Social Security and Medicare: Welfare?

March 7th, 2011

By Tom Carter

Now and again someone opines to the effect that Social Security is welfare and should be subject to changes (usually cuts) like any other welfare program. Sometimes Medicare is mentioned in the same “welfare” breath as Social Security.  These are popular topics in the current economic climate because government spending obviously has to be cut and taxes have to be increased in order to regain a healthy national economy.

I don’t see Social Security and Medicare as welfare programs at all.  From my standpoint as an individual citizen, I paid into the Social Security system from the time I was 13, and I paid into Medicare from the day it was created.  Those payments were made on a promise of future returns in the form of pension payments after I retired and partially-funded medical care at about the same time.  Now that I’m eligible for both programs, I still have to pay income tax on 85 percent of Social Security income, and I pay a maximum premium for Medicare coverage.

It’s virtually certain that I’ll never recoup my Social Security contributions in the form of pension payments and unlikely that I’ll receive Medicare benefits that equal my contributions.  Add to that the fact the former is taxed and the latter requires payment of premiums, and the math gets even worse.  And note we’re talking about just the amount of money paid for these programs, not the amount of interest that would have accrued on private investment of the same amount.

Those who view Social Security and Medicare as welfare programs that should be cut or significantly modified are generally conservatives.  Liberals will likely agree that they’re welfare programs, but that just means they approve of them.

I read Dr. Walter E. Williams’ columns now and then; they’re more entertaining than insightful, but that’s what makes them enjoyable.  Williams wrote a column on October 1, 2008 in which he said:

Americans demand that Congress spend trillions of dollars on farm subsidies, business bailouts, education subsidies, Social Security, Medicare and prescription drugs and other elements of a welfare state. The problem is that Congress produces nothing. Whatever Congress wishes to give, it has to first take other people’s money. Thus, at the root of the welfare state is the immorality of intimidation, threats and coercion backed up with the threat of violence by the agents of the U.S. Congress. In order for Congress to do what some Americans deem as good, it must first do evil. It must do that which if done privately would mean a jail sentence; namely, take the property of one American to give to another.

That’s a fairly standard conservative/libertarian argument, and I agree with some of it to some extent.  However, lumping Social Security and Medicare in with “other elements of a welfare state” is going too far.  Take just one example, farm subsidies.  Farmers didn’t spend their whole working lives on the promise of a return of their contributions to the “farm subsidy program.”  There aren’t any such contributions.

I sent Williams an e-mail, briefly stating my argument that Social Security and Medicare are not welfare programs.  He responded, in part: “Retirement benefits are not the only part of SS, plus young people will never see a dime of their money because SS is unsustainable.”  Great.  If he can see that the retirement benefits are not welfare, as he implies, then why didn’t he say so in the column?  There’s room to argue about the other benefits in Social Security, but the distinction has to be made.  And the idea that the program is “unsustainable” just isn’t true; it simply means that the program needs to be fixed.

Then comes Robert J. Samuelson today with Why Social Security Is Welfare.  He isn’t an economist; his education was in politics and government.  Nonetheless, he’s been writing on business and economics for over three decades, and he’s usually a voice of reason.  If I set out to make the best argument I could that Social Security and Medicare are welfare programs, I’d do it they way he did.  (He also mentions Medicaid, which isn’t relevant because it is a welfare program.)

Samuelson hits all the high notes on Social Security:

First, it taxes one group to support another group, meaning it’s pay-as-you-go and not a contributory scheme where people’s own savings pay their later benefits. And second, Congress can constantly alter benefits, reflecting changing needs, economic conditions and politics. …

In a 1960 decision (Flemming v. Nestor), the Supreme Court expressly rejected the argument that people have a contractual right to Social Security. It cited the 1935 Social Security Act: “The right to alter, amend, or repeal any provision of this Act is hereby reserved to Congress.” Congress can change the program whenever it wants. …

All this makes Social Security “welfare.” Benefits shift; they’re not strictly proportionate to wages but are skewed to favor low-wage earners — a value judgment reflecting who most deserves help; and they aren’t paid from workers’ own “contributions.” But we ignored these realities and encouraged people to think they “earned” benefits and that Social Security is distinct from the larger budget. Politicians, pundits, think-tank experts and journalists engaged in this charade to spare Social Security’s 54 million recipients the discomfort of understanding they’re on welfare.

