Saturday, October 23, 2004
A CURMUDGEONLY TAKE ON SOCIAL SECURITY
Apparently there has been an e-mail making the rounds purporting that the Democrats are the timeless architects and defenders of Social Security and the Republicans are the timeless detractors trying to tear it down. The truth is that, President Bush's anemic "privitization" plans notwithstanding, Social Security is here to stay as far as the eye can see, much to the detriment of GenX/GenY folks like myself who are going to get the short end of the demographic stick.
What follows is my response to this e-mail. I want to make plain the fact that I am in no way defending the Social Security system or any other form of compulsary "savings" mechanism, though some of my responses may sound like a defense. I simply believe that an honest, constructive debate on the topic requires a truthful understanding of the Social Security sytem, for better or worse. Anyway, here's the e-mail that made its way to my inbox; original text of the e-mail is in italics and my responses are in standard text.
SOCIAL SECURITY:
Franklin Roosevelt, a Democrat, introduced the Social Security (FICA) Program. He promised:
1.) That participation in the Program would be completely voluntary,
Mostly false. Many professions were exempt from Social Security deductions at first, so in that way it was "voluntary" by way of carefully selecting your line of work. However, for those employed in professions covered by Social Security, contribution was mandatory.
2.) That the participants would only have to pay 1% of the first $1,400 of their annual incomes into the Program,
False. For starters, most people don't realize that, on paper, employees only pay half the Social Security tab. For every dollar an employee pays, the employer pays a matching dollar. But since the employer dollar doesn't show up on your paycheck, it's not readily apparent that your income is actually being taxed at twice the stated rate for Social Security. Therefore the 1% figure cited in this claim captures only the employee half of the contribution. In reality, 2% of one's income was exposed to Social Security withholding when the system was first enacted, whereas today it's about 12%. Furthermore, when first enacted, Social Security was deducted from the first $3,000 of income, not $1,400. To put that in perspective, $3,000 in 1935 is equivalent to $40,000 today. The current ceiling is now approximately $85,000.
3.) That the money the participants elected to put into the Program would be deductible from their income for tax purposes each year,
False. Social Security has never been tax-deductible.
4.) That the money the participants put into the independent "Trust Fund" rather than into the General operating fund, and therefore, would only be used to fund the Social Security Retirement Program, and no other Government program, and,
Whether or not there is or ever was a "trust fund" is a semantical argument. More on that later.
5.) That the annuity payments to the retirees would never be taxed as income.
I don't know if this was ever "promised" but it is true that Social Security payments were not originally taxed as income.
Since many of us have paid into FICA for years and are now receiving a Social Security check every month -- and then finding that we are getting taxed on 85% of the money we paid to the Federal government to "put away," you may be interested in the following:
Before the questions begin, there's already a false implication. Whether your Social Security benefits are taxed, and what portion of it is taxed, depends on the amount and sources of your retirement income. For instance, someone whose retirement income is based entirely on Social Security and capital gains from non-deferred sources -- even if the latter is a million dollars a year -- does not pay a dime of taxes on his social security income. Fact is, very few retirees pay taxes on 85% of their benefits.
Q: Which Political Party took Social Security from the independent "Trust" fund and put it into the General fund so that Congress could spend it?
A: It was Lyndon Johnson and the Democratically-controlled House and Senate.
Whether or not there is or ever was a trust fund is argued on two premises: 1) Social Security historically collects more revenue than it spends in any given fiscal year (though this trend will eventually reverse) and government "borrows" this surplus money to offset spending in the general budget; 2) When government "borrows" this surplus, it leaves a pile of government "IOUs" (treasury bonds) in its place, meaning there is no "real" money in the trust fund.
The first point is only valid if you believe the Social Security Trust Fund is anything more than an accounting gimmick. In the words of the Congressional Budget Office, "[government] Trust Funds have no particular economic significance; they function primarily as accounting mechanisms to track receipts and spending for programs that have specific taxes or other revenues earmarked for their use." President Johnson is often maligned for "taking away" the trust fund because his administration began calculating social security inlays and outlays as part of the government's general fund rather than as a separate item removed from the general budget. Since social security inlays/outlays and general inlays/outlays all flow through the same agent, namely the United States Treasury, Johnson's "unified budget" method makes perfect sense. Since only one party (the Treasury) is responsible for all government inlays and outlays, viewing one single function such as Social Security as a separate item apart from the rest of the budget can obscure its impact on the ability to fund all other functions, and vice-versa. This especially becomes a problem when trying to make long-term general budget projections. In this context, why exclude the single largest budget item when calculating yearly revenues and expenses?
Whether the social security "trust fund" is calculated as a separate line item or part of a unified budget is simply a matter of preferred accounting method. In reality, it has no practical impact on government revenue collections or spending. Witness the fact that Social Security was moved "off-budget" again in 1990, but this has not stopped the government from using surplus social security inlays to offset spending on other government programs.
