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4 Easy Ways to Decrease the Deficit: The Truth Behind Entitlements (Part 1 of 4)

By Colleen Kelly Johnston
Analysis | February 14, 2011

social-security-poster-1939-2.jpgWICHITA, Kan. - Today is the first day of the week that President Obama and the Republican House are to go at it, as my father used to say, hammer and tongs on the budget and the deficit.

Obama is proposing a budget of 3.7 trillion dollars, a budget that he claims will reduce the deficit 1.1 trillion in the next decade. Of course, Speaker of the House Boehner immediately stated that that 1.1 trillion-deficit reduction was not enough. What both of them, in fact most of our elected representatives and senators, ignore completely are the entitlement programs, Social Security and Medicare. They don't want to talk about those benefits paid for over a lifetime of work by 94.7% of the American population.

That is a simple problem to solve, depending on whether the conservatives are willing to solve it despite having to listen to the screaming and gnashing of teeth (pardon the cliché) from the bank and Wall Street executives drawing obscenely monstrous bonuses and the Kochs, et al at the very top of the income tower.

social-security-poster-1939.jpgThe solution is to charge social security taxes on every dollar anyone earns and not increase the benefits they can draw out. Currently, workers and employers each pay Social Security taxes on the first $106,800 of income -- about 83% of all wages. Anything earned over and above $106,800 escapes taxation for the entitlement programs. According to the American Academy of Actuaries, if we tax all earned income -- but don't raise payments to workers who make more than the cap -- we'll eliminate 100% of the shortfall without raising the entitlement benefit age or increasing the deductions for 94.7% of workers.

It has always angered me that my sister-in-law worked, from the moment she graduated from high school, until age 65 at a minimum wage job for the same store and the most she ever drew down was $376 in Social Security per month. On the other hand, my uncle, a founder of one of the most successful and largest law firms in the state drew down the maximum allowable Social Security benefits until his death, as did his widow, following. One of my family lived on handouts and other assistance because, although paying into Social Security all her employed life, existed below the poverty level. My aunt and uncle didn't need to draw out social security benefits; their wealth dwarfed the FDR granted benefits.

Conditions were different in the Great Depression. People, indeed whole families, were living in poverty and conditions worsened. Something had to be done; FDR and the New Deal established a program to give Americans money to survive in old age, which working people, and their employers paid for. And it was capped so that higher wage earners were limited in how much they had to pay, in deference and to avoid listening to the screams of the wealthy.

But enough is indeed enough. The cap must be eliminated and benefits not increased accordingly. The shortfall in the entitlement programs is ended.


14 Comments

Thank you Colleen, for presenting an honest example of the Social Security System. Why can't people understand that Social Security does not contribute to the National Debt. It is a self funded mandate that is absolutely cash flow neutral as far as the National General Fund is concerned. In fact the surplus, or reserve balance, has been used to pay general fund liabilities, thus relieving the need to increase income tax rates, in years past. The facts are, payroll taxes for 2010 exceeded the claims paid out in 2010. The program is funded entirely by a tax levied on the wages of those people eligible to draw the benefits.

It is true that it is a regressive tax, in the sense that it hits the lower income level people harder than it does the upper income folks. Your suggestion of removing the cap on wages subject to FICA would definetly put the Trust Fund in gear to accumulate surplus reserves. Perhaps, even, more surplus than is actuarily justified.


Thanks for a clear look at this issue, Colleen. When will people ever get it through their heads that Social Security, as you and Ken have both pointed out, is not the cause of our financial problems. I do wish younger people would get on board to save the program.


You have heard me express opposition to regressive taxes (i.e. sales tax). However, although the FICA tax is regressive, in that it takes a higher percentage of income away from those with $106,000 or less, it is (supposed to be) distributed back in proportion to how much each individual has contributed. Without question, it is a life saver for the disabled or lower income level people. The wealthy have resources that sometimes makes the SS benefits seem like pocket change.


One should never look at social security as their only source of retirement income. At best it's maybe half of what you once made.

As for me I'm in my 40's and I'll be lucky to even see it because the boomers might bankrupt the system plus they keep raising the age of eligibility. It will probably be 70 for me.


If you make everyone pay into the system, Brad, on all wages, bonuses, commissions, at every level of government, the system won't go dry. I thought I covered that.


We hear the rant about redistribution of wealth. When they use money from the SS Trust Fund to meet general fund expenditures, they have certainly redistributed from those below $106,000 income to pay for programs that benefit, even the wealthiest. This has placed a 16.3% of gross taxable income on the lower level economic class that the wealthy or higher income folks do not pay.


Colleen, I'm so glad that you are writing about this very important topic. Thank you.


