Different River

”You can never step in the same river twice.” –Heraclitus

January 5, 2005

Social Security — whose money is it?

Filed under: — Different River @ 5:51 pm

Over at Cafe Hayek, GMU economics professor Don Boudreaux quotes and refutes Swarthmore psychology professor Barry Schwartz‘s op-ed in the New York Times, in which Schwartz makes this extraordinary claim:

This brings me to the final defense of privatization: the payroll taxes you pay are your money, and you ought to be able to do what you like with your money. This, I suspect, is the real justification behind the move to privatize, and it is the worst reason of all. The payroll tax is not “your” money; it’s our money.

Unlike most folks defending social security, at least Schwartz is honest about believing that. But Boudreaux takes him to task for thinking it’s not only true but obvious:

Schwartz passes off a very controversial piece of political philosophy as if its validity is plain for all fair-minded people to see.

Old McDonald makes his living as a tomato farmer. McDonald earns $50,000 this year from his efforts. Congress will take about $7,500 of these earnings, calling it McDonald’s “contribution” to Social Security. According to Schwartz, simply because Congress levies this tax, the $7,500 was never McDonald’s. It was ours, collectively. (Question: Were the tomotoes that he grew and sold to get the $7,500 paid to Social Security never really “his,” but “ours”? How about the time and effort that he put into growing, marketing, and selling these tomatoes?)

Boudreaux then asks:

Addendum: Thinking further about Schwartz’s astonishing claim, I wonder if he would say that the money that he pays for a new car or a pair of jeans was never really his, but, instead, the property of the automobile dealership or the department store. I suspect not. So why does he not extend this same sensible conclusion to monies that people pay to government?

Without claiming to speak for Schwartz — and certainly without adopting his point of view — I think I can answer that.

The difference is, the money he pays for a new car or a pair of jeans is handed over voluntarily to the seller. The money he pays in taxes is handed over to the government under (implied) threat of force. If he doesn’t buy the car or the jeans, he can save the money for retirement, or buy whatever else he wants now. If he doesn’t pay the social security taxes (and is caught), the government takes the money anyway and he goes to jail. Of course, with payroll withholding, he probably doesn’t even have the option to choose jail!

The question really depends on what you mean when you say the money is “your” money. If you earn the money, it’s morally yours, since you earned it. But when the government levies a tax on those earnings, the amount they take is “not yours” in the sense that you do not have the right to decide how to spend it. You may have the moral rights to that money, but you don’t have the property rights since the tax laws say you don’t.

I suspect that when advocates of limited government say, “We earned it, so it’s our money, not the government’s” they mean to say that since “we” earned it, we have have a moral right to decide how to spend it (presumably within some limits of course; we can’t use it to hire a hit man). However, when government intervention say “No, it’s the government’s money” they aren’t speaking of the property right to spend the money, but rather of the government’s moral right (in their opinion) to take it.

Footnote: This all started with an economics op-ed written by a psychologist and published in the New York Times. Without questioning the NYT’s right to print economics articles by psychologists, can someone tell me how often they print psychology articles by economists? Just wondering.

UPDATE: Don now thinks he misunderstood Barry Schwartz’s original statement; it could be that he meant that once you’ve paid your social security taxes the money is no longer yours. That is, there is no “account” at the Social Security Administration with your name on it and a balance consisting of the taxes you’ve paid. That’s obviously true. Once you pay your taxes, the money is paid to current beneficiaries, and any excess by law must be “loaned” to the U.S. Treasury. And the Supreme Court has ruled that paying social security taxes does not give you a right to receive benefits; those benefits may be revoked at any time.

One Response to “Social Security — whose money is it?”

  1. Dave Schuler Says:

    I’ve found that there’s a pretty strong tendency to oversimplify this issue. Consider the following:

    - do wage rates already discount for taxation?
    - how about prices?
    - is money gotten by rent-seeking your money?
    - if you find a $20 bill on the ground is it your money (luck)?

    I guess I’m just a totalitarian thug at heart. I’ve never found the Randian vision of self-sufficiency very credible. Like it or not human beings are social creatures. And that places obligations on us that we may neither have asked for nor relish. Life is hard.

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