Tuesday, April 12, 2005

Social Security USAction

One of the interest groups apparently organized to fight social security reform is called USAction. I wonder if those who run this organization choose to be inaccurate, or if they simply don't understand how Social Security is presently structured? Take a look at the following where you will find:
"Social Security must remain a public insurance program that serves the interests of all Americans, rather than a business venture that serves the interests of the corporate elite."
What is not accurate in this sentence? Social Security certainly is called Old Age Insurance, but the program is not structured as insurance at all.

We insure against the risks that an event will occur that we want not to occur. For example, we insure against damage to our homes from fire. What risk would Old Age Insurance be insuring against? The risk of retiring? Surely not. It seems to me most of us, perhaps all of us, hope to live long enough to be able to choose to retire.

The Social Security program sends monthly benefit checks to people who are retired. There is no untoward event that these benefit checks pay for in general. Note that the Social Security Administration also administers the Disability Insurance program. The Disability part of Social Security is structured like insurance. People don't want to become disabled and be unable to work. They benefit from insurance that will pay them an income should they become disabled. In the case of this program there are monthly checks paid but only to those workers who have unfortunately experienced some event that has caused them to become disabled.

The Old Age part of Social Security is NOT IN FACT structured as an insurance program would be structured. If we want to accurately characterize Social Security today, we should point out that the monthly benefit checks sent to those who are retired are paid for out of the payroll tax paid by those currently working. Social Security is a transfer program that transfers income from those who are working to those who are retired.

This is not to say that Social Security should not be an insurance program. If our Social Security system were truly an insurance program, how would it be structured?

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