By John Lawrence / Will Blog For Food / July 31, 2011
Republicans want to “reform” social security. They say social security is broke. Not so.
There’s $2.5 trillion in the Social Security Trust Fund (SSTF).
The way the funding for social security works is this. Workers pay a payroll tax otherwise known as a FICA tax. The rate is 7.65% of gross earnings up to $106,000 for employees. Employers pay a similar amount. Any money earned above $106,000 is not subject to the FICA tax. 6.2% goes to social security and 1.45% goes to Medicare. In 2011 the rate was temporarily lowered to 5.65% for employees to spur the economy.
If you’re self-employed, you pay both the employee’s and the employer’s shares which amounts to 15.3% of your gross earnings which is more than what a hedge fund manager pays. They pay the capital gains rate of 15%. There are no deductions or exemptions for the FICA tax. So no matter how poor you are, there’s no escaping paying 7.65% if you’re other-employed or 15.3% if you’re self-employed. Even if your income is so meager that you pay no income tax at all, you still pay FICA tax.
In 1983 and 1984 President Ronald Reagan conspired with Alan Greenspan to raise the FICA tax and reduce benefits ostensibly to protect the long term security of social security. They made social security benefits taxable income for one thing. This resulted in more money coming in in FICA taxes than was being paid out to social security recipients.
Reagan and Greenspan took the balance of the money, after social security recipients were paid, and put it in the General Fund along with income tax receipts. They then put a similar amount in the form of a non-marketable, “special” Treasury bond in the SSTF. The ostensible rationale was that, when payouts exceeded FICA receipts at some later date, the SSTF would simply cash in those Treasury bonds as any investor would and use the money to make up the difference between FICA receipts and payouts to recipients.
These “special” Treasuries supposedly had the “full faith and credit” of the United States Government. Only in reality they didn’t. The reality is that Reagan raised taxes on the poor so that he didn’t have to raise progressive income taxes on the rich. There is no $106,000. limit on income taxes. You pay income taxes on the full amount of your income not just the first $106,000. of it.
For the remainder of this article, please go here.
- Social Security, Part 1 – Speaking Truth to Fear
- Go “Gang of Seventy” -They Support the People’s Budget But the Establishment Doesn’t