While many do not like socialism – though I heard today that 44% of Millennials did like socialism and don’t know if that is fact or not – Social Security, which we all seem to love is one form of socialism that has been around (in law) for going on 84 years and that has actually paid benefits for 79 years this year.  I hope to prove this here.

 

 

Working in the financial services field for 42 years I’ve heard a lot of things about social security (some refer to it as Social Insecurity) and some of the things I’ve heard were false while others were true.  Here is a few facts that you probably should know before trying to argue for or against social security as we know it today.  As you read through this, I don’t care if you are Liberal, Conservative or Moderate.  I don’t care if you are Republican, Democrat or Libertarian.  What I do care about is giving you as much information as I can about the system as well as resource links you can check out for yourselves.  And, I hope to do this without getting real complicated – which I sometimes do.

Social Security Cards up until the 1980s expressly stated the number and card were not to be used for identification purposes.  Since nearly everyone in the United States now has a number, it became convenient to use it anyway and the NOT FOR IDENTIFICATION message was removed.  Now I really don’t expect you to take my word for that … take a look at my two social security cards.  Yes, I have two.  One was issued when I was a kid and only used my middle name and last name.  The second was issued after the military and I learned the importance of using all three of my names.  Actually it was advised by a person from the Social Security Administration that I hired to provide a seminar for some clients back in the early 1980’s.

Now you will notice in the first card below the signature it says, “For Social Security and Tax Purposes – NOT FOR IDENTIFICATION.”  That has been removed in the second card shown.  Also note in Figure 1 the caption below Elvis Presley’s signature states, “For Social Security Purposes – Not for Identification.”  I guess they decided to add TAX PURPOSES sometime between when he got his and I got my first one.  The latest card doesn’t really say what it is for or not for.

Just a few Trivia Points

Franklin D Roosevelt (Democrat), introduced the Social Security (FICA) Program. FICA is the acronym for Federal Insurance Contributions Act.  President Roosevelt’s promises are in black, with updates in red:

1. That participation in the Program would be Completely Voluntary.  [No longer voluntary],
2. That the participants would only have to pay 1% of the first $1,400 of their annual Incomes into the Program [Now 7.65% on the first $90,000, and 15.3% on the first $90,000 if you’re self-employed,  Not all of this money goes for Retirement anymore either since Medicare came out and also had to be paid for].
3. That the money the participants elected to put into the Program would be deductible from their income for tax purposes each year [No longer tax deductible].
4. That the money the participants put into the plan went to an independent “Trust Fund” rather than into the “General Operating Fund of the Government, and therefore, would only be used to fund the Social Security Retirement Program, and no other Government program [Under Johnson the money was moved to the General Fund and Spent some say], and
5. That the annuity payments to the retirees would never be taxed as income [Under Reagan & Bush 50% became taxable and under Clinton & Gore up to 85% of your Social Security can be Taxed].

Since many of us have paid into FICA for years and are now receiving a Social Security check every month — and then finding that we are getting taxed on 85% of the money we paid to the Federal government to ‘put away’ for us when we got old — you may be interested in the rest of the story below.

Yes, Social Security was signed into law in 1935.  The first contributions started being made into Social Security in 1937.  In 1940 – just three years after contributions were begun – people were allowed to start getting their retirement benefits.

Who was first?

This comes from the SSA.Gov website:

Think of it … this ole gal paid in just $24.75 over 9 quarters (and the rule is your supposed to be fully insured with 40 quarters now to get income) and took out 924.8 times that amount over her next forty years of life since she lived to be 100.  I certainly wished my benefit would reach 920 times the amount I paid in.  I know you folks do too.  Seems to me that someone should have recognized early on that we could be headed for a problem.  Since she only paid in $24.75 wouldn’t you say that getting a lot more than this for nothing is a form of socialism.

Payer to Payee Ratio

Another thing that most people don’t think about is how many people are paying into the system as compared to those that are taking out of the system.  Take a look at this chart:

Look at that reduction in workers to beneficiaries.  Most of the major shifts in worker-to-beneficiary ratios before the 1960s are attributable to the dynamics of the program’s maturity. In the early stages of the program, many paid in and few received benefits, and the revenue collected greatly exceeded the benefits being paid out. What appeared to be the program’s advantage, however, turned out to be misleading. Between 1945 and 1965, the decline in worker-to-beneficiary ratios went from 41 to 4 workers per beneficiary.

Currently, there is a little more than two people working for every one beneficiary.  That means that two people are paying in money that I am taking out.  Let’s see if they are paying in enough!

