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The Public Policy
Social Security and the Ghost of Ephram Nestor
Entitlements? Uncle Sam’s big bait and switch.
Very few senior citizens have heard of Ephram Nestor. And not many junior citizens, either. Nestor was a Bulgarian who came to America in 1913 and lived here continuously for 43 years. Then, in July 1956, he was deported for having been a Communist from 1933 to 1939, a period of time during which membership in the Communist Party as such was not illegal and wasn’t even a statutory ground for deportation.
For nineteen years, Nestor and his employers had made regular payments into the Social Security system. In 1955 he became eligible for payments from Social Security. When he was deported, the government cut off his payments. Nestor sued.
Nestor lost. The case, Flemming v. Nestor (Flemming was the secretary of Health, Education, and Welfare), established the principle that entitlement to Social Security benefits is not a contractual right.
Seniors today worry about that principle even though they have never heard of Ephram Nestor. They are right to worry, and all the more so when they read statements like the following one from Washington Post columnist Robert J. Samuelson.
He described as “highly misinformed” Americans, which includes the elderly, who believe that the elderly have “earned” their Social Security through their lifelong payroll taxes. Both Social Security and Medicare, Samuelson writes, “are pay-as-you-go. Today’s taxes pay today’s benefits; little is ‘saved.’ Even if all were saved, most retirees receive benefits that far exceed their payroll taxes.”
Of course they do! What should they expect? Only to get the same number of dollars back, without any return on the funds and without any compensation for inflation?
Proponents of changes to the Social Security program will not win the support of seniors, or juniors, by making that argument.
People who have paid, for decades, into a retirement system are entitled to think they are entitled to get their money back with decades’ worth of interest.
The point Samuelson ignores is that if people had not been required to pay into the Social Security system, they could have put that money in the stock market instead. In which case, their retirement payments would not only be more secure but also larger than the payments they will get from the current Social Security system.
Reformers — in the nature of things, that means Republicans — must make a different proposal, one that addresses the concerns of future recipients, who believe, correctly, that their benefits under the current system are no more secure than Ephram Nestor’s were.
The only sensible proposal will include allowing workers to save some of their retirement funds in personal accounts that they can invest, in some sort of fund, in the stock market. That obvious concept has been demonized by liberals with the word “privatization,” privatization being to liberals what garlic is to Dracula.
Rep. Anthony Weiner (D-NY) mocks the concept of allowing workers to invest in the stock market: “Boy, that’s seems smart, huh? Investing Social Security in the stock market.” “Boy, talk about lessons unlearned.”
President Obama also dissed the stock market in his State of the Union speech: “We must [solve the Social Security problem]… without subjecting Americans’ guaranteed retirement income to the whims of the stock market.”
Democrats love to dump demagogically on the stock market when it takes a tumble. Today, however, the market is making a magnificent comeback. But the key point is that one year — one decade even — does not a retirement fund make.
A few years ago, the Congressional Research Service studied 35 different 41-year time periods and determined that there was not a single period in which a worker would not have been better off investing his payroll taxes in stocks than remaining in the Social Security system. Boy, doesn’t that make investing your retirement fund in the market sound like a good idea, huh? Who’s unlearned now?
Letter to the Editor View all comments (22) | Leave a comment
More Articles by Daniel Oliver
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http://spectator.org/archives/2011/04/06/social-security-and-the-ghost
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TennesseeVolunteer| 4.6.11 @ 7:06AM
Don't forget that for every 6.2% of social security a employee pays, the employer matches it with 6.2% equalling a 12.4% contribution!
To tell someone that they are not deserving of social security because they have been able to save and prosper, in spite of this tax, is Progressivism at its best.
Clint| 4.6.11 @ 7:15AM
Congressman Ron Paul:
"When it comes to Social Security, we must understand that the system does not represent an old age pension, an "insurance" program, or even a forced savings program. It simply represents an enormous transfer payment, with younger workers paying taxes to fund benefits. There is no Social Security trust fund, and you don't have an "account." Whether you win or lose the Social Security lottery is a function of when you happened to be born and how long you live to collect benefits. Of course young people today have every reason to believe they will never collect those benefits."
potkas7| 4.6.11 @ 7:22AM
Conrad Black's definitive biography of FDR contains this anecdote about the creation of Social Security:
"Roosevelt understood the problem of basing the [Social Security] program on employee's contributions but did so for political reasons. The payroll contributions, the President explained, gave 'the contributors a legal,moral and political right to collect their pensions...and benefits. With those taxes in there, no damn politician can ever scrap my social security program'."
And Roosevelt has been proven time and again to have been right.
martin j smith| 4.6.11 @ 8:02AM
I think that solving social security should be debated in the context of a debate about dealing with our economic problems as a whole. It should be made clear that changes for social security should be for those who are far away from retirement and in my view the 18-35 year old crowd ( ok maybe 40s too ) should be engaged in the conversation. I think the keys issues are: Educating these folks about what they face and why changes are needed--that is if the system in any form is to survive.
