The real reasons why corporate America wants to destroy Social Security and Medicare

[Better Believe It]

There’s Nothing Wrong with Social Security that Taxing the Rich Fairly Wouldn’t Fix
by Dave Lindorff
August 16, 2010

The ideologues at places like the Cato Institute and Heritage Foundation are providing the intellectual justification for destroying Social Security, but the real opposition to Social Security, though, is corporate America, as represented by groups like the Business Roundtable and the US Chamber of Commerce (it's corporate America that funds those foundations and their resident "scholars," after all). And the reason for this corporate opposition is that Social Security taxes and Medicare taxes paid by workers are both matched, dollar for dollar, by employers. If you pay 6.2% of your income in taxes to the Social Security Administration each year, so does your boss, and if the income cap is lifted for workers it will also be lifted for employers. That means a bigger tax bill for the company, and of course personally for the managers and board members.

So let's at least be honest in this coming battle over "saving" Social Security. It is nothing less than a war between bosses and workers.

The system is not in trouble because it's too generous or because it is underfunded. It has been pilfered over the years by politicians who have been unwilling to raise taxes to fund America's wars, or to fund the programs that we Americans say we want, like better roads, grants for local schools, etc. Instead of telling us what things cost, they borrow (steal) money from the Social Security Trust Fund, and then tell us Social Security is in trouble.

And now, as a day of reckoning approaches, they pretend it's all our fault. They say we want too much in benefits, or that we want to retire too early. But the truth is, we deserve decent retirement income, and we deserve to retire at 65 or even 62. In fact, if we hang onto our jobs until 70 or 72, as these hacks and the lobbyists for corporate American want us to do, it'll just be that harder for our kids to get jobs and move out of the house!

This is not about a private pension fund that's going bust. It's about a public pension program that has been raided, that has never been adequate, and that needs to be bolstered now by a tax on the rich. Nothing elaborate mind you. They just need to pay at the same rate that the rest of us do.

Read the full article at:

http://www.commondreams.org/view/2010/08/16-7

[Better Believe It]

1. How the rich pay into Social Security at a lower tax rate than the rest of us.

The writer explains how the rich don't pay into the Social Security fund at the same tax rate as the rest of us when he points out:

"At present, every worker in America pays the same percentage of income into the Social Security Trust Fund--currently 6.2% of the first $106,800 of earnings. Since everyone pays at that rate, whether they earn $10,680 a year or $106,800 a year, that would be a flat tax, except that it's not. Because once someone earns more than $106,800 in a year, the tax rate falls off precipitously. After that cap, which is adjusted upward a little bit each year to account for inflation, there is no SSI tax on additional money earned. In other words, if someone earns $106,800.00, she or he pays $6,621.60 into the Trust Fund, but if that worker earns $107,000, or $313,600 a year, the tax is still just $6,621.60. For the person earning twice the income cap of $313,600, that means an SSI tax rate of only 3.1%. For someone earning 10 times the cap, or $1.680 million, the tax rate is only 0.62%."

[hfojvt]

10. the reality is worse than that though

because most of the $1,000,000+ people are not making their money from wages. They are making their money from capital gains and dividends, and interest. Make $180,000 a year in capital gains and you pay a zero percent social security tax. According to my calculation and IRS stats, the 72,000 people who made between $2,000,000 and $5,000,000 in 2005 had average dividend and capital gains income of $833,000 and not only did they pay 0% FICA tax on that income, they also saved an average of $170,000 from the Bush tax cuts. The 11,433 people with AGI over $10,000,000 made an average of $11,300,000 in dividends and capital gains, paid 0% FICA tax on that income and saved an average of $2.26 million from the Bush tax cuts.

[lonestarnot]

13. Thank you.

[Better Believe It]

20. Lindorff explains what would happen if "unearned income" were taxed.

"Of course, if the tax were applied also and at the same rate to unearned income from investment, not only would there be no Social Security crisis ever, but instead of talking about making people work until they are 70, and about cutting benefits for retirees, we could be talking about lowering the retirement age to 62, and raising benefits, so that people could live decently in retirement instead of worrying that they might have to cut their food intake in order to pay the rent or buy required medications. People could also stop having to lose sleep at night working about the destruction of their IRA or 401(k) by the Wall Street banksters. Alternatively, the retirement age could be restored to the original 65, and the tax rate on all workers could be reduced."

