Here is my Social Seucrity post from Wednesday’s American Street. I’m hoping we can get a discussion going here.
There’s a lot of talk about Social Security today, so I thought I would weigh in.
You and I pay a big Social Security tax, something like 15%. (If you work for someone the employer pays half of that.) But you don’t pay when you make more than about $88,000. You don’t pay it at all on capital gains, which are also taxed much lower than income, or dividends, which are not taxed at all. For many people this is the largest tax they pay.
Once again, just to make sure you hear it, you only pay this tax on the first $88,000 of your income, even if you make vastly more than that. And rich people don’t pay it at all if their income is from capital gains or dividends.
So where does this money go — this money collected from a tax that ONLY lower and middle incomes pay, and only on income from actually working for a living?
Social Security runs a HUGE SURPLUS. It contributes over $200 billion a year to the government, which allows the government to keep taxes lower for the rich and corporations. Lower income people pay this tax to subsidize tax cuts for upper-income people and corporations.
One day, currently estimated to be about 2018, enough “baby boomers” will have retired that the surpluses from that tax stop and the government has to find another source of extra revenue, and start paying back some of what it has borrowed. But this day keeps moving out into the future, because they estimate the date using very conservative assumptions. If the minimum wage is raised, for example, this date will move out because a higher minimum wage means more money paid in taxes. Other policies that bring a greater share of income to middle and lower income people also help move this date out.
The problem is, because the government currently depends on borrowing from Social Security, people worry about where the government will get the extra money to both cover what it has been borrowing from our retirement savings AND start paying it back. THAT is the controversy: that the huge EXTRA tax that most of us pay but the rich do not — used to subsidize tax breaks for the rich — won’t be ENOUGH anymore. So… where WILL the government get the money to pay back the trillion(s) that you and I have paid in extra taxes to subsidize tax cuts for the rich? Where do they get the money to start paying us BACK our retirement savings? Do they start taxing the rich and corporations a little more so we can retire and live on the money that WE paid into the system, that they instead used to cut taxes for the rich and corporations? THAT is the controversy!
Of course, they’re talking about cutting our retirement benefits, or making us retire later, in order to push out the date where they have to actually start paying us back the money that we paid in EXTRA taxes, that they instead used to cut taxes for the rich and corporations. It’s like a con man who is trying to keep you from realizing that your money is gone, or make you think you don'[t want it back. They claim this is a crisis because the taxes needed will “come out of the economy.” But it is THE SAME MONEY in THE SAME ECONOMY. Instead of going into the pockets of a few rich people, it will go to pay Social Security benefits to elderly people who need it. (Most economists will tell you this is actually a better use of the money, so this tax would boost, not hurt the economy.) It’s really about stopping the borrowing from the retirement savings of the lowing and middle incomes and using the money to finance tax cuts for the rich, and the Republicans just can’t stand that.
There’s a second problem. Some twenty or thirty years after the surplus ends the government will have supposedly paid back the trillions that it owes, and then Social Security has a small shortfall. More will be paid out as benefits each year than is coming in, and the trust fund will have been exhausted. ONLY THEN – FORTY OR MORE YEARS FROM NOW does Social Security actually face a shortfall! And no one can pin down exactly when, or how much will be needed — except that we know the amount is far less than Bush’s tax cuts. The date keeps moving out, because, again, conservative worst-case assumptions are used. People like me propose borrowing from the government during that period to pay full benefits, in exchange for the government having borrowed from Social Security all these years to finance tax cuts for the rich and corporations. OR, make up the shortfall by increasing the “cap” – the income above which one does not pay into Social Security – because the money WENT to tax cuts. OR add a Social Security tax to “unearned income” like capital gains and dividends, which is where the very rich get most of their income — currently shielded from most taxes including Social Security. That would also fix the entire problem. In fact, almost ANY solution that involves taxing the wealthy just a bit more fixes this long-term problem.
Salon had a good piece the other day, Schieffer was wrong, Kerry was right.