Eviscerating Social Security
[Reply to a friend:]
You're right that Social Security acts like an insurance program in that the funds that are paid into it -- by employee and employer -- are invested into a trust fund, and then returned to the employee on retirement, at 65 -- (or is it now 67?) But in reality it's technically a transfer fund, and it's called the Payroll Tax because it's money taken out of each employee's pay check, by law -- (I believe it's the FICA deduction on ones pay check) and then 'transferred' back to the employee and others (orphans, widows, etc., a really amazing and badly needed public social program, also for people in middle and lower classes with no other means of retirement support.)
These tax funds have been stipulated by law to be at the level of 6.5% (I believe) deducted out of each paycheck -- up to the yearly salary level of approx. $106,000 -- and those amounts of that yearly payroll tax are what make up the two and a half trillion dollars currently in the Social Security Trust fund -- that fund guaranteed and totally viable at 100 percent until the year 2038, (after which time an adjustment in the upper level of salary applicable to the tax would be advisable.)
The Obama/Republican Bush era tax cut extension agreement -- in addition to its other unfair aspects that I won't go into now -- has suddenly also brought into its purview of 'cutting' taxes, lowering the 6.5 percent of the Payroll Tax to 4 percent, with the pretense that that will "put money into the hands of the public" if they suddenly find they have that much more cash in their weekly pay checks. (Much more cash?)
This 2 percent cut, according to Obama, is supposed to be 'restored' in one year -- to be made up in the meantime out of the general fund -- for the first time in its history. And it's a "tax holiday" that will siphon money out of the SS Trust Fund, and according to critics on the left, including Howard Dean and well-known economists such as James Galbraith. But by getting the general fund to subsidize Social Security for $120 billion a year brings SS into the deficit debate -- and SS before this had not ever contributed to the GDP deficit. Because Social Security is a transfer program, not a spending program -- so previous to this was totally outside of any funding from the federal budget.
As Galbraith said, a dollar "spent" on Social Security does not increase or affect GDP, Gross Domestic Product -- SS always merely re-allocates a dollar from one potential consumer or taxpayer to another -- a retiree, a disabled person or a survivor. "Specifically, benefits flow to the elderly and to survivors who do not have families that might otherwise support them, and costs of the programs are imposed on the working people and other taxpayers who benefit... Both types of transfer (SS and Medicare) are fair and effective, greatly increasing security and reducing poverty -- which is why Social Security and Medicare are such successful programs."
The Republicans coming into power in the next congress are bent on attacking and eventually eviscerating Social Security and Medicare -- and judging from the Obama-selected Republican-dominated Deficit Commission report, Obama is intending that too -- (betraying bastard.) The rhetoric will probably be about "not raising taxes in the middle of the downturn," and this time it will apply to the majority of working people, not to the richest 2 percent of the population. And this will, if they are successful, double the size of the projected long-term shortfall in the life of the Trust Fund, according to Dean Baker and others.