The same kind of poor bargain forms the basis of the plan to extend the payroll-tax holiday under discussion in Washington this month. In the name of making Americans feel less bad about their situation now, lawmakers are proposing something that sounds good, but will actually make our financial future worse.
Start with the basics. Social Security has never been sold to Americans as a true tax or an entitlement. From 1935 on, it has always been depicted as insurance with its own account -- not as part of the general budget. When President Franklin Roosevelt first signed Social Security into law, he used the verb “to insure” on purpose. The law that regulates payments isn’t called “entitlement funding” or “welfare”; it’s called the Federal Insurance Contributions Act.
Of course, the government has often taken the cash from Social Security and left IOUs, and the program is confronting looming demographic challenges. But Social Security also resembles a bank: It doesn’t have all the money it owes, but it has always paid out in the past. Besides, it has a civic benefit. Paying money in, and then getting it back later, has taught Americans good things about savings and trust in government.
That virtuous cycle could continue. Social Security requires only a few reforms to stay solvent: raising the age at which pensions start, slowing the growth in benefit levels, and -- crucially -- ensuring that everyone pays the full amount due, every year.
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