by John Borsos
Social Security has declared that the cost-of-living increase for 2015 will be 1.7%. During the last few years, I have heard the media criticize the Social Security program for running out of money because the benefits paid to retirees is too high They argue that we must eliminate or reduce benefits “because we will run out of money.” They ask how can we keep affording this costly program?”
Well, the truth is that the “crisis” is in the eye of the beholder. We luckily live in the United States and can now afford whatever we want to afford. For instance, Social Security’s fiscal year (FY) 2013 Agency Financial Report (AFR) shows that over 66 million Americans received almost $855 billion in Social Security benefits with the average retiree earning nearly $1,300 per month and the average disabled person earning nearly $1,150.
How much was this $855 million cost was paid by the income tax payers? ZERO!
The tax was fully paid by the collections from FICA and recoupment from taxes on “retirees” benefits. According to IRS, the total employment taxes collected were $898, and the surplus, after paying for administrative and other costs, was credited to the $2.7 trillion “NET POSITION” (i.e. the government’s accounting fund designated to pay future benefits).
Now, these numbers may be a bit simplified and sound too rosy in light of the projections of people living longer and having more expensive costs in the future. But let’s look at the big picture of what we choose to spend money on. In 2013, the USA collected nearly 3000 times more in total taxes than we would have paid out in Social Security benefits. That means that for every $10,000 in taxes we collected; – even if we never collected one dollar of FICA – we could have paid $3.50 back in Social Security benefits to the people who had previously paid in FICA taxes. Of course, applying that amount to millions of people means billions of dollars. But such a challenge is not insurmountable. It is still our government. It can choose which wars, social programs, foreign aid, highways or low-cost medical care that they believe will give us the best life. Our leaders can spend the tax money any way that they want, so they could choose, if they wanted, to pay more monies to American citizens.
For example, in 2013 the State Department requested 56 trillion dollars to send overseas. That amount is nearly 60 times what we paid to Americans. Another example is the Iraq war that has cost nearly 2 trillion dollars (and projected to cost 6 trillion over the next 40 years). That amount is about a fifth of what Social Security costs (without reimbursement from FICA taxes or trust fund).
Social Security is not a generous program (in part I would argue, because it is an insurance program). President Bush noted the poor return of investing in Treasury bonds and proposed how we could invest with a stockbroker and get a better return. But Social Security was a security program not an investment program. People were free to invest in 401k or real estate. Social security only pays and average of – if the – however, since there was always a surplus — Social Security cost nothing.
And these amounts are modest as revealed by the new 1.7% increased amounts to be received next year. The average disabled worker gets a monthly amount of $1150 and the average retiree $1300. Despite these poverty-level amounts, over half the married couples and three quarter of single individuals report that this is over 50% of their total retirement income.
Finally, we could balance the Social Security system by taxing more. In 2013 the people earning over $113,700 didn’t pay FICA taxes. If the total earnings of part of these 13.7 million taxpayers were taxed, the Social Security system would be solvent for many, many years. If the current rate of 6.2 was raised 1% for employers and employees, the system would be solvent indefinitely.
When people say they want to cut Social Security programs because they cost too much, they are saying they don’t value Social Security as much as various other government projects.
2013 tax collections: http://www.irs.gov/uac/SOI-Tax-Stats-Tax-Stats-at-a-Glance
2013 Social Security: http://www.ssa.gov/finance/2013/Full%20FY%202013%20AFR.pdf
2013 Foreign aid: http://www.state.gov/documents/organization/185016.pdf
2013 Top 10% : http://www.kiplinger.com/tool/taxes/T055-S001-your-tax-burden-calculator/index.php#zwtAo2rKFxA2l4pz.99