28 Apr 2005
Social Security isn't Welfare

A letter to the Syracuse Post-Standard on 25 Apr 2005 raised the question, "Why do the rich need Social Security?"
The main complaint was:
"I read in the paper last week that the CEO of Mobil-Exxon made a $6-to-$7 million salary. This means he pays up his Social Security tax in two days. Plus, because Mobil-Exxon made record profits, he got $28 million worth of stock options as a bonus. And this man, along with millions of others in this country who are rich, will get Social Security benefits."

I'm not in the habit of defending Social Security, but I feel that correcting such common misconceptions might improve the chances of repairing the program.

The rich who receive Social Security benefits are entitled for the same reason as all other recipients; they contributed to the system through payroll taxes. Need is not a factor. Social Security is similar, though hardly identical, to an insurance program. A fire insurance company cannot refuse to pay for a policyholder's fire losses simply because the person is rich.

Social Security was designed as an "ownership" program. One of FDR's selling points to Congress in 1934 was that the program was not welfare - that it would be paid for by its participants through a separate payroll tax.

Granted, Congress has repeatedly "welfare-ized" Social Security by increasing benefits beyond the program's long-term ability to pay, and "contributor ownership" is largely a legal fiction. Nevertheless, the Social Security retirement program has sustained some ownership features since 1935:
1. Only the contributors (and survivors) receive benefits.
2. The amount of each benefit award is loosely related to each participant's total contribution. (The formula is changed sometimes, but principle endures.)
3. Social Security is paid for from participants' payroll taxes only. (OK; the employer pays half.)

The letter contained one further misunderstanding. The writer blamed President Bush for Social Security's payment system. No president, not even FDR, had or has the authority to change Social Security. The rules of Social Security, like all federal laws, are written by Congress.
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Ref:
- Brief History (of Social Security); SocialSecurityOnline, Mar 2003
- 1935 Social Security Act