of consumers or the forces of competition. The competi tive economic arrangement allows individuals and even whole industries to fail-if and when capital, labor, and managerial resources are either pushed or pulled toward the more attractive employment opportunities which exist elsewhere. Unfortunately, there are no alternative employment opportunities for poorly funded pension rights. Labor, and management, and even invested capi tal to a certain extent, can move out of a failing business venture, as they have been moving out of anthracite mining operations. But the pension rights of retired hard coal miners are strictly dependent on the income from a declining industry. The inadequate pension fund is being depleted, with little chance of its being replenished.

Of course, there is no certainty that invested capital can be salvaged from a declining business. A pension right, though fully funded by ownership equity in a business, is vulnerable if that business is losing its com petitive position in the market. The market permits unsound investment of any fund, including savings ac cumulated in the name of a pension fund. Ownership equity, however, is a far safer form of old-age insurance than is simple faith in a mere promise. SecuritythroughPrivateProperty Investment of savings in productive private enterprise is the traditional method of achieving retirement security in the United States. Successive generations of farmers [34 ] have worked to build ownership equity in land, build ings, equipment, and livestock, finally to retire in old age upon the income which younger farmers would offer for the rights to use that accumulated capital. Other persons have achieved old-age security through ownership of rental housing, business facilities, productive private property of one kind or another, valuable because some one else has use for it. If the individual seeks· help in arranging his personal security program, the managers of banks, insurance companies, trust funds, and other business enterprises stand ready to accept responsibility for the sound investment of savings entrusted to their care.

It is true that ownership of property involves the risk of loss. The property may wear out, be destroyed, or otherwise lose its value, affording less security than the owner might have anticipated. Yet the economic prog ress which has been so well demonstrated in America attests to the advantages of saving and building owner ship equity in productive private property. Such prop erty enhances personal productivity, which helps to satisfy human needs. Possible gains from the use of more and better tools far outweigh the risks of possible loss of savings. Know ing·· this, .most American citizens would stand in stanch defense of rights to private ownership and control of property if the issues were clearly drawn. Yet this deep seated subconscious respect for property rights may be overridden at times by the highly humanitarian and emo tional appeal of an illusion such as the social security [35 ] idea. In that case, the kind of shock treatment offered the benenciaries of the anthracite fund may be a necessary step in the restoration of self-reliance among men.

No Safety in Numbers It is easy enough to visualize that what already has happened in the case of the improperly funded anthra cite pension fund could· also happen to other company wide or industry-wide private pension programs. But a great many advocates of nation-wide social security can not see that the most probable result of that program will be the same disastrous default on promised pensions. Much of the popularity of the social security program, as it has been operating in the United States, rests upon the false premise that social security is a form of old-age insurance with death benents for survivors-just like an nuities or life insurance policies sold by private insurance companies. Many employees who pay social security taxes apparently believe that they are putting away a savings fund and that any promised retirement benents will simply be a part of their own savings coming back to them. They seem to believe that the promise of a pen sion under the social security program is quite as secure and has as much value as the prospect of future income from personally owned and controlled private property.

And the experience of some of the early beneficiaries of the social security program leaves the impression that here is a far less costly thing than private insurance coverage-almost like something for nothing. [36 ] Taxes Paid and Benefits Received Some persons, having paid social security taxes since they were first levied in 1937, therefore feel that they have earned the right to any benefits allowed under the program. The maximum tax any person could have paid was $30 a year-l per cent on the first $8,000 of his yearly wages for each of the IS years from. 1937 through 1949. In 1950 he might have paid 1~ per cent on $3,000, and in 1951 through 1953, 1~ per cent on $3,600. Thus, if he had earned the maximum taxable income in each of the 17 years, he might have paid a total of $597 in social secu rity taxes. His employer would have matched that amount, bringing their combined total to $1,194.

If that person had retired on January 1, 1954, having reached the age of 65, and if his wife had also passed her 65th birthday, they would be eligible for retirement benefits of $127.50 a month. Thus, within 10 months, that man and his wife would receive more in social se curity benefits than both he and his employer could possibly have paid as social security taxes for his account over the 17 years since the program was initiated. But the life expectancy at age 65 is more than 10 months about 13 years, in fact. By what twist of logic or of morality does any person expect to get from 10 to 15 or even more times the benefIts for which he has paid? At whose expense, and why? The foregoing figures are based on the maximum taxes anyone could have paid through the first 17 years of the [37 ] program. Many of the millions of persons already receiv ing social security old-age benefits established their legal eligibility with far less than the maximum tax payments of $1,194. Is it any wonder that some persons look upon social security as a great insurance bargain?