On the second point, this is simply an accounting shuffle by the Treasury Department to move surplus Social Security revenues into the general fund. The government buys back its own bonds with the surplus, which on paper reduces the federal debt. They then turn around and sell those bonds, which raises the debt right back to where it was. Finally, they use the funds raised by the bond sale to finance general expenditures.
Q: Which Political Party eliminated the income tax deduction for Social Security (FICA) withholding?
A: The Democratic Party.
False. Social Security was never tax-deductible.
Q: Which Political Party started taxing Social Security annuities?
A: The Democratic Party, with Al Gore casting the "tie-breaking" deciding vote as President of the Senate, while he was Vice President of the U.S.
False. The vote referenced in this question/answer is what raised the maximum exposure to 85%. Congress first exposed Social Security benefits to taxation in 1983, with the approval and signature of Ronald Reagan.
Q: Which Political Party decided to start giving annuity payments to immigrants?
A: That's right! Jimmy Carter and the Democratic Party. Immigrants moved into this country, and at age 65, began to receive SSI Social Security payments! The Democratic Party gave these payments to them, even though they never paid a dime into it!
False. Your Social Security benefits are based on your contribution. If you pay nothing, you get nothing. Immigrants are not exempt from paying Social Security. They pay just like the rest of us, and thus ought to get their money back like the rest of us.
Then, after doing all this lying and thieving and violation of the original contract (FICA), the Democrats turn around and tell you that the Republicans want to take your Social Security away!
I only wish the Republicans would have the guts to say, "we're going to take your social security away." My curmudgeonly side openly hopes the Baby Boom generation never collects one red cent of Social Security. For three decades, economists and demographers have been warning of the inevitable disaster of a huge baby-boom generation receiving far more benefits than can be replaced by subsequent smaller generations. The baby boomers had all their adult lives to address the problem. But they were either to lazy, too incredulous or too greedy to do anything about it. So now, in order for the government to meet its promises to their generation -- the wealthiest generation of human beings the world has ever witnessed -- it will have to tax the holy hell out of my generation. And you better believe I resent it. Ironically, contrary to a prior false claim, immigration itself is about the only thing that will keep social security from fiscally crushing us within the next 50 years.
And the worst part about it is, uninformed citizens believe it!
That's a matter of speculation. Some among the older generation believe it because they want their money back before it disappears. The younger generations know it won't be there whether anyone "takes it away" or it collapses.
Perhaps we are asking the wrong questions during this 2004 election year! If enough people receive this, maybe a seed of awareness will be planted and maybe good changes will evolve.
Awareness indeed. I hope this revised version brings some context to this "seed of awareness."
How many people can YOU send this to?
One if I'm not lazy. Zero if I am.
|
Apparently there has been an e-mail making the rounds purporting that the Democrats are the timeless architects and defenders of Social Security and the Republicans are the timeless detractors trying to tear it down. The truth is that, President Bush's anemic "privitization" plans notwithstanding, Social Security is here to stay as far as the eye can see, much to the detriment of GenX/GenY folks like myself who are going to get the short end of the demographic stick.
What follows is my response to this e-mail. I want to make plain the fact that I am in no way defending the Social Security system or any other form of compulsary "savings" mechanism, though some of my responses may sound like a defense. I simply believe that an honest, constructive debate on the topic requires a truthful understanding of the Social Security sytem, for better or worse. Anyway, here's the e-mail that made its way to my inbox; original text of the e-mail is in italics and my responses are in standard text.
SOCIAL SECURITY:
Franklin Roosevelt, a Democrat, introduced the Social Security (FICA) Program. He promised:
1.) That participation in the Program would be completely voluntary,
Mostly false. Many professions were exempt from Social Security deductions at first, so in that way it was "voluntary" by way of carefully selecting your line of work. However, for those employed in professions covered by Social Security, contribution was mandatory.
2.) That the participants would only have to pay 1% of the first $1,400 of their annual incomes into the Program,
False. For starters, most people don't realize that, on paper, employees only pay half the Social Security tab. For every dollar an employee pays, the employer pays a matching dollar. But since the employer dollar doesn't show up on your paycheck, it's not readily apparent that your income is actually being taxed at twice the stated rate for Social Security. Therefore the 1% figure cited in this claim captures only the employee half of the contribution. In reality, 2% of one's income was exposed to Social Security withholding when the system was first enacted, whereas today it's about 12%. Furthermore, when first enacted, Social Security was deducted from the first $3,000 of income, not $1,400. To put that in perspective, $3,000 in 1935 is equivalent to $40,000 today. The current ceiling is now approximately $85,000.
3.) That the money the participants elected to put into the Program would be deductible from their income for tax purposes each year,
False. Social Security has never been tax-deductible.
4.) That the money the participants put into the independent "Trust Fund" rather than into the General operating fund, and therefore, would only be used to fund the Social Security Retirement Program, and no other Government program, and,
Whether or not there is or ever was a "trust fund" is a semantical argument. More on that later.
5.) That the annuity payments to the retirees would never be taxed as income.
I don't know if this was ever "promised" but it is true that Social Security payments were not originally taxed as income.
