How Social Security Cheats You to Pay the Rich

MSN Money ^ | 4 February 2004 | Liz Pulliam Weston

[UCSC Republican]

What would you think of a tax system that took money from the poor to give to the rich?

That’s essentially what’s happening with our Social Security and Medicare tax system, where low-income workers are dunned to pay benefits for high-income seniors.

[Lancey Howard]

Bump for later laughing at.

[leadpenny]

Thanks for posting. For years I have been saying what the author says.

Remove the FICA Cap!

[nickcarraway]

Let's end it then. I'm game.

[Kozak]

OH. So then do I get to keep increasing my BENEFIT in this wonderful retirement plan too? Or do I JUST PAY more? Thats your idea of fair right? To turn into a straight welfare, income redistribution plan?

[leadpenny]

Ya got me! That's on the other side of the ledger. All I know is that the middle class is getting hammered. Maybe it's time to talk about means-testing?

[AntiGuv]

Let's end it then. I'm game.

That's doubtful if you're well-off. This article doesn't even touch on the true Social Security rip-off which is that FICA revenues are diverted into general expenses which permits higher federal spending and lower tax rates than would otherwise be the case. Particularly as Social Security benefits are reduced over time, this does indeed amount to a massive upward transfer of wealth from the lower classes to the more wealthy.

If FICA taxes were suddenly done away with, tax rates for upper income brackets would quite soon rise and they would rise quite sharply. They would no doubt rise more than whatever amount is paid in FICA taxes for the first $87,000 of income.

[GeronL]

Then let us change that system!

[clee1]

WAY PAST time to talk about means testing.

[dyed_in_the_wool]

This may be the dumbest article I've ever read.
I feel stupider for having glanced at it.

[Fledermaus]

Ridiculous article.

The gist is this: "you get taxed when you start working, say at 24, for Social Security and if you are dumb enough to work hard and make a good living and plan for your retirement regardless of the horrible tax code, you should just have to give up all the money you paid in".

Yeah, that's really American. That's socialism. I don't give a crap what someone at 67 makes in retirement, they had to pay the same amount of money into the system as everyone else. It's not like they are making a killing on Social Security at 67 even if they paid in the maximum most of their lives (which for 2004 is $10,899.60) every year.

If you want to get rid of this ridiculous system, just say so. But to play the class warfare, envious of the rich card to "fix the system" is just as stupid as anything the Democrats come up with.

Think about what you are saying. What if you, tomorrow, won a lottery and you were paying almost $11,000 a year into Social Security. I'll bet good money you'd want your taxes back when you turned of age and could file.

The answer is to slowly start privatizing the system. It bites...you still have to FORCE people to save, but that is because they've been lied to and indoctrinated to think Social Security is a retirement plan. But that is changing with more and more people owning a 401(k) plan and insurance plans, etc.

They are seeing that the Social Security tax of 6.2%, matched by the employer or self-employed, is ripping them off when they only put 5% of gross wages, pre-tax, into a 401(k) and barely, if at all, matched by the employer. They see that account, regardless of the economy, growing and it's an asset. You can't take your future Social Security earnings to bank as collateral for a loan.

As to those that say upcap Social Security, like the 1.45% (again matched by employer or self-employed) part of FICA for Medicare, you again are making the wrong argument. That argument only strengthens the current system in higher taxes and does nothing to start the decline of both SS and Medicare as government programs.

All the money is just an unfunded, future liability anyway. So there is really NO "transition" cost in slowly changing the system by letting more and more out in exchange for less, little or no benefits in the future. Any good mathematician can come up with tables for current ages, percentages, income level, money already paid in, etc. that would give us all options to make voluntarily.

You want to change? Fine, here are the choices. Want to stay in the current program because you might be older and have more invested? Fine, works for me.

But the key is choice. Unfortunately, the true anti-choice party, the Democrats, demagogue the issue and Republicans shy away.

Bush needs to run again on this issue. It's a winner.

[Fledermaus]

Oh, by "you" I meant the writer of the article. Bad habit, I reply like I'm talking directly to them.

[Blue_Ridge_Mtn_Geek]

Thanks for posting. For years I have been saying what the author says.

Remove the FICA Cap!