[burnsei sensei]

34. The power quotient is in the government's favor.

The elites in chief bad better use it well.

[tomp]

17. just for clarity, is there a cap on benefit payments? nt

[Statistical]

24. Not directly (but indirectly yes due to the cap on taxes & taxable wages).

SS is paid on a sliding scale.

http://www.ssa.gov/pubs/10070.html

As summing you a retiring today:

The SS will do the following
1) it looks at all the years you received wages (capped at the max for that year).
2) it adjusted all of them for inflation to 2010 dollars
3) it adds up the top 35 years (all other years discarded)
4) that number is divided by 420 (monthly average for top 35 inflation adjusted years worked)

This number is the basis your SS check.

Your SS check is 90% of the first $761
32% of amount over $761 and less than or equal to $4,586
15% of the amount over $4,586

There is no maximum in the benefit calculations however since only first $106,800 in taxes benefits are only based on that.

Thus the theoretical maximum would be $106,800 / 12 = $8,900 monthly

90% * $761 = $684.90
42% * $4825 = $1224.00
15% * $4314 = $647.10
Total: $2556 a month.

So someone earning up to the cap each year would max out SS with a $2556 check each month (in 2010 dollars).
After the first year benefits are only adjusted by CPI (inflation).

If the cap went up the benefits paid would go up but the key thing is that benefit is only 15% of wages over $4314 thus 85% contributes to overall solvency of the program.

[stuart68]

39. So yes, there is a cap

Not sure why you say "not directly"

[Statistical]

64. Maybe I wasn't clear.

The cap of benefits only exists because there is a cap on taxes. If the cap on SS wages was raised then max benefits would also rise. How much would depend on how high the cap on wages is raised (or removed completely).

There is no cap on benefits. It just happens that nobody *can* (doubt they would want to) contribute more than the SS tax on $106,800 in one year. This limits the max you can "pay into the system" and that INDIRECTLY results in a max you can "pay out of the system".

This can and will change if the cap is raised or removed.

[tomp]

63. thanks for that. nice summary. nt

[glinda]

31. The wealthiest get financial breaks all over the place.

[burnsei sensei]

33. Then they'd better stop bitching and go home.

Before the rate goes up.

[lavenderdiva]

50. but do the rich take it out at the rate of 6.2%?

were they to collect SS, would the rich be able to take out at the rate of 6.2% overall, if they have not paid into it at that consistent rate for all their earnings? And, if this were true, would this also account for some of the 'shortfall' we are being told exists?

[Statistical]

65. No SS is based on a sliding scale on wages (below the cap).

The cap for 2009 is $106,800. Hypothetically someone who made $106,800 for the last 30 years and someone who made $2.5 million a year for last 30 years would pay EXACTLY the same amount in (12.4% of wages up to the cap each year).

Their benefit checks would be exactly the same amount (based on taxable wages over last 35 years), would go up by exactly the same amount each year (benefit checks only rise based on CPI = inflation).

The sliding scale is rather progressive.

The monthly check is equal to
90% of first $761 in average monthly wages
32% of the next $3825 (wages between $761 and $4586)
15% of wages above $4,586 but below the cap.

Wages above the cap are simply ignored by SS administration. It is like they didn't earn it.

So for someone making $110,000 in 2009 year SS would consider that $106,800 in wages. Same thing with someone making $10 million, or $100 million, or $1 billion. As far a SS is concerned all 4 individuals made exactly $106,800 this year.

Another little known fact is SS only uses top 35 wage years to determine benefits. So working more than 35 years doesn't directly improve your check. Of course SS uses the top 35 years so working 36+ years allows you to drop lower earning years.

[lavenderdiva]

67. thanks so much for explaining that to me

It helps me understand the system a bit better. Mr. ld turned 60 this year, and I am having to learn about this. It is very complex!

[aquart]

2. They have a short mermory for the fun past?

[HCE SuiGeneris]

3. K & R

[laughingliberal]

4. K & R nt

[amborin]

5. K&R

[Poboy]

6. What are the real reasons Obama wants to destroy Social Security and Medicare

Other than money and power, that is? What a nightmare.