Not counting Medicare Benefits or cost, I am taking about $2,137 per month out of social security.  If you add in what I am paying for Medicare Insurance (another $140 per month) that’s about $27,324 per year. Now a person pays 7.65% of the first $90,000 into FICA (Social Security) but of this … 6.2% goes for Retirement Benefits and 1.45% goes for Medicare (Part A) – Retirees pay for Medicare Part B.  Therefore, 6.2% of $90,000 equals $5,580.  If two people are paying in … they are short because that total would be $11,160 which is less than half what I am taking out.

Regardless of what the politicians try to tell you … the amount of people that have to contribute if all of them were earning $90,000 per year just to cover what I am taking out would be close to FIVE working souls (e.g. $27,324 divided by $5,580 = 4.90).  According to U.S. Census Bureau data from 2015, the latest release, the median household income is $56,516.  This means that a little more than 10 average households are delivering me my monthly check – if Social Security is Actually Broke.

Going forward, these numbers come from the Social Security Administration’s website and you can download the full report here.  Get the Report 

It appears – according to this chart that the worker to beneficiary ratio is expected to level out at about 2:1 for some years into the future, but could trend below 2:1 beginning in 2070.  However, look at this next chart …

It looks like sometime between 2026 and 2040 … the cost of providing benefits will start to outweigh the money coming into the plan.  The unfunded obligations will become negative and — what then?

When you Rob Peter to Pay Paul, Peter becomes a pallbearer!

This could very well happen in the future of Social Security.  It would be something like this …

Let’s look at it another way … To draw a lifetime annuity, the Social Security Administration could simply by me an annuity.  The amount of annuity it would take to provide me a payout of $2,277 per month for my lifetime (not to include the amount that would go to my wife at my death) would be …  $378,810.93 if considering a guaranteed payout that would not go down.  Where would that come from?

THIS IS WHAT I HAVE PAID IN MY ENTIRE WORKING LIFE ACCORDING TO SOCIAL SECURITY RECORDS:

The amount I paid for retirement $184,040.  The amount Employers paid for Retirement $56,564.  Therefore, the total amount paid in for retirement has been $240,604.  This is about $138,207 less than what would be needed to provide that annuity.  Therefore I have to believe my children’s payments into the system is paying for some of my benefit … or at least someone’s children if my children are perhaps paying for someone else.

Incidentally, the amount I paid for Medicare $44,825.  The Amount Employers paid for Medicare $18,951.  The total amount paid for health insurance – not including Part B of medicare which I pay out of my monthly check has been $63,776.  One surgery at age 65 after qualifying for Medicare costs $45,000 (nothing out of pocket for me).

Who is responsible for all these changes?

I’m sure that many are since there have been many changes over the past 80 or so years.  You can get some key dates and changes right here … but let’s take a look at the changes referenced above in the first part of this article about the taxation of social security:

Since many of us have paid into FICA for years and are now receiving a Social Security check every month — and then finding that we are getting taxed on 85% of the money we paid to the Federal government to ‘put away’ — you may be interested in the following:

The 1979 Advisory Council and the Greenspan Commission

The 1979 Advisory Council was charged with studying the financing and benefit provisions of the Social Security program. The Council wrote extensively on the issue of taxation of Social Security benefits.  After much debate of this commission this is what was decided …

Estimates by the Office of the Actuary of the Social Security Administration indicate that workers now entering covered employment in aggregate will make payroll tax payments totaling no more than 17 percent of the benefits that they can expect to receive. The self-employed will pay no more than 26 percent on average. Therefore, if social security benefits were accorded the same tax treatment as private pensions, only 17 percent of the benefit would be exempt from tax when received, and 83 percent would be taxable. . . Rough Justice would be done, however, if half the benefit (the part commonly if somewhat inaccurately attributed to the employer contribution) were made taxable.”

Following the 1979 Advisory Council, the National Commission on Social Security Reform (informally known as the Greenspan Commission after its Chairman) was appointed by the Congress and the President in 1981 to study and make recommendations regarding the short-term financing crisis that Social Security faced at that time. Estimates were that the Old-Age and Survivors Insurance Trust Fund would run out of money, possibly as early as August 1983. This bipartisan Commission was to make recommendations to Congress on how to solve the problems facing Social Security. Their report, issued in January 1983, was the basis for Congress’ consideration of the Social Security reform proposals which ultimately resulted in the 1983 Social Security Amendments.