The truth, however, is that social security is not insur ance at all in the economic sense of the word. The value of private old-age or life insurance protection stems from the insured person's ownership equity in productive property. But the payment of one's social security tax entitles him to no more ownership equity in property than does the payment of a liquor tax, tobacco tax, gaso line tax, income tax, property tax, sales tax, luxury tax, poll tax, or any other kind of tax. The payment of social security taxes cannot endow the payers of that tax with special rights and privileges without denying the rights of other citizens to their income and property. Politically Dependent Unlike private insurance, the protection afforded by the social security program rests upon the willingness and ability of government officials to authorize future appropriations from future tax revenue. The so-called social security fund has not been invested in productive property. In place of the money which was collected to go into the fund, there are receipts saying in effect that the government used that money to meet current operat ing expenses of one kind or another. The government bonds which are said to constitute a social security fund [38 ] can only be redeemed in valuable goods or services as any other government bonds are redeemed-by future levies against the private property and productive efforts of individuals. Who can say now what the real value of a government bond will be to the next generation of taxpayers who may be asked to redeem it in goods and services?

A bond is a form of indebtedness or a liability on the part of the person who issues·it. It is deemed to be the asset of the person who holds it for redemption. The distinction between an asset and a liability is important. The government bonds held in the social security fund may look exactly like the government bonds held by individuals or by private insurance companies. The dif ference between such holdings has to do with the ques tion of who owes what to whom. If a private insurance company holds a government bond, that is an asset. It would be absurd for the com pany to issue and hold bonds of its own, claiming them as an asset, for they would also be a liability. The sol veney of the social security fund is not affected, one way or the other, by its holding of bonds as evidence that the government is indebted to itself. A governmental promise is a promise, whether backed by a bond, or by a social security account, or by a whole pyramid of promises, one upon another. To cancel or destroy the bonds held in the social security fund would not change anyone's equity in anything. The promise of a social security pension has value only because the gov ernment holds the power of taxation-not because it [39 ] issues bonds or makes promises. The validity of social security claims against future taxpayers would not be changed if there were a thousand times as many bonds in the social security fund as at present-or if there were no bonds in the fund at all.

The Inflation Tax Inasmuch as the redemption values of all government bonds, social security benefits, and other governmental promises of future delivery are contingent upon the future collection of taxes, it must be seen that each added bond or promise tends to weaken the financial position of the government. There is a limit to the tax burden which future generations will be willing and able to bear. Actually, the mushrooming of governmental promises of future delivery is a form of current taxation-a method of dipping into private savings, which is commonly known as inflation. When the government sells one of its bonds, or collects the social security tax, it obtains a given amount of real purchasing power from individuals. The dollars with which the government eventually redeems its promises lose purchasing power in proportion to .the vol ume of such outstanding promises. Meanwhile, all other promises which are payable in dollars, including the dollar obligations contracted by individuals, also lose their purchasing power. This encourages private spend ing and discourages saving and private capital formation.

Inflation is a subtle and destructive method of taxation. [40 ] And the social security program is a part of that destruc tion of private enterprise in America. It was a somewhat arbitrary decision which recently halved the returns to beneficiaries of the Anthracite Health· and Welfare Fund-a decision forced by the hard economic fact that declining productivity necessarily means a lower standard of living. Likewise, when· the day comes that American taxpayers will no longer tolerate. a tax burden which robs them of incentive to produce and earn and save, then it will be an arbitrary decision which bears the sad news to social security beneficiaries: t:t:Lack of tax revenue precludes our fulfillment of the poorly funded promises of previous administrations." The most probable political solution will be to let inflation eat away the value of the promised pension dollars. In other words, the dollars may be paid as promised, but bene ficiaries will find little security value in those weakened dollars.

It may be argued, of course, that no aspirant for political office would ever dare renege on such promises to the old folks. But there is the possibility that even tually the citizens who work for a living may resent having their earnings treated as the property of the gov ernment. Those who will be paying the social security taxes are certain to outnumber those receiving social security benefits at any time in the foreseeable future. If the majority of voters should decide that social secu rity isn't worth what it costs, then it won't matter a great deal whether or not the politician wants to renege on his promises. [41 ] A Threat to Property Rights Persons who urge an expansion of the social security program seem to assume that American citizens are no longer interested in the preservation of private property -the protection of the human right to own and control the use of that which one has produced. This is not to suggest that the social security program is the only threat to private property in the United States. There are many others. But the social security threat is somewhat unique in that it encourages the victim to believe that he still retains some kind of a personal claim or right to repos sess property which the government has taxed away from him. If rats destroy 4 per cent of a man's property, he sees that it is a loss of property and not a savings program.

