It is. And it’s wrong. But part of how we got here is it was sold as not being a tax, even though it absolutely is.
The claim was it was a mandatory retirement investment program. Because the wealthy have their own retirements figured out they don’t need their payouts to continue to scale with their income, so their payments in shouldn’t scale proportionally either, since it is “not a tax.”
But why it is a tax is, one, most of us will never see a payout because the program is going to collapse before most of us retire, and therefore it is NOT a mandatory retirement program. And second, all payments in and out of government are fungible, so it really is a tax and a separate retirement supplemental program, where we use language around them to pretend they are one program.
Ironically, if we took all the money that was paid into Social Security and invested it in a real portfolio (actual investment), our generation would actually get something, and current generations would be getting significantly more. The issue is that because whether you like government or not, it is a money loser. It’s basically designed to be one. But that means using the government as an investment vehicle is in pure investment terms really really bad. Plus it also sets up a regressive tax as you pointed out.
most of us will never see a payout because the program is going to collapse
I have been reading this claim my entire life. Not even my entire adult life. Like, I remember hearing this when I was still a wee little kiddo, watching Reagan give speeches from my dad’s knee.
Social Security isn’t going bankrupt any sooner than the Pentagon goes bankrupt or the US Treasury goes bankrupt. It’s not something that can happen, mechanically speaking. Congress is always free to allocate more money to the program. The only way SS “runs out of money” is if Congress deliberately refuses to fund it.
And so much of the US economy lives downstream of senior citizens getting their checks on time that such a decision would be economically suicidal for the country. If it happens, it’s only because the US as a going concern is a failed state. And a real failed state, not just some hyperbole from the latest pundit circle.
Ironically, if we took all the money that was paid into Social Security and invested it in a real portfolio
You’d have a sovereign wealth fund.
But when you’ve got the national reserve currency, there’s no real incentive to do that. Your tax revenue is already driven by global economic growth. Our Federal Reserve Credit Window and our variety of grants, tax credits, and government contracts already incentivize capital accumulation within the scope of US taxable incomes.
You don’t need to collect a dividend from a business by holding its equity if you’re a federal government. You can just tax them. Dollars paid in dividends and dollars paid in taxes are interchangeable.
US Social Security is fundamentally not an investment plan. Workers who have not yet retired pay a special tax and this is used to pay benefits to those who have retired. Roughly speaking (using handy numbers) workers pay the tax for 44 years (ages 21 to 65) and collect SS benefits for 11 (ages 65 to 76), so in principle four active workers support one retired worker. SS benefits are very small, something like a third of what active workers make on average, so more like twelve active workers support each retired worker, so the tax is a very affordable amount.
Much of the confusion over this resulted in the 1980s, when Congress recognized that the changing demographics in the future (like, 50 years later) would mean fewer workers relative to retirees. They chose to prepare for this in advance by raising the SS taxes slightly above what was needed at the time to support retirees and investing the surplus in US Treasury bonds. This Social Security “trust fund” is now being tapped to provide benefits without raising the tax rate – as well as being used by Republicans to fool people into believing that when the supplemental trust fund is empty, Social Security itself will be “bankrupt”. Not true, because even then SS benefits will continue to be paid, either in slightly lower amounts of the tax rate is not increased, or at the same amounts of the tax rate is increased to cover it.
Incidentally, this SS trust fund is a huge part of what allowed President Reagan to rack up enormous debt without destroying (at least immediately) the US economy. Treasury bonds were paying about 2.5% at the time, so the SS trust fund was essentially a source of cheaply-borrowed money to cover the government’s general budget.
Ours is a sliding rate based on your income. It is a line item on your tax form for the pension plan. For say 75k earnings you’d pay about $4000 to the CPP, employer contributes an equal amount. If you are self employed you have to contribute both the employee and employer amount so about 8K.
The fund has investment managers growing it. But it is still a pyramid of new workers propping up the fund so retired people can draw from it. As life expectancy increases they will probably move retirement age.
x0x7@lemmy.world 3 months ago
It is. And it’s wrong. But part of how we got here is it was sold as not being a tax, even though it absolutely is.
