Social Security certainly needs “strengthening and improving.”
The amounts being paid are at starvation levels. The people who need it most often receive the least or none at all.
It contains an unnecessary “gambling” element; you must try to guess how long you will live, to determine when you should begin to receive benefits.
Most of Social Security’s shortcomings are based on the myth that it is funded by FICA. It is not. FICA funds nothing — not Social Security, not Medicare, nothing.
FICA dollars disappear upon receipt by the Treasury. They do not enter those mythical “Social Security Trust Funds.”
They do not enter the economy. Federal spending is unrelated to tax collections, which is why there is a $20 trillion federal “debt.”
According to misleading statements by the federal government:
The Social Security Trust Funds are the Old-Age and Survivors Insurance (OASI) and the Disability Insurance (DI) Trust Funds. These funds are accounts managed by the Department of the Treasury.
They serve two purposes: (1) they provide an accounting mechanism for tracking all income to and disbursements from the trust funds, and (2) they hold the accumulated assets.
These accumulated assets provide automatic spending authority to pay benefits. The Social Security Act limits trust fund expenditures to benefits and administrative costs.
The funds do provide an unnecessary accounting mechanism, but they do not hold anything. They aren’t even trust funds.
According to The Motley Fool there are three elements to a trust fund:
- The Grantor: The person who establishes a trust fund and contributes property to it.
- The Beneficiary: The person or people who will eventually benefit from the assets in the trust fund.
- The Trustee: The person or organization responsible for administering the trust as it was intended.
In the Social Security “trust funds,” the grantor is the federal government, which supposedly populates the funds, but uses your property.
The trustee is the federal government which supposedly manages the assets, except you make the biggest management decisions of all: When to begin taking benefits.
Here is how the Foundation for Economic Education describes it:
Though Congress legislated the Trust Fund, it is not the grantor, because a grantor puts his own property into a trust, which Congress did not do.
As for the Board of Trustees, who in a true trust would hold the legal title to its property, (the Board not have) title to anything.
Nor do the purported trust “beneficiaries” have property in the fund to which they have an enforceable property right, as beneficiaries of a true trust do.
Board Chairman Altmeyer revealed that Social Security maintains no accounts containing funds earmarked for individuals, and never had.
Its accounts, then, are just record-keeping entities: file folders, not piggy banks.
Assistant Attorney General Robert Jackson stated that under Social Security, “There is no contract created by which any person becomes entitled as a matter of right to sue the United States or to maintain a claim for any particular sum of money. Not only is there no contract implied but it is expressly negatived, because it is provided in the act, section 1104, that it may be repealed, altered, or amended in any of its provisions at any time.”
And the government’s brief for the Supreme Court case Flemming v. Nestor (1960) argued that a current or prospective Social Security beneficiary does not acquire an interest in the Trust Fund—that is, a property right to its assets—and that the belief that Social Security benefits are “fully accrued property rights” is “wholly erroneous.” The Court concurred.
All this confirms the observations by Suffolk University Law School Professor Charles Rounds, a fellow of the American College of Trust and Estate Counsel:
“Despite the term ‘trust,’ the Social Security system contains nothing that remotely resembles the common law trust.
“There is no segregation of assets, no equitable property rights, no private right of enforcement (all characteristics of the common law trust).
“It is merely a system of taxation and appropriation sprinkled with trust terms to hide its true nature.”
Demonstrating the uselessness of FICA, is the “tax holiday”:
The Middle Class Tax Relief and Job Creation Act of 2012 temporarily reduced the amount of Federal Insurance Contributions Act (“FICA”) taxes owed by employees by two percentage points from 6.2% to 4.2%. This reduction expired on December 31, 2012.
The “holiday” resulted in no change in Social Security benefits.
The purpose of the tax holiday was to stimulate economic growth, particularly favoring the lower- and middle-income Americans. Isn’t that something the government should do all the time?
To summarize, so far:
- Federal taxes do not fund federal spending, nor do they fund Social Security benefits. Federal spending does not rely on federal taxing.
- The federal government, being Monetarily Sovereign, cannot run short of its own sovereign currency, the U.S. dollar. It creates dollars, ad hoc, by paying creditors.
- Just as the federal government cannot run short of dollars, no agency of the federal government can run short of dollars, unless Congress wills it.
- There are no Social Security trust funds. They are just bookkeeping devices.
- The non-existent “trust funds” cannot run short of dollars unless Congress wills it.
Keep these points in mind as you read excerpts from the following article:
Dean Baker: A Bold Plan to Strengthen and Improve Social Security Is What America Needs
Posted on November 9, 2019 by Yves Smith
By Dean Baker, co-founder of the Center for Economic and Policy Research, where he is a senior economist.
The Social Security 2100 Act proposed by (Democrat) Connecticut Representative John Larson is getting closer to being passed by the House of Representatives. If it were to be approved and become law, it would both improve the program’s benefit structure and its financial picture.
The biggest item on the benefit side is that it guarantees a benefit of at least 125 percent of the poverty level for anyone who has worked for at least 30 years.
