Some misconceptions about Social Security
Social Security (S.S.) is not an entitlement.
Why can't anyone, including the Wall Street Journal, get it right? Entitlement programs are paid for by U.S. taxpayers. Those persons receiving benefits do not pay for the benefits.
Social Security is a funded program paid for by workers. Upon retirement, they receive benefits from the program, not taxpayers.
All workers pay into Social Security (matched dollar for dollar by the employer). Self-employed persons pay double that of an employee.
In 2023, an employer must withhold from each employees' earnings:
- 6.2% Social Security tax on the first $160,200 of employee wages up to $9,932.40
- 1.45% Medicare tax on the first $200,000 of employee wages up to $2,900
- 2.35% Medicare tax on all employee wages more than $200,000
As an example, for a person earning $75,000, 7.65%, or $5,375.50, would be withheld by the employer as FICA. This amount is matched by his employer and $11,475 forwarded to S.S.
Since the beginning of S.S., most years have produced higher income than outgo. This has built a surplus in the S.S. Trust Fund currently equal to about 2.8 trillion dollars. Currently, annual amounts paid into and out of the SS Trust Fund shown below are about equal.
Many in the media are concerned that S.S. outflows will become increasingly larger than inflows resulting from an aging population. They say using the S.S. Trust Fund ($2.8 trillion) to pay for future shortages will deplete the fund within the next 10 years. Hogwash.
That assumes that current rules will not be changed. There are many simple methods available to the S.S. administration to correct any deficiencies if needed. These includes increasing the eligibility age for retirement, rate increases, increasing (or eliminating) caps on wages, or a combination of all three.
Not to worry — Social Security will not go broke. And any changes to the rules will not significantly impact workers.
Many in the media would have you believe monies in the S.S. Trust Fund are used by the government to finance their activities. More hogwash.
S.S. Trust Funds must be, by law, invested in short-term Treasury Bills or Notes. This keeps the funds active and earning interest. About 20% of the current S.S. Fund balance has resulted from these investments.
Now that we understand more about the Social Security Program, and that it is not an entitlement, how is it that many in government link S.S. payments to the debt limit, including Janet Yellen?
This is unbridled fear-mongering against Americans, especially the 66 million retirees who have been instrumental in building this country. The debt limit should be reborn as an honest effort to balance the budget. Today's fight over the debt limit is a charade and is meaningless. We need a balanced budget and not "if we cut our spending next year, in 10 years we will be able to balance the budget."
So far this century, our total Gross Domestic Product (GDP), an indicator of our economy's health, has increased a total of 35%. During the same 22 years, our government spending has grown by 535%. How do the two relate? Very poorly. We may be close to the tipping point and not know it. Therein lies the real danger. We may know only after we have passed the tipping, and then it will be too late.
Has all this deficit spending helped the American worker? Probably not. There are many signs, including inflation and that two-wage-earner households continue to grow. The only winners are government workers, politicians, and those who grab the excessive greening dollars falling from the sky thanks to Uncle Sam.
Whatever. Don't forget that Social Security is not an entitlement. It has nothing to do with the debt limit.
Image: 401(K) 2012 via Flickr, CC BY-SA 2.0.