This assumes that you will never have any need to spend the money on a monthly basis. The whole point of the system is that retired people have day-to-day expenses.
This is an outline of what I believe to be the case about Social Security. It includes material gleaned from this thread. Please correct for accuracy and overall comprehensibility, especially if you are a SSA or financial professional, or can provide solid cites.
SS is an insurance program.
It takes 15% of a paycheck, 7.5% each from employee and employer, up to a cap at $87,000? a year after which the employee keeps the 7.5% over the $87,000.
It pays out retirement based on your (last few years? lifetime contrib?); the retirement is indexed for inflation, so during inflation the retirees maintain their purchasing power.
It also pays out disability (SSI), and widows-and-orphans pensions if the wage-earner dies leaving dependants.
It is intended to reduce destitution/starvation/dependency among the old and infirm. It doesn’t provide a lush existence. It does reduce the number of elders living with their younger relations, or allows them to contribute to expenses.
Does the SS contribution also pay for Medicare? for Medicaid? or does that money come from elsewhere?
It was instituted in the Great Depression, and SS combined with other programs (bank regulations/FDIC lessening bank failures, stock-exchange regulations, unemployment insurance, and …?) have reduced the sharpness of the boom-and-bust business cycle, which used to be a lot more radical that what we see now, even the dot-com boom and bust, or the stagflation a few decades back.
It is currently running a surplus of dollars into the program vs. dollars paid out. This surplus is accounted for as the SS Trust Fund or Lock Box.
The gummint currently borrows those dollars and replaces them with US Gov’t bonds, which pay interest into the Trust Fund.
Projections
There are projections. This surplus is projected by the SSA to continue to build till 2018; then the payouts will be more than the income and the Trust Fund will shrink, until it contains zero dollars, in 2042, when the inflow will be 73% of the payout.
From the time it starts shrinking, the gov’t will have to find some source of money.
Or, we could use more optimistic projections and it all comes out fine, not a problem after all.
SS has run at a deficit before.
These projections are made officially by the Social Security Agency. They come up with specific years the events above would occur. The projections are required (by Congress?) to be made on a conservative basis, that the economy will expand at X rate, the population will reproduce at X rate, and so forth.
Per the Krugman cite the Congressional Budget Office projects it to run out in 2052, with inflow 81% of payout. But we need to think on this subject based on projections all held to the same assumptions, so we can compare proposed plans.
Alternative plans have been proposed, investment and non-investment. For instance, Alan Grenspan stated this year that relatively minor adjustments would fund SS into the foreseeable future. See also the AARP for some thinking, and the SSA site for the program itself.
The administrative costs to employers for withholding would be about the same if it is privatized. Administrative costs of the system to the gov’t are X? per thousand; investment fund management typically costs Y? per thousand, and likely would make it a front-end or on-going load.
No investment plans have published financial projections on the same basis as the SS projections, that I have ever heard of. Please do correct me on this, surely someone has done that, but I am unaware of any.
Actually, right now it is apparently indexed to wages, which tend to rise somewhat faster than prices as our society grows wealthier. A major part of President’s Commission is to change the indexing to prices which would tend to make the system much more solvent over the long term but would also tend to make the payouts look increasingly small relative to people’s salaries while they are working.
As I understand it, the “payroll tax” of ~7.5% consists of two components, the larger component (of just over 6%?) being the social security part and the smaller component of 1.something% being the Medicare part. I believe that the cap you refer to applies to both the employee and employer-paid portions but it applies only to the social security and not the Medicare part of these.
[One thing that makes the percentages more confusing is that the percentages can be stated in two ways…The percentage of your salary as it is generally stated or the percentage of what your salary would have been before even the employer-paid part of the payroll tax is deducted. So, you will see different numbers quoted depending on how they express it.]
To understand what this would mean, it is useful to note that if we had started such price indexing, say, 100 years or so ago, the rates now would probably be such that you could afford a nice new horse-and-buggy but not a new car and maybe a nice new house but not one with running water and automatic heat and air conditioning.
In reality, things are more complicated than this since it has been argued that the consumer price index may overestimate price rises by not fully accounting for increases in quality that come along with the higher prices; I do think there is an attempt by the CPI to account for this but it is apparently felt to be incomplete. (And, one might argue that we have arrived at a stage where the additional creature comforts and such that we will need to add to our lives will be less in the future. At any rate, these issues do become kind of complex to think about.)
Not sure if she was being dinged for the low tax rate she pays. I think it is more of the irony of being the wife of a candidate who doesn’t want the wealthy to get a tax break (which would not affect her anyway because she uses tax free investments). Remember, she was married to a Republican politician before Kerry.
Don’t have any stats on it but it is logical that getting money back makes it easier for those people who are inclined to donate it. If I get $300 back I can donate $200 to a charity that is completely voluntary so all $200 goes to the needy. I get $100 and everyone’s happy. If Uncle Sam takes the $300 it will incurr a distribution fee. It would be interesting to see what costs are involved on the money that actually makes it to the intended person in need.
Not sure about the inheritance tax. You may be right. An Accountant would have to explain the process to me. I do know a lot of organizations get their money from estates so it would be interesting to see what’s what.
Can you demonstrate this with numbers? I’m just curious.