Social Security: Some Ethical Issues

[1] As the debate about privatization Social Security takes center stage, there are all sorts of political analyses and economic analysis to be found in newspapers, journals and elsewhere. There is a glaring shortage of ethical analyses, however. Perhaps this is an area where those laboring in our corner of the vineyard can help out a bit.

[2] Sketched in somewhat general terms, there are four basic sets of ethical issues of significance for the current debate about Social Security: (1) issues of truthfulness, (2) issues related to promises and promise-keeping, (3) issues related to the moral underpinnings of Social Security, and (4) issues of distributive justice.

Truth Telling and Social Security

[3] In recent years, there has been a pronounced tendency to avoid letting facts get in the way of political rhetoric. That’s exceedingly unfortunate, resulting in distortion that hampers the open and honest debate that is essential to formulating wise public policy decisions. While those of us whose professional training is in ethics aren’t always the best ones to determine what the facts are with respect to complex economic and political matters such as Social Security, we can certainly question those making strongly-stated claims and ask them to come up with verifiable facts to back up their claims, thereby functioning as somewhat of a gadfly, if you will. Is Social Security on the verge of collapse? Those favoring privatization would have us believe that it is. Can the system be maintained with relatively minor adjustments? That’s what those opposed to privatization insist is the case. But what are the facts?

[4] The 2004 Annual Report of the Board of Trustees of the Social Security (OASDI) Trust Fund estimates that the temporary surplus in trust fund will be exhausted in 2042, at which time the revenues coming in from the payroll tax that finances Social Security (the Social Security portion of the FICA tax) will be sufficient to finance only 73 percent of scheduled annual benefits for those receiving Social Security at that time.1 (By the way, the Board of Trustees of the Medicare Hospital Insurance [Medicare Part A] Trust Fund predicts that the Medicare trust fund will be exhausted in 2019-23 years before the projected depletion of the Social Security trust fund.2 Ever wonder why no one is talking about the impending Medicare crisis? Might there be some issues of truth telling that ethicists need to raise here as well?)

[5] But does the board of trustees of the Social Security trust fund have its facts right?3 That is a question that actuaries and economists are better suited to answer than ethicists. We ethicists can do no more than persist in asking the question and then defer to the expertise of others. However, persistence in asking the tough questions in and of itself is a significant contribution to the debate.

[6] The job of the ethicist as question asker does not end there. In fact, it is only the beginning. Proponents of privatization are quick to claim that their proposals will ensure retirement benefits for all Americans while averting the impending bankruptcy of Social Security. But how can diverting money out of the system into personal retirement accounts save the system? Might not that make the situation worse, rather than better? And if diverting money into personal retirement accounts necessitates borrowing money to pay benefits to those already retired, what impact is that going to have on the economy?

[7] Proponents of privatization note that historically, investing in stocks has produced a better return than investing in bonds. Whether this will be the case in the future as baby boomers start cashing in their IRAs is, of course, open to question. But if it indeed is the case that investing retirement funds in the stock market might bring more money into the Social Security system, might that not be done simply by investing some of the temporary Social Security trust fund surplus in indexed mutual funds, rather than by diverting tax revenues earmarked for Social Security into personal retirement accounts?4

[8] And of those who oppose privatization, ethicists must ask what steps they favor to ensure benefits for future retirees? The nation will not be well served if we simply have a repeat of what happened early in the Clinton administration, when the Clinton health reform proposals were defeated but those opposing them offered no constructive alternatives in their place. Critics must not be allowed to be nothing more than naysayers. Defeating a proposal viewed as ill-conceived does not alleviate critics of the responsibility of coming up with a better idea-or explaining why, contrary to years of projections by the Social Security Board of Trustees, they don’t think there is a problem with Social Security.

Social Security and Promise Keeping

[9] Social Security Commissioner Jo Anne B. Barnhart states that “Social Security is a compact between generations.”5 And indeed, Social Security as it exists today (in contrast to the way it was originally structured-more on that later) does involve an implicit promise between generations. The bulk of the money that current workers pay into the Social Security trust fund is not set aside to pay for future benefits for them. Rather, the money that current workers pay via the FICA deductions showing up on the stubs of their paychecks goes to pay benefits for current beneficiaries. The implicit promise underlying the current system suggests that if those of us currently working pay for the benefits of current retirees, those working when we retire will pay comparable benefits for us.

