Yes, It's an "Entitlement"
Somehow over the years the word "entitlement" has gained a bad connotation. Many people think it means "welfare" and they think "welfare" is equivalent to people getting free handouts. However, in government parlance the term "entitlement" describes any program where the beneficiaries have to receive the benefits that they qualify for. If you meet the conditions for receiving Social Security payments, you are entitled to that monthly check. It's true that there are some government programs that pay benefits without requiring previously earning a paycheck and "paying into it", but entitlements also cover such things as farm subsidies and military pensions.
No, You Didn't "Pay Into It"
Yes, you did pay taxes that were earmarked for the Social Security program. However, these funds were not held in trust for you to be paid out when you retired, any more than your auto or medical insurance is. There is not a dedicated bank account, or even an accounting line that adds up your money, money that is yours. If you are working, your FICA deductions are paying for current retirees; when you retire, your checks will be backed by the FICA deductions of those future workers. Granted, the amount of lifetime earnings partially determines what you Social Security benefit will be, but if you die before recouping everything you paid in FICA taxes, you can't determine in your will that your benefits checks will go to someone you designate, like you can with ordinary assets.
No, The Government Hasn't "Raided" the Social Security Trust Fund
This myth is often used to "explain" why Social Security will allegedly run out of money. The Social Security Trust Fund is not a government bank account with all the money collected from workers over the years and held until they retire. Every year until very recently the amount collected in FICA taxes has exceeded the amount paid out in benefits. The Social Security Administration is required by law to convert this surplus into US Treasury bills that earn interest. The annual interest is then paid from the overall budget into the Social Security Administration. The Social Security Trust currently has close to 3 trillion dollars in assets, most of those assets are in US Treasury bills.
No, We're Not Going to Run Out of Money To Pay Benefits
Even though benefits paid now exceed FICA taxes collected, the difference is currently being made up by interest being paid on the Treasury bills from the general fund. Eventually, the Treasury bills themselves will be redeemed and there will be no more interest paid, some time after that the assets in reserve in the Trust Fund will be depleted. It's at that point that some action will need to be taken, but not because Social Security is bankrupt. There will still be an income stream from FICA taxes on those future workers. It is estimated if no action is taken benefits will need to be reduced to approximately 80% of current levels. In order to keep benefits at current levels Congress will either need to statutorily decrease benefits, raise the retirement age again, increase FICA taxes, or pump money into the program from the general fund.
Is the Social Security Trust Fund Truly Separate From the Rest of the Budget?
Yes and no. By law, Congress cannot use a surplus in Social Security to pay for additional spending or a tax cut. Even though the Trust Fund contains what amounts to IOUs and not cash, Congress cannot simply "raid" it. On the other hand, since by buying Treasury bills, cash is freed up for the overall budget. Most of the annual budget deficit is funded by taking on debt. By taking on debt to itself, this reduces the amount of borrowing that Congress has to do to fund the government each year. This also makes the budget deficit appear to be lower than it actually is.
This isn't the whole story, but are some bite-sized morsels to help you understand how the system works and ignore the misleading information.
No comments:
Post a Comment