Yet somehow it is presumed to be a form of saving when the government takes and consumes the property. Or, is it presumed that the government actually does store and save the property which it takes in the name of social security? Either presumption, of course, is entirely with out basis in fact. Yet, some persons, who will strongly resist socialism in the form of steel-mill seizures or na tionalization of the railroads, somehow convince them selves that government control of property affords better old-age security than could be attained in any other fashion. One other feature of the social security program tends to conceal the nature of its threat to property rights. The payroll-withholding of the social security tax makes it difficult for the individual to recognize that it is his own [42 ] property which is being taken from him. If the wage earner isnl't even allowed to see his money, how can he see that he might have used those withholdings to pur chase property which could yield him a retirement income?

The deception is aggravated, of course, by the em ployee's impression that half of the cost of his social security is coming out of the pocket of his employer. But the employer is obliged to treat those matching contribu tions to the social security fund as just another current cost of labor. If that 2 per cent were not taxed out of his pocket, then competition would have drawn it out anyway, either in the form of higher current wage rates to employees or in the form of lower prices to consumers. So the net result is that the employee, in reality, stands the burden of the full social security tax, including the share he might have thought the employer was paying. It cannot truthfully be said of any part of the social secu rity program that it is a method of soaking the rich to help the poor. Social security is a feature of the broad socialistic pattern-a special feature which is designed to get at the private property of the man who works for an hourly wage.

Earning Power Is Private Property Far too many American citizens have taken the atti tude that defending private property is the rich manl's job; let him worry about his property rightsl But such a shortsighted view misses the vital point that an individ[43 ] uars earning power is also a form of private property, particularly. to be cherished and defended by any person who has failed to acquire property in other forms. To endorse a principle which allows the government to tax away ever-increasing proportions of privately owned property is to forfeit the only chance man has for inde pendence. A government which can take a man's prop erty, including his wages and other current earnings, can control that man's life. The person who desires freedom is obliged to limit the scope and power of his government. The social security tax was initiated in 1937 at the comparatively low level of 2 per cent of an employee's wages, the employer and the employee each to bear half of the amount. By January 1, 1954, the total tax had risen to 4 per cent, which is still low in contrast with some of the prevailing corporate and personal income tax rates.

It may be recalled, however, that the early advocates of income taxes also scoffed at the idea that such taxes could ever amount to as much as 10 per cent of a per son's income. The ironic truth is that federal income tax rates have "progressed" upward to take as much as 92 per cent of personal income in some instances. Ultimate Costs A further truth is that a tax of 4 per cent of current payrolls barely begins to cover the potential claims which are accumulating under the social security program. Present plans call for successive future increases until the social security tax rate reaches an ultimate of 6.5 per [44 ] cent by 1970. It is likely that by 1970 there will be at least one person over 65 years of age for every five of those younger persons who are supposed to be produc tively employed. Is 6.5 per cent of the wages of five persons-a total of 32.5 per cent of an average wage going to be enough to keep one person comfortably in retirement? Or is this simply another of the wondrous examples of the higher mathematics of socialism?

Amateurs who cannot follow all of the political turns in the 6.5 per cent path to security may find comfort in the knowledge that some of the professionals haven~t solved the magic formula either. For instance, the compulsory social security program which Frenchmen have been trying to perfect for a good many years calls for a tax amounting to 16 per cent of payrolls. No doubt they also had hoped at one time that the tax need be no higher than 6.5 per cent. The social security features of the United States rail road retirement system were initiated in 1937 with a payroll tax of 5.5 per cent, but by 1952 that rate had climbed to 12.5 per cent. The anthracite fund pensions had to be cut from $100 to $50 a month, even though the tax-like contributions to the fund were said to be equivalent to more than 15 per cent of the wage bill of the industry. Such experiences tend to arouse suspicion of either the motives or the basic· intelligence of those who prom ise that by 1970 retirement security can be achieved at a cost of no more than 6.5 per cent of payrolls. If it cannot be achieved by small groups within a nation, and [45 ] if it cannot be accomplished in other nations, then why should anyone believe that it can be done on a nation wide basis in the United States-in 1970 or at any other time?

