Tuesday, April 10, 2012

FDR and Paul Ryan?

FDR apparently envisioned that Social Security would work much like my Wisconsin Retirement System — the contributions made during the working years would be invested and then paid out upon retirement. That's not how Social Security worked out. Robert Samuelson:
When Roosevelt proposed Social Security in 1935, he envisioned a contributory pension plan. Workers' payroll taxes ("contributions") would be saved and used to pay their retirement benefits. Initially, before workers had time to pay into the system, there would be temporary subsidies. But Roosevelt rejected Social Security as a "pay-as-you-go" system that channeled the taxes of today's workers to pay today's retirees. That, he believed, would saddle future generations with huge debts — or higher taxes — as the number of retirees expanded.

Discovering that the original draft proposal wasn't a contributory pension, Roosevelt ordered it rewritten and complained to Frances Perkins, his labor secretary: "This is the same old dole under another name. It is almost dishonest to build up an accumulated deficit for the Congress ... to meet."

But Roosevelt's vision didn't prevail. In the 1940s and early 1950s, Congress gradually switched Social Security to a pay-as-you-go system. Interestingly, a coalition of liberals and conservatives pushed the change. Liberals wanted higher benefits, which — with few retirees then — existing taxes could support. Conservatives disliked the huge surpluses the government would accumulate under a contributory plan. ....

Millions of Americans believe (falsely) that their payroll taxes have been segregated to pay for their benefits and that, therefore, they "earned" these benefits. To reduce them would be to take something that is rightfully theirs. Indeed, Roosevelt — believing he had created a contributory program — said exactly that:
"We put those payroll contributions there so as to give the contributors a legal, moral and political right to collect their pensions. ... No damn politician can ever scrap my Social Security program."
.... [more]
RealClearPolitics - The Origins of Entitlement