I’ve received a lot of emails recently from readers trying to calculate how much they paid in Social Security taxes over the years and then wanting to compare that to what they will get out of the system in return. More often than not, they are trying to prove that Social Security is a rotten deal. While considering my response to these folks, I thought back to a column I wrote on this topic. I guessed it was just a couple of years ago, but when I checked, I wrote the column way back in 2010. I decided I’m going to reprint the column today. I think it bears repeating, so here is that column I wrote 13 years ago:
“I’m writing this at 2 o'clock in the morning, so I’m not sure if the message I’m trying to convey in this column is a startling revelation or the mindless meanderings of a half-asleep brain! Let’s find out.
There I was trying to sleep. But I was troubled by some recent comments from readers about Social Security that were running through my head. That’s the downside to spending your entire adult life either working for the Social Security Administration or writing a newspaper column about Social Security issues. Instead of dreaming about my lovely wife, boring old me was thinking about Social Security as an investment.
Those mindless musings were prompted by a recent email I received, one that included comments similar to those I’ve heard from people almost every day for the past 40 years. The comment generally goes something like this: ‘If I could have invested all that money that Social Security took out of my paycheck, I’d be a millionaire today!’
In fact, the most recent such claim, the one that prompted my sleepless night, came from a guy who somehow calculated exactly how rich he‘d be. And he had it down to the penny! He said his investments would have netted $7,466,847.69. Yup, had that big, bad government not stolen from his paycheck in the form of Social Security taxes, he’d have more than $7 million. Oh, and don’t forget that 69 cents!
My normal response to such allegations takes two tacks. For one thing, such calculations assume that they would have religiously invested every nickel of their Social Security tax each week for the past 40 years or so. And, of course, they also assume that all of their investments would have paid off and that the markets don’t collapse just before they are planning to tap into their personal Social Security gold mine.
Also, in this guy’s case, I pointed out in my emailed response to him that if he claims he would have gotten back $7 million, I‘d guess other Social Security taxpayers could expect the same. In fact, assuming this guy is Mr. Average, that means some people would make better investments and some would do worse. So we’ll assume that the average taxpayer would get $7 million from their Social Security investment account. Well, there are about 150 million Social Security taxpayers in this country. If they each will get $7 million, that comes out to more than $1 quadrillion! I mean, is this a great country or what? Sign me up for this guy’s Social Security plan tomorrow! (Actually, I’m not sure if that “quadrillion” number is right. My little desktop calculator didn’t go that high, so I did some old-fashioned math with pencil and paper—and I haven’t been in an arithmetic class since 1968! But it really doesn’t matter if it’s a quadrillion dollars or a gazillion dollars; it’s a heck of a lot of money, and somehow, apparently, our economic systems could handle all that personal wealth accumulation!)
So, let’s get back to my normal responses to claims of lost personal wealth because the inefficient government forced people into paying Social Security taxes. The second point I usually make to these folks is that Social Security was never meant to be a personal investment scheme. It is and always has been just what its name implies: a social insurance system. It guarantees a basic level of support for you and your spouse if you retire or become disabled, or for the young children of a family breadwinner who dies.
But what kept me up tonight is that I got to thinking something more radical: Maybe Social Security isn’t a social insurance program or an investment. Maybe it’s just another tax we pay.
So why do we think of it in terms of an investment? Of course, I know part of the answer to that question. Social Security has always been touted as the one government program into which you pay an earmarked tax. Records are kept of those taxes and your earnings, and then someday, you get a benefit that is based, in part, on those numbers. In other words, there is a ’return on your investment.’
But why is that really different than any other tax we pay? You pay federal income taxes, and in return, you get the world’s largest military force. You get national parks. You get medical research programs. You get embassies all over the world to serve our needs in foreign countries. You get a highway system. You get air traffic controllers to keep you safe when you’re flying across the country. The list goes on and on.
And for the state and local taxes you pay, you get schools and libraries. You get your garbage picked up and your streets plowed. Do we ever say, ‘If I could have invested those state taxes I paid, I would have built a much nicer library,’ or, ‘If I could have invested those federal income taxes, I would have come up with a cure for cancer by now’?
So why do we think that way with Social Security? Maybe Social Security is simply another tax you pay. And instead of getting back a school or a tank or a new visitor center in a national park, you get a pension.”
So, was I on to something all those years ago? Or should I have just kept my mouth shut and not shared my middle-of-the-night musings with my readers?