[10] From an ethical perspective, this is problematic in several different ways. First of all, can we obligate others by making promises on their behalf without their having any say in the matter? Most would agree that if I promise my neighbor that I will paint her garage for her, I have incurred an obligation to do so. But suppose that I promise my neighbor that my brother will paint her garage for her without in any way consulting with him about this. Is my brother obligated to paint my neighbor’s garage? In a book that was published a decade ago, former Commerce Secretary Peter G. Peterson observes with respect to Social Security:

As I recall (from a college course in commercial law), one fundamental requirement of a valid contract is a “meeting of the minds” of the parties to that contract: between those who pay and those who receive. But no such meeting of the minds exists. I’m not aware that anyone has consulted my grandson, Peter Cary, now aged three, about the staggering tax rates that honoring our current entitlement “contracts” will require him to pay when he enters the workforce.6
It is, of course, appropriate to ask exactly who it is who is doing (or has done) the promising. We can be quite certain that Peter Cary did not sign the promissory note at three years of age. But might it not be argued that political candidates and government officials are the ones who have made the promises? One does not have to spend much time listening to candidates campaigning for election to federal office before hearing promises that Social Security will be there for future generations.

[11] It bears noting, however, that these candidates for public office are not promising to personally pay the benefits for future retires. Rather, they are promising that the government will provide the benefits-and come up with the tax revenues or borrow the money to cover the cost of the benefits. But is this really any different than my promising my neighbor that my brother will paint her garage for her?

[12] There are, it might be added, indications that the social compact is already coming unraveled. In a recent poll conducted by Princeton Survey Research Associates International for Newsweek, only 32 percent of those 18-34 years of age indicated that they expect that Social Security will be able to pay all the benefits to which they are entitled under current law. In contrast, 62 percent indicated they did not expect to receive the level of benefits they are entitled to receive under current law.7 And indeed, in the statement of estimated benefits sent to future retirees, the Social Security Administration cautions, “Your estimated benefits are based on current law. Congress has made changes to the law in the past and can do so at any time. The law governing benefit amounts may change because, by 2042, the payroll taxes collected will be enough to pay only about 73 percent of scheduled benefits.”8

[13] The current situation can be summarized as follows: several generations of politicians and elected officials have promised (explicitly or implicitly) that if younger workers pay for the benefits for those currently retired, those working when they retire will pay for comparable benefits for them. Whether this in fact will happen, though, is open to question-skepticism reflected in the polling data noted above.

[14] This skepticism, however, does not in any way change the ethical dimensions of the implicit social compact that underlies Social Security. If my neighbor doesn’t view me as a responsible person who makes good on the promises I make, this doesn’t in any way absolve me of my obligation to paint her garage. At the same time, if my promising my neighbor that my brother will paint her garage doesn’t obligate him to do so, to speak of an implicit social compact with respect to Social Security might not be realistic. We are left with an ethically ambiguous situation-with promises that might or might not have been made and with resulting expectations that it might or might not be possible to realize.

[15] One additional observation: those making promises are sometimes absolved of the responsibility for making good on those promises if they are unable to do so, be it because of serious illness or other limiting factors. Does that get the government off the hook with respect to what future retirees haves been promised? Only if it is impossible for the government to make good on the promises, a claim that it would be hard to sustain given the magnitude of the resources available or potentially available to the government.

The Moral Underpinnings of Social Security

[16] An article about Social Security that ran in Business Week a few years ago carried the headline “From New Deal to Raw Deal.” The article noted that while many of those already retired are likely to get far more out of Social Security than they paid in, the tables are likely to be turned for those not yet retired.9 In substantial measure, this is because the ratio of current workers to current beneficiaries has changed dramatically-from 16.5 to 1 in 1950 to 3.3 to 1 today with the ratio projected to fall to 2 to 1 by 2040.10

[17] Did the headline writer get it right? Are younger generations getting the short end of the stick? That depends on how one views Social Security. In particular, it depends on whether one views Social Security as a mandatory savings program for retirement or as an anti-poverty insurance program.

[18] The Social Security Act that President Franklin Delano Roosevelt with great fanfare signed on August 14, 1935, was essentially a mandatory savings program for retirement.11 The retirement portion of the 1935 bill (it also included provisions pertaining to unemployment compensation and other matters) provided that each qualified worker retiring at the age of 65, starting January 1, 1942, would receive a pension varying from $10 to $85 a month depending on the total amount of wages earned by the beneficiary after December 31, 1936. The act also provided that if a qualified worker died prior to collecting benefits, survivors would receive a lump sum payment calculated on the basis of the amount the worker had paid in, plus interest.12 (It might be noted that the personal savings accounts which President George W. Bush has proposed would return Social Security to a mandatory retirement savings program. More on that later.)