Since many of us have paid into FICA for years and are now receiving a Social Security check every month -- and then finding that we are getting taxed on 85% of the money we paid to the Federal government to "put away," you may be interested in the following:
Before the questions begin, there's already a false implication. Whether your Social Security benefits are taxed, and what portion of it is taxed, depends on the amount and sources of your retirement income. For instance, someone whose retirement income is based entirely on Social Security and capital gains from non-deferred sources -- even if the latter is a million dollars a year -- does not pay a dime of taxes on his social security income. Fact is, very few retirees pay taxes on 85% of their benefits.
Q: Which Political Party took Social Security from the independent "Trust" fund and put it into the General fund so that Congress could spend it?
A: It was Lyndon Johnson and the Democratically-controlled House and Senate.
Whether or not there is or ever was a trust fund is argued on two premises: 1) Social Security historically collects more revenue than it spends in any given fiscal year (though this trend will eventually reverse) and government "borrows" this surplus money to offset spending in the general budget; 2) When government "borrows" this surplus, it leaves a pile of government "IOUs" (treasury bonds) in its place, meaning there is no "real" money in the trust fund.
The first point is only valid if you believe the Social Security Trust Fund is anything more than an accounting gimmick. In the words of the Congressional Budget Office, "[government] Trust Funds have no particular economic significance; they function primarily as accounting mechanisms to track receipts and spending for programs that have specific taxes or other revenues earmarked for their use." President Johnson is often maligned for "taking away" the trust fund because his administration began calculating social security inlays and outlays as part of the government's general fund rather than as a separate item removed from the general budget. Since social security inlays/outlays and general inlays/outlays all flow through the same agent, namely the United States Treasury, Johnson's "unified budget" method makes perfect sense. Since only one party (the Treasury) is responsible for all government inlays and outlays, viewing one single function such as Social Security as a separate item apart from the rest of the budget can obscure its impact on the ability to fund all other functions, and vice-versa. This especially becomes a problem when trying to make long-term general budget projections. In this context, why exclude the single largest budget item when calculating yearly revenues and expenses?
Whether the social security "trust fund" is calculated as a separate line item or part of a unified budget is simply a matter of preferred accounting method. In reality, it has no practical impact on government revenue collections or spending. Witness the fact that Social Security was moved "off-budget" again in 1990, but this has not stopped the government from using surplus social security inlays to offset spending on other government programs.
On the second point, this is simply an accounting shuffle by the Treasury Department to move surplus Social Security revenues into the general fund. The government buys back its own bonds with the surplus, which on paper reduces the federal debt. They then turn around and sell those bonds, which raises the debt right back to where it was. Finally, they use the funds raised by the bond sale to finance general expenditures.
Q: Which Political Party eliminated the income tax deduction for Social Security (FICA) withholding?
A: The Democratic Party.
False. Social Security was never tax-deductible.
Q: Which Political Party started taxing Social Security annuities?
A: The Democratic Party, with Al Gore casting the "tie-breaking" deciding vote as President of the Senate, while he was Vice President of the U.S.
False. The vote referenced in this question/answer is what raised the maximum exposure to 85%. Congress first exposed Social Security benefits to taxation in 1983, with the approval and signature of Ronald Reagan.
Q: Which Political Party decided to start giving annuity payments to immigrants?
A: That's right! Jimmy Carter and the Democratic Party. Immigrants moved into this country, and at age 65, began to receive SSI Social Security payments! The Democratic Party gave these payments to them, even though they never paid a dime into it!
False. Your Social Security benefits are based on your contribution. If you pay nothing, you get nothing. Immigrants are not exempt from paying Social Security. They pay just like the rest of us, and thus ought to get their money back like the rest of us.
Then, after doing all this lying and thieving and violation of the original contract (FICA), the Democrats turn around and tell you that the Republicans want to take your Social Security away!
I only wish the Republicans would have the guts to say, "we're going to take your social security away." My curmudgeonly side openly hopes the Baby Boom generation never collects one red cent of Social Security. For three decades, economists and demographers have been warning of the inevitable disaster of a huge baby-boom generation receiving far more benefits than can be replaced by subsequent smaller generations. The baby boomers had all their adult lives to address the problem. But they were either to lazy, too incredulous or too greedy to do anything about it. So now, in order for the government to meet its promises to their generation -- the wealthiest generation of human beings the world has ever witnessed -- it will have to tax the holy hell out of my generation. And you better believe I resent it. Ironically, contrary to a prior false claim, immigration itself is about the only thing that will keep social security from fiscally crushing us within the next 50 years.
And the worst part about it is, uninformed citizens believe it!
That's a matter of speculation. Some among the older generation believe it because they want their money back before it disappears. The younger generations know it won't be there whether anyone "takes it away" or it collapses.
Perhaps we are asking the wrong questions during this 2004 election year! If enough people receive this, maybe a seed of awareness will be planted and maybe good changes will evolve.
Awareness indeed. I hope this revised version brings some context to this "seed of awareness."
How many people can YOU send this to?
One if I'm not lazy. Zero if I am.
|
