What Effects Will Tax Bill Have On Social Security Trust Funds?

     The FICA tax that supports the Social Security trust funds is not insignificant. It's 15.3% if you're self-employed. Many self-employed people have gotten around this by incorporating their businesses as what have been called "S corporations." This is now being referred to as a "pass-through corporation", a more descriptive term for people unfamiliar with the Internal Revenue Code, which, of course, is most people. Pass-through corporations pass along all their net income to their owner or owners. There's no corporate taxes paid. Payments from a pass-through corporation are not considered wages and are not subject to the FICA tax.

     The Republican tax bill that is likely to pass this week adds a huge incentive for switching to a pass-through corporation. Subject to some limits, 20% of income from a pass-through corporation isn't taxed. This huge tax advantage is on top of the exclusion from the FICA tax. Almost everybody with a business will now switch to a pass-through corporation. Many people who aren't now thought of as self-employed will try to find some way of receiving payment for their work through a pass-through corporation.

     What effect will this have on the Social Security trust funds? I haven't seen any estimate but it's bound to have a significant negative effect on the trust funds. Of course, in the long run, it's going to leave many people without the quarters of coverage they need to receive Social Security benefits but it will take longer for that effect to become obvious.

     By the way, I can't seem to find out whether professional practices such as law firms are excluded from pass-through corporation treatment. The last I heard was that this was an issue still to be resolved. I can't see a reason why a trucker or construction worker is eligible for this but not a lawyer or architect. Really, I don't see why anyone should be eligible for this. It's a massive, intentionally created loophole at the expense of ordinary working men and women.
     By the way, even if professional practices are excluded, that doesn't mean that lawyers and other professionals can't benefit. Let's say a law firm forms a corporation that's not a law firm but a "staffing agency." The lawyers wouldn't be employees of the staffing agency but the firm's non-attorney staff would be. The law firm makes a generous enough payment to the "staffing agency" corporation so that it makes a substantial profit which it then pays out to the lawyer owners. Since the staffing agency corporation isn't a professional practice, 20% of the distributions aren't taxed. I can figure this one out and I'm not a tax lawyer or accountant. We'll see what the experts can come up with.
     Update: I can now say that law firms are excluded. (page 39). However,  I have seen nothing that would prevent a staffing corporation from qualifying and that could achieve much the same result.

Merry Christmas

Look, Squirrel! Part II

     The Republican blame-shifting game continues. Representative Jackie Walorski (R-Ind.), a member of the Social Security Subcommittee has written a piece for The Hill picking up on the theme the Chairman of her Subcommittee raised earlier that somehow Social Security's hearing backlog exists because we don't have an appointed Commissioner. Walorski adds this new theme:

It’s clear money alone won’t fix the problem. An analyst from the non-partisan Government Accountability Office (GAO) who recently testified at a congressional hearing agrees: “Is SSA using the resources that they currently have as efficiently and as effectively as they can? We found several instances where we don’t believe they are.” Indeed, there are ways to speed up the decision process that are well within the SSA’s authority. For instance, it’s been decades since the SSA updated many of its processes, policies, and tools for evaluating eligibility.

     Of course, it's clear to everyone who has actually looked at the problem that money will certainly fix this problem. In fact, it's the only possible solution. 

     The GAO saying it has found evidence that Social Security is not being as efficient as it can be is meaningless. First, even in the best run agency there's always going to be something to criticize. A lack of divine perfection isn't a sign that there's waste that has a meaningful effect upon an agency's performance. Second, GAO always finds something to criticize. Always. It's what they do. When it comes to Social Security, GAO's criticisms start at the debatable, go on to the meaninglessly vague and end up at the absurd but almost never amount to anything significant. The best evidence I see that Social Security is a well run agency is how paltry GAO's criticisms are.

Congress Should Restore Funding To The Agency

     From a New York Times op ed by Senators Elizabeth Warren and Bernie Sanders:

... For millions of others, Social Security is a lifeline in retirement. But many older people and Americans with disabilities are now struggling to get their benefits because budget cuts have forced the agency running Social Security to cut thousands of jobs and close 64 field offices since 2010. Congress should restore funding to the agency and help fill the gaps in service so that people can get the benefits they have earned. ...

Cleveland Plain Dealer On Hearing Backlog

     The Cleveland Plain Dealer is reporting on Social Security's horrendous hearing backlog problem. As the article reports "Experts, including disability lawyers, advocates and judges, say the solution is simple: give Social Security enough operating funds to hire sufficient staff to make a dent in the backlogged cases."

Merry Christmas?

The Christmas season is the busiest time of the year for psychiatrists

Merry Christmas

Two Good Ideas

     This week's syndicated column on Social Security from Tom Margenau is an open letter to President Trump which contains two ideas I strongly agree with: Increase Social Security's administrative funding and either eliminate or increase the lump sum death payment.

     Margenau notes that 10,000 people a day are retiring and signing up for Social Security retirement benefits each day and many more are applying for other sorts of Social Security benefits. As he writes to President Trump "Let’s say your steak business was growing by 15,000 new customers every day. Would you cut funding and staff to all your producers and suppliers? I doubt it. I am pretty sure you would increase the resources."

     The lump sum death payment is only $255. That's ridiculous. It probably costs more to administer it than is actually paid out in benefits. Either increase it to something meaningful or eliminate it. There's no good reason for it to exist in its current form.