Social Security And The Constitution

by JoeTheEconomist November 4, 2011 5:50 AM

First, I don't know whether Social Security is constitutional or not.  Personally, I don't see the authority granted in the Constitution, but I don't get paid to interpret the Constitution.  The nine Americans who do get paid to struggle with the meaning of the Constitution say that it is constitutional.  The governance of our country gives this power to these nine people whether I agree with their decisions or not.

I don't get involved in the discussion because whether it is constitutional or not will not change the outcome of 70 years of an unconstitutional government program.  Over those years, Social Security transferred wealth from the working generation to seniors.  As a result, we cured poverty in the elderly class by creating it in the working class.  Proponents say that Social Security keeps 13 million seniors out of poverty, but they strangely never ask how it is that 13 million seniors arrived at retirement in poverty.  Well the answer is Social Security.

As payroll taxes have risen, we have seen a corresponding drop in savings. People have less from which to save once the first 12.4% of their income has been taken and distributed to other beneficiaries. As people save less, they lose not only their contributions but the earnings on their contributions. For the person born in 1970, the average cost of Social Security has been more than $500,000 in lost savings.

So if we decide that Social Security is unconstitutional, what happens?  There are millions of people in the 40-55 year-old bracket that have lost savings.  Do they simply lose out? Unless you are ready to make them wards of the state, another unconstitutional concept, we will have poverty levels never seen in this country's history as people who were deprived of savings reach retirement with no nest egg on which to retire.

The crisis is on the way.  We have increased our payroll taxes in large part by decreasing our income taxes.  Today roughly 50% of the country has no tax obligation.  Many of these people pay payroll taxes from which there are no exemptions, deductions or credits.  While we have been funding our retirement account, we have put the rest of government on the children's credit card.  Now we expect our children to both retire our debt and provide income to supplement our retirement.  We expect them to do what no generation in history has done.

Today, we are largely blind to the crisis because we are able to print money or issue debt obligations that make the system work.  Debt is simply more demands on the future revenue that we need to keep Social Security solvent.  When we lose the ability to issue debt, and we will at some point, the crisis of Social Security will start in earnest.  At that time, the working generation will face a choice they can either pay more in income taxes to pay down their parent's debt or they can pay more in payroll taxes in order to support the retirees who created the debt.

The crisis will require government action that will be unconstitutional.  So if I don't ask whether Social Security is constitutional it is largely because I know that the cure will not be. 



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