NCPA - National Center for Policy Analysis


April 12, 2005

Social Security's problem is that attempting to provide rising real benefits to millions more seniors would require debilitating taxes on future workers -- thus discouraging work, slowing the economy, and exacerbating the fiscal dilemma. That is why this problem "cannot" be fixed with higher taxes: The threat of higher taxes is the Social Security problem, explains economist Alan Reynolds (National Review).

There are many other myths about Social Security, says Reynolds.

Myth: The federal retirement scheme isn't bankrupt.

  • Social Security will start paying out more in benefits by 2018 than it takes in tax revenue and this money will have to come from somewhere.
  • Making up for this shortfall will require some $200 billion to every budget deficit by 2027, and more thereafter.

Myth: Raising the cap on earnings subject to Social Security taxes from $90,000 to $140,000 is a good idea.

  • Under the current rules, paying higher taxes entitles taxpayers to larger benefits, leaving little net effect on the program's solvency.
  • Raising taxes on professionals and the entrepreneur class would have devastating economic consequences.

Myth: Transition costs to private accounts would be prohibitive.

  • Bookkeeping aside, there would be a net zero effect on fiscal imbalances of either Social Security or the rest of the government.
  • Social Security's unfunded debt would not change in the slightest, nor would the overall long-term government budget.

Myth: Social Security is a good deal for most people.

  • In 2004, the average monthly Social Security benefit was $911 a month, while the maximum benefit was just twice that amount; under the Supplemental Security Income program, for those who did not work enough to qualify, Social Security pays $428 a month
  • In other words, if you paid the maximum tax for 40 years or more, your benefit will be only about four times larger than if you never paid a dime.

Source: Alan Reynolds, "Myths About Social Security," National Review, March 14, 2005.


Browse more articles on Tax and Spending Issues