Like many Americans today, my wife and I paid into Social Security because it was the law. You had no choice. It was sold as a program, at least I understood it that way, to supplement your retirement income. It was sold as fair as we all paid into it fairly. If you made more than the amount subject to social security, that was a benefit for you and you did not have to pay beyond that amount. Of course, Medicare changed all that when it was enacted in 1965 but the basic premise of paying into Social Security remained the same.
The 2015 wage base is now $118,500 with the employer paying in $7,347 and the employee paying in $7,347 for a total of $14,694 into the Social Security fund. It is a far cry from the $3,000 wage cap back in 1940. In addition to the wage base going up, the percentage has increased. From 1937 to 1949, the tax percentage remained at 1%. Currently it is 7.65% (6.2% for Social Security and 1.45% for Medicare) + 7.65% from the employer for a total of 15.30%.
I have no problem with Warren Buffet collecting his fair share of social security as he can only get the maximum benefit for paying in on the maximum taxable dollars each year the same as I do. The fact that his investments yield him billions of dollars over and above Social Security has no impact on what my wife and I receive each year. However, this bothers the politicians in Washington as they try and save a system that they have nearly bankrupted.
There have been dozens of amendments to Social Security over the years. Most of them expanded benefits to the Social Security Act of 1935 with not a lot of thought given of how we were to pay for them down the road. The amendment of 1939 provided benefits to the dependents and survivors of workers; an amendment in 1950 broadened the coverage to include full time farm and domestic workers and many self-employed persons. A 1957 amendment provided benefits to insured workers 50 years of age and older who became permanently and totally disabled and the age of eligibility was lowered from 65 to 62 with lower benefits for persons retiring before age 65. The amendment with the largest impact on Social Security was in 1954 when provisions were made to provide assistance to people with disabilities of all ages.
If the Federal Government hasn’t made enough changes to the Social Security Act of 1935, Uncle Sam has raided the Social Security Trust Fund substituting IOU’s for hard cash funds that are transferred to the General Fund. As I had written in a previous article back in 2011, the Social Security Trust Fund should have $2.6 trillion dollars in it, but the Federal Government has borrowed all that trust fund money and spent it. Social Security benefits are entirely self-financing. They are paid with payroll taxes collected from workers and their employers throughout their careers. These taxes are placed in a trust fund dedicated to paying benefits owed to current and future beneficiaries. But the Social Security Trust Fund is a fiction. It contains no hard dollars. When the Federal Government was threatened with default a few years ago, Mr. Obama was talking about seniors missing their next Social Security payment. Why, because the money in the fund was taken out and spent.
So now we fast forward to 2015 and the politicians in Washington would like to take away the Social Security benefits for those taxpayers who were fortunate enough to have provided for their future and now have sufficient funds to live on over and above Social Security. Fair? Absolutely not! If they want to tinker around with Social Security then do it for the younger taxpayers who have not paid into the fund for 40 or 50 years. I do not think that the program was designed to be a socialist solution. My wife and I paid into it so we could count on that portion of our income to use in our retirement years. This is like saying that if you win the lottery the month before you retire, you can kiss your Social Security benefits goodbye. No one years ago had the option to not pay Social Security. It was mandatory.
To complicate matters, current Social Security recipients are dependent upon the system paying for their benefits. So the politicians can’t stop Social Security and let Mary and John out of it, as there is no money in the trust fund to pay the current recipients! With the Social Security Trust Fund exhausting faster than expected, the major obstacle is the sustainability of the program. In the early stages of the program, many workers paid in and few received benefits. Between 1945 and 1965, the decline in worker-to-beneficiary ratios went from 41 to 4 workers per beneficiary! In 2010, there were 2.9 workers per beneficiary.
There is no doubt that changes will have to be made to Social Security in the coming years. Spouses benefit even if they never worked for pay. Kids benefit if a parent dies. The disabled get paid for life. People are living longer. The answer may rest in the amount of benefits going forward that the system can afford but I think the changes will have to come both up front for younger taxpayers as well as at the back end for retiring seniors. The age at which retirement benefits can be received may have to increase and the amount of benefits paid out may have to decrease. Younger taxpayers will have the ability to adjust their retirement plan based upon knowing what the system will be able to pay them in advance of their retirement. But some serious thought has to be given to the total program and not just some arbitrary nonsense proposed by politicians who have no idea what they are doing.