by Rod Williams, March 22, 2025 - It is frustrating the ignorance of some people. It seems a couple a times a week I get some Facebook meme regarding Social Security. One goes like this: "Social Security is not an entitlement." That is funny; they argue they are entitled to it, but it is not an entitlement.
Another says something like, "the government should pay back all the money they robbed from Social Security." It is simply untrue that the government robbed social security. Social Security has in its trust fund some government IOU's. That is like saying if you have some treasury bonds in your 401K, somehow the government robbed you.
Another asserts that, "the money I paid into Social Security is my money, not the governments." No, not true. When it is paid to the government, it is no longer your money. If it was your money, when you die you could leave it to your kids. If it was your money you could choose to cash out and take a lump sum distribution. If it was your money you could borrow against it.
Many people seem to think that the money they paid in all of their lives is somehow sitting in account with their name on it. The money you paid in and the money your employer paid in on your behave immediately went to a current recipient. If you are drawing Social Security, the money you receive is the money being paid in by a current taxpayer. There is a trust fund created when more money was coming in than going out. However, as the population ages and people have fewer children, more money is paid out than comes in. The trust fund is projected to be depleted in 2034 and lead to a 23 percent reduction in benefits in 2035 unless something is done. This is an unpleasant fact people don't want to believe.
Both parties have pledged not to touch social security. However, I don't think either party will allow for a 23% reduction in benefits. There are not good solutions for making it whole. We cannot simply fund it from general revenues. We don't have the money, and we already have a serious debt problem facing the nation. We could borrow from the Federal Reserve, also called monetizing the debt or printing money, but that leads to greater inflation. I know the liberal solution is to tax the rich and make them pay their "fair share." Not that we cannot tinker with the tax code and tax rates, but increasing corporate tax rates significantly, may actually decrease revenue as it slows economic growth.
There are things we can do: (1) increase the SS tax rate from the current 6.2%, (2) raise the retirement age from the current full retirement age of 67, (3) increase the cap on the amount of income subject to taxation from the current $174,900, (4) reduce benefits. Or, we could do a little of each of these. Probably we will do a combination of all of these things but the longer we wait to do it, the more of each we will have to do. The longer we wait the more painful it will be. Unfortunately, the Trump administration is planning on making things worse by removing the tax on tips, overtime, and Social Security.
In the long run, I think Social Security should be changed into a retirement plan structured much like that enjoyed by Federal employees. The money in the plan should be yours, much like an IRA. If that is too radical, then we should make it a fully funded pension plan with enough assets on hand to satisfy all obligations to current and future retirees. That cannot be done overnight, but that should be the goal.
One thing we should do it drop the fiction that Social Security is a pension plan. It is a transfer payment. It is essentially welfare. We should admit that and make it means-tested. Warren Buffett does not need to be drawing Social Security.
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