Wednesday, February 16, 2005

Social Security:An Eighth of Every Paycheck

OK, just a couple of blasts from the recent past before I go real time. Check out the Boston Globe Op-ed:

"YOU DON'T have to be a financial wizard to know that Social Security is a lousy investment. Unlike the money you deposit in a bank or salt away in an IRA, you don't own the money you pay into Social Security. You have no legal right to get those dollars back, and when you die you can't pass them on to your heirs. Nor can you use your Social Security account before you retire -- you can't borrow against it and you can't cash it in. You aren't allowed to put the money into a balanced portfolio. You can't even watch as the interest accumulates, since your Social Security nest egg doesn't earn any interest."

"Your nest egg, in fact, doesn't even exist. Because Social Security is financed on a pay-as-you-go system, the dollars withheld from your paycheck today are immediately paid out to retirees. The benefits you receive when you retire will be funded by the payroll taxes then being collected. "

"Social Security wasn't always a sucker's game. As with all Ponzi schemes, players who got in early made out like bandits. For many years, Social Security deductions were minuscule. Until 1949, the combined employer/employee tax rate was only 2 percent, and it was imposed on just the first $3,000 of income, for a maximum payroll tax of just $60 a year. The first Social Security recipient was Ida May Fuller of Ludlow, Vt., who retired in 1940 after having paid a grand total of $44 in payroll taxes. By the time she died in 1975, she had collected $20,933.52 in benefits -- a return on her ''investment' of more than 47,000 percent."

"And a generation later? Today Social Security skims off 12.4 percent of the first $90,000 earned -- one-eighth of every paycheck. There are no exemptions, no deductions. It kicks in from the very first dollar of income. It is the biggest tax the average American household faces -- 80 percent of us pay more in Social Security taxes than we do in income tax.One tiny notch at a time, payroll taxes have been ratcheted up to a level that would have been unthinkable in Franklin Delano Roosevelt's day. No wonder Social Security is so unpopular among the young. It provides no security for their retirement, while impoverishing them in the present. In exchange for an eighth of their earnings today, it guarantees nothing but higher taxes tomorrow. That there are politicians who defend this arrangement wouldn't have surprised FDR. But how shocked he would be that they call themselves Democrats."

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