A new Congressional report on Social Security is to be released today. According to the AP, the system just needs “tweeks:”
On its current path, Social Security is projected to run out of money by 2037, largely because of aging baby boomers reaching retirement. For the first time since the 1980s, Social Security will pay out more money in benefits this year than it collects in payroll taxes. The longer action is delayed, the harder it will get to address the program’s finances.
“Modest changes can be made over time that will keep the program in surplus,” Kohl, D-Wis., told The Associated Press. “They are not draconian, as the report points out, and they can be done and will be done.”
The article points out something I’ve been saying for years about how to fix Social Security: remove the cap.
It [the $5.3 trillion shortfall over the next 75 years] would also disappear if Congress started taxing all wages, not just those below $106,800, said the Senate report, citing projections by the actuaries at the Social Security Administration.
Let’s put this in perspective. There is a cap on compensation that can be used for calculating retirement plan contributions, such as 401(k) contributions. That cap, adjusted annually for inflation, is currently $245,000. That’s more than double the limit for Social Security contributions. While I fully understand the need to encourage private savings, the issue, to me, is that our politicians lack the backbone to make an easy fix to ensure the solvency of a system that is for many the only retirement they will have.
There is no cap on earnings for Medicare as the result of 1993 legislation that went into effect on January 1, 1994. That move, coupled with an earlier one to bring Federal employees into the Medicare system, helped to solve the issues with that program. That Social Security is facing these issues is not new. That politicians have been unwilling to address them is also not new. I suspect this new report will end up in the same place as every other idea to fix Social Security: in the dustbin.
Virginia faces a transportation funding crisis simply because there is no political will to do the right thing, not because we didn’t know it was coming. Doing nothing to fix Social Security has greater implications for a far greater number of people. Doing nothing is not an option.
VIVIAN J. PAIGE | All Politics is Local 
Vivian,
Entitlement spending is the silent killer in our economy. In my opinion, the most pressing issues to resolve are public debt, entitlement spending, and DOD spending. These big ticket items represent a significant part of the overall federal budget. None of this stuff is new but no one wants to do what needs to be done to fix it. It is pretty simple economics: we either increase revenue (i.e. tax increases) or reduce spending. Thanks for the heads up on the report.
If you remove the cap on “contributions,” will you also remove the cap on benefits?
I would consider it, yes. However, I would also consider means testing of benefits as well as changing the taxability of them.
Of course, I don’t get to vote on this.
By means-testing (or taxing it), you mean those who save for their own retirement will not get their money back.
Nope. I’ll have to track down the source, but I understand that the average person gets back all of their contributions plus those of their employers in about 3 years.
One way to means test is to reduce the benefit of those who don’t need it. So perhaps instead of getting it back in 3, they would get it back in 6.
As for taxing – after the payback period, all the benefits should be taxable. Period. Because at that point, you’re not getting your own money, you’re getting mine.
Go to the SS website. You will see that one’s payments are only based on the 30 years of max contribution. Stating work at 18 and retiring at 68, you can see that 10 years of your contributions are NOT credited to you at all.
By “get it all back,” do you mean WITH NO INTEREST?
Of course not, Warren.
The problem with such a course as VJP suggest is that doing so would reveal to all the fraud which is this Ponzi scheme.
A mind-reader now, James?
Oh – and I’m guessing that you consider any defined benefit program a Ponzi scheme, too, right?
Not a mind reader. Just somebody who understands that there’s a name for a private individual doing what the Federal government does with Social Security. “Bernie Madoff.”
What does the 30 years credit have to do with whether or not the benefits should be taxed or whether it should be means-tested?
As for getting it back – again, are you aware that until the formula was changed, federal pensions were treated exactly the way I propose, i.e., after you recovered your contributions (not those of your employer, just your own, and not including interest) the entire benefit became taxable?
In fact, if Social Security were treated the way that the current law treats federal pensions, the bulk of the payment would be taxable.
Nothing. You said ALL the contributions, but 10 years are not even counted. More if you start work early.
The difference between SS and a federal pension is that SS contributions are ALREADY taxed — the 7.65% is not deducted from one’s income when one’s income tax is computed. SS is more akin to a Roth IRA, and thus benefits should not be taxed at all. I do not know whether the 7.65% part paid by employers is taxed, but I do not think it is. If that is the case, then only HALF of the benefit should be subject to tax.
Actually, I believe you are mixing apples and oranges. The amount of your benefit is based on 30 years service. But the total amount contributed is still reflected in your Social Security records. Have you never received a SS earnings statement?
And why do you think I am saying to tax only the money AFTER you’ve gotten your contribution back? In doing so, I’m allowing for the amount (which, by the way, isn’t 7.65% but 6.2%) that you have contributed. And of course you should pay taxes on the amount your employer contributed! Every other pension out there is taxed the same way.
And this doesn’t take into account the fact that many “employees” are in fact self-employed, and, therefore, are paying both halves.
