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Social Security
POSITION SUMMARY:
We MUST stop allowing “Government” to borrow from the social security “Trust Fund” as below market interest.
We MUST revise the system of social security benefits to guarantee that all workers receive all the benefits to which their own contributions entitle them.
We MUST stop increasing the benefits funded by the social security system without increasing the revenues to the system.
DISCUSSION:
Almost all retired Americans receive Social Security benefits. Social Security provides at least half of the total income of 64% of aged beneficiaries, and is the only source of income for 20% of the aged. Without Social Security, nearly half of all retired beneficiaries would be living in poverty.
Whatever our individual views may be about the Social Security System--whether it is Constitutional; whether running a retirement system is an appropriate role for government or whether it should be abandoned—are irrelevant. We, as a nation, have made promises to the people now receiving Social Security—and to everyone else who has been paying into the Social Security System. We are going to keep those promises.
But there are things we need to change about the System.Before considering the features of the Social Security System as they relate to contributions and benefits, it is important to understand a few facts about the Social Security system and why it is in financial trouble.
The Social Security “Trust Fund”:
There is no such thing as a Social Security “Trust Fund”.
The so-called Trust Fund exists only as an accounting entry in the federal budget. Funds collected as Social Security taxes paid by employees and employers do not go into a separate fund. They are held by the Government and used as part of its general revenues.
Technically, when the Government spends money collected in the form of Social Security taxes, it is “borrowing” from the Social Security Account—and this is one of the reasons why the Social Security system is in financial trouble.
The rate of interest paid by the Government on its “debt” to the Social Security Trust Fund is set by Congress and is only 1%.
If the Social Security system is really in financial trouble, it is because Congress has acted irresponsibly in making Social Security money—our retirement money—available to the Treasury at ridiculously low rates. If we are serious about taking action to assure the future of social security, we have to change the way our social security taxes are “invested.”
In recent years, there has been much discussion about the need to “privatize” Social Security or provide individuals with the ability to manage their own “accounts.” I oppose these alternatives. I could give many technical reasons why I oppose these alternatives. But that is not really necessary. The collapse of the stock market in 2008-09 is alone enough to illustrate why the financial futures of working American’s should not be made dependent on investments in public companies.
Social Security Contributions and Benefits:
The Social Security retirement system has little in common with the retirement plans maintained by private businesses. These differences are one of the reasons the Social Security system is in financial trouble. But these differences also create significant inequities that need to be addressed in any effort to reform Social Security. A few of these problems are identified below.
The Problem Isn’t Money—It’s Politics:
The reason the Social Security system is in financial trouble is—in addition to the previously discussed fact that Congress has let Government “borrow” from Social Security at ridiculously low rates—is found in the simple fact that all of the financial features of the Social Security System are determined by politics and are independent of any fiscal considerations
The amount collected through employer and employee contributions and the amount paid out in benefits are set by policy — by Congress -- are determined largely independent of one another
The financial problems faced by the Social Security System are entirely the result of Congressional politics. Congress authorizes increases and benefits—for political purposes; and Congress keeps the Social Security tax rate low—for political purposes.
What We Contribute and What We Receive Are Unrelated:
Not everyone who has contributed the same amount to Social Security is entitled to the same benefit. This is particularly true for married taxpayers where Social Security taxes are paid based on individual earnings but benefits are paid based on household status when the benefits are paid. That is:
A husband and wife who have both worked all their lives receive a smaller benefit than if the same two people were not married when they received their benefits.This is fundamentally unfair. Each person who contributes to Social Security should receive the full benefits to which his or her earnings entitle them.
The Tax Treatment of Contributions and Benefits Is Inconsistent:
Employers and employees both pay taxes into the Social Security system at the same rate—e.g. both contribute the same percentage of the employee’s wages. BUT the employer’s contribution is tax-deductible to the employer, but employees pay income taxes on the amount of his or her contribution.
Okay. So the retired employee should only have to include half of his benefits in his taxable income when he receives them. Right?
WRONG. The retired employee includes all of his benefits in his taxable income. That’is, he pays taxes on AGAIN when he receives the benefits he paid for with after-tax dollars.
Social Security benefits are not "Property".
Under the current system, Social Security benefits represent an entitlement to certain benefits, not a property right. Unlike an interest in an IRA or private pension plan, a worker who has contributed to Social Security does not have a property right that can be transferred in the event of death. If a single person dies before reaching retirement age, his heirs do not receive the benefit of his contributions—the government keeps it.
This is fundamentally unfair. Each person who contributes to Social Security should have an ownership interest in his or her contributions.
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Alan Woodruff for Congress
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