Compulsory Security Its proponents "hope eventually to have all people who work for a living covered by social security." This calls for a national program compelling individuals to do what they could not or would not attempt on their own initia tive. There is a certain plausibility in the rationale that persons most likely to be dependent in their old age should be obliged to help foot· the bill during the pro ductive years of their lives. Such reasoning, of course, presumes it to be the responsibility of the government to relieve the consequences of poverty. From such plausi bilities,. individuals are drawing the conclusion that they have a right to retire at age 65, with no further personal responsibilities for earning a living. When one attempts to follow through the various ramifications of those no tions, he is bound eventually to question the original premise: Is it right that the alleviation of poverty be considered a social rather than a personal responsibility?

If this is accepted as a general principle, then how does a society stop itself short of complete socialization? Compulsory social security forces a person to invest a portion of his earnings in a "business" which already has a debt of more than a quarter of a trillion dollars and which seems determined to operate at a deficit-the [46 ] United States government. Little wonder that participa tion is compulsory! Pay-As-You-Go For those who enjoy diversion, there is talk about put ting the social security program on a straight pay-as you-go basis. This is supposed to mean that current benefits would be paid entirely out of current revenue under the program, with no pretense at building a fund to cover outstanding commitments. Such discussion might have some significance, except that the program, in effect, has always been on a pay-as-you-go basis. The fact that annual tax revenue under the program so far has always exceeded the payouts to beneficiaries doesn't mean that anything of value was ever stored away in a fund for future use. It may be true that not all of the money was used for retirement security for old folks, but it's gone! A person who chooses to believe that his social security tax money has been tucked safely away as in a personal savings account is only deceiving himself.

FullyFunded The alternative to a pay-as-you-go social security pro gram would involve governmental disbursement from goods previously collected and stockpiled as public prop erty. This seems to be the alternative favored by persons who want a fully-funded social security program. If such a stockpile were ever attempted, the magnitude [47 ] of the problem may be judged by alook at the figures of private life insurance in the United States. An ordi nary rate of return on the total volume of assets owned by all life insurance companies would yield only enough to provide about one and a half million persons with a regular income of $100. At least eight times that number of persons in the United States are aged 65 or older. Do persons who urge the government to cover 12.5 million old folks with a fully-funded social security pro gram understand the implications of such a proposal? The fund for such a program-assuming a monthly pen sion of $100-would have to yield an annual income of nearly 15 billion dollars. In effect, that would mean gov ernment ownership and control of about 500 billion dollars worth of the property which previously had been under private ownership-that much property in addition to what the government already owns outright, or at least controls through the power of taxation. In that sad event, it is doubtful that there would be any property income left for private use; the government would have claimed it all. At least, the precedent would have been established by which to erase the last vestige of the sys tem of private capitalism in the United States.

When the chief actuary of the Social Security Admin istration says that the amount of Old-Age and Survivors Insurance in force "is about $300 billion at the present time" [August 1953], he is only referring to the size of the promise which the government has made. In other words, that is the liability which will have accrued when all persons who are now paying social security taxes be[48 ] come eligible to receive those benefits already promised. A former actuary of the Social Security Administration estimated in 1953 that the program as of that date was at least $150 billion short of being a funded insurance operation. Yet, some persons have the audacity to say that social security is like private life insurance! A Method of Taxation The truth is that the social security program is not an insurance program at all; it is a method of taxation. Instead of cCpremiums,"the required payments are desig nated as social security taxes. That is no secret. Yet there remains something peculiarly deceptive about this par ticular method of tax collection which seems to give satisfaction to many of those who work and pay the tax.

Nowadays a direct tax that can be recognized as such by the taxpayer is a rather crude and repulsive thing. Prop erty owners have been taxed so heavily that many of them dislike the tax collector-a situation which can lead to all sorts of political complications. Where the citizens have grown accustomed to the idea of private ownership of property and the right of a man to the product of his own efforts, it is not politically expedient for the govern ment to insist upon too much direct taxation. The ma jority won't stand for it. Politically, the government may dig heavily into the property of the wealthy few. But just let the government try to dig heavily into such prop erty as may be owned by those citizens who constitute a voting majority! If the government expects to take a [49 ] very high proportion of national income, it usually will search for methods of raising revenue which are· more ingenious than direct taxation. And the social security tax is loaded with ingenuity.

Why Wage Earners Have To Pay Government has become very expensive in the United States. The financing of government currently takes more than a third of the total national income. When government was less expensive, it was possible to finance it through property taxes or levies against the income from property. But that is no longer true. Less than one-sixth of the national income of the United States is derived, from the returns to capital; the other 85 per cent represents the price paid for current wages or for their equivalent to the self-employed and to manage ment. Therefore, it is clear why the government seeks ways and means of taxing wages. Even if there were no promises of social security benefits, barely half of the other costs of government could be met out of a total confiscation of the income from private property. The only thing left to tax is the current productivity of those who work·for wages and salaries.

