The Mises Institute monthly, free with membership
Volume 16, Number 7
by Llewellyn H. Rockwell, Jr.
When Clinton declared he would use budget surpluses to "fix" Social Security, the ruse was
obvious. He was trying to forestall the only moral use of any surplus: cutting taxes. But a
few days later, a very strange trend began to develop. Clintons words were endorsed and echoed
by D.C. conservatives and libertarians.
Beltway types began to say that, yes, all budget surpluses should be used to save Social
Security, but in a very special way. Surpluses must not be used to fund "junk tax cuts" (in the
words of William Niskanen, who also congratulated Clinton for "taking the lead on Social
Security"), but to pay for a privatized entitlement program. This would "guarantee," writes
Martin Feldstein, an increase of "national saving," a collectivist and potentially coercive goal.
This too is taken from Clinton, circa early 1995, when he announced that a broad tax
cut was a bad idea because it would only give people more money to waste.
To understand this turn of events, with pro-market people demanding that FDRs
redistribution scheme be saved, requires some background. Its been clear for decades that
Social Security as we know it will not survive far into the next century. Todays taxpayers fund
todays checks, with the bureaucracy taking its own large cut, and demographics
are progressively exposing the shell game.
But lets be clear. Its never been an "insurance" program any more than medicaid or even
food stamps. The program violently taxes some people in order to pay others. All the rest
of the apparatus is an attempt to fool.
What to do? The program should be abolished as inefficient, immoral, violent, socially
damaging, fraudulent, and incompatible with freedom. Polls agree. People now being taxed
are angry at the self-evident rip-off, and say they would like to plan their own retirement without
the governments help, thank you.
The government is faced with only two possibilities for reform: cut spending or raise taxes.
The first option would make powerful lobbies mad. The second was made possible in
1982, thanks to cover provided by Alan Greenspan, but now public resistance to another tax
increase is intense.
So along came the privatizers with what they claim is a third option. Social Security can be
"saved" with a simple change in accounting. Lets call tax revenue "individual accounts"
and ask people how it should be "invested." Tell them that they can "manage" their taxes to
produce a higher "rate of return" than the present system. To underscore this idea, they
propose we "calculate" how much higher a return we would have if government redirected our
But this exercise disguises the true nature of the operation. A sheer transfer program cannot
be said to have a rate of return. Indeed, the net "return" on all redistribution is
negative, since there are always better uses for our dollars than handing them over to the
government. The appropriate question is how much more prosperous we would be if we
didnt pay the tax at all.
The privatizers, who freely admit they want to save the governments face, also promise that
all present check cashers will receive every last dime they believe they are owed,
while those being taxed now will receive huge payoffs. This miracle will be accomplished
through diverting some taxes to the stock market. Wall Street, which came up with the
idea in the first place, has bought policy guys left and right to provide intellectual credibility for
But note this crucial fact: the privatizers do not propose that people be allowed to decide
how to use the money that has been extracted from them. Privatizers want people to
continue to be taxed just as now, but for some of the tax money to flow to a favored industry.
In short, the privatizers propose to save the biggest redistribution racket in human history by
cutting Wall Street in on the deal. In earlier years, anyone who had proposed
forcibly extracting some percentage of Americans wages and funneling it into stocks-all in the
name of boosting national savings--would have been called a socialist. Today, hes
So it is no surprise to find the privatization movement joined at the hip with the Clinton
administration in blocking tax cuts. Even worse, their plan would end up increasing taxes
to both divert revenue and meet federal promises. Thats why, as USA Today pointed out,
privatizers, in private, advocate "hefty new taxes to fund the transition." In public the
Wall Street Journal says that, all present "benefits must be protected through new taxes." (Jan. 8,
Strip away the rhetoric, then, and the privatization plan is a glorified Greenspan
Commission: patching up a program based on extortion with ever-more extortion. Even better,
wrap it in the language of markets and investment.
FDRs national-socialist legacy should not be saved, and it cannot be reformed. Theres only
one honest way out of the mess. Get rid of Social Security. Buy off the "liabilities" with
tax cuts, stop redistributing, and let Americans really make their own decisions about what to do
with their money.
Llewellyn H. Rockwell, Jr., is founder and president of the Ludwig von Mises Institute.
FURTHER READING: Symposium on Social Security, American Economic Review 86, no. 2