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Let’s Have an Honest Debate About Social Security

This month marks the 79th anniversary of Social Security and the program’s finances are in disarray. The numbers are jarring. Social Security faces $23.1 trillion in unfunded liabilities, according to the program’s trustees, and if nothing changes, by 2033, payments will have to be cut by almost a quarter. The longer we wait to act, the more circumscribed our options will be.

That’s a problem for all Americans, but especially for my generation: Millennials, who are already struggling thanks in part to the burden of entitlements, face enormous tax hikes in the years ahead. The situation is even worse for my infant daughter, who will be lucky if America’s entitlements don’t completely bankrupt her.

Despite these facts, there is now a campaign by left-wing politicians such as Senator Elizabeth Warren to downplay Social Security’s problems and make the program more “generous.” As Warren said on the floor of the Senate in late 2013, “[W]e should be talking about expanding Social Security benefits — not cutting them.”

Soon a debate over the future of Social Security will become unavoidable. But as a precondition of that debate, all participants should agree on one thing: to stop lying to Americans about the nature of Social Security.

Here are the top three truths we should abide by as we debate the future of the program.

1. Stop telling Americans that Social Security is insurance. For nearly half a century before Social Security was passed, self-reliant Americans resisted attempts by Progressives to create an American welfare state. One of the ways the left overcame this resistance was to present Social Security not as a welfare program but as an “earned benefit.” It would not be a wealth redistribution scheme but a “social insurance” program collecting “contributions” and paying out “benefits.”

In fact, Social Security is not insurance. It merely seizes income from working Americans and dispenses it to retirees, with a vague (but legally unenforceable) assurance that younger Americans will someday get to reach into the pockets of their kids and grandkids. We shouldn’t hide that fact with euphemisms. “Contributions” should be called “taxes.” “Benefits” should be called “handouts.” Social Security shouldn’t be described as “social insurance” but as welfare.

2. Admit that there is no “trust fund.” Until recently, Social Security has collected more in taxes each year than it has paid out in welfare payments. That surplus was not saved and invested, but spent by other government agencies in exchange for government bonds. These bonds have collectively been labeled Social Security’s “trust fund” and supporters constantly claim that this “trust fund” will enable the program to keep meeting its legal obligations until 2032.

But there is no “fund” — not in any economic sense. There’s just the government’s ability to continue taxing workers to pay handouts to current retirees. That’s what all those bonds in the “trust fund” represent — obligations that the government pays by taxing people or borrowing more money. The “trust fund” is just a tax obligations fund.

3. Stop disguising Social Security’s true cost. Knowing that the cost of Social Security would be greater than Americans would be willing to bear, the drafters of Social Security tried to hide them by nominally dividing payroll taxes between the employee and his employer. But as economists have long recognized, this division is a mirage, since the employer’s half effectively comes out of the employee’s pay in the form of lower wages. Thus, you are not paying 6.2 percent of your income to Social Security, as stated on your paycheck, but 12.4 percent.

That’s enormous. For the average Millennial worker just out of college and making $40,000, that’s more than a new car payment each month he has to make to pay for other people’s retirement needs, before he’s able to pay for his own car, apartment, or student loans. (And by the way, even if we don’t increase Social Security payments, as Warren and others demand, then, according to the CBO, the payroll tax will have to increase by about 30 percent to keep Social Security payments from being slashed.)

An honest approach would admit the full cost imposed by Social Security. And if we really wanted people to grasp the reality of Social Security, we would dispense with payroll tax withholding, and instead require each American to mail in a quarterly check to the Treasury so that they would have a genuine sense of Social Security’s massive burden.

Will the debate about Social Security become honest any time soon? Fat chance. But that in itself is revealing. We’re constantly told Social Security is so popular that it’s the third rail of politics. But much of the support for the program counts on Americans not knowing the truth about it.

If a program cannot withstand the light of day, is it really a good program?