Monday, June 29, 2020

Social Security Means Testing

Social Security, interest on the debt, Medicare, and the like already total more than the Federal government takes in through taxes. Everything else, every dime the government spends, is borrowed money. Social security spending grows every year, because it must. Social Security and Medicare are breaking us.

So the powers that be have a solution. The idea is that Social security will become a means tested program. In other words, it is OK to cut off SS payments, as long as it is only "the rich" who are getting screwed. Make more than whatever arbitrary amount of money that they decide is "enough," and all of the money that has been taken from you for the past 50 years- 15% of everything you have earned is an "unplanned donation" to those who make less than that.

Let's say that a person made an average of $50,000 a year from the time he was 18 to the time he turned 40. Then made an average of $100,000 until age 55, and an average of $175,000 until normal retirement age, 67. At 67, he was making $200,000. Not far fetched for a person that was say, a doctor. Over his lifetime, this person would have paid about $740,000 in Social Security taxes. Had he invested that money over the 49 years of his working life, it would be worth nearly $10 million. Instead, he retires and finds out that since he makes too much money, he gets nothing. Millions has been stolen from him.

Does that sound far fetched? Both Donald Trump and Joe Biden are on board with the idea.

I understand that cuts must be made. However, singling out the successful so that they fund the unsuccessful will do nothing but force the successful to stop working. Who is John Galt?


TechieDude said...

They will have no choice. They'll also have to cut disability.

Personally, If I got back what I put in, I'd be surprised.

The crime here is this has been known most of my working life. And when it hit me (in my 20s) when 401K plans started, I'd have taken the option to no contribute to Social Security and invest myself.

You know what else is sick? Many gubmint employees don't contribute to Social Security. They have fully funded plans. That option wasn't given to us.

Jonathan H said...

I would favor a middle ground. Under the current system, once a set income level (currently somewhere around $115k), people stop contributing to SS. I think that benefits should stop at the equivalent payout instead of going up proportionally to the employees full income.

The issue with setting a means tested threshold is that the threshold can go down or up with the whims of politicians, whether to get more votes by paying out more or to 'hurt the rich' by lowering the threshold.

I laugh with sadness when someone says we need to cut the military budget to pay for this or that favored cause (generally education, welfare, or reducing the deficit). We could eliminate the military entirely and there would still be a deficit - the ONLY way to reduce the budget deficit is to reduce entitlements (include or exclude SS, it won't make a difference)

While I don't know about state government employees, federal employees started contributing to social security in 1984; those who are grandfathered under the old system can't collect social security - but they do get a generous pension.

Angus McThag said...

Good news! When the boomers start dying off, the amount needed to pay their checks will, likewise, drop precipitously.

One reason this is such a pickle is there really hasn't been a steady increase in births and workers to keep the ponsi scheme going.

Another is the ever expanding eligibility to people who've never contributed and never will.

Don Curton said...

It makes me sick. I'm 54, and I never really expected to get anything back from the govt. But to see it so blatantly pisses me off. Between state, fed, property taxes, sales taxes, registration and other fees, the govt takes roughly 40% or more of what I earn. I get next to nothing in return.

Also, the salary numbers in your example? Pretty close for a professional engineer. Maybe even a little low. I would hope doctors make more, but who knows.