This post shows a very important issue. In a time when we are worried about the deficit we have to address entitlement programs. The fact that there is a cap on the income that is taxed by Social Security is the entire problem with the system. All income should be taxed. The real concept of Social Security is that those of us fortunate enough to have large incomes should help those who don't. I'm tired of Americans assuming that poor people just didn't work hard enough. I'm tired of the sentiment that people are guilty before they are innocent. We could fund Social Security and Medicare, we just have to be willing to do so. Great post!


In 2008, the CBO projected that if Social Security, Medicare, and Medicaid go unchanged, by 2082 the tax rate for the lowest tax bracket would increase from 10% to 25%; if you’re in the 25% bracket, it would have to skyrocket to 63%; and if you’ve worked hard enough to be in the 35% bracket, are you ready for this – a jump to 88% will be necessary! As of 2006, Medicare covered 43 million people. In 2030, it’s expected to cover 79 million and devour 11% of the economy, up from 3%.

Despite dire warnings from the CBO of future economic calamity that these unsustainable programs will cause the next generation and beyond, Statists within our federal government – not only continue their pillaging rampage – but propose more of it in the form of Obama-care. So virtuous are these programs said to be that few dare ring the alarm of looming economic catastrophe that threatens to destabilize the civil society. God help us all.


Someone in the crowded hallway is shouting fire!

Whoever Jonathan is getting his projections from is fomenting a riot.

If we don't get this recession turned around and put people to work in meaningful jobs that pay a decent living, our Social Security funds will be depleted sooner than actuarial predictions suggest. How we deal with the present crisis, yes it is a crisis for many, will have repercussions for years to come. Cutting the taxes for the wealthy, cutting the benefits for the destitute, and ignoring the needs of the middle and lower income people is a blueprint that you don't want to see the finished model.


Ken: The projections that I cited came from the Congressional Budget Office (CBO).


Jonathan, I don’t know where your projections are found. Can you give us a direct connection to a CBO report? Or, are you quoting from someone’s analysis of a report?

I took the following information, out of the following report. Obviously, economic conditions have fallen drastically since most of these statistics were gathered. This is a very long and detailed report and I may have missed something. But, I didn’t find anything in this report that would indicate tax increases that you have cited.

http://www.cbo.gov/ftpdocs/89xx/doc8917/01-23-2008_BudgetOutlook.pdf

****In sum, over the past 40 years, social insurance taxes have grown as a share of federal revenues, while the shares for corporate income taxes and excise taxes have declined. In the late 1960s, social insurance taxes and corporate income taxes contributed similar amounts of receipts: each roughly 20 percent of total receipts, or about 4 per- cent of GDP. In recent years, by contrast, social insurance tax receipts have accounted for more than 30 percent of total receipts, producing at least twice as much as corpo- rate income taxes. The contribution of excise taxes has declined from about 9 percent of revenues in 1968 to less than 3 percent today.****

This site has a graph that shows a projected surplus of 249 billion in the SS Trust fund in the year 2018, if interest is received. Why shouldn’t the tax payers pay interest on the money that was borrowed from SS Trust funds?

Neither did I find any indication that CBO was making any such drastic predictions for tax increases from the following report, issued Jan. 24, 2008.

http://www.cbo.gov/ftpdocs/89xx/doc8935/01-24-Senate_Testimony.shtml

After doing searches for 2009 and 2010 CBO reports, I find predictions reflecting the continued decline in the economic health of our Nation, but I still find no evidence of such catastrophic tax increases to meet the SS benefits.

Certainly none that couldn’t be alleviated by small adjustments in FICA tax levies or raising the limit on taxable income subject to withholdings.


Sure Ken; it’s “Long Term Economic Effects of Some Alternative Budget Policies,” 5/19/2008, pgs. 8-10.

http://www.cbo.gov/ftpdocs/92xx/doc9216/05-19-LongtermBudget_Letter-to-Ryan.pdf



Jonathan, I must have missed something in the CBO report you cited. There was no mention of Social Security, Medicare, or any of the other so called entitlements. You are absolutely correct in interpreting that report indicating at the present federal spending and tax collections, we are in trouble!

Medicare, medicaid and many other assistance programs are funded, at least partially by general income taxes. However, Social Security has been self funded since its beginning and if IOUs are honored the trust fund will not be bankrupt for many years. If you do away with FICA taxes you will have no effect on general budget related to Social Security. Medicare and medicaid are serious problems that the Health Care reform bill is attempting to address. The other welfare programs aren't even a pip on the deficit bubble.

If we want more demonstrations like we are seeing in Wisconsin, Egypt, Libya, Bahrain, and many other nations where the wealthy are in control of all programs and priority spending, we need to continue cutting taxes and eliminating funding for education, transportation, drug regulation, law enforcement, environmental protection, etc. Cutting all those programs are an absolute affront to the lower middle class and disadvantaged of society.

I just saw a preview of the War Weapons sales promotion and display. We are beating the plow shares into swords and neglecting the hungry, tired, enslaved and sick. That certainly doesn't indicate we are a Christian Nation in any thing other than word. Our actions bely our devotion to a loving God.


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