SOCIAL SECURITY´S FUTURE CAN EASILY BE FIXED, IF WE HAVE THE GUTS TO DO IT!

Social Security is in pretty good shape, when compared to Medicare and Medicaid, but it still can be made better.

...A discussion with a Social Security Representative

There are a number of areas that could help fix what´s going on with Social Security (SS) for many years to come. But first, the people need to understand that Social Security is not in the same negative position as are Medicare and Medicaid. Social Security is doing what it was designed to do and it was never expected to be a system that just went on forever. It is a system that, depending on the circumstances at the time, it will need to be adjusted to do its job in America´s ever changing environment.

As an example, after the "Baby Boom" in post World War II, it became obvious that a large number of "Baby Boomers" were going to hit the retirement age, all at the same time. Adjustment were made back in the 1980´s on the money being paid into the system to cover the increase that is now just starting to occur. The estimate today is that with no future changes to the system, the Social Security trust fund will be good through 2040. I addition, as an individual´s life expectancy increases, or as people decide to not retire until after 65, perhaps the retirement age will need to be increased.

The other current issue that is troubling the seniors is that the Social Security fund cash-box is currently full of IOU´s, as the US government has been borrowing from the fund for the last 30 years. Now, normally that´s not a very big issue as the US government has always been good for the loans and the fund has actually made some good revenue from the interest payments on those loans. But with the past recent years of political mismanagement of the government coffers, that problem today may be more than just academic.

So, today, there are two, possibly three issues to deal with which are the following:

>>> Dealing with the government IOU´s.

>>> Changing the program to keep Social Security solvent past 2040.

>>> Fixing the system to keep fraud from becoming a problem such as is happening with Medicare.

FRAUD:

In dealing with the last issue first, today fraud in Social Security is the least of these problems. As one recent example that I reported on some weeks ago, a Republican politician recently complained about Social Security being "in crisis" during a radio talk-show interview. When he was pushed for an example of the "crisis", all he could come up with was that 10,000 Social Security retirees had received SS checks last year right after they had passed away. Think about it. In the wealthiest nation on earth, with a population of 300,000,000 citizens, 10,000 government SS checks, averaging less than $2,000, is more like dealing with a major corporation´s accounting error, not a "crisis" issue.

There are also some new areas that are being discussed for dealing with Medicare fraud that might also apply for Social Security in the future. Using "Biometrics Technology (BT)", which is a unique software that can eliminate the phantom billing that is Medicare´s major fraud problem, might also have an SS application. BT is a system that keeps doctors from getting paid for patients that never physically enter the doctor´s office. By guaranteeing that the patient physically exists or is presently in the doctor´s office, this eliminates the phantom billing fraud, which is one of the largest types of fraud currently perpetrated.

Federal officials in Washington say this idea has merit and they're seriously considering it. Could something like this help future Social Security fraud? It´s not really clear today, but in any case, it´s currently not that big of an issue with SS.

THE EASIEST FIX FOR SOCIAL SECURITY? JUST REMOVE THE CAP.

As I had said, the first thing to understand about Social Security is that there is no immediate crisis, so no need to do much of anything right now. The current "knee-jerk" economic assumptions used to promote a "crisis" in today´s Social Security are just way too pessimistic.

Beyond the regular numbers, the general idea of a "crisis" has always been based on the idea of the general population getting old and there not being enough workers to continue paying into the system. Currently, the increasing US immigration is dealing with that problem.

However, if any real "solution" is needed, the simplest answer is the fairest.

Currently, while a minimum wage worker pays 6.2% of his income into the Social Security trust fund, $12.4% if you include the matching employers portion, Therefore, a CEO being paid a $1 million dollar salary pays only 1% of his salary into the system. And Microsoft´s Bill Gates pays nothing into the system from his billions in stock income.

This all stems from the fact that wage income above a certain level: $106,000 per year in 2010, is completely untaxed by Social Security. Eliminating this so-called "cap" would raise plenty of income to help out the system. Only 83% of all wages paid are subject to Social Security taxes, so this would increase annual Social Security revenues 20%, or roughly $100 billion per year.