[19] But before anyone drew any of the benefits promised under the 1935 act, Congress passed an amended act that substantially changed the nature of Social Security. The amendments enacted in 1939 liberalized benefits and moved up by two years the time that qualified retirees could start drawing benefits. Both houses of Congress passed the 1939 benefits by lopsided margins. In the Senate, only four senators-all of them Democrats-voted against the amendments.13 An editorial in the New York Times characterized the new law as “decidedly superior to the law it supplants,” adding that “it moves away from the private insurance concepts that marredthe former law, and substitutes a much closer approach to true social insurance.”14

[20] Whether the 1935 law was marred by private insurance concepts, of course, is a matter of debate-a debate that is being renewed with respect to President Bush’s proposal for personal retirement recounts. What is beyond debate, however, is that the 1939 amendments substantially changed the nature of Social Security, transforming it, at least in part, from a mandatory retirement savings program to an anti-poverty insurance program involving transfer payments.

[21] The ethical issues that the two contrasting approaches raise are substantially different, issues that lead to differing conclusions as to whether members of younger generations are getting a raw deal. Most homeowners have property and casualty insurance on their houses. Though my wife and I have paid insurance premiums on our house for years, we have never gotten back a penny from our insurance company. Our neighbors who live across the street from us have had a different experience. A few years ago, a strong wind blew many of the shingles off their house while leaving those on our house intact. They got a substantial settlement from their insurance company. We got nothing. Our respective experiences were repeated this past summer when another strong wind blew a tree down on their house, causing significant damage to the chimney for their fireplace and to the roof of their house. Once again, they received a substantial settlement from their insurance company. We got nothing.

[22] Does the fact that our neighbors across the street have gotten substantial payments from their insurance company while we haven’t received a penny from our insurance company mean that we have gotten a raw deal? Hardly. Indeed, we consider ourselves fortunate that we have never suffered damage to our house that has resulted in a claim being submitted to our insurance company.

[23] The same is true of Social Security if the program is viewed as anti-poverty insurance (which it is, at least in part, since the benefit formula is tilted toward lower income retirees). To put this in slightly different words, the fact that lower income retirees get a better return from Social Security than those who are more affluent is not problematic if one views Social Security as anti-poverty insurance.

[24] The problem, of course, is that that isn’t all that Social Security is. Even with the 1939 amendments, Social Security continues to be viewed as a pension system, which is why questions of equity come up. If the current system remains in place, perhaps these concerns about equity could be diminished if greater emphasis were placed on the anti-poverty insurance aspect of Social Security and less emphasis on the pension system aspect-an emphasis that is consistent with Christian ethical values that emphasize concern for the poor and the less-privileged members of society.

[25] If Social Security reverts to being a mandatory retirement savings program, either as the result of repeal of the 1939 amendments (which isn’t going to happen) or as a result of enactment of the personal retirement accounts that President Bush favors (which could happen), we are faced with a different set of ethical issues. Central to these issues is the question of paternalism. To what extent, if at all, is it appropriate for the government to force people to do something, such as save for retirement, that the government views as being in their best interests? It is it appropriate for government to assume the role of in loco parentis?

[26] In On Liberty, John Stuart Mill cautions, “A person should be free to do as he likes in his own concerns, but he ought not be free to do as he likes in acting for another, under the pretext that the affairs of the other are his own affairs.”15 The claim that “I know what is best for you” or that “government knows best” is a very strong one indeed-one that flies in the face of the most basic notions of liberty.

[27] But like many other matters, closer examination uncovers greater complexity. A distinction is often made between soft (weak) paternalism (intervening to secure an outcome consistent with the values held by those who are being coerced) and hard (strong) paternalism (intervening because of a belief that those doing the intervening know what is best for others).16 The case for soft (weak) paternalism is much stronger than the case for hard (strong) paternalism. Because of deficiencies in our decision-making processes or failures of the will, we sometimes act in ways at odds with our own deeply held values and desires, or fail to do things mandated by these values. In such cases, coercive intervention, distasteful though it might be, can have the salutary effect of forcing us to do what in fact we really want to do. Mill provides the following example:

If either a public officer or anyone else saw a person attempting to cross a bridge which had been ascertained to be unsafe, and there was not time to warn him of his danger, they might seize him and turn him back, without any real infringement of his liberty; for liberty consists in doing what one desires, and he does not desire to fall into the river. 17
[28] What implications might Mill’s reasoning have for Social Security? While I have argued elsewhere that the case for paternalism is not a strong one,18 it does seem to me that a case for mandatory retirement savings programs can be made, based on soft paternalism. Such an argument might go roughly as follows: since no one wants to be destitute when he or she retires, requiring that person to save for retirement is consistent with that person’s values.

