Only don’t tell me you’re innocent. Because it insults my intelligence, and makes me very angry.
–Michael Corleone, “The Godfather”
Of all the lies that Social Security obstructionists such as Paul Krugman, Angry Bear and the AARP like to repeat, the worst is of course the fraud of the “trust fund” — a piggy bank full of IOUs from yourself to yourself is not a trust fund but a psychosis.
But I’m seeing, with increasing frequency, another lie, one which the apologists use to deflect concern over increasing Social Security taxes, either through tax rates or through the wage cap (which, keep in mind, rises every year anyway).
The “tax lie” goes something like this: “It’s no big deal when you pay ever higher Social Security taxes, because those higher taxes in turn earn you higher benefits after retirement.”
This claim has always been facially misleading based on the progressive nature of Social Security’s benefit schedule: All else equal, a worker who pays twice as much Social Security tax will receive less than twice as much in benefits. So the more Social Security taxes you pay, the more your income is being redistributed to those who pay less tax.
Whether you consider progressive redistribution of income a proper function of government is another topic altogether. The point here is that paying higher Social Security taxes funds other people’s benefits more than it funds your own benefits. (And “other people” does not mean intergenerationally — it means people in your own age cohort).
That’s old news. But here is where the obstructionists will typically play their shell game of de-emphasizing Social Security’s “anti-poverty” goal and instead proclaim the program’s “forced saving” aspect. “Don’t think about the redistributionist aspect of the program, just focus on the fact that when you pay more taxes, you accrue more benefits.”
Okay, let’s focus on that.
Everyone who pays Social Security taxes receives an annual Social Security Statement. Mine comes every August, I blogged about last year’s Statement here.
This year I focused only on the changes in the promised benefits over the past year. In 2005 I’ve paid direct Social Security taxes of $5,580 (i.e., the maximum). Based on Social Security’s own projections in the Statement, my monthly benefit if I retire at age 62 does indeed increase as a result of my having paid another full year of taxes — by $27.
Using Social Security’s own life expectancy tables, I should expect to receive benefits for 174 months (i.e., life expectancy of 76.5 minus retirement age of 62, times 12 months per year). So Social Security forecasts that I will earn an extra $27 x 174 = $4,698.
So, paying taxes of $5,580 this year yields me an estimated $4,698, starting 24 years from now.
You need not be a Chartered Financial Analyst, as I am, to know that this is not “forced savings.”
And that $4,698 is not a lump sum at retirement in the same way that, say, a private account would be — it’s an annuity, so it’s actually worth less than $4,698, even at age 62, let alone at age 38.
In fact, the math works out to a -0.48% annual rate of return on my 2005 Social Security taxes.
And, of course, that number only represents direct Social Security taxes, the money visibly taken out of paychecks under the euphemism of “FICA contributions.” That amount, as we all know, is matched dollar-for-dollar by taxes paid my employer. So it actually took $11,160 in taxes last year to yield me that $4,698 24 years from now. That’s a -2.43% annual rate of return.
And that’s before inflation.
And that’s before income taxes on my future Social Security benefits.
And that’s before “progressive indexing” (i.e., the Pozen Plan) or any other reform plan that would cut future benefits. Always remember that the benefit forecasts in your Social Security statement are not vested and you have no property interest whatsoever in your Social Security taxes or the “guaranteed” benefits they earn — Congress can change those numbers anytime. See Flemming v. Nestor, 363 U.S. 603 (1960).
“Paternalistically-motivated forced savings for my own benefit?”
Hogwash.
Why is it that unapologetic liberals such as Krugman and Angry Bear suddenly start lying through their teeth about this? If they honestly believe that our unified income taxation sysem (i.e., federal income tax, FICA tax and Medicare tax) are not already progressive enough, then why not just say so? “Sorry, but the poor are still poor, and we now need to redistribute your income to them not only through the income tax but also through the Social Security tax (and don’t forget the estate tax).”
If income redistribution is the motivation of Social Security, then fine — let’s keep it about that. Why lie by telling people that higher taxes are “forced savings” for their own benefit when they’re clearly not?
Tell me my taxes are going to help the needy working poor. Tell me that Social Security is an unviable failure that I, as a successful American, need to help bail out.
Tell me that Social Security includes several “protective undercoating” bells and whistles that I either don’t want (e.g., disability benefits) or can’t receive (e.g., spousal benefits that are denied gay couples, even married gay couples).
Tell me that all those surpluses in Social Security taxes have been recklessly squandered by Congress and that the “trust fund” is now nothing more than a promise to raise my taxes in the future.
Tell me that you simply consider someone or something to be more important than my own financial well-being and therefore worthy of my extra tax dollars.
Only don’t tell me you’re taxing me for my own benefit. Because it insults my intelligence, and makes me very angry.
