In some online discussions, some youngsters raise the idea of making Social Security voluntary or perhaps privatizing it. And this illustrates how Social Security is viewed by different age groups. Your opinion about Social Security will change as you age. Young people think it is the biggest con-job in the world. Middle-aged people grouse about the cost and worry whether it will be there for them. Old people say, "Don't touch my Social Security!"
His situation illustrates what would happen to a lot of irresponsible people in this country (which is most people in this country) if they were given a choice about paying into the system. They would chose not to contribute and then later on be a burden to us all - collecting Social Security SSI (sort of welfare for the elderly) which is paid for by general taxes.
We, as a society, are not going to let Wendell starve, so we have to pay to support him. And note, Libertarians, I said, "as a society" - Libertarian nightmares are not "a society" but anarchy. Letting people starve to death is not an option on the table.
Suzie is a multi-millionaire "trust fund" baby. Although she has held many jobs, she doesn't have to work and after she got married, both she and her husband quit their jobs. Suzie doesn't collect benefits. Suzie doesn't need the benefits. Suzie never paid into the system.
So why are the Suzies of the world the first ones to want to abolish Social Security? After all, their dividend and capital gains income from their inheritance was never taxed for Social Security. They are not losing a penny in this deal. But for some reason, the very rich - the Mitt Romneys of the world, who pay no Social Security Taxes are the first to want to abolish the program!
So the Examples of David and Wendell illustrate that it is possible (although not entirely legal) to opt out of Social Security by working under the table or declaring your income as "dividends" or whatnot. The problem with this strategy, is in both cases I am aware of, both people deeply regret doing this and moreover failed to put that missing money into savings - but rather spent it.
Why is Social Security so desirable for the elderly? Well, one problem about getting old is not knowing how long you will live. And thus, worrying about running out of money is a big concern. In the past, many folks had pensions. Today, we have IRAs and 401(k) plans. And we have Social Security as a backstop to this. It is our safety net, and we don't - or shouldn't - have to worry about it "running out" of money.
So how do we "fix" Social Security? Well, again, there are two - and only two - ways. As I have noted before there is no Al Gore Lockbox, or some Newt Gingrinch Privitization Fantasy. You can either put more money into the program or take less money out.
Putting more money in either means raising the social security tax rates, which would be unpopular. Of course, President Obama lowered them from the 9% we were paying, and this temporary tax break should be allowed to expire.
The other way is to raise the cutoff. Social Security taxes are not levied on any income above a certain level (about $117,000 right now) and thus are a regressive tax. Raising this cutoff level to say, $150,000 will easily fund the program for decades to come. Eliminating the cap entirely would fund it forever, and allow the actual rate to be reduced.
Guess who is against raising or eliminating the cap? You guessed it - people making more than $117,000 a year. But due to inflation alone, this cap needs to be raised, and has been raised in the past - and it should be tied to inflation so that it doesn't need to be continually raised and adjusted again and again. And folks who earn a lot of money - like Doctors and Lawyers, would like to see the cap stay low. Earned (wage) income is taxed for Social Security.
But the Suzies of the world are a different story. Unearned income (what we call dividends and capital gains) are not taxed for Social Security. Raising the cutoff, raising the retirement age - anything at all relating to Social Security - affects them not one iota. They don't pay in - they don't take out. Yet theirs are some of the loudest voices in the "let's abolish (or privatize) Social Security" debate. And maybe you should think twice about taking the opinions of someone who has no interest in the game, other than to see all that money diverted to the stock market where they could play with it.
A second option - and one that already has been employed - is to raise the retirement age. It used to be 65. Now it is 67. Some are calling for it to be 70. The "early" retirement age is presently 62, which seems very young to some folks. Since people live longer, you often end up collecting more if you collect early - but then again, if you live with the monthly payment mindset, this can backfire.
At present, if you delay taking benefits, you end up collecting more - up until age 70. And if we raise the standard retirement age to 70, then obviously we would have to raise the delayed benefit age to 73 or 75 - or eliminate it. However, encouraging Seniors to delay accepting benefits may profit Uncle Sam, so maybe we should encourage this sort of thing.
So what will happen to Social Security? The GOP will make lots of threatening noises - which will likely cost them the 2016 election - and the cap will be raised and the retirement age will be raised and that will be the end of it - until a few years down the road, when some political party will decide that it is a slow news day and that beating up immigrants isn't getting enough attention, so why not say Social Security is in "crises" again?
A crises that has existed for nearly a Century. We call that the status quo, not a crises...