In its Report, the Commission recommended that Social Security benefits be taxable: “The National Commission recommends that, beginning with 1984, 50% of OASDI benefits should be considered as taxable income for income-tax purposes for persons with Adjusted Gross Income (before including therein any OASDI benefits) of $20,000 if single and $25,000 if married. The proceeds from such taxation, as estimated by the Treasury Department, would be credited to the OASDI Trust Funds under a permanent appropriation.“

The Commission estimated that its proposals would affect only about 10% of Social Security beneficiaries and that it would result in $30 billion in revenue to the Trust Funds in the first seven years.

Congress passed and President Reagan signed into law the 1983 Amendments. Under the ’83 Amendments, up to one-half of the value of the Social Security benefit was made potentially taxable income. The specific rules adopted in 1983 were:

If the taxpayer’s combined income (total of adjusted gross income, interest on tax-exempt bonds, and 50% of Social Security benefits and Tier I Railroad Retirement Benefits) exceeds a threshold amount ($25,000 for an individual, $32,000 for a married couple filing a joint return, and zero for a married person filing separately), the amount of benefits subject to income tax is the lesser of 50% of benefits or 50% of the excess of the taxpayer’s combined income over the threshold amount. The additional income tax revenues resulting from this provision are transferred to the trust funds from which the corresponding benefits were paid. Effective for taxable years beginning after 1983.

It is important for us REPUBLICANS to remember that Ronald Reagan was the president when this was signed into law.  Let’s not blame just the Democrats for this screw up!  Uh Oh … does that statement make me non-patriotic?

In 1993, as part of Omnibus Budget Reconciliation Act, the Social Security taxation provision was modified to add a secondary set of thresholds and a higher taxable percentage for beneficiaries who exceeded the secondary thresholds. Specifically, the 1993 did the following:

Modified for a taxpayer with combined income exceeding a secondary threshold amount ($34,000 for an individual, $44,000 for a married couple filing a joint return, and zero for a married person filing separately), so that the amount of benefits subject to income tax is increased to the sum of (1) the smaller of (a) $4,500 for an individual, $6,000 for a married couple filing a joint return, or zero for a married person filing separately, or (b) 50% of the benefit, plus (2) 85% of the excess of the taxpayer’s combined income over the secondary threshold. However, no more than 85% of the benefit amount is subject to income tax. The additional income tax revenues resulting from the increase in the taxable percentage from 50% to 85% are transferred to the HI Trust Fund. Effective for taxable years beginning after 1993.

It is important for your DEMOCRATS to remember that Bill Clinton was president when this change was signed into law.  Let’s not blame just the republicans.

Do you want to know that the HI Trust Fund Is?  I did … so I looked it up:

What is Hospital Insurance Trust Fund

Source:  https://www.investopedia.com/terms/h/hospital-insurance-trust-fund.asp

So, it seems they are using tax dollars on social security benefits to fund Medicare … and it still is projected to run out of funds by 2029.  Gotta love the accountants in Washington DC with all their “think tanks.”

Now you may read (in your email) that Immigrants also get social security income.  Most people think Immigrant is automatically “Illegal Immigrant.”  That is not the case.  Illegal Immigrants do not get Social Security Income or Supplemental Security Income (SSI) according to the Social Security Administration which takes care of both Social Security Pensions and Supplemental Security Income.  However, some will attempt it by using fake, stolen or lapsed social security numbers to get a job.  In doing so they pay into the system and get nothing back if they are here illegally – Let me add presently – as this could also change.

Legal Immigrants who pay into the system do get social security income just like everyone else who has their 40 quarters of coverage (as long as they remain in this country).  Should they leave the country for more than 6 months the social security is “turned off.”  To turn it back on they only need to come stay for a month to start it back again and get another 6 months of payments while out of the country.

If a person is here legally and can qualify for SSI (Supplemental Security Income), a program administered by the social security administration but supposedly funded out of the general fund and not the social security trust fund.  Again illegal immigrants do not get SSI.  Stop believing everything you read on the internet, social media and in emails.  Do your own research.  You should probably also research my article for truth, though I am really trying to as I write it.

And for Heaven’s sake … just because it is on Google does not make it so.  Look at this question on Google (which I almost screwed up on and put in the article the wrong way):

If you are younger … also be careful where you go to estimate your social security benefit.  I used in this example BankRate.com and this is what I got for a 67 year old who earned $30,000 in salary:

Social Security may provide $19,304 per year.
If you start collecting your Social Security benefits at age 67, Social Security may provide $19,304 per year which is $1,609 per month. This is 64.35% of your final year’s income of $30,000. Remember, this is only an estimate. Your actual benefit may be higher or lower depending on your work history and the complete compensation rules used by Social Security.