---

Fine. Let's also remove the benefits floor, and also cut the FICA tax rate, so that Congress can't continue the scam of "investing" excess FICA revenues in Treasury Bonds that can only be cashed in by further tax revenues from future income tax payers. All of this should crash the system even faster than SSA itself currently projects.
http://www.ssa.gov/OACT/TR/TR03/II_project.html#wp105057
http://www.ssa.gov/OACT/TR/

Not that we have a reliable estimate of the future crash - - just that the projected deficits are severe enough to have reasonable confidence that the system will collapse at some point in the not too distant future:
http://www.cbo.gov/showdoc.cfm?index=3235&sequence=0

[dyed_in_the_wool]

The crux of her argument is based on percentage of income taxed. However, what she fails to mention is that in terms of income replacement, she and Eisner (her example) get a significant percentage less. So even if he's paying in @ .5% for Social Security, his income replacement is still going to be capped at whatever SS max is (@ $13K I think).
SS is a sop to anyone the closer they get to the Covered Comp limit. Any benefit person worth their salt knows that.
If she thinks the percentage is too high or is trying to suggest a 'graduated' rate, well no way.
Outside of the covered comp limit, the flat tax would work the same way.

[Cacique]

bttfl

[litany_of_lies]

Where to begin? The premise that the working class is ripped off by SocSec and Medicare is laughable for at least these reasons:

- (best-kept secret of the SocSoc system) The more you make the less you get (as a percentage of what you paid in). Someone making an inflation-adjusted $60,000 per year during their working career retiring at Normal Retirement Age this year will get a benefit of about $18,000. Someone in the same situation except with $30,000 per year career earnings will get a benefit of about $13,000. So the person who paid twice as much into the system gets a benefit that's less than 50% more. The lower middle-class gets a hugely disproportionate share of SocSec benefits.

- Additionally, the upper-middle income earner is much more likely to have to pay federal income tax, or a higher level of income tax, on his Social Security benefit. The worst case is that he has to pay tax on 85% of his benefits. So there already effectively is a form of means-testing that is run through the income tax system.

- Every dollar of earnings is taxed for Medicare (There is no cap at $88,000), even though the benefits paid to retirees in the form of covered costs are the same regardless of income level. This means that someone making $1 million will pay $29,000 into Medicare (the 1.45% employee and 1.45% employer portions). There's no way this person will ever get that money back in Medicare benefits.This is a direct (and huge) transfer of wealth from the "rich" to the lower and middle class.

Those are the easy points to make--There are others, but these will do for now. The author's ignorance is breathtaking.

[litany_of_lies]

Re "means testing," see my #16.

[conservatism_IS_compassion]

FICA is a sort of "stealth" tax; people don't fully realize its extent, usually.

When an employer considers hiring you or raising your pay, he balances the benefit of your future servicesto his business against the total cost to his business of paying you. He does not decide what to pay you and then get flummoxed to learn that he has to pay as much Social Security "payroll tax" as you do; what kind of employer is naif enough not to already know that??!

So in essence you pay the "employer's contribution" as well as your own. Thus, Social Security tax is way over 10%--which if prudently saved and invested would be quite ample for a comfortable retirement. But of course the money is not saved--it is by law "invested" in claims on future general fund revenues, a.k.a. "risk-free government bonds." Which simply means that the government spends the money as fast as it comes in, if not more so--and if it did not spend the money, the result would be deflation.

Clearly then, if there is to be a real Social Security Trust Fund which actually prevents poverty and does not cause a macro economic meltdown, it must be invested in the private economy. But if the government invests that kind of money in the private economy, it will quickly acquire a huge stake in our major corporations--and the Democrats will put politicians on the boards of directors thereof. IOW, socialism.

The conclusion is that the SSTF must be invested in the real economy rather than in government bonds, but that investment must be controlled by the taxpayer individually rather than by the government.

[leadpenny]

Keep it simple. Look at it from a taxation point of view.

The lower income folks get Earned Income Tax Credits which tend to offset the effects of FICA. Those making above the arbitrary Cap pay FICA at a lower rate in relation to income. The middle income person gets squeezed. No EITC and the Cap is always just out of reach. Taxes are a daily, quarterly or yearly thing for most people. This is not a conservative or liberal issue to me - it's a fairness issue.

[litany_of_lies]

The lower income folks get Earned Income Tax Credits which tend to offset the effects of FICA.

Great point, further reinforcing my #16.