Monday, April 27, 2009

Know What Is Really Unjust About the Current Social Security System?

You know what really stinks about the current Social Security system?

If you die the day before you become eligible and sign up for the program, you (obviously), your spouse, your family and your estate get nothing, squadoosh, zippo, nada in terms of a lump-sum payment from all of those payments you made to ‘FICA” over all of those long, hard working years of your life.

Nothing! And it strikes disproportionately hard on African-Americans, Latinos and lower-income folks, people who: 1) have lower life expectancies to begin with; 2) really could use any sort of wealth accumulation techniques available to begin the process of transferring assets from one generation to the next; and 3) started working at a younger age and therefore would have otherwise had a longer period during which compounded interest could have grown.

Talk about being a truly ‘regressive’ tax! Not only does it hit the lower-income folks disproportionately harder relative to higher-income wage-earners, but when they die at a higher rate at younger ages, they basically forfeit all claims on these tax payments and these tax payments get used for any sort of unencumbered use throughout the federal government.

There are widow’s benefits for survivors of deceased Social Security recipients but for all intents and purposes, your payroll tax payments over the preceding 43 years of hard work go up in smoke with nothing to show for it rather than a bunch of discarded pay stubs with “FICA” written all over it.

It is a blatant case of the lower-income payroll tax-paying person subsidizing the general expenses of the rest of us. You work your life away, pay your payroll taxes on time each week or pay period, because you have to through the mandatory withholding process imposed upon your employer, and then boom! You die precisely the second before the full retirement age of 66 (now) when you are age 65 years, 364 days, 23 hours, 59 minutes and 59 seconds….and you and your family get nothing in the form of a lump-sum return of your life-long ‘investment’ from Social Security.

Now, it is important to understand that Social Security was not set up to become a federal pension plan, (although it has become such in the minds of many), nor was it set up to be a national insurance plan (although it has become that in the minds of many as well). There are offsets galore to Social Security payments in the corporate pension world that have been efforts to mitigate the increased costs of the program, mostly to the more well-off, wealthy, or very rich retirees (think of Bill Gates receiving Social Security benefits in a couple of years…is that really ‘necessary’ to maintain universal support for Social Security as an entitlement program?)

And, just to keep in mind, if there were no Social Security or Medicare programs, the cost burden of supporting our parents in their dotage (or us in ours) would fall squarely upon us, the pretty independent and relatively selfish Baby-Boomer generation and generations to follow. If you are up to the obligation and challenge, then God bless you…families did it before 1935 when Social Security went into effect and before 1965 when Medicare went live.

Just realize that there are two sides to every story, especially when it comes to slaying the entitlement cost giant.

But you’d think some well-meaning advocacy group such as the AARP would work to do something to help poor people build up an estate fund and find something better to do with their hard-earned money than possibly lose it all at the time of premature death.

Wouldn’t it be better to have some lump sum that was at least transferable to your spouse and then your children? At least then, the Social Security system would begin to at least resemble a defined contribution plan that many people mistakenly now think it is. Most people think, “I have put x amount of money in over 43 years of hard work; I ought to at least be able to get that amount back…and then some, assuming it had earned a reasonable rate of return.”

But it isn’t and it won’t be until we push for some major changes at the grassroots level first. Always remember this, if you don’t remember anything else from reading ‘Telemachus’: Congress always follows the public will of the people, not the other way around.

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