Social Security is bad business for everyone. No one born after World War II will receive more benefits than they paid in social security payroll taxes. It’s as if everyone is forced to financially discriminate against their own self-interest and invest in something they would never do on their own.
There is no way around it. It’s a math problem, not a politics of political philosophy difference problem.
Would you invest in a cryptocurrency worth $1,000 today if you knew for sure that it would be worth $500 in 2062 no matter what?
Of course not. But that’s exactly what anyone under 30 working today is forced to do with every paycheck they receive ― 6.2% of their paycheck is automatically deducted on a pre-tax basis and matched by 6.2% of his employer on a flat tax basis.
High income earners are taxed at exactly the same rate as minimum wage earners. Social Security is the most regressive tax in American history. Nearly 75% of all taxpayers pay significantly more in payroll taxes than in income tax. Only taxpayers who report income of $200,000 or more pay significantly higher amounts of income tax than payroll taxes.
The injustice of Social Security is visible to anyone who wants to take a lucid look at it. Instead of qualifying for a meager average monthly allowance of $1,658, moderate earners of the past 40 years could retire today with a nest egg of between $800,000 and $3 million if Social Security had been properly reformed. In the 1980’s.
SS (sic) “contributions”, i.e. taxes, are not tax deductible, as are state and local taxes. A taxpayer can deduct the cost of all other retirement-related financial vehicles from IRAs to 401ks and SEPP plans – but not their share of Social Security payroll tax (unless they are self-employed, to which case he can deduct half of the SS tax, 6.2%).
When a taxpayer retires, they must pay tax on 85% of their SS benefits above a certain level. Taxed on entry; taxed on exit. SS is not a very good retirement plan from a tax point of view.
SS funds do not magically accumulate in a fund reserved solely for each taxpayer. If a taxpayer dies a day before they are entitled to SS benefits, no one gets back the accrued SS money – not the deceased, not the spouse, not their dependents, not their extended family, not their church, not their charitable foundation through a will or trust. Nothing, Nada. It’s as if all of their lifetime contributions of about $450,000 have gone for nothing, neither to them nor to their families. All of this went to elderly people who had reached retirement age by then while working hard.
The racial imbalance in Social Security benefits is staggering. Black males live an average of four years less than the average white male. Many die at 64 ― and receive nothing in SS benefits. Some go to their spouse as part of an abbreviated payment, but no lump sum transfers to heirs of a black man to help them buy a home, go to college or invest in their future.
According to Eugene Steuerle of the Urban Institute, a couple who each earned the average salary during their career and retired in 1990 would have paid $316,000 in Social Security taxes, but would have received $436,000 in benefits, all calculated on an inflation-adjusted basis. However, if the same average earning couple had turned 65 in 2010, they would have paid $600,000 in taxes, but could only expect to collect $579,000 in retirement, the first year the tax-paid-to- benefits received was reversed.
For that same couple in their late 40s today, they will have paid $808,000 in Social Security taxes by the time they retire in 2040. They can expect to recoup only $703,000 in benefits.
The best solution, and always has been, is to convert Social Security into a pure retirement system like a 401k for every enrollee. Andrew Biggs of the American Enterprise Institute says 19.6% of all retirees depend on Social Security for 90% of their income. Double their monthly benefits overnight and pay them with means-tested payments to wealthy retirees who don’t need Social Security under a deal to convert Social Security into a retirement program. private investment that will benefit all American taxpayers living today into the future.
100% of the electorate is a large electoral bloc. A smart political party will figure out how to capitalize on this incredible opportunity and dominate American politics for a long time.