[leftstreet]

7. K&R Excellent comment section there, as usual

[Norrin Radd]

8. kr

[McCamy Taylor]

9. They want to steal our money.

[glinda]

32. Yes. They see it as money that they can take and profit from or steal.

[Jenny_92808]

46. Exactly!!! Another thing that bugs me...the super rich apply for social security...

when they come of age, like McCain did. He doesn't need the money yet he chose to receive a SS check each month. Greed...plain and simple!

[glinda]

57. Everyone has a right to SS BUT the wealthy should have all of their

"freebies" and "write-offs" ended. Majority of Americans cannot donate enough nor make enough to get those breaks. So the wealthiest should have to live by the same laws as the less wealthy. Pay the same percent in taxes also.

[Cleita]

11. They don't want to destroy it completely. What they are

looking at is that 15% payroll tax that they can't get their hands on. One way to do it is to privatize both. The have already started with Medicare Advantage plans. I really think those should be stopped because they are nothing more than a drain on the Medicare trust fund as is the Prescription Drug Plan, Part D as it stands. But they also want to privatize Social Security. That money would be drained to Wall Street. There would be nothing left for traditional Social Security, but you can be sure the payroll tax or FICA would continue to be collected.

[rve300]

12. If you think that an employer pays half.....

and it does not come out of the employee's pocket in the end, then you have a very naive view of business budgeting.

[Better Believe It]

16. You mean employers would automatically give us that money in pay if they didn't pay the taxes?

I think bib business would keep that "windfall" for themselves.

And so does everyone else who isn't naive.

I have a close friend who is the CFA for a company. She says they would bonus that money out to the owners if they didn't have to pay the taxes.

[rve300]

49. Anecdotal and hypothetical

In this business climate any company would save the "windfall" to ensure future survival.
In a stable, growing economy the "windfall" would be reinvested to ensure company growth.

I would advise your friend to find a new job when able, cause those owners are not looking out for the long term.

[Better Believe It]

68. They are already sitting on nearly 2 trillion in cash and refusing to invest it or increase pay!

What makes you think they would spend such a windfall to either increase pay or investments to creat more jobs?

You suggest employers currently pass on the FICA tax to workers by reducing their pay and benefits.

So if that's the case, do you think employees should be required pay the entire amount of FICA?

[rve300]

69. All this hypothetical has derailed my point...

It doesn't matter who pays the tax. It could be paid entirely by the employer, the employee, or any % split between the two you wish to propose. The same amount of money leaves the employers bank account, arrives in the FICA account and the employees won't see it till retirement. Any and all discussion about who pays what is a shell game type distraction designed to make employees feel like they are getting something extra from their employer and they have the government to thank.

[Better Believe It]

71. I'd call that fuzzy math at best.

"It doesn't matter who pays the tax."???!!!!

Let's see how that plays out in real life, not hypothetical.

OK.

Now here are three formulas for paying the FICA tax and let's see if it matters to real working folks.

To make the math simple, we'll assume that the employee makes exactly $50,000 a year gross income in all three cases and that the total FICA tax amounts to 12.4% which is what current law requires. That's $6,200 in total FICA taxes.

Formula # 1 The current system.

Employer and employee split the tax with the worker paying $3,100 in taxes and the employer matching that.

The Tax: Employer $3,100

Worker $3,100

Formula # 2 The employer is no longer required to match the workers tax and employees are now required to pay the entire FICA tax.
But, that's OK because it doesn't really matter .... right?

Employer $ 0

Worker $6,200

Oh .... Oh .... I think it matters!

Formula # 3 The employer is required to pay the entire FICA tax.

Employer $6,200

Worker $ 0

Guess which formula I and every other working person who understands basic math would prefer?

If you "guessed" Formula # 3 you win the grand prize for intelligence!

If you picked Formula #2 or think it doesn't matter who pays the FICA tax, workers or employers, you need help .... professional help!

Now you've just been joking .... right?

:)

[rve300]

72. Please pull out a calculator, your basic understanding of math...

and tell me how the author can multiply $50 grand by 12.4% and get $6,400!!!!

All 3 formulas equal the same number of $6,200!!!

I would love to see the link to this article, No joke!!

[Better Believe It]

73. So it doesn't matter if employers kick in to Social Security or if we pay it all.

And the Sun sets in the East.

[rve300]

74. If you want to call me out about fuzzy math

you better do your own math and not copy faulty work.
Again I would love to see the link to the quoted article.

