Social Security "Cookie Jar" Myth Invites Intergenerational Strife
Those who claim the Social Security "cookie jar" is real are leading us down a path toward violence in the streets as generations fight over trillions of dollars in unfunded retirement debt.
by Jerome F. Winzig
The popular media have unleashed a barrage of editorials, commentaries, news stories, and political cartoons that ridicule President Bush for allegedly undermining the future of Social Security. Unfazed by basic economic realities, these attacks portray Bush as literally raiding the cash in the Social Security cookie jar.
The Social Security Administration admits the Social Security cookie jar is a legal fiction. However, this is so uniformly denied by the popular media and most Washington politicians that one suspects the former of willful ignorance and the later of sinister motives. Perhaps those who insist there really is a Social Security cookie jar aren't concerned about retirees and the future of the country. Maybe the prospect of using the Social Security surplus to privatize Social Security terrifies them because it would make people less dependent on government and more attentive to tax policies while simultaneously depriving Congress of the massive Social Security surpluses it has so extravagantly wasted for 18 years.
Whatever their motives, however, the defenders of the Social Security cookie jar myth have set this nation on a path leading inevitably to intergenerational strife in 15 or 20 years. If Social Security is not radically reformed as soon as possible, this country faces the prospect of street riots as terrible and divisive as any in Northern Ireland or Israel. Like the conflict participants in these two riot-torn countries, the generations on either side of the Social Security divide will be convinced that morality is on their side. It's the kind of righteousness that leads to bloody confrontation.
On one side of the street barricades will be the retirees of the baby boom generation. By the time they begin to retire in 2011, they will have contributed more to Social Security than any previous generation. They will have paid generously for their parents' retirement benefits. When it comes time to raise income taxes to pay back the bankrupt Social Security Trust Fund, the baby-boomers will demand that taxes be increased to pay their promised benefits, and they will vote for their financial interests.
On the other side of the street barricades will be the children of the baby boomers. Unlike the baby boomers, they will have begun their work careers paying 15 percent of their gross income into Social Security. Having watched their parents' generation squander the Social Security surplus for 30 years (by then) instead of investing it, they will be opposed to doubling, tripling, or quadrupling their income taxes to pay back the Social Security debt. Their opposition will be strengthened by the knowledge that the exorbitant proposed tax increases will not ensure their generation's benefits when it's time for them to retire.
Compounding each side's sense of moral superiority will be the dollar amounts involved. They are truly staggering, in the trillions of dollars. Those who blithely assert there is no problem because the Social Security Trust Fund is backed by the "full faith and credit" of the federal government are talking utter nonsense. The federal government's credit derives from its ability to levy taxes, not from any bankable assets. So the trillions of dollars in debt repayment will have to come from the pockets of the American people.
The baby boomers will rightly say they paid Social Security trillions of dollars while they were working and will insist it is now their turn to reap the benefits. Their children will just as rightly remind them that by spending instead of investing the annual Social Security surpluses since 1983, they discarded a golden opportunity to fund their retirement benefits.
When the children of the baby boomers refuse to jeopardize their own families' welfare with middle class income tax rates of 50 percent, the impasse will lead to violence in the streets.
The impending disaster is almost unavoidable. If we had begun letting people investing the Social Security surplus in private investments when the surplus began accruing in 1983 (as Chile did starting in 1980), we would all have significant Social Security cookie jars today. As it is, we have just 15 remaining years of surplus -- and a cookie jar full of IOUs. Waiting another year is sheer idiocy.