Social Security: ‘Reverse Robin Hood’ Program?

Should low-income Americans be allowed to opt out of Social Security? 

“When Social Security was enacted in the 1930’s it seemed like a good idea,” Star Parker wrote in a column. “Everyone working would pay a small tax and those revenues could be used to pay a retirement stipend to retirees. But then there were 45 Americans working for every retiree. Because of longer life spans and shrinking families, this ratio is down to three to one today.”

This is how Star believes lawmakers should change Social Security: 

“Give every working American 30 years old or younger, earning $30,000/year or less, the option to stop paying payroll taxes and use all those funds to invest in a personal retirement account.”

Do politicians think individuals can’t make savings decisions themselves?

Liberals consider proposals to privatize Social Security extreme, and they really believe it’s an anti-poverty program. Not true, the Federalist contended:

Social Security might seem like a good anti-poverty program because it is a direct transfer payment: it takes money from workers and gives it directly to non-workers.

One of the classic flaws of anti-poverty programs, however, is that they create perverse incentives. That means they influence our decisions in a way that makes them less rational, such as encouraging people to remain in poverty, discouraging work, encouraging people to live in a bad neighborhood, and so on.

Social Security at least does not do this. Social Security does not pay people for being poor; it pays people for being old. If it directly encourages anything, it is longevity. Indirectly, we might say that, just as seatbelt use is correlated with faster driving, a retirement entitlement might discourage people saving their money, a phenomenon called risk compensation.

Which group needs Social Security least? The one that tends to live the longest — the wealthy. The Federalist writer called the program “reverse Robin Hood” — taking from the poor to give to the rich.

Star agrees that the program is a disadvantage to low-income Americans. The GOP presidential nomination hopefuls want to raise the eligibility age and get rid of the payroll tax for seniors who keep working, among other things. Democrats, as expected, want to raise taxes.

Candidates on both sides want to save the program. Would a candidate who proposes to allow people to opt out stand at chance at winning White House?

Photo credit: By Djembayz – Own work, CC BY-SA 3.0, https://commons.wikimedia.org/w/index.php?curid=30542147