FICA is a tax. “tax: (noun) a compulsory contribution to state revenue, levied by the government”
It is a tax, coupled with a welfare benefit that is loosely coupled to the amount of tax you paid.
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The more you pay in, the more in retirement benefits you receive.
Up to a limit of 35 years of payment at the maximum rate. After 35 years of maximum payment rate, there is no increase in benefits. Also, if you work longer than 35 years, only the top 35 years are considered. So, not quite correct that the more you pay, the more you receive.
Craig, who is quite happy with the SS retirement benefits.
“Social Security withholdings are not a tax. They are payments under FICA, the Federal Insurance Contribution Act. They are a combination of a retirement pension system and disability/survivors’ insurance. The more you pay in, the more in retirement benefits you receive.”
FICA withholding are considered and referred to as a tax by everyone including the IRS. The reason I refer to it as regressive is that there is an income cut-off at which point it is no longer paid. The most regressive taxation we have in my view.
“Taxes under the Federal Insurance Contributions Act (FICA) are composed of the old-age, survivors, and disability insurance taxes, also known as social security taxes, and the hospital insurance tax, also known as Medicare taxes. Different rates apply for these taxes.”
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FICA is a tax. “tax: (noun) a compulsory contribution to state revenue, levied by the government”
Except that Social Security is not state revenue. It’s money that goes in to a trust fund for benefit recipients. That’s why those who want to dismantle it keep trying to convince us that it’s going to go bankrupt any day now.
Elan
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It’s money that goes in to a trust fund
There ain’t no trust fund. Current contributors pay current recipients in this Ponzi scheme.
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The reason I refer to it as regressive is that there is an income cut-off at which point it is no longer paid. The most regressive taxation we have in my view.
Not everything that isn’t progressive is regressive. FICA is pretty close to a flat tax scheme. Yes, there’s a cutoff, but there’s a corresponding cutoff in benefits, so it remains flat overall. And if you consider the taxation of benefits where up to 85% of the benefits can be taxed as regular income, when your income is high enough, then the overall scheme is somewhat progressive.
Elan
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There ain’t no trust fund. Current contributors pay current recipients in this Ponzi scheme.
That is a lie.
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There ain’t no trust fund. Current contributors pay current recipients in this Ponzi scheme.
…
That is a lie.
No need for disagreements. As I understand it, both views are valid.
Correct me if I’m wrong:
There is a fund, but it won’t cover liabilities at some point. There is no plausible math that would make it work merely by raising contribution rates.
So yes it’s a real fund with real assets. But it isn’t actually expected to cover the payments that are coming.
So it’s more of a smoothing buffer for something that is ultimately just an entitlement backed by general revenue.
It would run into unimaginable losses without a constant stream of new payers, but fortunately there is such a stream.
So it isn’t the same as a Ponzi scheme, but let’s say it’s not the absolute opposite of a Ponzi scheme.
More of a perpetual motion machine that actually works not badly so long as the overall population of workers doesn’t fall a whole lot, which isn’t a wholly unreasonable stance.
And assuming the buffer fund is kept at a sufficient level based on sloshing of the population pyramid, which seems to be not quite the case.
If I recall correctly, the Canadian scheme was 100% unfunded until not many years ago. 25??
They saw the dependency ratio writing on the wall, bumped the contribution rates quite a lot overnight, and started building their own fund.
I think it has grown rapidly, but it will soon turn around and start falling.
Jim
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So it isn’t the same as a Ponzi scheme, but let’s say it’s not the absolute opposite of a Ponzi scheme.
It’s a Ponzi scheme in the same sense that every insurance company on earth is a Ponzi scheme.
Yes, there are demographic issues. That’s what happens when eighty years ago no one anticipated that due to the miracles of modern medicine life expectancy would rise by 20 years, and at the same time birth rates would be cut in half. Which is ultimately all good for the sake of the planet. Worldwide population will probably start declining in the next twenty years, and I have yet to see a country or a serious economist with the courage to deal with that elephant in the room. It’s not just a problem for Social Security. It’s a problem for every economic model that relies on infinite growth as the basis for economic prosperity.
Elan
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As I understand it, both views are valid.
Correct me if I’m wrong:
So yes it’s a real fund with real assets.
No, the “assets” in the “fund” are US Treasury notes.
It’s like you lending money to your wife and counting that note as an asset.
Considered as an individual, that is correct.
But when viewed as a married couple, it’s an illusion.
One agency of the government lending money to another agency of the government is just pretend.
It’s like writing a note to yourself and counting that note as a 100% gold asset, because you have never defaulted on a note.
Here:
"Social Security is largely a “pay as you go” program, meaning today’s benefits are funded primarily by the payroll taxes collected from today’s workers. For over three decades, however, Social Security collected more in payroll taxes and other income than it paid in benefits...
Beginning in 2021, the paid out benefits are larger than the SS ta collected."
VERY off topic for this board, and Elan is never going to change his tune, so let’s drop it.
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No, the “assets” in the “fund” are US Treasury notes.
Would you rather the assets be Argentinian government bonds, or maybe bonds issued by Czar Nikolai II?
It’s like you lending money to your wife and counting that note as an asset.
Considered as an individual, that is correct.
But when viewed as a married couple, it’s an illusion.
It’s more like American workers lending to the trust fund (the “husband”) and the U.S. Treasury (the “wife”) cosigning the loan. I can’t imagine a more secure arrangement.
Elan
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No, the “assets” in the “fund” are US Treasury notes.
I ask that everyone who thinks that US Treasury notes aren’t really assets will please transfer to me any of them that they may possess. Please email me for details. Gracias.
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. Elan is never going to change his tune, so let’s drop it.
Why could one not say the same thing about Rayvt?
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US Social Security is not a Ponzi scheme because there is no fraud. There are annual reports with full details for anyone interested. The trust fund might be depleted in 2035, and then benefits might get a 25% haircut. Or Congress might act. No different than every other government and corporate program. There are no guarantees. But there are plenty of solutions: higher GDP growth, increased immigration, lower benefits (25% lower), higher taxes (33% higher).
The “75-year actuarial deficit” is 1.2% of GDP, and so the US can easily cover the current level of benefits if it wants to. Income and outgo are now both about $1.1 trillion. Trust fund reserves are now about $2.9 trillion.
— links —
“A Ponzi scheme is a fraudulent investing scam”
https://www.investopedia.com/terms/p/ponzischeme.asp
2022 report: year of OASDI trust fund depletion is 2035
Year of peak trust fund reserves: 2022
https://www.ssa.gov/policy/trust-funds-summary.html
2015 report: year of OASDI trust fund depletion is 2034
Year of peak trust fund reserves: 2019
https://web.archive.org/web/20150929145949/https://www.ssa.g…
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