I’m not American but I am trying to follow the whole debt debate on the debate boards. I keep hearing that Social Security is an entitlement program. That confuses me. Doesn’t everyone who works pay a percentage of their salary into Social Security/Medicare/Medicaide? If so, how is it an ‘entitlement’ when they draw on that money when they retire or are injured etc etc. How does the government fund these programs when they are being paid into by employees? I know in the countries I’ve worked in (which are based on the British systems), the government just runs the programs (ie invests the money and disburses it).
Can someone please explain how it works in the US. Thanks.
Some consider it entitlement because you can end up drawing out more than you pay in. The government bets that you’ll die first. I guess the same people would consider life insurance payout to be entitlement, as well.
But then private medical/life insurance is exactly the same thing. Yes some people will draw more and some will draw less - that’s how they stay in business.
What I don’t understand is why the government (ie money from taxes) is paying into Social Security (Republicans keep saying to cut Social Security). Why is the government paying into it when it’s funded by salaries?
Oh really ok, that’s what I didn’t understand. Here, Social Security is funded by a totally separate deduction from your salary and is not considered ‘tax’ per se. It is also administered separately and is not part of government budget funds.
People were promised that if they and their employers pay into the Social Security fund there will be a payout at a future time based on a specific formula, which has been modified from time to time. You don’t get to draw out what you want until it’s all gone, like a savings account. Therefore we presumably based our other retirement planning on that promise.
If I hadn’t been paying into SS I could theoretically have set that money aside to invest in something else in planning for retirement. Of course in 2009 I’d have lost half of it.
You are not guaranteed to get back every cent you paid in, but you are promised a regular payment on a specific basis. If I retire next year, I am “entitled” to a certain amount per month. Of course, if I kick the bucket one month after I retire, the SS system is ahead. If I live to be 115, the system still has to pay me.
Medicare and Medicaid are different. Medicaid in particular is for low-income and/or disabled people.
There is a separate deduction for Social Security, it is not the same as the income tax. The government is not paying into it, it’s taking money out of the fund, which was built up from both employee and employer contributions.
Not everyone pays into Social Security and not everyone is eligible to receive it.
Also IIRC there is a maximum annual limit for Social Security contributions.
It’s common for you to pay federal income tax, social security tax, state income tax and city income tax – though some states and cities do not have an income tax. Those are all income taxes, though people just think of the federal income tax part.
Ok so now I am even more confused. So why would Republicans be saying to cut Social Security if it is a source of funds for the Government (separate issue, I don’t think that the Government should be allowed to touch those funds except to pay out Social Security payments). Are they saying that Government should not be paying back SS for money they have borrowed from the fund?
An “entitlement program” in US budget discussions is one for which Congress doesn’t have to allocate money each year. The spending is automatic, as there is a law already passed that dictates how much be spent based on whatever formula. The receipients are “entitled” since there’s a standing law saying that they will get paid each year. Unless Congress actively passes something to change the law, the payouts are automatically authorized.
The opposite is “discretionary spending” which Congress has to allocate each year (hence, presumably using their discrettion).
As long as workers are paying more into the system than is being take out everything is fine, but the baby boomer generation will be paid out more from social security than the next generation is paying into it. The government is on the hook to make up the difference, so some republicans want to restrict the payouts so the system remains solvent.
As a baby boomer myself I understand the dilemma, but I’ve been paying into the system for 35 years and I expect to get some if not all of that money back in my old age. How can you change the rules at the 11th hour?
Hell no, but it will vary from location to location. For me in Cali:
Federal Income Tax, State Income Tax, OASDI ([Federal] Social Security & Disability Insurance), Medicare (Fed), State Disability Insurance & Unemployment. Off the top of my head.
Some cities and towns have their own Income Tax (New York City?).
The social security program includes a collection of taxes and a payment of benefits. The cutting being proposed is the reduction of the social security benefit payments. I.e. raising the retirement age to 70 from 65. This essentially is a cutting of the entitlement program.
Well maybe there should be separate accounts for each taxpayer that tracks your contributions and earnings, and the general funds should not be permitted to take funds from the social security fund. Then your sense of fairness could be accomplished.
However, as it is currently, there is a tax, which all wage earners must pay. And separately there are retirees or SS recipients that receive payments under a formula, subject to change at any time.
Let’s look at it this way and contrast it to life insurance or any kind of insurance that pays while you are alive. (Social Security is not insurance in the conventional sense, but it has a lot in common – it’s a plan for the future.)
If you buy life, you know the terms up front. You know the premiums and you know the exact payout. Unless you modify the policy, you know years in advance what you will get. Due to inflation, it will probably be less than you wanted.
Social Security has no such guarantee of exact payout amounts that far ahead. Congress will adjust the payouts to keep the system solvent, which can be a good or bad thing. Good, because you might receive more than you first thought, bad because the actuarial facts may force a reduction in benefits. But inflation can be your friend, too. The only thing you can count on is your claim to some of other people’s wages when you reach a certain age.
That’s how they can change the benefits before you receive them.
OK, Employers withhold federal income tax, Social Security, and Medicare taxes from paychecks. SS and Medicare are only withheld from a certain minimum of an annual earnings, relatively high now. For years more was collected than was paid out and the excess used to buy government bonds, suspposability put in a trust fund. Actually it went into the general fund and was spent. It is gone. A classic Ponzi scheme. We still have bookkeeping entries showing money for another 20 years. The truth is the US government is spending vastly more than it is taking in, and only paying the bills by massive borrowing. Sometime congress passed a law limiting our total debt. We will reach that limit in a couple of weeks at current rates of taxes and spending. Obama would like to raise taxes and the the spending limit to postpone the coming crisis until after the 2012 election. Many Republicans say no new taxes, and no increase in the debt limit. They want to end the problem by cutting spending now. Unfortunately, Social security and Medicare spending has swelled to where it is almost impossible to cut enough elsewhere to balance the budget. Even is the debt limit is raised, the government may have trouble finding people to buy bonds that look like their may never be the money to pay them off. I saw this coming and wished I could get my money out of bad investments.
Even if Obama moves the fan back by raising the debt limit, it won’t solve the problems.