I used the same calculator for the same aged person and showed $200,000 in earnings and this is what I got:

Social Security may provide $52,235 per year.
If you start collecting your Social Security benefits at age 67, Social Security may provide $52,235 per year which is $4,353 per month. This is 26.12% of your final year’s income of $200,000. Remember, this is only an estimate. Your actual benefit may be higher or lower depending on your work history and the complete compensation rules used by Social Security.

Based on these two calculations … the person paying in the most … the one earning $200,000 will get the least 26.12% of income vs. 64.35% of income.  However, this is not a true number.

According to the social security website:  The maximum monthly Social Security benefit at full or normal retirement age is $2,788 for 2018 and $2,861 for 2019. However, the maximum allowable benefit amount is only payable to those who had the maximum taxable earnings for at least 35 working years.  Therefore the person earning the $200,000 (remember FICA tax is only paid on the first $90,000 for retirement) would get about 17.17% of income in retirement.

Summary

I began this article with a question … “SO, You Don’t Like Socialism?”

What is true socialism?

Socialism is an economic system where the ways of making a living (factories, offices, etc.) are owned by a society as a whole, meaning the value made belongs to everyone in that society, instead of a group of private owners. People who agree with this type of system are called socialists.

Webster’s dictionary defines socialism as a form of society in which government owns or controls major industries. Marxist theory says socialism is the transitional stage between capitalism and communism.

A Socialist country is a country where the government or the public as a whole has control over the economy. In a socialist country, the producing and dispersing of goods is owned by the government.  In other words … they take money or goods from the wealthy and give it to the non-wealthy.  This allows the non-wealthy to be just as well off as the wealthy eventually.  Then everybody runs out of money.

That is correct, eventually, no one has any wealth and the system simply falls apart.

I don’t know if you can see it our not … But I view Social Security as a form of socialism.  It is owned by a society of American Workers for the benefit of American Workers.  It is controlled by a government from the amount of money being put in to the amount of money being taken out.  In addition, it robs the wealthy of their income to provide a greater income (on a pre retirement income percentage basis) to the not so wealthy.  That, in any language, is transfer of wealth.

If social security is not in trouble now … how long will it be before it really is?  Here’s a copy of the US Debt Clock and you can get a real time version by clicking here.

Look at that Social Security Commitment for this year … 1 Trillion, 6 Billion, 771 Million, 314 Thousand 603 Hundred Dollars ($1,006,771,314,603).  And look at the Social Security Liability $20,014,904,043,739 … Yes over $20 Trillion Dollars.  While you will hear the talking heads on TV talk about a 22.1 Trillion Dollar National Debt … you seldom hear them talk about the US total debt which now stands at over $72 Trillion Dollars.

If we were talking about minutes instead of dollars … how many years would it take for 1 trillion minutes to pass (considering there is 525,600 minutes in a year)?  It would take a grand total of 1,901,863.83 years for 1 Trillion Minutes to elapse.  Think of it … 1.9 million years for a Trillion minutes.

From the time it took me to put in the first chart and type and calculate all this (about 10 minutes) the US National Debt is now up to $22,112,787,583,028 from $22,112,770,733,711 … or $16,849,317.  So in we are losing about $1,684,932 per minute.  I would love to have 1 minute of US Losses as my annual income for just one year.

By 2023 this is how the nation’s debts could look based on four different views; the CBO, OMB, GOP and USDC.  I have highlighted or circled Social Security for you:

Wow … Social Security Payouts alone go from 1.006 Trillion dollars to almost 1.3 Trillion dollars.  How is that going to happen if the workforce dares to shrink in the future (currently it is expanding) because of baby boomers retiring and taxes are not increasing?  The US debt also increases by another $4 trillion.

Contrary to popular belief … and what the GOP wants you to believe … and I vote republican … I’d say we may already be in a socialist state.  We are spending more and more and taking in less and less.  Currently tax revenues $3,392,449,332,144 and these are expected to rise by a mear $1 trillion or so to $4,275,059,892,581 by 2023.  Yet, the deficit of $22+ Trillion will rise by $4 trillion to $26 Trillion or so.

I’d say we are headed for trouble if someone does not do something.  Free is not the answer either for all of you leaning left and voting for the 20 or so running on the Democratic ticket in 2020.

Thank You,

Jerry Nix, FreeWaveMaker, LLC

Links you may want to look at to do some research on your own:

https://www.fool.com/retirement/2018/01/07/40-comprehensive-social-security-facts.aspx

https://www.ssa.gov/history/briefhistory3.html

https://www.history.com/topics/great-depression/social-security-act

https://www.nasi.org/learn/socialsecurity/key-dates

https://www.disabilitysecrets.com/page5-13.html