November 1, 2004
So Simple Social Security Solutions
By Floyd Johnson
Everyone seems to agree that the Social Security program is running out of money. I argue that solutions to the Social Security shortage - some call it a crisis - are obvious and inevitable if only we would face the harsh realities of the situation.
First let's agree on two facts: (1) The Social Security program is a `security net' - or welfare program if you prefer - that was originally designed to provide for retired seniors who `need' help in their old age. `Need' is the operative word in that sentence - we will come back to it later in this short essay. And, (2) the Social Security program is not and was never intended to be a `retirement' program.
What is FICA? In 2004, a 6.2% Social Security tax was imposed on the first $87,900 of everyone's earnings up to a maximum tax deduction of $5,450.
Translated into net dollars, that means:
- If you are a computer programmer earning $87,900 a year, you pay the maximum deduction of $5,450 in social security taxes. Obviously this translates to 6.2% of the computer programmer's total income.
- But if you are Bill Gates or Warren Buffet and earn $10,000,000 a year, you also pay only the maximum deduction of $5,450 in Social Security taxes. In these two cases, Gates and Buffet pay only 0.05% (that's 5/100ths of a percentage point) of their total annual income of $10,000,000 in Social Security taxes. If they were required to pay 6.2% of their total income, Gates and Buffet would make annual contributions to Social Security of $620,000 not the $5,450 that they currently only pay.
First disparity. The current social security tax table causes the computer programmer to pay a much higher percentage of his actual annual income in Social Security tax than Gates or Buffet do - 6.2% of his total annual income verses 0.05% of their total annual income. Viewed just in terms of those percentages, the computer programmer pays 125 times more than Bill Gates or Warren Buffet do. (Ultimately, the computer programmer, Bill Gates and Warren Buffet will all be entitled to a similar - if not identical - Social Security benefit at age 65.)
Second disparity. Bill Gates and Warren Buffet will be entitled to receive Social Security benefits at retirement that they clearly do not need. Bill Gates and Warren Buffet do not need a `security net' to protect them from living in poverty. Low or no income retirees and their families clearly do.
The obvious solutions include:
- Raise the Earnings Bar Taxed. Tax everybody 6.2% on ALL income - with no ceiling on income taxed. This would be consistent with FDR's original intention - that those who `have,' help those who `have not.' This change would not impact the working poor or the lower middle class at all - their total Social Security payroll tax would remain exactly the same as it is now. Even Warren Buffet (one of the richest men in America) endorses this change.
- Require Needs Test. Provide social security benefits to only those people who truly need supplemental retirement income. We must require some form of `means test' for all retirees applying to receive Social Security benefits. For example, anyone with a net income after retirement that is greater than $250,000 annually from any and all sources (including pensions, dividends and annuities) should not be eligible to receive Social Security benefits. We can and should argue about what the actual retirement income ceiling should be, but it seems abundantly clear that anyone who is getting $20,000 a month in retirement income really does not need Social Security benefits.
To those very well off people who object to the last stipulation on the grounds that they have paid into this program their entire lives and feel they are entitled to social security benefits on that basis alone, I would remind them that Social Security was designed to support the needy - not the affluent. Some will call it `class warfare' or `socialism.' But in truth, we all pay taxes that are used for benefits that we personally do not receive or enjoy - a bridge in Wisconsin, shelters for the homeless, highways in places we will never visit, school taxes even after our own children are grown and out of school. Such taxes are regarded as contributing to the general weal, the general good of society whether we personally benefit or not. Social Security taxes should be regarded in the same way. I might add that there are many well off retirees who voluntarily decline to receive Social Security benefits - the father of Bill Gates (Bill Gates Sr.) is one of them.
Both of these solutions, if adopted, would not only save Social Security but would insure its viability for another 100 years at least. It is time that we stopped pretending that Social Security is a retirement program. It is time that we recognize and accept the reality that Social Security is a public welfare program for seniors in need.
------------------------------------------------
Floyd Johnson describes himself as a depression-born, unreconstructed FDR-Democrat. He moved to Phoenix from London in 1975 after residing several years in Brussels and London. He received a Masters Degree from Thunderbird - The Garvin School of International Management in Glendale, Arizona in 1981. After 35 years in the computer industry, he was a used and rare book seller in Peoria, Arizona until his retirement in 2002.
------------------------------------------------