Via TPM, John McCain has apparently taken to calling Social Security an “an absolute disgrace” because
“…we are paying present-day retirees with the taxes paid by young workers in America today. And that’s a disgrace. It’s an absolute disgrace and it’s got to be fixed.”
Josh Marshall asks where’s the disgrace? “That’s how the system was designed to operate”.
True enough. But here’s the deal. It really does look like young people are supporting old people—and many of the old folks like McCain and the vast punditocracy that continually trash the program are wealthy and don’t need the money. So they feel guilty receiving Social Security. It kind of looks like welfare payments, a big redistribution scheme hatched by liberals. As McCain says, “it’s a disgrace.”
Let’s think that through. Imagine that Social Security didn’t exist but we still wanted people to prepare financially for retirement. So we require that everyone purchase an annuity at retirement that will guarantee some minimum standard of living. Further we mandate that everyone start saving from day one of employment so that they can buy the annuity. But that’s the end of the government involvement. These will be private annuities, say from Aetna. So all workers send a bit of their paycheck to Aetna each month, buying their annuity on the installment plan. Aetna turns around and sends annuity payments to people who have retired. From the perspective of the individuals involved this system would operate exactly the same as Social Security except the intermediary is a private insurance company instead of the government.
Would McCain call this arrangement a disgrace? Or think that its old, rich people receiving welfare payments? I doubt it. This is just how insurance works.
Social Security operates the same way. There are two differences, however. One, Social Security is distributing far more of the money it takes in to retirees than private insurers would because it has lower administrative costs, no commissions or billionaire CEO to pay, etc.
Second—and this is something that could be called welfare—Social Security started making annuity payments to retirees from the start. Old folks in the early years of the programs got a pretty good deal. They received benefits without paying in or without paying in much. Personally I don’t think that was bad idea. The generations that had lived through depression and world war deserved it if anyone did. No, there’s really nothing about the program I would call a disgrace.