The claim was it was a mandatory retirement investment program. Because the wealthy have their own retirements figured out they don’t need their payouts to continue to scale with their income, so their payments in shouldn’t scale proportionally either, since it is “not a tax.”
But why it is a tax is, one, most of us will never see a payout because the program is going to collapse before most of us retire, and therefore it is NOT a mandatory retirement program. And second, all payments in and out of government are fungible, so it really is a tax and a separate retirement supplemental program, where we use language around them to pretend they are one program.
Ironically, if we took all the money that was paid into Social Security and invested it in a real portfolio (actual investment), our generation would actually get something, and current generations would be getting significantly more. The issue is that because whether you like government or not, it is a money loser. It’s basically designed to be one. But that means using the government as an investment vehicle is in pure investment terms really really bad. Plus it also sets up a regressive tax as you pointed out.
UnderpantsWeevil@lemmy.world 3 months ago
I have been reading this claim my entire life. Not even my entire adult life. Like, I remember hearing this when I was still a wee little kiddo, watching Reagan give speeches from my dad’s knee.
Social Security isn’t going bankrupt any sooner than the Pentagon goes bankrupt or the US Treasury goes bankrupt. It’s not something that can happen, mechanically speaking. Congress is always free to allocate more money to the program. The only way SS “runs out of money” is if Congress deliberately refuses to fund it.
And so much of the US economy lives downstream of senior citizens getting their checks on time that such a decision would be economically suicidal for the country. If it happens, it’s only because the US as a going concern is a failed state. And a real failed state, not just some hyperbole from the latest pundit circle.
You’d have a sovereign wealth fund.
But when you’ve got the national reserve currency, there’s no real incentive to do that. Your tax revenue is already driven by global economic growth. Our Federal Reserve Credit Window and our variety of grants, tax credits, and government contracts already incentivize capital accumulation within the scope of US taxable incomes.
You don’t need to collect a dividend from a business by holding its equity if you’re a federal government. You can just tax them. Dollars paid in dividends and dollars paid in taxes are interchangeable.
BCsven@lemmy.ca 3 months ago
I’m not fully versed on the differences, but our Canada Pension plan is invested in various things.
Although, lately has come under fire for investment choices they’ve chosen.
ChickenLadyLovesLife@lemmy.world 3 months ago
US Social Security is fundamentally not an investment plan. Workers who have not yet retired pay a special tax and this is used to pay benefits to those who have retired. Roughly speaking (using handy numbers) workers pay the tax for 44 years (ages 21 to 65) and collect SS benefits for 11 (ages 65 to 76), so in principle four active workers support one retired worker. SS benefits are very small, something like a third of what active workers make on average, so more like twelve active workers support each retired worker, so the tax is a very affordable amount.
Much of the confusion over this resulted in the 1980s, when Congress recognized that the changing demographics in the future (like, 50 years later) would mean fewer workers relative to retirees. They chose to prepare for this in advance by raising the SS taxes slightly above what was needed at the time to support retirees and investing the surplus in US Treasury bonds. This Social Security “trust fund” is now being tapped to provide benefits without raising the tax rate – as well as being used by Republicans to fool people into believing that when the supplemental trust fund is empty, Social Security itself will be “bankrupt”. Not true, because even then SS benefits will continue to be paid, either in slightly lower amounts of the tax rate is not increased, or at the same amounts of the tax rate is increased to cover it.
Incidentally, this SS trust fund is a huge part of what allowed President Reagan to rack up enormous debt without destroying (at least immediately) the US economy. Treasury bonds were paying about 2.5% at the time, so the SS trust fund was essentially a source of cheaply-borrowed money to cover the government’s general budget.
BCsven@lemmy.ca 3 months ago
Ours is a sliding rate based on your income. It is a line item on your tax form for the pension plan. For say 75k earnings you’d pay about $4000 to the CPP, employer contributes an equal amount. If you are self employed you have to contribute both the employee and employer amount so about 8K.
The fund has investment managers growing it. But it is still a pyramid of new workers propping up the fund so retired people can draw from it. As life expectancy increases they will probably move retirement age.