koralleen (koralleen) wrote,

Social Security and btw I flossed

By the year 2042, the entire system would be exhausted and bankrupt. If steps are not taken to avert that outcome, the only solutions would be dramatically higher taxes, massive new borrowing, or sudden and severe cuts in Social Security benefits or other government programs.
February 2005 State of the Union Address

The system can't be bankrupt because there are no assets to be outweighed by the liabilities (of which there are none, either--the government has no legally negotiable obligation to provide benefits at any rate to any citizen under the social security system.) The term used everywhere I read to describe the disposition of SS is "trust fund". This is disingenuous at best. Everyone knows that the funds collected through FICA are greater than those disbursed as SS benefits. We spend the rest right away on other stuff.

We like to think that the excesses in FICA taxes collected above benefits paid have been invested in US Treasury notes in the SS Trust Fund's behalf. Huh.

The US Treasury runs at a deficit. If the SSA needed to cash in some of its "trust fund" to pay benefits, the Treasury has to sell the SSA's notes to the public. It's borrowing the money. It increases the national debt. Whether the SSA has tons of notes in its "trust fund" or none at all, the same thing will happen.

So no, technically the system will not go bankrupt. And yes, the only solutions, the only possible solutions, are 1) higher taxes, 2) greater debt, and/or 3) reduced benefits. You can not get around it.

I am for a combination of numbers one (right away) and three (eventually) above. The 2005 FICA rates tax only the first $90,000 in earned income. Although the benefits of SS are touted as progressive (people who pay less--because they earn less--receive benefits that represent a higher percentage of their earned income than do those who paid more) the tax itself is enormously regressive. If you make $16,000 a year, you pay 12.4%*. If you make $90,000 a year, you pay 12.4%. If you make $250,00 a year, you pay 4.5%; earn $400,000 a year and you pay 2.8%. Tax everyone at the same rate. That's the tax increase.

Encourage investing, yes. Do away with capital gains penalties, allow more tax-deferred funds for a wider variety of workers, I'm sure more creative financial minds could come up with incentives. I do not want the government managing my retirement funds.

Which brings me to my final step in the reform of SS. It's a welfare system for the elderly, disabled, and a select group of others. I'd prefer that we manage it as such and wean financially-capable retirees off of it.

* I know a lot of people think of the FICA deduction reported on their paystub as their contribution, but it is just silly not to think of your employer's contribution as YOUR tax. Anyone who has paid wages considers this when determining wages. Anyone who is self-employed pays the whole tax. You are paying the whole thing. How annoying is it, then, when current reporting of the proposed "personalization" initiative speaks of individuals diverting "up to two-thirds of their Social Security taxes into private accounts"? 4% is almost two-thirds of HALF of your tax.

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