[29] Whether that is best accomplished by shoring up the current Social Security system or by replacing it with personal retirement accounts, of course, is a different matter. But here the ethicist needs to defer to the advice of economists and actuaries, while being persistent in asking the types of questions noted above.

Questions of Distributive Justice

[30] The job of the ethicist is far from being finished, however, for there are questions of distributive justice to be addressed-questions that have significant implications for the debate about Social Security. I have, of course, already touched on these matters by asking whether Social Security should be viewed as anti-poverty insurance or as a mandatory retirement savings program. The anti-poverty insurance approach reflects a need-based model of distributive justice while the mandatory retirement savings approach is more of a procedural model in that it specifies a process (pay taxes and, if personal retirement accounts are introduced, allocate some of this money among various investment options) with the outcome of the process determining who gets how much. I have no problem with a system that opts for some combination of both approaches.

[31] That, however, is not the end of the matter insofar as distributive justice and Social Security are concerned. Because Social Security, as it currently exists, is an intergenerational transfer payment system, there are questions of distributive justice that must be addressed along generational lines. It might be added that the personal retirement accounts that President Bush has proposed do not alleviate this problem since the federal government would have to borrow massive amounts of money-several trillion dollars according to most estimates-to fund the transition costs, i.e., to pay for the benefits for those currently retired or near retirement for which revenues from the payroll taxes on younger workers would no longer be available if channeled into personal retirement accounts. Since borrowing money is yet another way of assigning to future generations the cost of current consumption (in this case, the cost of the benefits for those currently retired), questions of intergenerational equity persist. They are just packaged in a different way.

[32] The bottom line in all of this is that if any semblance of intergenerational equity is to be realized-one that gives equal consideration to the rights and wellbeing of all generations-restraint in the growth of benefits is unavoidable. And that, of course, is where things start getting very controversial.

[33] There is, however, an option worth considering: base eligibility for Social Security benefits on total number of years in the workforce (with appropriate adjustments for times of unemployment), rather than on age. This would mean that doctors, lawyers, college professors and others who begin their careers later in life would have to be older to qualify for benefits than construction workers who enter the workforce upon graduating from high school. But that is as it should be. Muscle power tends to wear out before brain power.

[34] And if that is not sufficient to bring Social Security into actuarial balance, then what? It is probably no overstatement to say that all of the choices are bad choices. When considered from a perspective of distributive justice, however, the least offensive option would probably be to adjust the formula used to compute benefits for those who are more affluent while maintaining scheduled benefit levels for those who are less affluent. The basic benefit level (technically referred to as the primary insurance amount or PIA) for those who reach the age of 62 is the sum of the following: (1) 90 percent of the worker’s average indexed monthly earnings (AIME) in the first bracket, which includes AIME up to a level that in bureaucratic jargon is called the first “bend point,” (2) 32 percent of AIME in the second bracket, which is AIME between the first and second bend points, and (3) 15 percent of AIME for the third bracket, i.e., AIME above the second bend point. Growth of benefits for the more affluent could be restrained either by lowering the second bend point or by reducing the percentage for the third bracket, say from 15 percent to 12 percent .19 This would maintain the anti-poverty insurance aspect of Social Security by ensuring that those for whom Social Security is a vital lifeline would not be left destitute. Granted, those who are more affluent would take a hit. But this is a situation in which perfect justice is not possible; the best that can be attained is relative justice.

Some Concluding Considerations

[35] And what is my take on President Bush’s privatization proposal? I have no philosophical difficulties with personal retirement accounts as long as they do not undercut the anti-poverty insurance aspect of Social Security.20 It is essential that we ask the hard questions to make certain that no one would be left destitute as a result of this type of change and that we not be satisfied until we get credible answers to these questions.

[36] There are also hard questions to be asked about the debt load the nation would have to assume to finance the transition costs related to privatization. With massive federal budget deficits replacing the budget surpluses of the 1990s, the federal government is already borrowing huge amounts of money, much of it coming from overseas (roughly $2 billion a day). We currently owe more than $2 trillion to foreign investors, who can dump the U.S. bonds they hold any time they wish, sending interest rates through the roof.21 Is adding several trillion dollars to our foreign debt prudent? At what point do we become hostage to foreign lenders, losing our economic sovereignty?