As I said before it's a shell game they play on you.
You have watched it for so long you will believe in bad math and fake formulas just to validate your feelings.

[Better Believe It]

75. I wrote that and you have so far failed to refute the facts presented.

I did notice a small typo. Do you think after that correction that the math is wrong?

[rve300]

76. Quit harping on about a hypothetical change in the law...

It's a class envy distraction that you seem unwilling or unable to get past.

I am done with a back and forth with someone who will edit their argument after the fact and claim they were right all along.

[bertman]

22. "If you think that an employer pays half.....

and it does not come out of the employee's pocket in the end, then you have a very naive view of business budgeting."

That is a gross simplification. FICA has been mandated for decades. Business owners have this built in to their business model and do not have the luxury of paying 6% lower wages just to recoup the cost of FICA. At least if they value getting and keeping quality employees.

FICA is part of the operating cost of doing business. As such it is part of the expenses that every company has to pay just to be legal and stay afloat. You are insinuating that business owners make those matching payments by taking them out of the workers' paychecks and thus they are part of the wage structure.

Wages are based on the prevailing rate of pay for jobs of a particular type at a given time in a given location. They are just one of many expenses that have to be paid for, such as operating and maintaining a physical facility/office, providing support staff, paying for benefits, providing workers' compensation coverage, advertising budget, phone and internet costs, vehicular expenses, safety training and equipment, paying local and state taxes, and many other costs depending upon the type of business.

Would business owners take the windfall of 6% of wages as bonuses if the chance arose. Certainly some of them would. Others might view it as a way to make their bids more competitive and thus to have more business. Some might even offer to enhance their employees' benefits package.

[rve300]

54. Yes it's a gross simplification....

but you made my point.

I agree, It is built into every business model, large or small. Each employee cost x number of dollars. If hypothetically all of a sudden the burden of the FICA is shifted entirely to the employees then I need to pay them more to keep them happy and productive. I do not believe ina real world scenario where a business does not pass that windfall along. Passing it along creates a huge positive public relations windfall that cost them nothing. Keeping it themselves creates the exact opposite and starts the internal destruction of your own company.

[Mojorabbit]

38. We have a very small business

and it is just part of the landscape. It is not taken out of the employees pocket.

[rve300]

51. So you are that hypothetical evil small business owner...

and would keep that money for yourself if the law was changed to make the employee pay the entire tax.

You should know more than most that it is a stupid shell game. The SS tax effects how much you pay and how many employees you hire more than your personal bank account.

[Mojorabbit]

55. We have always paid the tax

and think of it as just part of the cost of having a business. We only have three employees( I said it was a very small business). It would hurt us pretty bad if we the ceiling were lifted but we would still consider it a cost of owning a business along with all the other taxes and fees we pay for doing so. We pay the going rate plus some to stay competitive and keep our employees. What other offices are paying and keeping our employees happy being with us has more to do with what we pay than the SS tax.

[rve300]

56. That is my point

You must pay pretty well if the cap would hurt you pretty bad with only 3 employees. Yes the tax is a cost of doing business, but it is a cost that is ultimately budgeted as employee expenses along with gross pay and other benefits. You don't consider the 6.5% coming out of your pocket.

I imagine if it hurt you bad enough you would pay employees less rather than shut down your business.

[Mojorabbit]

58. What we have always done

is find a balance and usually it ends up being less income for us. As I said, we want to keep our long time employees, we pay the going rate in the community and then add to that to make sure they are happy and stay. It is less stress all around when the same people are there for years and everything runs well.

[rve300]

60. I get it now....

You are the mythical small business owner that has human feelings AND a head for business. According to most DUer's you do not exist. Between you and me you can tell me the truth. You must be rich, exploit your workers and pay them nothing cause that is how business works.

[sofa king]

14. Which means lifting the cap would be an excellent way to reign in executive salaries.

Because if an employer had to match 6.2% of $600000 a year plus $600000 in stock options, then sociopathic CEOs would have a higher incentive to fire off executives first, rather than lower-level employees.

Of course, I'm a big supporter of Smedley Butler's proposal, which is to cap the pay of defense-related executives to that of a buck-ass private for the duration of any war. Where would KBR be today if its executives were forced by the fact of war to make only $1400 a month and have all the rest of their earnings going to fund their damn fool war?

