Response to Thom Hartmann re Social Security

I like Thom Hartmann's show. I think he calls a lot of hypocrites on their hypocrisy, which is always entertaining.

I was dismayed a few days ago to hear him state that (and I'm paraphrasing here) the big problem with Social Security that no one is talking about is that it could be fixed, forever, by simply removing the ceiling on income for paying into the system. As it stands now, once a person has earned approximately $106,000 in a year, they are done contributing to Social Security. No more money is withheld or owed to Uncle Sam. For every dollar earned beyond $106,000 (approximately), one gets a 13% bonus. However, if everyone paid that 13% on EVERY dollar of income, all Social Security benefit payments could double right now and the system would be completely solvent forever.

There are at least two problems with Thom's commentary.

First, Thom spoke of people earning beyond the ceiling as "receiving a bonus" of 13%. This is double-speak worthy of a DC insider. Yes, to those of lesser incomes who never actually see that 13% because it's withheld by their employer and sent directly to the State and Federal Governments, it might appear that wealthier people are getting some kind of bonus. However, this would be lazy or defeatist thinking. Every dollar that is kept from you by your government is a dollar kept from you by your government. It may be for the greater good. It may be a deduction with which you agree and desire be taken. But it is certainly no bonus to you simply because the government stops taking it away.

Second, Thom suggests treating Social Security as if it is just another tax.

Once and for all we must decide if Social Security is an insurance plan, albeit forced upon the public, or just another tax. I think there can be no doubt that the vast majority of the public would say that it should be a separate program, kept in a "lockbox" (remember that?), to make sure it is there when they (i.e. you) need it. The money collected should not be co-mingled with the general budget, subject to the whims of whatever spendthrift politicians are in office this week. That money should be kept secure and invested only in the safest places, and in such a way as to keep up with the cost of living. In other words, an insurance-like program. For better or worse, this seems to be what the public wants.

One characteristic of insurance is that one's premiums payments usually bear some direct relationship to the expected or potential benefit one is to receive from the insurance if and/or when it pays out. However, Thom's suggestion would result in some very rich folks paying in massive amounts of money now that would bear no relationship to any benefit they might receive in the future.

Just to keep the math easy, these will all be in today's dollars and no adjustments are made for cost of living or the change in the value of money over time. Let's assume a rich, privileged person aged 21 earns 106,000 per year every year until they retire at age 66. They will receive the maximum payout possible of $2,345/month. Since they have received only the best healthcare since birth, let's assume they live to be 100 years old. 34 years X $2,346 X12 = $957,168 total in benefits would be received, just shy of one million dollars. Note that this is only $28,152 per year - not bad if your house is paid off, yours kids are all done with school and are working, and your only expenses are food, utilities, and transportation, occasional car repair, a once-per-year trip someplace exotic....well, perhaps a trip to Branson, MO, instead.

How much did they (including the employer's contributions) pay in to receive this nearly one million dollars? 13% of earnings comes to $620,100 from age 21 to 66 (obviously the system has to have some kind of interest earning capacity in it to be able to pay out more than it takes in).

What about those who earn a million dollars per year? The figure balloons to $5,850,000 paid in from age 21 to 66. Yet in our example, using the current maximum benefit of $2,346, this person also would receive a total of $957,168 if they live to 100, only about 16% of what they paid in. Even if benefits payments doubled, as suggested by Thom, this person would still receive less than one-third of what they actually paid in.

About 350,000 households filed tax returns indicating an adjusted gross income of 1,000,000 or more. I'm not going to do all the math, figure about how many of these households have 1 or 2 income earners, etc.... Use your imagination.

But if you assume every one of these households had only one person paying in to Social Security, and even if you assume that EVERY one of these households has two persons each of whom will collect DOUBLE the maximum benefit (which is not actually possible under current law), the most any of these household would every recoup from Social Security is a bit less than 2/3rds of what they paid in. Again, this is also assuming the one income earner paid in from age 21 to 66 at the maximum rate, and this also assumes both members of these tw0-person households live to be 100 years old.

It's not a very good insurance plan for them, is it?

Do an awful lot of rich folks get away with paying an awfully small percentage of their income in taxes? Are many of the very richest persons in the county lapping up government handouts at the public money trough, getting even richer in the process? Yes. But I don't believe compounding this bizarre inequity in our system with another bizarre one is the way to solve our financial problems as a country.

Get government handouts to the richest folks under control. Stop insane spending on building more nuclear weapons (we still do have enough). Stop buying military hardware that the military leaders themselves have begged us to stop sending them. Stop handing out truckloads of the People's money to big banks that did some really stupid things with the last few truckloads of money they had.

Stop electing and re-electing politicians who are bought and paid for by banking and military industrial complex interests. Start paying attention to what your representatives are doing with your money.

Start calling things by their real names. Get suspicious every time you hear a new name or word for something related to finance; new labels usually are just a way to sell you they same old stuff you didn't like, or that didn't work, last time.

If you want to increase taxes on, or take away government handouts to, the richest Americans to help fund a social program for those less fortunate, then call it what it really is and let's have an up-or-down vote on it. But don't lie and call it the taking away of an undeserved bonus, Thom. That's so beneath you.