[37] In short, I am still very much in the question-asking and listening mode. As noted above, that is perhaps the greatest contribution that those of us who are trained to be ethicists can make to the debate about Social Security.

[38] But even as the debate about Social Security continues, it is essential that we start asking some hard questions about what might be done to avert the huge disaster that awaits Medicare, a problem that is far more urgent that the long-term problems facing Social Security. If the debate about Social Security, important though it is, sidetracks us from serious discussion about the problems related to Medicare, young and old alike will suffer greatly.

End Notes

1 Social Security and Medicare Boards of Trustees, Status of the Social Security and Medicare Programs: A Summary of the 2004 Annual Reports at (accessed February 12, 2005). The full report is available at

2 Social Security and Medicare Boards of Trustees, Status of the Social Security and Medicare Programs. The complete text of the Medicare trust fund report can be accessed at

3 The projection, of course, is nothing more than an estimate based on a wide variety of economic assumptions. Previous reports have all pointed to exhaustion of the Social Security trust fund at some point in the future but have varied widely in their predictions of when this will happen. The 1992 report, for example, predicted that the trust would be exhausted in 2036 while the 1995 report set the date at 2031.

4 The temporary surplus in the Social Security trust fund has been lent to the federal government to help finance federal budget deficits. The government pays interest on this money at rates comparable to that paid on treasury bills. If part of the temporary surplus were invested in the stock market, the government would need to sell more treasury bills to make up for the funds it would otherwise would have borrowed from the Social Security trust fund, which could have an impact on interest rates.

5 Jo Anne B. Barnhart, “What Social Security Means to You” in cover letter for Your Social Security Statement (sample statement available at [accessed February 13, 2005]).

6 Peter G. Peterson, Facing Up: How to Rescue the Economy from Crushing Debt & Restore the American Dream (New York: Simon & Schuster, 1993), 109-10. Peterson serves as president of the Concord Coalition, a nonpartisan advocacy group on budget and intergenerational issues. Additional information on the Concord Coalition is available at

7 The results of the Princeton Survey Research Associates International survey and other polling data on Social Security are available at (accessed February 13, 2005).

8 Your Social Security Statement, 2. The statement treats the 2042 date as a fact, rather than as the estimated date of depletion of the trust fund. While it is quite certain that at some point in the future the trust fund will be depleted, whether this happens in 2042 remains to be seen.

9 Michael J. Mandel, “From New Deal to Raw Deal,” Business Week, 5 April 1993, 68-69.

10 The 2004 Annual Report of the Board of Trustees of the Federal Old-Age and Survivors Insurance and Disability Insurance Trust Funds, 47

11 “Social Security Bill Is Signed: Gives Pensions to Aged, Jobless,” New York Times, 15 August 1935.

12 “Social Security Bill Voted: Will Benefit 30, 000, 000,” New York Times, 10 August 1935.

13 “Social Security Tax Cut $905,000,000; Social Aid Widened,” New York Times, 14 August 1939.

14 “The New Social Security,” New York Times, 14 August 1939.

15 John Stuart Mill, On Liberty, ed. Currin V. Shields (Indianapolis: The Bobbs-Merrill Company, Inc., 1956), 127.

16 See, e.g., Tom L. Beauchamp and James F. Childress, Principles of Biomedical Ethics, 4th ed. (New York: Oxford University Press, 1994), 277-78.

17 Mill, On Liberty, 117.

18 See, e.g., Daniel E. Lee, “Physician-Assisted Suicide: A Conservative Critique,” Hastings Center Report 33, no.1 (January-February 2003):17-19, and Daniel E. Lee, Freedom v. Intervention: Six Tough Cases (Lanham, Maryland: Rowman & Littlefield Publishers, Inc., 2005), ix-xix, 1-21.

19 The 2004 Annual Report of the Board of Trustees of the Federal Old-Age and Survivors Insurance and Disability Insurance Trust Funds, 99-100.

20 There are some who allege that the Bush proposals would leave those who are less fortunate vulnerable. See, e.g., Barry Schwartz, “Choose and Lose,” New York Times, 5 January 2005, and Roger Lowenstein, “A Question of Numbers: The Conservative New Deal,” New York Times, 16 January 2005.

21 The Concord Coalition, “Facing Facts: The Truth about Entitlements and the Budget” at (accessed January 13, 2005).

Daniel E. Lee

Daniel E. Lee teaches ethics at Augustana College, Rock Island, Illinois, where he is the chair of the Department of Religion.