Intelligent Design| 4.6.11 @ 8:12AM
The solution to Socialist Security is to dismantle it. Congress should pass legislation closing it to any new participants effective a certain date. Give everyone the option of taking a lump sum settlement consisting of all "contributions" made by employee and employer, plus a nominal annual rate of interest (say 3%), less any retirement benefits already collected. Those who are about 55 and younger would take the money and run. The government would have no further obligation to pay them. Those who are older or already retired would be more likely to stay with the system, but in about 20 years there would be very few left. The lump sums would of course be invested privately, pumping capital into productive uses. Where would the money come from to fund the lump sum payments? From government debt of course, but at least Socialist Security would be on its way to a decent burial.
Dee See| 4.6.11 @ 8:36AM
"Even if we hurled away ALLLLL
the pensions, welfare, social programs
completely forever ----we can NEVER
pay off the 1.5 quadrillion in fraudulant
Globalist derivatives. EVER!"
-Alex Jones
As HUAC meets NUREMBERG gathers
the strength of a movement whose time
has certainly come-------------------------
Call for DEFAULT on the RED China debt.
GATT was an act of profoundly deliberate
TREASON.
Taxpayers have underwritten and guaranteed
the transfer of the ENTIRE American economy
to RED China.
NOW they're empowered-------Unfair's FAIR!
--------------THEN on to the tax free, ultra-rich
'Chair-IT-Abel' 'Benny-violent'
EUGENICS-driven, capstone foundations and their tool, ----the 'FED'.
"Come out from among them (and FAST!).
Do NOT partake of their sin."
TL| 4.6.11 @ 8:59AM
Non one, any age, has any reasonable expectation of. let alone entitlement to, anything from "social security." "Social secutiry" is not an entity, not a fund, not anything but a statute that can be amended at will. It has been an unfunded program for as long as anyone can remember. To heck with Ephram Nestor and all the other communists/socialists/fascists. The simple truth, known to all for as long as anyone can remember, is that your payroll taxes were put into general funds, not an investment vehicle of any kind. Anyone who thinks they're entitled to some of it back, really just wants to use the power of the government to force their neighbors to fund their retirement -- like a good socialist.
We must work to phase out this socialist program. None of us should take the bribe of wanting what we were "promised," which was intentionally baked into the system to make otherwise good people vote to perpetuate and grow socialist programs. I know my money was stolen. Just let me out.
Fine, if we must as a political reality, then pay off the selfish old geezers who voted themsleves benefits for 50 years and then also voted not to fund those benefits based on their calculation that the next generations wouldn't have the heart to call them out on it.
But, Mr. Ryan, tear down this program for those under 55. Don't "fix" it. Tear it down. Let us out. We want to be free.
squalis| 4.6.11 @ 9:49AM
Intelligent Design, love your idea. I am 54 and would take my gov't bailout from social security and run! So many hundreds of billions of dollars have gone to much less useful purposes.
vtwin| 4.6.11 @ 10:28AM
Of course you’re “entitled.” The government over a working lifetime as TennesseeVolunteer has pointed out collects 12.4% of your compensation as Social Security Tax.
David W| 4.6.11 @ 10:28AM
I am 52, planning on retiring, if all goes well, at 57. Per my social security statement, at age 62 I will be eligible to withdraw $1600+ per month (assuming Congress doesn't change anything).
Based upon my investments I can easily withdraw $3500+ per month and not run out of money before I die. This is based upon simulations that look at the best and worst case scenarios. If I had been able to invest my SS deductions I could retire now (actually I can retire now, but I couldn't quite make it).
I have never, ever, based any of my retirement plans on social security. I am assuming, however, that the Government will not do anything to screw up my 401k accounts. If that happens, then I'll have to work until I die (and believe me when I tell you that there are libtards who are drooling over the amount of money that is in 401k and roth accounts).
Darudz| 4.6.11 @ 10:55AM
I am 68 and have been retired since Jan. 2008. I would gladly give up my Social Security benefits if I could simply convert my 401 (k) plan to a Roth account without paying any penalties. Assuming I live for 20 years, the govt. could remove $400,000 from its unfunded liability ledger, and I would wind up with more disposable monthly income. How simple is that?
W| 4.6.11 @ 12:12PM
David, you are not " withdrawing" because there is no account to withdraw. you are being paid by the us treasury from taxes collected. this is Algore's "lockbox" that exists only in Algore's mind. SS sends out those yearly statements about your expected payments, this leads people to believe they are guaranteed that amount, and that there is a specific account in their name for the withdrawals.
Ray| 4.6.11 @ 1:44PM
The problem that so many people seem to have is that Social Security was never meet to be a 'retirement fund," yet so many people believe that it is a retirement fund, that it will cover all your retirement needs, when, in fact, it won't, nor was it ever supposed to. It was designed to be a source of supplemental (and not replacement) income, a "boost" to existing private, individual retirement income, and that's all it really is. If you need a retirement fund, you have to create your own.
