Let's talk about Social Security

I really dislike Social Security, both for personal and philosophical reasons.  And you should too.  Imagine for a moment that you are a progressive.  The taxes used to pay Social Security are perhaps the most regressive in the country.  12.4% of payroll income up till around a hundred thousand is taxed away, meaning that the poorest working families are hit hardest, and passed to a group wealther than average.  Something like 90% of Americans earn less than this anyway, so it's a virtual 12.4% tax.  There is no equity in charging a migrant farmworker this amount to give to people who have earned millions over their lives.

The program also happens to be racist, sexist, and generationist.  Life expectancy for blacks and hispanics is below average, so they get far less from the program than others.  Women tend to both work less in the formal sector and live longer, so they are disadvantaged as well.  Social Security is great for the current crop of old people, who--because of the baby boomers--enjoy a rate of return on their Social Security contributions far in excess of any other asset class in which they could have invested.  By all accounts, future generations are going to receive far less.  It's hard to estimate how much less, but it's been argued that young people currently paying into the system will receive perhaps 75% of their money back (promised benefits will have to be cut by about that amount in several decades).  Forget stocks or bonds--keeping the money in a matress under your bed would be a better savings option.  

Then there's the efficiency issue.  Savings money through other financial instruments--stocks, bonds, gold, baseball cards--would all generate higher returns for people.  Investment also gives people bank accounts and assets which they can transfer to others.

Now suppose that you are fiscally minded.  Social Security is going to wreck the government books as it becomes insolvent.  The scale of this problem is possibly exaggerated, and Medicare is potentially a bigger concern.  But the increase in the portion of beneficiaries to contributors will make this liability more and more difficult to pay off over time.

Political clout from old people prevents any serious reform, but simple fixes such as higher taxes and lower benefits can certainly bring the system back to solvency.  But they don't address glaring issues of equity and efficiency that ought to concern both liberals and conservatives.  

These problems ultimately come from the fact that Social Security is a pay-as-you-go system, rather than a defined contribution scheme.  A few countries have moved towards the second option, such as Chile, England, and Sweden.  I find Chile's system most appealing; you are forced to contribute a certain amount of your salary, which is then invested in various ways.  The returns have enabled millions to retire early.  Sweden also has an interesting plan, combining a partially privatized system (in which people are nudged to invest correctly) with a pay-as-you-go component which turns into an annuity, guaranteeing future solvency.  If you are liberal, or otherwise wish to limit or shape people's choices, there are plenty of ways to do so within the context of a private account.  Clinton reportedly tried to introduce a privatized component (which has become a suprisingly dirty way to say "you get to keep your money"), as of course did the second Bush.  McCain is unlikely to push this isssue, and Obama is for changes which will cost me even more over time.  I have little faith that this program will get any better, and cry a little on the inside every time I see my tax form.