He goes on to explain the Social Security trust fund, which isn’t; it’s a pile of government bonds that have to be redeemed with general fund taxpayer money.  Then he says, “It is because these programs involve middle-class welfare that cuts could occur without inflicting widespread hardship.”

Smart guy, strong factual arguments, logical conclusions — and pure Bravo Sierra.  Samuelson and others approaching the issue from the “policy wonk” standpoint look at it from a programmatic, systemic, and ultimately political standpoint.

However, I look at it from the standpoint of an individual who paid his fare and wants the ride that was promised.  Maybe some pundits, politicians, and even the Supreme Court don’t see it as a contractual obligation, and that’s fine.  Let’s call it more of a moral obligation.  Regardless, I want what was promised and what I paid way too much for — and I sure as hell don’t want to be told I’m on welfare.

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9 Responses to “Social Security and Medicare: Welfare?”

  1. Dan Miller |

    Sometimes I refer ironically to our Social Security checks as “welfare.” They are not.

    Compelled by law to do so, my wife and I both paid into the system for our entire working lives. I paid significantly more once I had become a partner (an employer) in a law firm. Then, I had to pay my own full share plus my share of the partnership’s portion of our employees’ Social Security “contributions.” I also had to pay my own full amount into our IRA, as well as amounts for our portion as an employer, to be added to the employees’ IRA contributions.

    Social Security is a Ponzi scheme but unlike privately organized such schemes it requires one to “invest” in it; failure to do would be very difficult and would also have draconian consequences.

  2. Brian |

    In 1935, the average American assumed room temperature at the age of 57. Perhaps 1 in 5 or 1 in 10 lived long enough to be able to collect, and of those that did, not very many collected for very long. I stand to be corrected, but it seems like there were 25 or 30 “contributors” for every recipient back then.

    As of 2006, actuarial tables have the average at around 77 and a half. Now, perhaps 1 in 5 or 1 in 10 don’t live long enough to collect, and presently there are only 2 or 3 contributors for every recipient.

    Four solutions to this problem present themselves:

    1. increase the OASDI tax
    2. cut the OASDI benefits
    3. move the OASDI retirement age to about 80 or 85
    4. some combination of the preceding 3 things.

    The problem with solution #1 is congress itself. The federal government doesn’t have the constitutional authority to run a trust fund (Helvering v Davis), so an increase in OASDI tax is just going to put more money into the general fund to pay for other things.

    It would probably be more palatable to eat a Vaseline sandwich than to cut the benefits.

    Solution #3 would also be about as popular as a turd in a punch bowl. In addition, it would leave a lot of people in the workforce.

    But, short of a massive die-off of those over 65, if SS is to stay “solvent,” those are the only options.

    It’s interesting to realize that the concept of “retiring” at a given age is a modern contrivance born of productive wealth. Prior to the 20th century, only the well-heeled were able to retire. Everybody else worked until they were unable, or until they died. Death usually followed closely on the heels of disability.

  3. Tom Carter |

    For those who may not be familiar with the acronym, OASDI stands for “Old-Age (Retirement), Survivors, and Disability Insurance.” (More details here.) That’s the core of Social Security originally, but lots of things have been tacked on that are welfare programs. That’s why it’s important to make a distinction in the various parts of Social Security when talking about it.

    I think solution #4 is the best approach — do some of all of it. It wouldn’t have to be draconian to put SS on a slow curve toward better fiscal health.

    You’re right that the notion of “retirement” is relatively new, historically speaking. Frankly, I think lots of folks who are still in good health would prefer to keep working, but given advanced life expectancies, I suppose the old guys have to move out to give the young folks some room in the job market.

