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Truth Gouging and Social Security The cost to fix the program early is modest but does require making general revenue payments to current retirees while the transition takes place. That fact creates the interesting argument by some supporters that the program is so bad that we can’t afford to fix it. Can we? The Congressional Budget Office (CBO) currently projects an income tax overpayment of $2.174 trillion over ten years and a Social Security payroll tax overpayment of $2.386 trillion for a total projected surplus of $4.560 trillion. Some of the proposals to be discussed this political season avoid such a painful choice as higher taxes or lower benefits by substantially increasing the low return provided by Social Security through the addition of Personal Retirement Accounts. All new proposals have a safety net and are voluntary so that enrollees can opt to keep what they have without making any change. Benefits for current retirees are not affected. The payroll tax is the primary tax for a majority of Americans. Programs that keep that tax from rising benefit the poor. Programs that prevent benefits from declining also primarily help the poor. It’s an alternative worthy of serious debate. Under reform proposals, the payroll tax and rate would still be compulsory. A fraction of the money could be invested by individuals in an approved annuity or an approved portfolio of stocks and/or bonds. Over the past 80 years, stocks have averaged about eight percent annual return, bonds about four percent and Social Security a bit less than two percent. When the self-interest of the electorate lies opposite to a program the elite espouses, fearmongering becomes the major weapon of choice. The statist left is so concerned that people will actually understand how Social Security works that their demagoguery is becoming more incessant. Instead of refighting the Great Depression, let’s look at the status quo they are defending. The current system taxes at a constant rate from the first dollar earned. It is therefore regressive, taxing everyone the same regardless of ability to pay. After a designated limit, the rich make no further payments. The Social Security tax is also the primary federal tax paid by most citizens. The payroll tax deprives the poor of the dollars they need to invest in their own retirement in order to pay for anyone and everyone already retired. The Social Security tax overcharges by one-two percentage points and thereby creates a "surplus" that is promptly spent on financing other phases of government. There is no money in the trust fund. It is dependent on future allocations of taxes by a future Congress to honor the IOUs of today. The current Social Security liability exceeds $21.6 trillion or four times the national debt. As medical science advances while huge population of Boomers age, the idea that you pay for your parents and your children will pay for you becomes mathematically impossible. The original legislation was put into place in an era where half the population died before age 65. In today’s world, your parents are expected to pay for your grandparents but both are retired and still functioning – one in a planned community and the other in assisted living. For the poor, assisted living and a planned community mean moving in with the children, if they are available. The Social Security taxpayer has no rights, just a voiceless obligation to pay the tax. The scheduled payouts and eligibility rules are completely at the whim of politicians and not guaranteed. The Social Security system participant has no property rights and no individual account. If he or she dies young, the accumulated tax payments belong to the government. The current system, devised at the turn of the 19th century and adopted here nearly 70 years ago, is simply obsolete. Since then, country’s using the socialist model have demonstrably failed to provide for their citizens. The capitalist model has proven to be the only way to consistently create wealth. To see what a difference the individual opportunity to build wealth makes, compare the results from current Social Security policy and a retirement system that requires the same amount (12.4%) to be invested completely by an individual who has property rights and is a stakeholder in capitalism.
How to read. This table shows that a 40-year old male under Social Security would lose the ability to earn 6.0 percent on average stock and bond performance and, instead, receive a return of minus 11/100ths of one percent from Social Security. As a result, he would have paid over his lifetime $238,000 in payroll taxes and been deprived of the ownership of a$979,000 investment. Were he to spend in retirement at the Social Security payment level, his heirs would still have $747,000 in their possession. He would be free, of course, to spend more. Were he to die early, the heirs would also have the remaining portion of the $238,000. For the sake of an unguaranteed promise of meager income, the government has deprived him of the chance to build the real wealth that would be his family’s road out of poverty. To calculate your own Social Security account performance differences, visit the two sources cited with the table. ### |
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