Simply a racket‼️

The article quoted below started by making a reasonable argument that the income level at which Social Security benefits become taxable should be indexed for inflation.

34% of Americans 65 and over do not pay income tax.

Then the article descends into nonsense. What you pay in payroll taxes has nothing to due with the benefits you collect. Also:

  • Social Security is far more than a retirement program. It provides survivor and disability benefits for which many recipients have not paid a penny in taxes
  • At the 50% level you are effectively paying income taxes on the employer portion of funding, just like you would pay income taxes on 100% of an employer funded pension
  • You did not pay payroll taxes on the employer-paid taxes used to fund Social Security
  • The higher taxable amount of 85% is not a racket. The tax on the amount between 50% and 85% goes to funding Medicare
  • Trust money is not invested like normal pension money. So what? Participants in a pension plan have no control over the investments and, like Social Security, the benefit is based on a formula, not the assets in the trust. The trust earns an effective interest rate consistent with current markets. The argument that investing a portion of the SS trust in the stock market would help the trust has validity, but would not affect the individual in any case.

The argument for taxing 50% of benefits has at least a modicum of logic to it. Your employer technically pays half your Social Security contributions, and they can deduct that cost against their corporate income tax. But that’s 50%, not 85%, so the higher rate is simply a racket.

Furthermore, when you think about it, even taxing 50% of benefits is an outrage. It means that you are effectively paying some of your employer’s corporate income tax.

Marketwatch

The Social Security tax is a scandal sitting in plain sight. It is a stealth tax levied on middle-income seniors that was not supposed to hit them. And it is an egregious example of double taxation, because the people paying tax on the benefits also paid tax on the money they put into the system.

While your money is sitting in the trust fund it isn’t invested like normal pension money. Instead it is lent to Uncle Sam at low rates of interest so he can use it for government spending.

MarketWatch

These kinds of “opinion” articles should be based on facts. This one is not.

14 comments

  1. If you want a laugh, check out comments about Social Security on the AARP site. Many call it a Ponzi scheme, or say President XYZ or Congress stole the money. FICA taxes paid on income entitle you to collect a benefit check once you meet the requirements to collect the benefit check. We all pay taxes of all types and we may not see any benefit from those taxes paid. Property taxes pay for our schools, but someone with no kids might see it as unfair, because they are paying for other people’s kids. At least with SS most people who live to retirement age get more than their total FICA taxes back in just 8 years. I will have everything paid in FICA taxes $86,000 (inflation adjusted 2018 dollars, the year I started getting SS benefits at age 62) in just 67 months, at age 67.6. My life expectancy is 83, so my wife and I will receive an additional $277,056 (not inflation adjusted) above the FICA taxes paid. Social Security is far from a Ponzi scheme or some kind of rip-off, it keeps millions of people who never had enough income to save for retirement out of poverty.

    Liked by 1 person

  2. Social Security is an entitlement – it is not earned. That is the big lie told by Congress. If you asked the next 100 people walking down any city street, they will tell you that the taxes they paid during their working careers earned their benefit. In fact, because of the progressive benefit formula with the bend points, the taxes you pay are inversely related to the benefits you will receive.

    If you treated your contributions to Social Security on the same basis as you would for say to a retirement savings plan (after-tax 401(a) or Roth 401(k), contributions made on an after tax basis), then the portion of the benefit funded by your contributions should have no taxes applied. What we have is a variant of double taxation, your contributions are after-tax and the benefits are taxable.

    Medicare is even worse. The payroll taxes for Medicare are also taken on an after-tax basis. However, the Hospital Insurance contributions (FICA-MED) are a function of income where the benefits have no relationship to the taxes – in fact, those who pay the most in taxes to fund Medicare receive, proportionately, the smallest benefits, on average (given the relationship of health and income/wealth). That is particularly true when it comes to Medicare Part B and Part D. Those programs are at least 75% funded with general revenues (mostly income taxes) where the top 1% of earners pay more than 1/3 of all income taxes. Then, layer on IRMAA.

    You may not think it is a racket – but there is a ton of noise out there.

    Liked by 1 person

  3. Stephen Douglas. You got it right. You paid for your elders and now your kids are kicking in for you. I just hope the upcoming generations will keep up the process and not let it die.

    Liked by 1 person

  4. No, I wouldn’t say it is a racket nor do I think it is a racket but you have to admit a straight up this is what it costs and this is how it we’ll fund it is a common sense way to run a program. If people knew that then they could opine whether it should be kept or done away with or funded differently or whatever.

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  5. No, I wouldn’t say it is a racket nor do I think it is a racket but you have to admit a straight up this is what it costs and this is how it we’ll fund it is a common sense way to run a program. If people knew that then they could opine whether it should be kept or done away with or funded differently or whatever.

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  6. The article is an “opinion” piece as you say and in such cases he is entitled to see the facts through his lens.

    Social Security will be cussed and discussed forever since it has morphed over the years from a pure old age pension to a more general benefits program for survivors and divorced wives (husbands) with benefits for disabled. It was shrouded in terms like your “contributions”instead of your taxes and “beneficiaries” when referring to recipients. Very little was done to dissuade people from thinking that they had a personal account somewhere in the government files for their retirement. Finally, after over 40 years of operation, taxes were tacked onto the payout. The trust fund is a giant misunderstood concept all its own.

    Is it surprising that articles will have different slants on the program.

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    1. One can have an opinion – SS is an affordable or not affordable program – SS is funded fairly or not – but you can’t distort or ignore facts and develop a valid opinion. How can one say the 85% is a racket while ignoring Medicare? On average a person collecting SS has paid in taxes less than a third of total benefits collected, not half, and many collect never paying a penny in taxes.

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      1. All true although Medicare is a separate program added in the 60’s and has its own funding mechanism and thus shouldn’t be considered in a tax discussion of SS payments.

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      2. The Medicare HI trust is severely underfunded, taking additional funding via raising taxable SS to 85% was a back door way of helping the funding presumable a tax on higher income retirees and the population using Medicare. You could argue about that being the best was to raise income, but it’s not a “racket”.

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      3. And many pay, never collecting a penny in benefits.
        A co-worker complained about “contributing” to SS at all. At the time, I considered my FICA taxes as going directly to my Dad. Now my kids and grands are contributing to me. It’s all good.

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