Let no one be persuaded that the social security pro gram is the, only reason why the government finds it necessary to tax wages. But also let no one deceive him self that there is any way of financing the social security program and similar "benefits" from the Welfare State except through heavy taxation of wages and salaries. [50 ] The Weak and Dependent When a government scrapes the bottom of the barrel of personal savings and private property, then its final recourse is to the daily production of those who work for a living. The promise of social security is like an anesthetic which temporarily relieves the pain of those workers whose earnings are being taxed away. But if the patient regains consciousness, it will be to discover that the operation took something from him which was vital to life and liberty-destroyed some of his potential as an individual, leaving him more dependent upon govern ment than before.

There is no denying that social leveling has a strong emotional and humanitarian appeal, not only for those who feel weak and dependent, but also for many who feel strong and noble. And few will deny the virtue of helping those who want and need assistance. But if any person would retain the freedom to determine his own needs in life, he must equally defend the freedom of every man to determine in his own way how to help others. The political or coercive route to security is not entirely a primrose path of something for nothing. What starts out as a popular pastime of soaking the rich turns into a program of taxing everyone who works for a liv ing. And as socialism advances, the weak and dependent find themselves competing with the youthful and· strong who have also been driven by hunger to the public trough. Such competition in sheer desperation is far more ruthless than that which is sometimes frowned upon [51 ] in the open market. When. people lose respect for the rights of one another to life and to property, then the weak and dependent may expect to be early victims of murder and theft.

If the less productive members of a society truly seek security, let them rally to the defense of the freedom of choice and freedom of action of those who work for a living and who are personally productive. Let them vol untarily deal with one another in a market place kept free of compulsion. Such voluntary trading directs the instruments of production and the means of economic security into the hands of those most capable of serving all mankind. It promotes mutual respect for life and property. It stimulates every individual to develop his own talents to their maximum productivity. It encour ages saving instead of squandering. The free market, and not its displacement by governmental controls, is the only route to the kind of personal security which makes for harmonious social relationships. Security Is an Attitude A feeling of personal security depends upon something more than the legal guarantee of a handout in time of need. Security is an attitude not necessarily satisfied by an "equal share" or even by an abundance of material goods and services. To be truly secure is to be without cause for anxiety, and that kind of security stems from the mind of an individual who knows that he has done his very best with what was properly his own. Such [52 ] security is fed by one's respect for the rights of others to Hfe and property, a respect upon which is based one's own claim to those rights.

Though older persons may not serve well in the armed forces, or in defense plants, or in the various other activities incidental to the support of big government, that need not preclude their being loved and respected as individuals. That is not sufficient reason for a law which tends to put an end to individuality and its expres sion at age 65. If the young men and women of today's generation have lost a sense of love and respect for their aging parents, that is something which the government cannot restore through its devices of compulsion. That is a form of insecurity which must be borne by parents whose cause for anxiety lies in their having failed to convey to their children the concepts of the sanctity of the individual and the rights to life and private property. A Code of Ethics The same time-weathered code of ethics which advo cates honoring one's father and mother recommends respect for the life and livelihood-the private property -of others. To violate any part of that code destroys the meaning of the rest of it. Society cannot enforce a law which guarantees security to the aged by denying the producer the right to the product of his own efforts. The best that society can do is to give'the individual a chance to honor and respect his elders. This means allowing the individual his choice concerning the use to be made of [53 ] his own life and his own productive efforts. It is possible for an individual to honor and respect others who are tolerant of his freedom to choose. But rare indeed is the individual who can extract love and honor from others by compulsory means!

Such things as love, respect, honor, and justice in the relationships between persons are measurable and mean ingful only to the extent that individuals voluntarily reject an opportunity to dislike, disrespect, dishonor, or deal unjustly with others. And old-age security also falls into that category. Since a weak person cannot force a strong person to help him, it would seem wise to put the appeal on some basis other than coercion. This means retrieving the responsibility for old-age security from the hands of government which depends exclusively upon the power of coercion. [54 ] IN AN IDEAL AMERICA EVERY PERSON SHOULD BE FREE · .. to pursue his ambition to the full extent of his abilities, regardless of race .or creed or family background. · .. to associate with whom he pleases for any reason he pleases, even if someone else thinks its a stu pid reason. · .. to worship God in his own way, even if it isn~t t:t: orthodox."