[cascadiance]

37. The current system gives them better excuses to do layoffs of lower paid workers...

where they get "more bang for their buck" in terms of reducing costs, since the payroll tax for everyone $100k is the same. If we had the cap lifted, then the costs "saved" over all of the employee obligations would be proportionately a lot less.

The current system gives them the "excuse" to focus layoffs on the middle class and they want to keep it that way!

[gtar100]

42. Is there no place in our economy where the incentives are for the right thing?

Everywhere we look it seems like sociopathic behavior is the only thing that is rewarded. I just hate this. Everything that *is* good is under attack while greed and selfishness are the only things that keep on rolling on unabaited.

Let's put faces and names to all this crappy behavior that is destroying our culture and our lives!!!

[Jenny_92808]

47. Excellent Post!

Well said. It is time that changes should be made so that the middle class are not harmed for the greed of the well off and rich.

[Spheric]

15. And the ugly truth they continue to ignore is that businesses are not...

going to keep workers on their payroll until the age of seventy or seventy-two. It ain't gonna happen. Period. It's already nearly impossible for workers in their mid-to-late fifties and early sixties to find other employment when they get laid off. And, the job market is continuing to shrink.

"Catfood Commission" is the most appropriate nickname I've seen in my lifetime.

[Better Believe It]

21. Many will die before they collect any benefits and others will just be flat out fired..

The streets will become a dumping ground for millions of people who are too old or frail to work and are not eligible for full social security benefits.

[xxqqqzme]

23. I was unemployable at 47

because I was making 'too much' money to be hired w/ a disability.

[Auggie]

18. K&R

[blindpig]

19. Capitalism

in a nutshell.

It's a big pot of potential profits just sitting there, they need it as their bubbles have all burst, a new milch cow is required.

[Enthusiast]

25. K&R

This is a test.

This is a test for middle and lower income Americans. If we allow this to happen, a reduction in benefits, privatization or an increase in the retirement age - we fail the test. We fail because it means we have bought into their lies about social security and any shortfall that they say exists.

If any such shortfall exists it is the result of abuses by those very advocates of privatization. Abuses in the form of unnecessary wars and tax cuts, both of which were only beneficial to the very wealthy.

Do not allow this to happen.

[truedelphi]

26. Proud to offer up a K & R. Great topic. n/t

[Faryn Balyncd]

27. K&R . . . . . Take the Pledge - - :

http://www.democraticunderground.com/discuss/duboard.php?az=view_all&address=389x8961203





:hi:





:kick:

[earth mom]

28. Social Security is NOT broken! K & R!

:kick:

[me b zola]

29. K&R

[unpossibles]

30. not to mention they'd probably like a cut of selling us our privatized retirement

or having us work for nothing until we die.

[closeupready]

35. K&R

n/t

[BrklynLiberal]

36. Why does this seem so very, very obvious to us...and yet there are those who will not,

cannot, or are just too stupid to see it. Of course, they are mostly led/manipulated by those who simply lie to cover the asses of those who pay them to lie to cover their asses.

[livingonearth]

41. That's a good question.

A lot of people have been brainwashed to believe Social Security is an entitlement. It is not, of course; it has been paid for by those who use it. I think this is one of the myths that keep the sheeple from seeing what is real.

[stuart68]

40. It was a gov't ponzi scheme all along

You cannot underfund a program that was intended to support people the "rest of their life", extend it to new use cases and extend the life expectancy without calling it what it is. Beyond that, the gov't returns at best 2.5% when treasuries average something like 5%.

[ozymandius]

44. Please review these numbers.

You need this information before basing your claims.

at the close of trading on 8/17/2010:
6 mo Treasury 0.19
2 yr Treasury 0.50
5 yr Treasury 1.43
10 yr Treasury 2.64
30 yr Treasury 3.77

Social Security is structured so that payroll deduction supports recipients. Proceeds are not accumulated for disbursement at a later date. The deduction on my paycheck is immediately paid to my retired mother. Any amount not paid (surplus) to current recipients is applied to the surplus account. Our government has borrowed money from that account to cover expenditures. The government offers treasury notes as collateral for these loans.

