They Don’t Owe Us, We Owe Them
Whatever their actual motives, when Ronald Reagan and Tip O’Neil made their celebrated deal to save Social Security, what they actually set in motion was a slow motion raid on the nation’s pension system. The increase in the payroll tax did not pay for current benefits; instead, it kept the Federal budget afloat during an era of lower and lower tax rates on the higher brackets. The net effect was a transfer of wealth and income from bottom to top. The deal didn’t even safeguard the long term health of the system because those who have always despised it have never counted the Federal bonds the system have accumulated during the long period of surplus as a legitimate investment. Now that we face the prospect that some of the accrued savings may actually have to be paid back at some point, we’re hearing anguished screams. Hence the calls for raising the retirement age and lowering benefits by fudging the inflation adjustment.
What’s going on is not so different from what often happens in the private sector when CEOs and CFOs figure out ways of getting their hands on pension funds and using them to finance enormous executive pay packages just before their companies go bankrupt. Or what is happening in many state and local government systems where pension benefits that were negotiated in lieu of pay hikes never get paid out, presumably because a deal's a deal doesn’t count when the deal’s with a labor union. The sanctity of contracts only applies between parties of comparable power: otherwise, a contract is just another treaty with the Indians.