And this is hardly a radical idea. The "cap" use to apply to the payroll taxes funding Medicare, but the 1993 tax bill removed the cap and now every dollar of wage income is taxed to help fund the Medicare system. There's no reason not to do the same for Social Security.

Now, conservatives will of course scream that this is an additional tax on the wealthy, but in reality it would be applying the same tax system already paid by lower-income working families to everyone in the same way. Every dollar earned, whether by a minimum wage worker or by a CEO, would be taxed the same 12.4% (6.2% of employee income, an additional 6.2% from the employer). Lifting the cap will just restore a marginal amount to the tax system.

I think you can agree that the current Social Security tax code is totally irrational.

For instance, when one looks at the standard current annual tax rates, the following tax rates just continue on, up to and beyond incomes above >$500,000:

• The IRS deduction rate

The Medicare tax rate,

The Marginal Tax rate

But the Social Security rate goes to 0% after $106,000 of income………………………….Why is that?

What is obvious is that America´s millionaires are paying almost the same marginal tax rate on wage income as professionals making $100,000 per year and only a bit more than most working and middle class families. (And if you add in the employer portion of Social Security, the wages of working families are taxed more heavily than CEO salaries.)

What we have is a truly bizarre system where all wages between $106,000 and $151,300 gets taxed at a LOWER marginal tax rate than wages paid to those making $40,000 per year. This is just a strange way to run a tax code.

Imagine getting rid of the current Social Security cap. Doesn't that seem like a more rational tax code approach?

The end result would be that Social Security is secure well beyond 2040!

I know, I can hear the conservatives now, complaining that this concept is totally misleading, since they look at marginal tax rates rather than the actual percentage of income paid in taxes, which would make taxes on wages look more progressive.

And they're right. Calculating the overall taxes paid is a bit complicated (as everyone knows from Jan. 1st to April 15th), but if one looks at a stripped down accounting of the system and pretends that none of these taxpayers take any deductions other than the standard ones, one might assume that the very wealthy pay much more than the average worker.

In other words, you would assume that the millionaire would pay a higher percentage of his or her salary in taxes than the building janitor. Well, that would sound kind of comforting wouldn´t it? However, this is not the reality. This idea would apply only to "WAGE" income that ignores all the fancy and complicated deductions that are used today to avoid paying taxes.

In addition, richer folks tend to earn a large percentage of their income from capital gains and dividends. Such income today is not even taxed for Social Security and it also pays a much lower income tax rate. Today, it´s a maximum of 15% under Bush's tax law.

So, as an example, let's imagine three people, one making $50,000 in wages, another making $80,000 in wages, and another living off their investments, making $150,000 per year in capital gains. Essentially, in absolute taxes paid, the person with the $80,000 wage will pay the same amount of taxes as the rich investor pays, while both wage-earners will pay a much higher percentage of their annual income in federal taxes.

This hardly seems appropriate.

So why not add Investment Income to the Social Security System? Since they're always talking about expanding the base for Social Security, why shouldn't investment income be taxed to help fund the system? And to also help out Medicare, why not assess that same portion of the wage tax as well on investment income?

There is roughly $147 billion in dividend income claimed annually by taxpayers. (FYI: Back in 2000, there was $650 billion claimed in capital gains. )

Even assuming that the total of both of those added together is only around $500 billion per year in investment income, just taxing that amount at the employee Social Security and Medicare rate would yield an additional $38.5 billion per year, or $77 billion if the equivalent of the employee and employer taxes was also assessed.

So by lifting the cap for higher wages and assessing the tax on investment income, we could add something on the order of $170 billion each year into the Social Security and Medicare systems.

Seems a far more compelling alterative than the bizarre privatization schemes always being promoted by conservatives. (And after the market crash of 2008, where would Bush´s proposed privatized Social Security be today?)

AND ABOUT THOSE GOVERNMENT I.O.U.´s?

The reality for fixing this issue is pretty simple.

Stop allowing future loans on the Social Security Trust Fund, get the economy back to working as it should and get those IOU´s paid on time and with interest.

See, it´s all really simple......Right?

Copyright G.Ater 2010

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