[stuart68]

61. Those numbers mean nothing

You can take any point in time and make what ever conclusion you want. Over time, the gov't does a lousy job with the money. Fed employees are allowed tominvest a portion of their retirement, and we should be allowed to as well.

As for you paying your mother, that is incorrect. Taxes started in 1937, and payments started in 1940, so you might be paying your mom, but three years from now. The mix ix off and it takes more and more people paying in to make the payouts, hence the ponzi definition.

[ozymandius]

70. That is really interesting.

The original point is that you quoted a T-note yield at ("something like") 5%. The data I supplied indicates the market yield at close for the day. So it really does mean something germane to your position. It sounds like you would prefer that Social Security did not exist at all. So how would you propose to change it to be self-sustaining?

[stuart68]

77. wow - that's a big leap

from T-bill rates to wanting to kill SS. Not sure how you got there, but whatever.

The numbers are irrelevant as I can pick a day when T-bills closed at 8%. So what. It is the historical average, adn the poin that the government refuses to pay one creditor (the folks paying in to SS) wha they pay another creditor (the older of a T-Bill). Over history, they average 5% and SS averages 2.5%.

[ozymandius]

78. You still did not answer the question.

You call Social Security a ponzi scheme - repeatedly. You say that it is designed to fail despite forced participation. You have declared that raising the cap on contributions is a non-starter toward solvency because payouts would increase as a result. So what is your solution? Do you even want a solution to this, as you say, ponzi scheme?

[stuart68]

80. I'm certain there is a solution

Just not sure the politicians have the cookies to do what they need to do. I assert it is a ponzi scheme, as it was originally intended to carry people the rest of their life thru retirement, but the math was based on the fact the average person died 3 years before they were allowed to collect. Now the average person dies 10 years after they start collecting, as well as more collect with no fundamental change to funding.

First, stop lying to kids. If it is solvent to 2030, people who are 30 and over and paying in have a problem.

I think certain people are capped or excluded. To person pulling in $1M at retirement age, 25k per year is a joke.

Manage and invest better to grow it quicker.

Allow people to invest a portion and win or lose based on their investment.

When gov't takes out, it should pay back with interest, kind of like how you can borrow from your own 401k. That would encourage good behavior.

...just a start, but a couple ideas.

[Better Believe It]

52. The Social Security Trust Fund now as a surplus of about 2.5 trillion in gov't bonds.

Hell of a ponzi scheme!

It really isn't.

It's worked for 75 years without any problems and will work for another 75 years with a minor adjustment .... end the cap on taxable income.

[stuart68]

62. A ponzi scheme is a ponzi scheme

When it started, the retirement age was 65 and life expectancy was 62. In addition, not everyone was covered. Now, the coverage has expanded, life expectancy well exceeds retirement and more people are covered than pay in (according tot the original plan).

If you eliminate the payroll cap, you pay out more (or are you suggesting that not happen).

Ponzi schemes all run pretty well for some time before they crash and burn, and 75 years is not long with forced participation of enough people.

[Better Believe It]

81. It's fully financed and therefore not a Ponzi scheme.

It will remain fully financed unless Wall Street, Corporate American and their political whores in Congress get their hands on it.

[stuart68]

82. No, it is only solvent until 2039

Meaning it is not fully financed if it cannot continue to pay in perpetuity.

[Better Believe It]

83. Only until 2039??!!! And if the cap is lifted it's "only" solvent for another century .... or more!

[stuart68]

85. If you say so.

[Better Believe It]

84. Only until 2039??!!! And if the cap is lifted it's "only" solvent for another century .... or more!

[jtuck004]

79. The interest rates can be seen here

Anyone wanting to check that interest claim can go back several years and see the interest rates on
investments of OASI and DI, or both.

The interest rates have been mirroring treasuries...Database here...

[defendandprotect]

43. Great post ... we need one of these every day!!

[WillYourVoteBCounted]

45. exactly

hear hear!

[LatteLibertine]

48. Yes it's

more money they want to seize to gamble with.

[Overseas]

53. K&R, Great article. //nt

[aquafina]

59. ...don't you understand

The exploitation of labor is the main reason for profit in a capitalistic society.

We absolutely have to be profited off of.

[deutsey]

66. They want to return to the good ol' days of the Gilded Age, imo

In my most cynical moments, I believe some corporatists may even be nostalgic for Medieval feudalism.