Are Social Security Commitments a Sunk Cost?
By David Henderson
In a word, No.
In a comment on my post yesterday, Jim Glass writes:
This $15 trillion transfer owed to pre-2010 participants is a sunk cost.
He goes on to explain:
Whether it was a good idea or bad one for the polity to incur the debt resulting from this gift to the workers of the past is irrelevant today — it is a debt incurred just the way the polity incurred the debts to fight WWII, for the moon progam, VietNam war, Obama stimulus, etc. We must pay it or renege upon it.
But with that last sentence of his explanation, he makes the point that it’s not a sunk cost. Moreover, it’s not a debt. The Social Security system is badly named, on purpose, I’m sure. The Supreme Court made it supremely clear in Flemming v. Nestor that the the Social Security system is essentially a tax and transfer scheme. If the government decides that it doesn’t want to give benefits to people who paid into it over a lifetime, it can legally do so. So it’s not a debt and it’s not a sunk cost.
And we’ve even seen the government cut the benefits that were promised. In the 1983 Social Security law, Texas Congressman Jack Pickle insisted on long-term reform that raised the age to receive “full” benefits, in stages, from 65 to 67. [I use “full” in quotation marks because as someone, here or another blog, recently pointed out, you don’t hit “full” benefits until you’re 70.]