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Social Security Is A Bad Deal

In my latest Pittsburgh Tribune-Review column I elaborate further on how much better off in retirement even low-paid American workers could easily make themselves if they and their employers were no longer forced to pay Social Security taxes.  Here are two slices:

An easy case for government intervention requires just one mistaken assumption: Ordinary people cannot take care of themselves as well as government officials will take care of them.

An example of this assumption appears in a recent letter to the editor in The Wall Street Journal. UC-Berkeley business school instructor David Robinson admits that Social Security really isn’t what Uncle Sam advertises it to be. For example, Robinson correctly notes that the Social Security Trust Fund “is a myth.” Nevertheless, he applauds Social Security because, he alleges, it ensures that ordinary people will have adequate retirement incomes. To emphasize his point, Robinson asserts that “there’s simply no way that a janitor could save enough in his working years to provide a decent retirement.”


Now let’s further assume that employers are also relieved of the obligation of paying to Social Security 6.2 percent of their employees’ salaries. Because relieving employers of this obligation makes the hiring of janitors and other workers more attractive, employers will compete for workers by bidding up workers’ wages. Even if our janitor’s pay increases by an unrealistically small 1 percent, this raise will allow the janitor — if he adds this 1 percent pay raise to his savings [the 6.2 percent of his salary that he saves because that amount is no longer seized from him by Social Security] — to increase his annual savings by enough to yield a pension, when he retires, worth $392,045.

If our janitor lives for another 15 years and draws each month evenly from this account, the amount he’ll get each month will be $2,178 — almost double what he’ll get from Social Security.

Even for today’s low-paid workers Social Security is a very bad deal.