Charles R. Williams| 4.6.11 @ 3:53PM
Since the US is a sovereign nation, the status of the Social Security Trust Fund is a political question and not a legal question. There is no bankruptcy court where T-bond holders can get priority over Social Security recipients based on the current legal status of the Social Security program. My opinion is that whatever is owed to bondholders will be inflated away before grandma loses her SS check. After all, the Congress can issue $3 T in real bonds to the Trust Fund any time they choose and can then establish an independent board to manage the investments. All it takes is a law.
biomedlives| 4.6.11 @ 4:33PM
I believe everyone who pays into Social Security is entitled to his/her contributions (and those of the employer), plus interest, less the implied value of the disability insurance Social Security provides during his/her working years. Anything beyond that is welfare, which is paid primarily by each generation to the one that precedes it.
If we do shut down Social Security, we should realize that some people will make lousy investments (like putting it all with Madoff).
Thom| 4.6.11 @ 6:17PM
“Give everyone the option of taking a lump sum settlement consisting of all "contributions" made by employee and employer, plus a nominal annual rate of interest (say 3%), less any retirement benefits already collected.”
ID, there are several problems with this not the least of which is the government can’t give what it does not have. Every penny of SS tax is spent as soon as it is collected each month. There is no monetary fund backing SS.
At my full retirement age in 2018 my life time contributions compounded at that 3% you mentioned will be equal to about $600,000. At the stock market 50 year ROI average of 11% before taxes it would be worth about $2,800,000. See the problem here? How many people can pay both 12.4% into SS for a life time and invest enough in real investments on top of this to not have to depend on SS? Less than a third of those that draw on it today. A full one third have nothing but SS and a minimum wage existence; another one third SS is half or more of their income (again SS pays minimum wage on average) and the last third have incomes exceeding what SS provides. Note the bottom of the scale for SS payments get from SS an equal amount to what they made (net taxes) per month while the rest subsidize them by getting less.
The average expected age for my age group is about 78 years thus I can only expect to live an average 12 years after full retirement. At my “promised” SS annual payment based on SS projections in today’s dollars it would take 25 years or more to get out what I’ve paid into the system at that 3% compound figure. Not likely going to happen statistically speaking. On the flip side however given the “progressive” nature of how SS gives back the least to those who pay the most, a minimum wage worker (say $15,000 annual income) that enters full retirement will get 6% of their life time contributions annually or get back everything they paid into the system in about 16 years. The less you pay into the system the faster you get back what you paid thus there is no way to “reform” a system that promises to pay those that contribute the least a minimum wage existence regardless of their contributions and for as long as they live which often means the lower end of the scale gets much more from the system then it pays in.
This is the beauty of the Karl Marx style “progressive” tax systems. You promise what you can’t deliver and then build a voter block around those dependent on said promises. You pit the young against the old; poor against the rich; and destroy the middle class from within because they represent the larger voter block and can neither maintain their standard of living off their SS nor build enough wealth in time to be able to not need it. Don’t you love the brilliance of FDR and LBJ? Tens of millions of loyal slaves bought and paid for with someone else’s money…..
Of course there is an inherent problem here and “Maggie” over in England let the cat out of the bag back in the 1980s….. You eventually run out of someone else’s money…..and what follows reads like one of those apocalyptic novels…….
Simply put there is no way to “reform” a welfare system that rewards sloth. SS, Medicare, and Medicaid all do this and when combined with the rest of the “welfare” programs equals about 2 trillion in Federal spending out of 3.7 trillion the Federal government spends without end.
Clint Lovell| 4.6.11 @ 6:33PM
What is needed is a plan that won't expose retirement savings to the whims of the stock markets that exist today.
http://www.capitalismbookstore.....nts-1.pdf.
For those of you who want the meat to go with it:
http://www.capitalismbookstore.....ePaper.pdf
Thom| 4.6.11 @ 6:33PM
Charles, two problems with your scheme.
One, we are borrowing money on the world market to make up the short fall in SS now. Those “sovereign nations” that we are debtors to have more than legal means to hold us to our debt with interest on that debt.
Second, by the time your scheme runs its course it will take 3 Trillion to buy a loaf of bread because we have devalued the dollar to worthlessness through inflation in order to “screw” the bond holders. Long before that time, our credit worthiness is going to eliminate any creditable lenders from extending credit to us. That just leaves printing money without any substance to back its printed value. I would have to believe in the Tooth Fairy to accept that this is a workable solution to promising to pay more than the nation’s GDP can support.
marilyn| 4.6.11 @ 11:32PM
"Why can't Americans have private funds?" Because the liberals who won't let them have taken every cent of Social Security money, written a phony IOU in its place, and have spent the money on their pet entitlement programs.
Jacob Morgan| 4.7.11 @ 4:08PM
One way out of this, but not pretty:
Have some politician loudly state that SS taxes will never go down! And that payouts each year will equal all the receipts--so short term some people could see a bump in money. That could be sold to the public.
What it would do is break off the cost of living increase and effectively keep it a pyramid scheme, albeit one that would not promise any specific level of payout.
People would not get much out of it (in the future), but we would not be selling our souls to China to fund it. And politically it would sell, or force people to think long term. A win either way.
In the end, if people don' t have kids they should not expect a retirement. If the boomers had not slaughtered 1/3 of their off-spring we would not be having this discussion. Why have kids to support you in old age if you can mooch (via SS) off the kids of some other schmuck?
Creative Recreation | 8.10.11 @ 10:43PM
is good