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| Social Security- Opening Thoughts |
| Wednesday, October 25, 2006 |
The Democrats and the Republicans, particularly those that agree with President Bush's recommendation that optional personal savings accounts be made available to taxpayers as an alternative to paying into the existing Social Security system, are presenting different opinions of the roles of taxes and benefits. It can be difficult to hard to find fair analysis of the existing program in regards to the actual costs and benefits, because social security clearly effects different economic classes of people in dramatically different ways.
Social Security represents the largest defined benefit pension plan in the United States and, although it is not always framed that way, Social Security is, in large part, a Defined Benefit pension plan. There are many individuals who benefit from social security prior to retirement age, such as injured or disabled veterans and persons suffering from chronic and disabling medical disorders, but most of the focus is on the retirement benefit.
A quick visit to the Social Security Administration (SSA) website reveals that the organization takes it for granted that you and everyone else knows and understands what Social Security is and does as there is, otherwise there would be a more prominent link titled something to the effect of: "What is Social Security?" or "Social Security Defined?" So, I guess the intent of the website designer and the organization is for you to cobble together an understanding of the program, if you can ever achieve one.
If you take a look at the Social Security and Medicare Tax Rates, you will notice the rate of growth in the Old-Age, Survivors, and Disability Insurance (OASDI) tax rate and Medicare's Hospital Insurance (HI).
- For Employees: From 1937-1949, at the beginning of the social security program the combined tax rate was 1.0% (note there was not Medicare Hospital Insurance).
- For Employees: From 1990 going forward the rate for an employee is 6.2% OASDI and 1.45% HI for a combined total of 7.65%
Interestingly, the combined rate for the self-employed from 1937-1950 was 0.0% and there was no Medicare Hospitial Insurance (HI) tax on the self-employed until 1966.
- For Self-Employed: From 1990 forward, the tax rates - if you are self employed and elect to pay these taxes - are doubled with a 12.4% tax rate for OASDI and 2.9% tax rate to cover HI benefits.
A brief overview of the data implies that, without hindsight 20/20 and other excuses being used, it should have been immediately apparent that program and the plan was inherently flawed and the funding flaw was aparent as can be noted from the early increases in the tax rates to fund the obligation. Just like a pyramid (network marketing) schemes for get rich quick business, the benefits go to those that get in early and the costs will be paid by those who get in later. That is essentially what the programs resemble - pyramids schemes and as such it has many of the flaws and less of upside. On dollar in dollar out basis, the most powerfully impacted beneficiaries of Social Security are Social Security Administrators and SSA employees - who are the only group that is paid by the system at a rate greater than the rate at which they pay in, while living without disability. They get their salary off everyone else's contribution to the program and since their company does not have to be (and isn't) profitable, they have little of no incentive to make it so. A rather special arrangement. This is not a condemnation, it is only an observation.
Working people and employers pay for Social Security and depend on getting a benefit out of the program and the politicians on both sides of the aisle know there is a problem with the funding. This is unfortunate considering that nine out of ten people over age 65 receive Social Security benefits. At least, 60% of Social Security beneficiaries are women and two-thirds of elderly women depend on Social Security to avoid living in poverty.
The benefit serves a purpose.The National Partnership for Women and Families presents a rather rosy look of social security in their Social Security At A Glance. An excerpt form the document states:
- You can’t outlive your Social Security retirement benefit. Unlike pensions and other retirement savings that can be depleted, Social Security benefits are guaranteed for the rest of your life.
- Unlike unpredictable investments such as stocks, your Social Security benefit does not lose its value because your monthly income is protected from inflation. You can plan your retirement because Social Security provides predictable retirement benefits.
- Social Security has a progressive benefit formula that provides a higher percentage of income for low- and moderate-wage earners, preventing millions seniors from falling into poverty.
- Social Security provides 90 percent or more of the total income for 44 percent of all nonmarried (widowed, divorced, and never married) women.
- Social Security is the only guaranteed retirement portion of your retirement and works in tandem with private pensions, savings, and other assets to provide economic support during retirement years. In fact, Social Security is the largest source of retirement income for both men (34 percent) and women (48 percent)
If you are rich or independently financially secure, then Social Security is almost a non-issue to you, becuase you will pay more into the system than you will ever withdraw, particularly if, you are an employer contributing to the system on behalf of your employees. Basically, if you are an employer and are required to contribute to Social Security on behalf of your employers you are experiencing a involuntary tax that few living Americans are old enough to have voted for initially. Everytime you increase your employees salary, you increase the tax that you pay on that employess and the immediate benefit you can feasibly transfer to that employee is diminished. And, it would seem that a dollar today is worth more than a dollar tomorrow. You know, the old "bird in the bush" vs. "bird in hand" maxim. Additionally, employers are paying for a public goods that they themselves will not benefit from to the degree that the have contributed to, which, in turn makes investments in employess that carry these extra-charges less attractive and makes it an imperative for the employers to identify locations and strategies to reduce the burden of this taxation, (i.e., foreign outsourcing, purchase of components for production from overseas).
Employers should be seeking to to eliminate social security and Medicare for the purpose of survival. As employers seek shelter from the burdens of taxation, a portion of their financial resource join the rest of the capital flight out of the country. And this has additional far reaching consequences. The United States has a well-documented trade deficit and it continues to to grow, in large part because US companies find that it is impossible to remain conpetitve while using high cost american labor to complete tasks that can be done by less expensive workers overseas or continental borders. This is not indicating a weakness in American business it is a demonstration of the strength of American businesses to adapt and exploit opportnities. |
posted by Domesticated Dog @ 10:03 PM   |
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