Jan 14, 2016

Income Inequality Hurting Social Security Trust Funds

     From The Atlantic:

The financial picture for Social Security isn’t as dire as some describe: Without any modifications to its funding, Social Security will generate enough revenue to pay for three-quarters of promised benefits. [There is enough revenue and reserves to pay full benefits until 2034.]

The main reason it’ll fall short, though—the reason that that remaining one-quarter of benefits hasn’t yet materialized—is that the method of funding for Social Security was calibrated to an America with much less inequality than the nation currently has.

Since the late ‘70s, most of the growth in workers’ earnings has gone to the people who have made the most money. To be precise, the wages of the top 1 percent of workers have grown 138 percent since 1979, while the wages for the bottom 90 percent grew only 15 percent during that period.
If all of that income growth were taxed evenly, Social Security would have no shortfall. But it’s not taxed evenly: Any dollar that an American earns beyond $118,500 is, under current laws, not subject to Social Security taxes. In other words, someone who makes $118,500 this year is going to pay the same amount in Social Security taxes as someone who makes $4 million this year.


Anonymous said...

Warren Buffett's secretary pays taxes at a higher rate than he does. Is it time to apply FICA taxes to some investment income or gains?

Anonymous said...

hey, they're the ones that talk about how much work they do and how they earned this stuff, etc.--ok, well then let's treat those "earnings" you derived from "work" as EARNINGS and tax them that way. Whether your paycheck comes every two weeks from your boss or every quarter/year in the form of dividends and capital gains, save for retirement and other special savings vehicle type investments, let's tax it all like income!

Anonymous said...

Interesting but false argument. Social Security’s progressive benefits formula favors low-income workers; they tend to get back a greater percentage of what they put in compared to higher-income workers. The reason why trust funds are out of balance is not because a very small number of people have high wages or self-employment earnings.

It is so easy to forget the basic reasons why social security was created. No, it is not time to apply FICA taxes to investment income, rents, lottery winnings, etc. to pay for those eligible for benefits based on loss of wages or self-employment income due to retirement, death, or disability. Please understand the critical differences between FICA taxes and income taxes, and the reasons why any type of tax is collected.

Anonymous said...

We should have no FICA cap on wages and pay benefits accordingly. Even if it means the ultra-rich will receive $20k per month in benefits (hypothetically) - it would make the system solvent and fair. The few who receive massive monthly benefits would not imperil the system. I believe it is a win-win option.

Anonymous said...


I reject your whole premise because I do not believe that gov't programs necessarily should stay exactly the same over time. One could use the beginning of your assertion "the basic reasons why ____ was created" to advocate stopping doing all manner of things our gov't does simply because the program or agency at issue didn't do that particular thing at its inception.

Our voting populace and elected officials have seen fit to expand Social Security beyond its original parameters, and increasing the FICA cap has been and continues to be consistent with its current understanding.

Anonymous said...

The purpose of Social Security is to provide income security for retirees and people with disabilities. With greater income inequality there are more people in poverty or in middle class (depending on how you define that) for whom that becomes critically important.

One decision to make as a society is whether providing income security to those who need it most is more important than the current man-made distinctions between types of income for tax purposes. In other words, is it more important to provide a base level of income security for retirees and the disabled, than it is to protect the wealth of the ultra-rich from a relatively minor ding, considering their income and resources.

Anonymous said...

I don't expect any social security when I retire, it wont be there for me. Or my retirement age will be 80. It is a rip off program for younger workers and we are outnumbered. Abolish this Ponzi scheme and I will take care of myself.

Anonymous said...

4:51 PM, tell that to the 24 year old youngster that came before me that had MS and could not get himself out of the chair without his Dad grabbing his belt from behind and lifting him up. Tell me what his life would be like without SSA??? I am 69 and still working and contributing. It breaks my heart to see youngsters that will never have a full life and the ability to pay into a program like this. I can guarantee they would rather work and pay in to the program than withdraw from it.

Anonymous said...

@4:15, the thoughts you expressed are exactly what the hedge fund moguls and those without any social conscience want you to believe. If the wealthy and T-baggers will get off the backs of Congress and allow long-term fixes at this time, the costs may go up slightly, but the benefits programs can be saved into the future. By delaying action, they are ensuring that there will be problems.

Anonymous said...

@10:08 and 12:16. Do you honestly believe that in 10 years, 20, 30 years the program will still be structured as we see it today? Do you honestly believe that retirement age will not go up to 70 and beyond and that Medicare will not be eligible to younger workers until the age of 70 or more? With a FRA of 70 or beyond do you believe the younger worker will be offered the opportunity to retire at 62? The program has already changed for younger workers and even some of the current retirees are facing increased FRA from what they were told when they were younger.

If you believe a younger worker will have the same advantages as todays retiree you need to stop drinking the kool aid made with the water in Flint.

Anonymous said...

9:43 AM, Why will younger workers need Medicare? Don't we have Obamacare??Why shouldn't the FRA go up to 70? When I started working, I was promised FRA of 65, but then it became 66. I am living longer and able to work longer, so? Oh, but of course I don't smoke... Personal choice.

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