Two Unexpected Reasons to Phase Out Social Security

cropped-bob-shapiro.jpg   By Bob Shapiro

There are numerous valid arguments for phasing out the Social Security System.

These include the obvious, such as, since Social Security is a pay-as-you-go system, meaning that it depends on revenue from current workers to pay for current retirees, it is a Ponzi Scheme which eventually must fail.

I’d like to talk today about a couple of arguments that may surprise you: 1. Social Security, by it’s very design, is racially discriminatory, and 2. Social Security laws trying to foreclose “double-dipping” are keeping American children from getting the best possible education.

Racially discriminatory? A study from the Centers for Disease Control shows that there is a huge gap between life expectancies for black versus white Americans – age 75 for blacks versus 80 for whites (79 overall).

cdc life expectancy

All else being equal, Social Security pays you more the longer you live. So, if a black American retires at 65, he will get benefits for 10 years on average, while his white counterpart will get paid 5 more years, until age 80. That’s 50% more benefits paid!

Now, life expectancies have gone up – and the gap has narrowed – over time. Eventually, the gap may disappear, but in the here and now, the way the Social Security System is designed, the result gives a significantly, quantifiably larger payout based solely on race.

Intentional? Of course not!

Both Americans may have worked the same number of years, earned the same amount of income, and payed the same amount into Social Security. But, they won’t get the same payback. The current setup is Unconstitutional.

The solution is NOT to rejigger the benefit formula so that blacks would get larger monthly checks than whites. That also would be racially discriminatory. Rather, I would suggest phasing out the System, allowing black and white American workers to save and invest the money themselves. They would own the money, and they – and their heirs – would reap the benefits. Let them all take responsibility, rather than the Nanny State.

Negative educational results? Let’s take a look.

Most teachers in the US have school pension plans. One feature of the plans is that the teacher’s pay is exempt from Social Security. Of course, if a teacher has a second (or summer) job, that money is not exempt.

For decades, teachers could claim their pension benefits plus Social Security (if they were eligible) when they retired. They did pay into both. And, a teacher also could claim spousal benefits through Social Security if the spouse’s wages were under Social Security.

This double-dipping was great for the teachers, but because of the benefit payment structure, teachers got much greater combined benefits than a non-teacher. To eliminate this unfairness, Congress eliminated the teachers’ ability to double dip.

Teachers today must choose either their pensions or Social Security. Teachers who have paid anything into Social Security, or whose spouses have paid into it, lose one or the other.

But, the big negative for our children is in the loss of potentially great teachers. Suppose that someone has had a successful career in the private, productive sector of our Economy. If they decide later on to let their years of experience benefit our kids, by becoming teachers (I did this in my early 50s), then they must take a big hit in their retirement income. They must forgo their teacher’s pension, or they must lose decades of Social Security deductions.

For this reason, many would-be great teachers are blocked from benefiting our kids. Current rules act as a barrier against entry into teaching.

Double-dipping unfairly paid teachers more, but forcing a choice pays teachers less, while keeping out qualified career changers.

Rather than suggesting a fix, I think this is another good reason to phase out Social Security. Please recognize that I didn’t say end it. I don’t want to leave current retirees – or soon to be retirees – out in the street.

But we can get rid of this Ponzi Scheme, which is draining the life out of our Economy, in a way which causes the least amount of discomfort. Let’s phase out Social Security.

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2 thoughts on “Two Unexpected Reasons to Phase Out Social Security

  1. Bob the only problem with phasing out SS is that people won’t save enough for retirement. How many people today can’t retire because of the phase out of pensions and living for today and not tomorrow.

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    • I understand your concerns. However, Social Security currently has zero money in the Trust Fund (it has Treasuries, which is the governments promise to pay the government), and is getting into worse shape every day. Lawrence Kotlikoff of BU says the system is $200+ Trillion in the hole.

      So, it’s not a question if Social Security will end, but only will it end suddenly leaving then current retirees in the street, or will it be phased out, leaving future retirees time to plan.

      I would not object to having the phaseout include mandatory payments into personal accounts, like IRAs.

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