State of Mankind

A New Way Of Thinking

Social Security Tax Rate-Are We Smarter Than A 5th Grader?

Listening to the radio this morning, I caught a piece about how both parties want to extend the payroll tax cut, but can’t seem to agree on the details.  Looking into this issue, I have to ask are we ‘smarter than a 5th grader’?  Let’s use 5th grade math and look at the numbers game that they are playing, and then I’ll toss out my controversial, but mathematically sound opinion.

First, what is the payroll tax cut?  The payroll tax cut is a reduction in the amount withheld, for Social Security, from our collective paychecks from 6.2% to 4.2%.  Thus we bring home 2% more cash.  They are quick to point out that there will be no reduction in benefits, however.  See:  http://www.irs.gov/newsroom/article/0,,id=232590,00.html for details.  I’m starting to smell the normal government rat.  You pay 1/3 less but get the same benefit.  I thought Social Security was in the red last year.  How is this possible?

A quick search taught exactly what is up. See:  http://www.ssa.gov/OACT/TRSUM/index.html for the source of the following quotes.  The translation into normal english from government speak (newspeak if you are an Orwell fan) will be free, simply for reading.  First correct item, Social Security was in the red last year:

The $49 Billion deficit last year (excluding interest income) and $46 Billion projected deficit in 2011 are in large part due to the weakened economy and to downward income adjustments that correct for excess payroll tax revenue credited to the trust funds in earlier years.

Translation:  In 2010, Social Security collected $49 Billion less than it collected from payroll tax.  This is blamed on the weakened economy, which is probably true, and “downward income adjustments.”  Downward income adjustments means that they had to adjust the income (amount collected from payroll taxes) down.  To “correct for excess payroll tax revenue credited to the trust funds in earlier years” means that the reason for this downward adjustment is that they had shown too much income in past years.  So you didn’t want your family to worry about your finances for a couple of years, so you prentended you had a bunch of extra money that you didn’t have.  When you finally have to claim your deficit, you have to add extra because of the money you pretended to have that you didn’t really have.

The “(excluding interest income)” clause was also interesting.  We all know the government has used the Social Security trust fund to prop up the general fund for many years.  This has left a bunch of IOUs in the SS trust fund, which apparently collect interest.  So they can use the SS trust fund to make the debt in the general fund seem smaller, and then claim that Social Security is not in trouble because of all the interest it is earning (from the money “loaned” to the general fund).  I hate to break it to everyone, but as much as they can pretend to be able to rob Peter to pay Paul, and then rob Paul to pay Peter, in the end it is just the taxpayer who gets robbed and they aren’t worth being called Peter or Paul.  In other words, in the end, if they are to pay back the IOUs and interest, it will have to be collected into the general fund via tax increases.

“The deficit is expected to shrink to about $20 Billion for years 2012-2014 as the economy strengthens.”

Translation:  IF the economy strengthens as much as they project, and doesn’t go into recession again, then we can sleep well knowing that we will only be going an extra $20 Billion into debt every year.

“After 2014, cash deficits are expected to grow rapidly as the number of beneficiaries continues to grow at a substantially faster rate than the number of covered workers.  Through 2022, the annual cash deficits will be made up by redeeming trust fund assets from the general fund of the treasury.”

Translation:  After 2014, the number will start to look bad even to people who are used to looking at government deficits.  The plan to survive this is to have the general fund (which chalked up a $1.1 Trillion, with a T, deficit in 2011, and is already $15 Trillion in debt) pay back what it owes.

All of this calculating and reporting by the government was figured on the basis of the 6.2% withholding rate.  To make up the money lost by going to the 4.2% rate, we would need to add millions of jobs (which hasn’t happened).  To sum this up, the 4.2% rate simply makes things WORSE than what you just read for Social Security and/or the general fund.

So let’s apply some 5th grade math to all this.  We are told that the 4.2% rate is needed for the economy to grow.  We know that not even the 6.2% rate can fund Social Security.  For the program to exist, in the long run, the income needs to match the outgo.  So I’m making the case that we need to either go back to the 6.2% or cut the program to match the funds that come in at 4.2%.  I’m not even going to make a ‘right wing’ or ‘left wing’ argument about which it should be.  I just want an honest debate.  If we’re not willing to pay for the program, cut it.  If we’re not willing to cut it, then pay for it.  Trying to pretend there is any other way will lead to a bad end, much worse than being kicked off a game show that compares our knowledge with that of a 5th grader.

 

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