Wednesday, February 23, 2005

Social Security: Insurance or Investment?

Over at Centrisity, Flash makes the point that Social Security is not an investment; that it is rather insurance. On these grounds he opposes the current investment-oriented reform proposals.

It’s not an invalid argument. As he points out the word “insurance” is built right into the acronym FICA that appears on your paycheck (it’s the “I” part, in case you were wondering).

But I would challenge his case on the following grounds: What the heck is it insuring against?

As Flash himself states:

“For those with an objective mind, think of the thousands of dollars you pay into health insurance, and hope you never need it. Where's the return on investment there. Think of the stack of money you pay for car insurance, and hope you never need it. Now look at the amount you pay on home owners Insurance, and have only had a few minor claims that no where near compensates you for the premiums paid.”


So why is it that all it takes to collect Social Security is to live to a certain age – an age well below the average life expectancy, which is a significant difference from what FDR instituted incidentally?

Flash states:

The premiums help support the security of our society. It is more then just a retirement account…


But Flash doesn’t consider the flip side of this point. Why is it a retirement account at all? If it’s really just insurance, shouldn’t it require something unexpected to trigger the payments?

If the left wants to institute means testing for Social Security – go for it! You won’t hear a single objection from me. I’m in the age bracket that doesn’t expect to see a dime returned from my “insurance” contribution anyway. From my perspective a bunch of older age brackets intend to plunder my paycheck as long as possible leaving people my age and younger to deal with the mess when their great Ponzi scheme finally collapses. Throw the whole thing out for all I care.

So, Flash and all who buy his argument, are you prepared to take the “retirement” part out of Social Security and make it into some sort of catastrophic insurance program? Color me skeptical, but I’m willing to listen.

UPDATE: Whoops. Gall and Wormwood points to an article today by Walter Williams containing a bit of bad news for Flash's argument:

In Helvering v. Davis (1937), the court held that Social Security was not an insurance program, saying, "The proceeds of both (employee and employer) taxes are to be paid into the Treasury like internal-revenue taxes generally, and are not earmarked in any way."
But I'm still willing to see is Flash can create some momentum among the left to turn Social Security into something only paid out in cases of need.

UPDATE 2: King Banaian checking in with even more background information.

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