In 2010, President Obama requested and Congress approved of cutting Social Security taxes from 6.2% to 4.2%. Unless something surprising happens, the rate will return to 6.2% in January of 2013. Was the tax cut a wise choice?
Prior to that, we had be told for years and years about the instability of the Social Security Trust Fund. If true, then I would think that the cut was ill-advised. If the purpose of the cut was to stimulate the economy, is it wise to revert to the traditional rate? Is the economy now stimulated enough? Unemployment is still quite high although the rate has fallen somewhat recently.
I’m torn. I don’t relish the thought of paying more SS taxes but I don’t want the program to become insolvent within the next 20-30 years either.
If I’m not mistaken, the shortfall was made up by funding from general revenue (i.e. debt). So the trust fund continued to be funded at the same rate. I can’t find anything on this on the Web, though, so I might be wrong.
It’s important to remember that half of the tax is hidden from view, but still there since employers simply pay it before it shows up on your paycheck.
So the real rate is more like 13.3% going to 15.3%.
I’m torn. I like lower taxes, obviously. But I’d be happier with them first of all accurately showing people what they pay by having the whole amount show up on their paychecks. “Hidden” taxes that people never see are very deceiving.
After that, I’m happy to see the rates go down. I’d be happier still if they just let people opt out of it entirely.
My ideal situation would be to repeal the entire concept of Social Security, but of course that won’t happen. The best solution that’s practical is to continue moving towards the program as another form of welfare. Means test people out of it who have money at the back end, and allow people out of it on the front end if they demonstrate that they are saving themselves. This could be done through private accounts or just using existing tools like 401k’s and IRAs.
Just having an IRA is not enough, clearly. I’m in the second from last age group, and if I had only $65K in retirement savings I wouldn’t be sleeping very well. Do you think people will voluntarily put what they pay in SS taxes now into retirement accounts? Do you intend to force employers to match the way they must match now? What is the minimum they must save in order to not be dependent on others in retirement? When you look at retirement planning, one thing you worry about is running out of money. Social Security recipients don’t. How do you ensure those in your plan don’t?
Means testing benefits is a good idea in principle, but it is probably politically inexpedient since it won’t save all that much and it makes the program not universal. I’ve seen several commentaries calling the 401K/IRA experiment a failure - which is clear from the savings data I gave. I’m guessing that things will really be a mess in 20 years, and all will see how important Social Security is in giving a guaranteed floor income to all.
That’s not a problem with the 401k/IRA “experiment” - it’s a problem with humans not saving their money. I would think a gradual drop in SS over time would help with that problem. If people know there’s a limited amount to be gained from SS, they might just save more and have less new car payments and the like.
Leave the safety net aspect of it, but do away with the idea that it’s income.
The problem is that the majority of SS is a safety net – once you get above the bare minimum required to survive, SS income goes up very gradually. Eliminating everything above this would save less than half of expenditures, while still being balanced on the back of solid and upper middle class workers.
Don’t get me wrong, I used to think the same way as you do – lower both SS taxes and SS payments except for the bare minimum safety net aspect, except that that’s where most of the money is going so the savings wouldn’t be that hot.
Unless you mean only use SS as a safety net for the disabled and those with literally nothing, but then there’d be a perverse incentive to spend until you have nothing left so you can get on SS.
For many years, in fact a couple of decades now, most younger workers have believed that Social Security will not be solvent for them. Has the savings rate increased for these workers? I don’t know the answer, but I’m pretty confident that it has not.
Actually, it’s 12.4%. The extra 2.9% is from Medicare taxes (half employer/half employee)
And it’s still 6.2% rather than 12.4% if you’re drawing a paycheck (rather than self-employed). The employer IS actually paying the 6.2% half of the tax.
You can make the argument that the employer would adjust wages up accordingly if taking the tax out wasn’t required, but it’s not a compelling argument. That’s certainly not how small business owners see it from their end. And it certainly isn’t how minimum wage is computed.