    As far as Social Security retirement is concerned, I guess I made it fairly clear that I paid more than a fair share and I expect the promised return. Adjust the program, make necessary changes, cut out some of the things that are actually welfare — but pay what was promised to those who contributed.

    I guess if given the choice I wouldn’t have participated, but no one has that choice.

  4. Brian |

    Tom, there was a window back in the 80s or 90s (though I stand to be corrected on that, too) when municipal, county, and state governments could opt their employees out of SS. Galveston was one of those counties. I forget the exact figures (the Houston fish-wrap did an article on it 4 or 5 years ago) but their returns are something like 4 or 5X better than SS.

    Like any Ponzi scheme, SS depends upon an ever-expanding pool of investors in order to keep the fund in the black. That wasn’t much of a problem while the Boomers made up the bulk of the work force. Now, as you’re acutely aware, the Boomers are starting to retire. It is a mathematical inevitability that the Federal Government won’t be able to meet its SS obligations with the way things currently are.

    There is actually a 5th option, but I think we’d all agree that it would be a terrible idea: they could just print more money to meet those obligations. Frankly, I think that this is the most likely “solution,” because it defers the burden of actually having to have the gonads to do something useful and painful onto somebody else.

  5. Richard |

    Tom, I have a question that I’ve been unable to find and answer to regarding social security retirement benefits. Perhaps you could email me a response.

    If someone has been on welfare most of their life and doesn’t have 40 quarters of employment to collect social security, do they still receive a government retirement of some kind at 65 or another age?

  6. Tom Carter |

    Richard, the best way to get answers is from the horse’s mouth — the SS website. Seems to be well-organized, and you can find whatever you want.


    My mother/father and grand parents have paid their whole lives into Social Security, they EARNED that money & they are ENTITLED to it. WELFARE IS NOT AN ENTITLEMENT – IT IS A GIMME, A FREEBIE!!!

    The vast majority of welfare recipients have never worked a day in their lives or very little and are being paid for nothing by hard-working Americans in order for political groups to continue to cultivate their vote base (stay at home and breed more and more and more and we will pay you to do it and then vote for us…). And to insure that they don’t all rise up and riot against the people (like you and me) that are paying their way – to insure our safety. What a messed up system???

    CUT WELFARE – do it anyway, do it now!! But don’t you touch Social Security, that belongs to those of us that paid into it!!

  8. Brian |

    LC, there is nothing to have been “paid into” since about 1937, as the revenue collected under this law has been going to the general fund since that time. There is not now, and has not been for 74 years, a “social security trust fund.” What there has been is double-ledger accounting to make it look like there is a trust fund; to show what is “owed” to that trust fund; but there is no trust fund.

    Rest assured, if/when the day comes, there will be a judge that rules that nobody has a reasonable expectation of “getting back” their “contribution.”

  9. Tom Carter |

    Brian, the Social Security Trust Funds do, in fact, exist. You can read the details here and many other places. Funds coming in to the program are loaned to the government through the purchase of special issue securities that are available only to the Trust Funds, then the government can spend that money like any other money. When benefits are paid, the special issue securities are redeemed, with interest. There’s no giant pile of money in a hole under a mountain somewhere in West Virginia, true, but the Trust Funds have and hold value that’s available when needed.

    There can be all kinds of objections to this system, naturally, but the fact is the government has “borrowed” the Trust Funds money. I read an article (can’t find it again, so can’t link to it) stating that even if the debt ceiling isn’t raised, these securities can still be redeemed, with the funds replaced by issuance of other Treasury instruments such as bonds or by using part of the continuing flow of tax receipts into the government.

    I will agree that this whole situation is an unholy mess. The politicians need to stop bickering and get something done. Personally, I think the deal the Republicans have rejected, which included a one-to-three combination of revenue increases versus spending cuts, should be accepted and the debt ceiling then raised as necessary. The problem isn’t the current political kabuki dance; it’s the long term health of the nation’s finances.

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