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How Social Security Takes From The Poor And Gives To The Rich


In a recent interview with former Secretary of State Hillary Clinton, Chris Matthews, in trying to favorably distinguish the Democratic Party from the socialism of Sen. Bernie Sanders, called Social Security “the greatest anti-poverty program.” The interview quickly moved on, and neither Matthews nor Clinton elaborated on this point.

Considering that the federal government has some 70 anti-poverty programs in law right now, and that presidential candidates are debating reforms to Social Security, it’s worth asking if Matthews is right. If Social Security really is the greatest anti-poverty program, then it would follow that we ought to have more of it.

This is exactly what Sanders proposes, and largely for this reason. He and many others on the Left claim there is a “retirement crisis” in the United States today. As proof, he might point out that, according to some surveys, nearly one-third of Americans have no savings whatsoever, and a majority have saved less than $1,000. While Hillary Clinton’s Social Security plan is simply to stave off its pending insolvency (due in just 18 years, according to the Social Security Administration), Sanders and others on the Left want it to spend and tax even more than it already does.

Because of Social Security, People Don’t Save

Social Security might seem like a good anti-poverty program because it is a direct transfer payment: it takes money from workers and gives it directly to non-workers.

Social Security does not pay people for being poor; it pays people for being old.

One of the classic flaws of anti-poverty programs, however, is that they create perverse incentives. That means they influence our decisions in a way that makes them less rational, such as encouraging people to remain in poverty, discouraging work, encouraging people to live in a bad neighborhood, and so on.

Social Security at least does not do this. Social Security does not pay people for being poor; it pays people for being old. If it directly encourages anything, it is longevity. Indirectly, we might say that, just as seatbelt use is correlated with faster driving, a retirement entitlement might discourage people saving their money, a phenomenon called risk compensation.

You become eligible for Social Security benefits by reaching retirement age and by having worked for at least ten years. The longer you live, the more you receive, whether you worked for ten years or for 40. If you work for 40 years then die a day later, tough luck.

Here’s Where It Gets Reverse Robin Hood

Which groups tend to live the longest? The wealthy, and whites. That is why Third Way, hardly a right-wing institution, released a report recently that says expanding Social Security, along with other proposals from Sanders (such as free college) would actually disproportionately benefit the rich, since they are more likely to live longer and to go to college than the poor are.

The typical U.S. household headed by a senior citizen has a net worth 47 times greater than one headed by someone younger than 35.

Nearly two-thirds of Social Security payments go to people whose earnings place them in the top 40 percent; and more than one-third goes to the top 20 percent. White men with more than 16 years of schooling on average live up to 14 years longer than black men who have fewer than 12 years of education. That means the white, educated men get more Social Security and Medicare.

Social Security is a direct transfer payment, but it is in aggregate a regressive transfer. Compare, for example, the overall poverty rate (roughly 15 percent) with the poverty rate among seniors (10 percent). The younger you are, the more likely you are to be poor: children have the highest rate at a galling 21 percent, followed by working-age adults at 13.5 percent.

The older you are, the less likely you are to be poor. According to a 2011 Congressional Budget Office report, the typical U.S. household headed by a senior citizen has a net worth 47 times greater than one headed by someone younger than 35. According to the Urban Institute, a typical two-earner couple receives nearly a quarter of a million dollars more in Social Security benefits than they paid in Social Security taxes. One Politifact piece from 2013 showed that on average government spends more than double on each senior citizen than it spends on each child.

Social Security taxes are the highest taxes most workers pay, and Social Security is the largest item on the federal ledger at over $800 billion. But effectiveness is measured not only by output; we ought to care about efficiency. While one in ten seniors lives in poverty, Social Security spends enough money to give every senior enough money to have an income above the poverty line.

Pious myths prevent real reforms that can actually make things better. As long the conventional wisdom is such that someone with the influence of Chris Matthews can casually claim Social Security is “the greatest anti-poverty program” and not be challenged for it, politicians won’t improve it.