Social Security’s Solution
by John F. McManus

Just as Otto von Bismarck advised for Germany, our own Social Security program has fostered a widespread dependence on government. The program has also added an increasingly severe burden on taxpayers and walked roughshod over the U.S. Constitution. Yet its highly touted benefits deliver less than a bare subsistence living. Like all socialistic programs, its real success consists in giving government the power it seeks to control the people.

Working Americans who are forced to participate in this program know it is costly. But few realize that the costs could include more than money — that it may destroy the nation’s economic well-being and their own personal freedom.

When the program’s wealth-transfer mechanism began, minuscule payments into it turned out to be a bonanza for those who soon retired. For very little paid into it, they received monthly checks until death. The taxation to fund the program in those early years was small, however, and generated few complaints. But Americans currently reaching retirement age have paid Social Security taxes throughout their working lifetimes. If they would have had freedom to invest those dollars in a program of their own choice, their return would dwarf what the government will provide.

Among the many studies showing the enormous contrast between private investing and the compulsory government program, the Washington-based Cato Institute looked at the future for a 35-year-old earning $33,200 annually, an average union-worker wage at the time of the study (1998). Social Security promised him a return of $1,559 per month upon retirement at age 67. Had he been able to invest his Social Security taxes in bonds, he would receive $2,671 per month when he retires. If he were free to invest in a mixture of stocks and bonds, his return would be $5,002 per month. And if he relied on investments totally in stocks, he could receive even more.

Even though the program is fiscally, morally and constitutionally bankrupt, it can stay alive as long as the federal government can continue to impose taxes, or borrow needed funds, or expand the money supply (inflation) by creating the new money it needs out of thin air. But fixing the program is impossible; it must be abolished.

America became great because of limited government and free enterprise. It will stay great, and become even greater, only by returning to its roots. What follows, therefore, is a step-by-step way to dissolve and to replace the Social Security swindle with a truly American solution.

1. Government should announce that the program will be phased out with no new participants allowed into it.

2. All retirees who wish to continue receiving payments should be permitted to do so according to existing benefit schedules.

3. Americans who are nearing retirement age and prefer to continue paying into the program should be allowed to do so, and benefits paid to such persons upon retirement should follow existing schedules.

4. Current workers who wish to quit the program should be given that option. But some arrangement should be made for repayment of whatever amount has been taken from those who leave. The original 1935 Act promised to pay each participant at least as much as he or she had been forced to pay into the program. This promise was one of the first of the program’s features to be abolished. It should be restored. Payments need not be lump sum, and could be spread over a reasonable time period.

Younger Americans entering the work force will undoubtedly want to be allowed to begin their own investment/retirement plan. Without doubt, the end of compulsory Social Security will trigger the birth of many privately run firms offering a variety of pension, investment, health care, and unemployment plans.

Funds needed to fuel the system while it is being phased out could be acquired in part by selling off vast tracts of federally owned land. All such sales must be approved by the appropriate state governments. The market value of federally owned lands easily runs into trillions of dollars. As another indication of how far the nation has strayed from the Founders’ intentions, the Constitution authorizes the federal government to own only lands comprising "the seat of the Government of the United States" and other parcels "for the erection of magazines, arsenals, dock-yards, and other needful buildings." But millions of acres of land, especially in the Western states, have been improperly absorbed by federal agencies.

In addition to selling off these unconstitutionally acquired lands, all businesses owned by the federal government should be sold or closed. There is not now and never has been any authorization for the federal government to become a competitor of free Americans in commercial enterprises. Simultaneously, onerous, suffocating regulatory measures must be repealed, breathing life back into the nation’s manufacturing, mining, and timber sectors.

More funds would be available to cover the gradual phase-out of Social Security if numerous unconstitutional federal programs were abolished. For instance, Congress should halt foreign aid, stationing troops and sending them all over the globe for "peacekeeping," the costly burden of membership in the United Nations, and numerous federal programs never authorized by the Constitution.

One extremely harmful effect of a high-taxing, socialistic scheme such as Social Security is that it transfers funds from productive citizens to nonproductive government. In the process, a huge portion of the savings of the people never enters the borrowing pool, where it can be put to work to fuel the free enterprise system. In a non-controlled society, the people’s savings become available as loans that enable others to build new businesses, create new jobs, and increase the nation’s productivity. Any program that inhibits saving by the people negatively impacts real economic growth.

Discussions about the inequities and downright dangers posed by the Social Security system inevitably invite predictions of social catastrophe issued by individuals claiming to be paragons of compassion. But other nations have recently shown that phasing out a social security program will, instead, create an economic boom benefiting virtually all.

In 1973, after a decade of racing toward totalitarian socialism, the nation of Chile found itself saddled with wild price increases, a huge debt service, draconian price controls, nationalized industries, land takeovers, and the many police state practices always accompanying a slide into tyranny. It was then that a coup d’etat led by military leaders took control and reversed Chile’s course. In just a few years, the nation’s adoption of free market practices resulted in stable prices, a balanced budget, low interest rates, and rising employment.

Then, in 1981, the nation’s leaders began to dismantle the compulsory social security/unemployment compensation/health care system. From a tax of 29 percent of each worker’s wages and an additional 20 percent tax paid by the employer for each worker, the new plan relieved employers of their burden completely and gave workers a choice to leave the government program and enter a privately run, for-profit investment program.

Workers who opted for the free enterprise program immediately received a sizable boost in take-home pay. Freed of an enormous tax burden, employers began a hiring spree. And the new pension and insurance industry promptly invested accumulating funds in the Chilean economy. By 1999, the nation’s government-run program had almost disappeared as more than 95 percent of Chilean workers favored the free enterprise alternative.

Other nations followed Chile’s lead by turning to privatization of government-run social programs. These included Peru, Colombia, Argentina, Uruguay, Bolivia, Mexico, and El Salvador. Great Britain and New Zealand launched alternatives to compulsory social security programs in the late 1980s.

Of course, we realize that many of these efforts were largely pseudo in nature and short-lived. But political posturing notwithstanding, honest efforts to dismantle socialist systems yielded the fruits for those countries that truly did move back toward a free market approach to insurance.

Everything about Social Security says: Stop and go back to free enterprise. America, historically freedom’s standard-bearer, should correct a grievous wrong, cease victimizing the people with lies, and revert to the wisdom of our Founders who launched history’s greatest experiment in human liberty. Abolishing Social Security and its socialistic partners would not only pay honor to their wisdom, but would also spur an unparalleled era of growth and prosperity for the United States.