The Pardu

The Pardu
Watchful eyes and ears feed the brain, thus nourishing the brain cells.

Tuesday, May 27, 2014

Connect The Dots USA: Social Security......A GOP Target Since FDR

Re-Blog From Connect The Dots USA





One of our most successful, dependable government programs is Social Security. Since 1935, it has kept many seniors out of poverty. With recent and probably future Wall Street shenanigans with our 401ks and pensions, many more folks will probably need Social Security to survive. So stop picking on it.

Instead, we should be expanding benefits by scrapping the cap so millionaires don’t pay a lower Social Security tax rate on their income compared to someone making below $117,000.


Talk of “entitlement reform” and “privatizing” Social Security is just a ruse to funnel that $2.6 Trillion surplus into the Wall Street gambling casino. Oh the fees they will take! We paid into this insurance program and darn straight we’re entitled to the return on our investment. It is not welfare; it is a 100% EARNED BENEFIT program.

Also remember, as we saw in an earlier post (5/2/14), Social Security — far from adding to the deficit or debt — is America’s largest creditor. Failure to grasp this distinction is like not understanding the difference between your home loan and the bank to whom you owe the money.



The next time someone tries to convince you that the Social Security trust fund is empty, you just show them this accounting statement issued by the Social Security Administration. Notice how in 2012, the trust fund earned $109 Billion by loaning the money back to other parts of the U.S. government. That's a 4.0% rate of return and makes more economic sense than stuffing the money under the mattress (or in a lock box) where it earns no interest and gets eaten by inflation. 

Also note that the outlays for Disability Insurance (DI) exceeded income by $31 Billion so that amount of Treasuries had to be sold by the Disability trust fund. How could all this happen if the trust fund is empty?

Based on current projections, the Old-Age & Survivors Insurance (OASI) program can pay out full benefits until 2033. After that, even if nothing is changed, it can still pay out 75% of benefits from its dedicated payroll tax. So it is not "bankrupt" or "insolvent" in 2033. Rather the trust fund that is used to make up the projected shortfall between benefits paid and payroll tax collected will have been depleted. A 25% cut to seniors is a terrible thing, but it’s hardly a 100% cut as if the Old-Age fund was “bankrupt.”


The Disability Insurance fund is a much more urgent matter. Its trust fund will be depleted in 2016 — just two years from now! After that, if nothing is changed, it will only be able to pay out 80% of benefits owed.

There is an easy fix to all this — just scrap the wage cap and collect payroll taxes on earnings over the arbitrary and unfair $117,000. Back in 1983, 90% of all income in the U.S. fell under the cap and was subject to the Social Security tax. With growing income inequality and more income going to the top, now only 83% to 84% of all income falls under the Social Security cap. So we could either raise the cap to $180,000 to make sure the tax once again reaches 90% of total U.S. income, or even better, just scrap the unfair cap all together.

And let's not forget that getting unemployed and underemployed folks back to full employment, as well as raising the minimum wage, will bring in more payroll taxes and further improve Social Security projections.

Note that except for the 2011-2012 payroll tax cut legislation that temporarily replenished the Social Security trust fund with about $114 Billion per year from general revenue, Social Security by law cannot pull money from general revenue. And any surplus gets credited to the Social Security trust fund and loaned back to the U.S. Treasury. So normally Social Security is an entirely self-funding account — a 100% earned benefit.

And now you know why Progressives are not fans of the payroll tax cut to get money in the pockets of working families. It starts an unsettling trend of linking Social Security to the deficit. Better to resurrect the 2009-2010 "Make Work Pay Tax Credit" that accomplished the same goal without dragging Social Security into the austerity fray.

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