Where you are getting the idea that SS is like a ROTH IRA I’ll never know. A ROTH IRA is a defined contribution program i.e., the amount you get from it is totally dependent upon the amount you put in. SS, on the other hand, is a defined benefit program (something that almost does not exist in private industry any longer), whereby the amount you get is a function of years of service and earnings. When you’ve gotten to the end of your ROTH IRA account, you get nothing more. That is not the case for SS.
Yes, I’ve seen it. 30 years are used to compute the benefit, no matter how long you’ve worked. Anything over 30 years is just taken from you.
So, would you at least allow that payback amount to be indexed to inflation?
Currently, up to 85% of one’s SS benefit is taxable. So up to 35% is currently double-taxed. How much more do you want?
Finally, you are correct — the other part of the 7.65% is HI, not OASDI, and it is NOT capped.
No, that’s wrong. Anything over 30 is simply not included din the calculation of the benefit. If the standard is that you get back all of your contributions plus those of your employer in 3 years, what is being taken from you?
No – no index for inflation. That’s included in the computation of your benefit. Again, I refer you to the way the calculation is currently done for other federal pensions.
The key is “up to” 85%. A lot of people pay no taxes on their benefits and some get nowhere near the 85%.
And again, you come up with something that makes no sense – how in the heck can it be double taxation if the benefit exceeds the amount you contributed?
“A ROTH IRA is a defined contribution program i.e., the amount you get from it is totally dependent upon the amount you put in”
So is Social Security. Either your contributions or your spouse’s are used for the computations. And that, of course, depends on the tax rate in the year you earned those wages. If you earned MORE than the maximum, that is not factored in, because it is not one’s EARNING, but one’s CONTRIBUTIONS, that determine the outcome.
I did get one other thing wrong — it is 35 years. So up to age 32, (for those who are set to retire at 67), one’s contributions do not figure into his benefits.
Um, no. That is NOT true. Social Security is based on your earnings, not your contributions.
You forget I do this for a living, right?
http://www.ssa.gov/pubs/10070.html
And don’t forget this:
It does not matter that you do it for a living — you are still wrong. Since only TAXED earnings (not total earning) are used, and the indexing factor is based on the TAX RATE for that year, it follows that the benefit is based on TAXES PAID; i.e., it is a defined contribution plan.
Of course, the government DOES determine the rate of return you get.
You can believe what you want but the benefit is NOT based on the taxes paid. The amount contributed varies as the rate of taxation has changed. If they raise the rate (as they have done over the years), it doesn’t change the benefit UNLESS they change the benefit calculation.
Besides, I’ve provided you the exact information from the SS website. Are they wrong, too?
It can never be a defined contribution plan, because if it were, you’d get NO money once the account was empty.
Perhaps you need to spend some time learning definitions before accusing someone of being wrong.
Unless one is under spousal benefits, if you don’t pay SS taxes (as some gov’t employees do not), you don’t get any benefits.
So, if I take my IRA and buy an annuity when I retire, did it just become a defined-benefit plan? No, because the amount of annuity I can buy depends on the amount I contributed.
Also untrue. There is something known as SSI. See what happens when you make blanket statements?
Let me make it simple for you. If you put $5,000 into an IRA today, the amount you can withdraw is that same $5,000 + whatever earnings it made. You don’t get any more than that. That’s a defined contribution plan.
On the other hand, no matter how much you contribute to SS, as long as you were covered by SS, you get a check – the amount of which is calculated based on the amount you earned during the 35 years of highest earnings – for the rest of your life. That is a defined benefit.
If all that was ever paid out of Social Security was what was put in plus the earnings on that money, there would be no shortfall.
One of the issues in the last Virginia budget battle was to have state employees contribute something to their retirement accounts. They are covered by a retirement plan but put nothing into it. Guess who puts all the money in? Virginia taxpayers. That’s a defined benefit plan.
Anytime you hear about underfunded pensions, they are defined benefit plans. And that’s why many private companies switched to defined contribution plans, such as 401(k) plans.
You’re entitled to your own opinion, but not your own facts.
“the amount of which is calculated based on the amount you earned during the 35 years of highest earnings – for the rest of your life.”
The amount of earnings TAXED. If the earnings were not taxed, they do not count.
Take my 401(k) and buy an annuity, then by YOUR definition that 401(k) is a defined BENEFIT plan.
The difference is, for the 401(k), I have a choice of whether to convert it (or some portion of it) to a defined benefit plan by buying an annuity.
Another difference is that when I buy an annuity, the entity from which I buy it cannot change the terms, and the value of my 401(k) depends on ALL of the money I put in, not just 35 years of it.
And, of course, if you have a job that does not require one to pay into Social Security, then you do not get any benefit for taxes not paid, because the benefits depends on the taxes you paid, except for the stolen years, of course.
Believe what you want. Make it up. This is America, right?
Oh, so someone who has not paid into SS (aside from spouses) CAN get benefits, perhaps based on earning that were not subject to SS tax?
That IS interesting news.