It’s time to clarify something… again, there is no social security fund. Here’s how social security currently operates, and has since Ronald Reagan’s presidency.
The SSA pays social security recipients from yearly gross receipts collected from payees at the rate of 12.4%. If one is employed by an employer and receives a W2, the employee pays only 6.2% and the employer kicks in an additional 6.2%. It is worth considering that if your employer was not paying half of your SS (6.2%) and Medicare (1.45%) taxes, that your pay would be raised by that amount – 7.65% – so in the end, it becomes clear, all taxes are paid by the worker/consumer. Self-employed individuals, or those receiving 1099 forms, pay the entire 12.4%. You can add Medicare’s 1.45% + 1.45% on top of that, bringing the total of, so-called, self-employment tax to 15.3%. These payments have come to be called payroll taxes, which I will get into shortly. So, the total of self-employed or employee/employer shared payroll taxes is 15.3%.
Social Security taxes end when you stop working but Medicare taxes never end if you are on Medicare. There is a monthly fee for Medicare that averages around $147.00 per month. Medicare usually pays about 80%, so it’s wise to have some kind of supplemental plan to take up the slack especially given the high cost of medical care these days.
Once the SSA totals all its receipts and pays all its recipients, there is usually money left over. That money is turned over to Congress to apply to the federal budget deficit. While an IOU is issued for that “borrowed” amount, it is not recorded as part of the deficit, so while surplus SS funds are applied to the deficit, they are not shown as part of the deficit. In reality, it is just another tax, added to the income tax receipts to fund the federal budget.
I contend that the smoke and mirrors of payroll taxes is maintained separately from income taxes to keep people in the dark about their true tax burden. If, at the end of the year, an individual’s income tax is calculated at some random figure, depending on one’s tax bracket, the person in, say, the 20% income tax bracket might be a little upset finding out that he/she was actually paying 35.3% in taxes, not counting the additional taxes to the state in the form of state/city income taxes, municipal taxes, and school taxes, the latter two known as property taxes. Again, state income taxes range from 0% to the high of 13% in California. Oops, lest we forget, there are also sales taxes to be paid on, already-taxed, money spent on consumer goods, ranging from 0% in a handful of states to the high of 7.25% in California. What’s not to love about California?
Social Security is an entitlement and is nowhere guaranteed as repayment for what one contributed to SS. Sounds convoluted, right? One would think that the word “entitlement” implies the one who receives it, receives it because that one is entitled to it, possibly because one paid into the account for forty years, but that’s not how it works. Words are tricky and as Samuel Clemens (Mark Twain) informed us, there are “lies, damn lies. and statistics.” Sam was honest enough to inform us that the phrase was borrowed from Benjamin Disraeli, British prime minister (1874 – 1880), but is found nowhere in Disraeli’s writings. Whatever the case, Clemens showed himself to be much more honorable than our current president, our Plagiarizer-in-Chief.
FYI… your friendly, and totally trustworthy, government is part of the (Ponzi) scheme that has you confused…
“The government almost encourages the belief that Social Security benefits are guaranteed. In fact, in a 1936 pamphlet from the Social Security Administration, it specifically states”, “The United States government will set up an account for you … The checks will come to you as a right.”
The 1935 SS Act was challenged in court and the US First Circuit Court of Appeals ruled that it violated the 10th Amendment. Unfortunately, nine men in black robes disagreed and when the case reached the SCOTUS, as “Helvering v. Davis”, it was ruled, in fact, to be Constitutional. But something else happened on the way to the Forum. The following wording appeared in the decision: “The proceeds of both taxes are to be paid into the treasury like internal-revenue taxes generally, and are not earmarked in any way.” Additionally, in “Flemming v. Nestor”, it was ruled that a Bulgarian who was deported, due to his Communist Party membership, had no right to his SS benefits, based on a 1954 law that ended a deportee’s claim on SS benefits, even though he had paid SS taxes from 1935 until his retirement in 1956. There is it, ‘both taxes are to be paid into the treasury like internal-revenue taxes generally.’ That supports my contention that a tax is a tax is a tax.
Anyway, look back at those italicized and underlined words in the paragraph above? That phrase deep-sixed any idea that any monies deposited into Social Security granted the payee a personal account or guaranteed payments. In other words, in my opinion the collection of SS and Medicare taxes became just another tax scheme under a different name than “income taxes.”
And then there’s this from the SSA: “Your estimated benefits are based on current law. Congress has made changes to the law in the past and can do so at any time.”
And there’s more from the SSA: “Social Security benefits are not intended to be your only source of income when you retire. On average, Social Security will replace about 40 percent of your annual pre-retirement earnings. You will need other savings, investments, pensions, or retirement accounts to live comfortably when you retire.”
Are you getting all this? Okay, maybe you’re bored with all these little-known facts, so let’s move on.
Let’s talk about funds, and we’ll need to get into a little DoubleSpeak here; remember, we are talking about government issues and so there’s always gonna be some hanky-panky going on.
What exactly is a “fund,” as in the Social Security Trust Fund? I’m informed that establishing a “fund” for the SS contributions of millions of Americans was a wise move but it would have been better to establish a “Reserve Trust Fund.” Here we go, and don’t forget about government DoubleSpeak or, to put it more succinctly, “nothing… nothing is as it seems.” And I quote:
“A reserve fund cannot be used for any purpose other than that for which is was specifically designated. Had it (the SS Fund) been established as a Reserve Trust Fund, Congress would not have been able to borrow from it or use it for any other purpose, such as reducing the deficit in the United States General Fund.” Do you see what happened there?
In the end, while Congress issues an IOU to the SSA for all the excess funds it appropriates, Social Security Receipts have become nothing but another cash cow to fund the spending of our profligate Congress that has run up a national debt of 30 trillion dollars that you can be assured will never be paid. While there were originally 159 SS payees per SS recipient (1940), and the average life expectancy (64) was actually one year earlier than the full SS retirement age (65), that disappeared in the rear-view mirror of government’s financial smoke and mirrors “Ponzi” scheme years ago. Today the ratio of payers to recipients is about 2.8:1 (2013) and falling. So, when “they” tell us that Social Security will be insolvent by year XXXX, what that means is that the ratio of payees to recipients will be such that SS liabilities have exceeded SS receipts. Once we reach that point, well… you know the thing.
If you need more info about the smoke and mirror scheme that allows excess SS Funds to be appropriated by the Congress and applied to the bloated federal budget while not identifying those monies as part of deficit spending, but still adding to the national debt, and allowed Bill Clinton to lie about having a balanced budget and a surplus (in other words, how do you claim a surplus and a balanced budget while the national debt increases?) for two years, read my blog:
Deficits, Debt, and Debt Service. – Change My Mind! (change-my-mind.net)
Change My Mind! 