According to economists the government’s ability to sustain the current level of social security payouts will expire within a decade. The Social Security Program is a government program launched as part of Roosevelt’s New Deal in the midst of the 1930’s Great Depression. It has provided a ‘safety net’ for millions of middle class Americans and, today, helps sustains economic survival for more than 50 million seniors.
One would think that the best minds of our country or, if not them, our elected officials, would convene an enclave to ameliorate the situation…they haven’t.
When Social Security was enacted most working Americans were wage earners. The government took a small portion of their wages, required employers to match it, and set it aside. Employees could retire at 65 and be confident they would receive their money and more as long as they lived.
But the world changed in the decades that followed World War II. Automation and a shift to a global economy reduced manufacturing employment. Less workers were feeding the fund. At the other end, people were living longer…less money to fund Social Security…increased demand for payouts.
The government tinkered with it a little. The retirement age went from 65 to 67. The top limit for contributions increased. And that’s where we find ourselves as 2024 comes to a close.
The ludicrous thing is that the entire program is based on misguided assumptions. To clarify, we have to consider the definition of ‘income.’ Social security is based on what is called “Earned income.” Wages are earned income…you ‘earn’ it by your labor.
But the economy in which we now live entirely ignores other forms of income, generally called “Passive” income. Passive income includes earnings from interest and dividends. It also includes rental, royalty and pension income. Now these forms of income are taxed for Federal and State Income tax purposes but EXCLUDED for Social Security. Gains from the sale of stock or property are similarly excluded.
Why you ask? I have absolutely no facts but it might be assumed that those in the upper brackets earned enough money from their assets so as to not need Social Security. Perhaps that was true in the 1930’s, But Elon Musk, Bill Gates, and Warren Buffett can collect Social Security when they reach retirement age on salaries they’d taken early in their careers but all other forms of renumeration they receive are excluded. The world has changed in the ninety years this important program was launched. It needs to be brought into today’s world. If you want to fix the Social Security system…it’s easy…tax passive income.
In 1950 48 million workers paid in while only 3 million received benefits and the Social Security reserve was nearly $14 billion.
In 2020 175 million workers paid in while 70 million received benefits.
We had gone from a ratio of 16:1 to less than 3:1.
The reserve was at $2.9 trillion, down from its peak in 1973, but it was now paying out $1.5 trillion in benefits annually.
The average worker today earns $63,000/year, contributing $3900 into social security. It is matched by his employer. Total in: $7,800. The average social security recipient receives $21,000.
The math is clear!