Walter E. Williams bio photo

Walter E. Williams

Professor of Economics.
(703) 993-1148
D158 Mason Hall
Department of Economics
George Mason University

Related Sites:
The homepage of George Mason University.
Homepage of the Department of Economics at GMU.

A fortnight ago, I explained some of the congressional deceit that has become part and parcel of Social Security. One was the 1936 promise of maximum wages subject to Social Security tax of three percent – $3,000 – which, controlling for inflation, comes to roughly $22,000 in 2005. The promise would have meant that $700 would be today’s maximum so-called employee Social Security tax.

 Another lie was that there was a Social Security account with your money in it to which you had rights. There’s no such account, plus, according to two U.S. Supreme Court cases – Helvering v. Davis (1937) and Fleming v. Nestor (1960) – you have no legal right, in the sense of a contract, to Social Security payments.

 There’s more to the deceit and dishonesty about Social Security. Congress tells us that one half (6.2 percent) of the Social Security tax is paid by employees and the other half paid by employers. The truth of the matter is that all of it (12.4 percent) is paid by employees. You say, “What! It says on my pay stub that I pay 6.2 percent.” Let’s look at it.

 Suppose you hire me at $6 an hour. From that $6 an hour, you must deduct 35 cents in Social Security tax and add 35 cents of so-called employer contribution. Here’s the big question: What is your hourly cost to hire me? If you said $6.35, go to the head of the class. Now comes the bigger question. If it cost you $6.35 an hour to hire me, what must be the minimum value of my contribution to your company’s output? If you said $6.35, again, go to the head of the class. If you said that the value of my hourly output had to be $6, our agreed-upon wage, you’d be losing money and soon would be out of business because my hourly cost would exceed my hourly output.

 The fiction that employees and employers each pay half of Social Security taxes has survived since 1936 for two reasons. First, it was meant to disguise the true tax imposed, and second, it promises something for nothing – a free lunch. And, when it comes to the promise of a free lunch, employers paying half, gullibility reigns supreme.

 There’s more deceit and dishonesty. In 1950, I was 14 years old and applied for a work permit for an after-school job. One of the requirements was to obtain a Social Security card. In bold letters on my Social Security card are the words: “For Social Security Purposes – Not For Identification.” According to the Social Security administration website, “This legend was removed as part of the design changes for the 18th version of the card, issued beginning in 1972.” That statement assumes that we’re idiots. We’re asked to believe that the sole purpose of the removal was for design purposes. The fact that our Social Security number was going to become a major identification tool had nothing to do with getting rid of the legend.

 There’s a moral dimension to Social Security that few have the guts to address. What moral principle, consistent with liberty, justifies forcing a person to set aside a certain portion of his weekly earnings for retirement and jailing him if he fails to comply? Retirement isn’t the only important item for which we should budget. How about a congressional mandate that we set aside a certain portion of our weekly earnings for housing, food, entertainment or our children’s education? Were Congress to propose a measure that would require each American to set aside a portion of his weekly earnings for these items, most of us would see it as tyranny. Pray tell, what’s the difference in principle for a congressional mandate that requires setting aside earnings for retirement versus a mandate setting aside earnings for housing or our children’s education?