The logic here is straightforward; we should be able to ensure that anyone who has put in a full lifetime of work will not be in poverty in their retirement years.
An income of “At least 125 percent of the poverty level” does not guarantee anyone will not be in poverty, unless the government also can guarantee no one will live in a higher-cost area like New York, much of California, or many big American cities.
Further, why is it necessary for someone to have “worked for at least 30 years”? Is there a moral code requiring labor for 30 years.
And what about people whose labor is not as a salaried employee? Does their labor not count?
The second big change on the benefit side is that it changes the cost-of-living formula for adjusting benefits by tying it to an index of consumption items purchased by the elderly rather than the overall Consumer Price Index.
The inflation adjustment for Social Security benefits has long been a major issue, with many politicians wanting to change the formula to reduce benefits.
Well, of course, that is what “many politicians” want. It is what the rich, motivated by Gap Psychology, pay them to “want.”
The third feature on benefits is a change in the formula that will increase average benefits for a bit less than $400 a year. This has provoked some opposition since this increase will go to not just lower-income seniors, but also middle-class and relatively affluent seniors.
The average benefit this year is just over $17,600, certainly not enough to maintain a middle-class lifestyle.
All this effort for a $400 per year benefit increase? And if $17,600 is “not enough to maintain a middle-class lifestyle” (It isn’t), would an increase of $400 to $18,000 be enough?
And now we come to the most economically ignorant part:
Rep. Larson proposes to cover this increase, as well as the projected Social Security shortfall, by having a gradual increase in the payroll tax and applying the tax to very high-income workers.
On the latter point, the income subject to the payroll tax is currently capped at just under $133,000. This means that someone earning millions of dollars each year would pay no more in Social Security taxes than someone earning $132,900.
Larson’s bill would make wages over $400,000 subject to the tax.
Note that the tax is on wages. But rich people receive most of their income from non-wage sources: Stocks, bonds, rents, etc.
And, as we have shown, taxes do not fund Social Security benefits. FICA taxes merely remove dollars from the economy, with a disproportionate coming from the pockets of the middle- and lower-income people.
In addition to being unnecessary and a burden on the economy, FICA is, and would remain, the most regressive tax in America.
No wonder the rich love it. FICA widens the Gap between the rich and the rest.
His other change is an increase in the payroll tax of 0.1 percentage point annually, split between workers and employers. This increase would continue for 24 years, for a total increase of 1.2 percentage points on both the worker and the employer.
While this is a middle tax increase, it is much smaller than increases we saw in the decades of the 1950s, 1960s, 1970s, and 1980s. More importantly, if we can sustain decent wage growth, it is a tax that should be easy to bear.
It is an unnecessary tax that is especially “easy to bear” for the rich, for they pay so little of it.
The article continues:
After adjusting for prices, wages have risen 1.5 percent annually over the last five years. If we can continue this pace of wage growth, the Larson bill would take back much less than 10 percent of the pay increase in taxes.
Of course, wage growth may not continue, but then our focus should be on getting decent wage growth, not blocking revenue needed for Social Security.
One wonders what “take back” means. The wage increases come from the private sector, and the taxes go to the federal government. So the government would not be taking “back” anything. It simply would be taking.
The article ends with this bit of nonsense:
In short, this is a well-considered bill that would accomplish good for current and future retirees. Congress should move on it.
No, it is an ill-considered bill, put forth by a Congress that either is ignorant of economics, or has been paid by the rich to widen the Gap between the rich and the rest — or both.
There is nothing “bold” about the plan, and it does nothing to “strengthen” Social Security, which is infinitely strong, based on the federal government’s infinite ability to fund it.
A “bold” plan would be to institute the “Ten Steps to Prosperity” (below), beginning with Step #1, Eliminate FICA.
Rodger Malcolm Mitchell
Search #monetarysovereignty Facebook: Rodger Malcolm Mitchell
The most important problems in economics involve:
- Monetary Sovereignty describes money creation and destruction.
- Gap Psychology describes the common desire to distance oneself from those “below” in any socio-economic ranking, and to come nearer those “above.” The socio-economic distance is referred to as “The Gap.”
Wide Gaps negatively affect poverty, health and longevity, education, housing, law and crime, war, leadership, ownership, bigotry, supply and demand, taxation, GDP, international relations, scientific advancement, the environment, human motivation and well-being, and virtually every other issue in economics.
Implementation of Monetary Sovereignty and The Ten Steps To Prosperity can grow the economy and narrow the Gaps:
Ten Steps To Prosperity:
2. Federally funded Medicare — parts A, B & D, plus long-term care — for everyone
3. Provide a monthly economic bonus to every man, woman and child in America (similar to social security for all)
4. Free education (including post-grad) for everyone
5. Salary for attending school
6. Eliminate federal taxes on business
7. Increase the standard income tax deduction, annually.
8. Tax the very rich (the “.1%”) more, with higher progressive tax rates on all forms of income.
9. Federal ownership of all banks
10. Increase federal spending on the myriad initiatives that benefit America’s 99.9%
The Ten Steps will grow the economy and narrow the income/wealth/power Gap between the rich and the rest.