EDMOND — This last week saw the 75th anniversary of the signing of the Social Security Act, perhaps the most significant legacy of the Franklin Roosevelt presidency.

Progressives used this anniversary to tout, as always, that the popular program has lifted millions of seniors out of poverty. Many might be surprised to learn, therefore, that over these last 75 years, this popular program has actually made Americans, as a whole, poorer.

It was on Aug. 14, 1935 that President Roosevelt signed the Social Security Act into law in order to protect Americans from “poverty-ridden old age.”

This week, 75 years later, President Barack Obama praised the program by stating that it continues to offer “a lasting promise that we can retire with dignity and peace of mind, that workers who become disabled can support themselves, and that families who suffer the loss of a loved one will not live in poverty.”

It is true that Social Security provides enormous benefits to elderly Americans, disabled workers and those who survived the loss of a working spouse or parent. Last year alone the OASI Trust Fund (the fund responsible for paying cash benefits to retirees and survivors) paid out more than $560 billion in benefits. When one adds Medicare and Disability Insurance, the Social Security system as a whole last year paid out benefits totaling nearly $1.2 trillion.

We cannot evaluate a program, though, just off of the benefits it provides — we must also consider the costs the program generates.

Remember, every penny the government spends comes from a tax on somebody, somewhere, at some time. Last year while the OASI Trust Fund distributed $560 billion in benefits, taxpayers paid more than $590 billion in payroll taxes into the trust fund.

In other words, Americans paid $30 billion more in payroll taxes than they received in retirement and survivor benefits. Of course, this isn’t the first year in which Social Security taxes exceeded benefits. In fact, over its 75 year history, the amount of surplus taxes, with interest (charged at a very low rate), comes to more than $2.3 trillion!

Now, if you walk into a bank and give the teller $100 while she only credits you for $95, you are poorer. If you pay $100 for a pair of shoes that are only worth $80, you are poorer from buying the shoes. In fact, any time you pay more for something than you receive back in benefits, you are poorer as a result.

Likewise, the retirement/survivor portion of Social Security (formally known as OASI, for Old Age and Survivor Insurance) has, throughout its history, made the American public $2.3 trillion poorer because that is how much more we have paid for this program in excess of its benefits.

This does not necessarily mean that the program on net has harmed society. One could reasonably argue that the additional income security that the program provides retirees, spouses and children is worth the $2.3 trillion of lost wealth over the last 75 years. One cannot, however, truthfully argue that Social Security has both increased income security and wealth for Americans as a whole.

One of my favorite quotes about economics comes from author Henry Hazlitt, who said, “The art of economics consists in looking not merely at the immediate but at the longer effects of any act or policy; it consists in tracing the consequences of that policy not merely for one group but for all groups.”

Thus, to follow Hazlitt’s advice we should look not just at the benefits accruing to Social Security recipients, but also the costs accruing to everyone else. These costs raise serious questions as to whether this popular program should continue in its present form for another 75 years.



MICKEY HEPNER is an associate professor of economics at the University of Central Oklahoma. Hepner serves on the Executive Committee of the Board of Directors for The Oklahoma Academy.