I don’t know how much this idea was Obama’s and how much was congress but I count this as a strike against Obama. He, or they, froze federal pay, then tried to make up for it by lowering SS so that our take home pay didn’t change that much. So really, he was just raiding the SS trust fund long term. I’ll vote for him, again, but this move was wrong IMO.
That is like eliminating the police department, and then saying that the increase in crime is not due to eliminating it, but because people can’t obey the law. There are many factors making it difficult for many people to save adequately for retirement. 491K participation rates increase when participation is made the default, not an option, which shows that people are not behaving rationally about this. It is extremely unlikely that people would put their SS money into retirement savings. People are not saving enough now as it is. and my questions still stand.
When your system depends on everyone acting in ways which they just don’t act in, it is a failure.
I don’t know what you mean by safety net? Do you mean pay for those who don’t save enough? Why should reward people who game the system by spending now and expecting us to bail them out later? Why give them a chance to do this? And if you get money from the government, it is income safety net or no. Today it is in a sense a return on your investment in an annuity - count that as income or not as you wish.
It appears Obama and the Democratic leadership did a compromise with the Republicans, because the Republicans demanded continuing the Bush tax cuts. You can argue until the cows come home on this but the intransigence by the Republicans on taxes should be seen as the real culprit of the payroll tax cut.
I find the idea that there is a SS “trust fund” kind of silly.
There is no money, anywhere, and we are borrowing about a third of what we spend.
It is not “funded” in the ordinary sense that you and I fund things, anymore than the US Government operates by the same rules we do.
It’s all chits.
I understand at a deeper level than this little post of mine what the economic structure for the trust fund is, but when the whole system collapses from all this borrowing, I’ll be taking further discussion about where, exactly, this trust fund is stashed.
It’s just an accounting trick to make the public think there is a fund of money sitting somewhere, but it does not exist in the sense that my 401 exists.
Do you have a cite for this? Because people say that, but SS (or a functional equivalent with a different name, maybe) is something I expect to always be around. Old people can’t be expected to work forever, and nobody seriously expects our country to just let old people die when they can no longer work.
This is likely correct. But the way you say it sounds like you’re blaming young people for saving too little. Between unprecedented unemployment rates, people with degrees who either can’t find work at all or are forced to take jobs they could have gotten without degrees, grads boomeranging home, and soaring gas prices… well, we can’t pull money out of our asses.
The difference is that the 401k is likely to always be legally mine. A bank can’t just up and say “Tough, we’re keeping it.” The government, [del]if[/del] when it runs out of money, can just end the program. That’s a hell of a lot more likely to happen.
By safety net I mean enough income to prevent starvation. And not much more.
I agree that it would be unlikely that people who save unless forced to. Fine - throw them all on the basic safety net. I bet it would not take more than a generation to spur savings rates.
You know what though? I know far, far more people who have no savings because they eat out all the time, have a new car every two years and have every latest gadget. Yes, I blame young people who have a nice car and a smartphone but have zero savings. If you started at 20 and saved $20 a month in a good IRA, you’d have enough to retire on at 65.
We’ve become very spoiled and entitled when it comes to consumer goods, and planning for the future has gone out the window.
Legally yours or not, if the funds are not there, the funds are not there. When people want their 401k monies now they want it now. If tens of thousands (or more) demand their monies all at once when the economy is in the deep shits worse than now, do you really believe they will get the cash so folks can keep the lights on, food in their bellies and the houses warm?
I can just see the documentary now. Old people freezing to death because they can’t afford the heat. That should do wonders for the political prospects of any party that puts it in.
I hope you plan to set up a dictatorship before putting this in place, because no democracy will stand for it. Communism is bogus because it is based on a fantasy of how people act. When people didn’t act that way, the Communists killed them. This plan seems quite similar.
Defined benefits. You can get annuities like that. I discovered recently that my pension from my first job was worth a lot more than I thought. I got offered a lump sum, which I took and am getting an annuity with. Some have no survivorship rights, some, like the one I am getting, do, though they clearly don’t pay quite as much. A standard pension is basically a defined benefit annuity. The lump sums offered are based on a government formula for how much they are worth.