POST SCRIPT: For those who know their way around an H-P 12c financial calculator, I’d be happy to share by email the inputs for my rate of return calculations.
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5 responses so far ↓
Link Tony // Aug 29, 2005 at 11:16 am
As a self-employed taxpayer, I'm with you 100% on this one. That $11,160 check is painful. Not to mention the other extremely large check I write every quarter to the IRS. When do we get tax reform?
For what it's worth, am I the only financial nerd interested in the calculations? I'd have to run the numbers through my HP 10b, of course. But it still works after 14 years, so why upgrade?
Link Matt // Aug 30, 2005 at 3:34 am
Discussing Social Security reform with people who believe in the trust fund is rather analogous to discussing arctic navigation with people who believe in Santa Claus. Except that most people who believe in Santa aren't actually trying to rip you off. But either one is a fundamentally fruitless enterprise.
Link Eh Nonymous // Aug 30, 2005 at 11:03 am
I think you make a very nice financial argument, but it only really applies to the finances of the situation. Which is a "duh" sort of observation.
Yes, it's progressive. Yes, that means you're helping others more than you're helping yourself by paying in. If we wanted a red-taloned dog-eat-dog form of capitalism, we know how to do that.
It would instantly crystallize all the class resentment and poverty-based and envy-based rage into a massive outpouring of violence which would result in the rich being slaughtered by the thousands, but it would at least be "pure." Can't avoid having a "pure" system, can we? Even if it costs our national security?
I'm a big fan of post-Marxist theories of class. I think we're at war, with each other. The rich want to get the estate tax, aka "death tax" repealed. Why? Because it apparently disincentivizes dying. Notwithstanding that all of humanity (minus, apparently, two exceptions: Lazarus and Jesus) eventually dies anyway, so taxing it will have zero impact on whether and when people do it, only on the planning they are motivated to do beforehand.
The poor try to get money redistributed. It's criminal, it is; why, it reverses the very point of society and law, which are intended to protect the moneyed interests, which are busy redistributing wealth too, upward and in ever greater concentration.
Let's knock it off about the lying, shall we? Social Security was not imposed on an unwilling Rich class, it was an accepted and acceptable trade-off. We give "them" security in retirement, and in exchange, we
- get to think of ourselves as humane to our elders (the old dog-food bit)
- give ourselves a tiny cushion, in case we fall from our perches of wealth and privilege and wind up (whisper it) poor
- redistribute wealth, net downwards
- force savings, even if it's not preserving wealth for any given individual, ie produces negative rates of return for many or most of us. Well, hell, if we were hedging against no-loss investing, there'd be no need for a safety net. You choose security, you lose potential gains. But you also avoid catastrophic loss, which lands, say it with me now, on those least able to bear the burden.
- avoid the nuisance of having to give to charitable organizations which may do as good a job as the inefficient government (Krugman keeps pointing out how low the costs of the SSA have been; sometimes private doesn't mean cheaper), since it's "already taken care of"
- stave off bloody revolution.
I think it was a wise choice for society to make back in the day, and still is.
You can disagree; you can be a pure capitalist for all of me. But I don't think pure capitalism's ever been tried, nor am I confident it ought to be. What does a man do when he finds he's been lied to, and the winner is richer as a result? He seeks redress within the system, perhaps. What does he do when it turns out the system can be bought by winners? He kicks over the system and kills the cheater who robbed him. Not a good recipe for domestic tranquillity.
Link KipEsquire // Aug 30, 2005 at 11:15 am
If we wanted a red-taloned dog-eat-dog form of capitalism, we know how to do that.
Actually, since dogs don't have talons, no I don't know how to do that.
[T]he very point of society and law, which are intended to protect the moneyed interests…
Actually I would argue that the point of society and law is to protect the creation, not the insulation, of "moneyed interests." And if I'm a member of the working poor, that's something I would indeed cherish greatly. The best way to help the poor is by not being one of them.
Link dave-colorado // Aug 30, 2005 at 2:31 pm
eh nonymous, i love your dire predictions of violence. spare me the drama and stick to the facts.
so you seem to be asserting that every breathing person who pays into social security is one of two people: very poor and deserving of protection and benefits of social securtiy (which you flatly avoid spelling out just how those benefits will be around in 30 years), or the wealthy who should pay out because they have other investments and should just be doing it for the good of your quasi-marxist redistributionist schema.
like other lazy analyses tossed forth without any examination of the numbers, you ignore the middle class. completely.
these are the people who are paying in now, at age 20, 30 or whatever, and who will not see ONE DIME of their money under current rates. period.
so, you want to find a way to excuse this? or will you reduce it to the middle class also having to "take one for the team" to protect today's senior citizens, only to be in poverty when they retire (and have no benefits from social security).
pure laziness.
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