Top Five Lies About Social Security

March 18, 2013

The propaganda promulgated by various news source is often deceiving.  Below, I outline the top five lies about the Social Security programs.

Lie Number 1:  The payroll tax hike is killing the retail economy.   While it is true that American consumers who started seeing slightly lower paychecks at the beginning of this year and consequently, there was a small bite out of consumer spending, the fact remains that the payroll tax is not to blame.  On January 1st, the taxes were not “raised”; instead, they were restored to the 2010 level after a two-year “holiday”.

Lie Number 2:  “Entitlement” benefits for millionaires and billionaires are a costly problem.  This is a favorite scapegoat of the journalistic enemies of Social Security.  The lie here is that a significant portion of benefits is paid to multi-millionaires.  In fact, there percentage share of the benefits is minuscule because there just aren’t very many of them.  The IRS reports that only 47,732 households reported income of more than $1 million dollars last year.  In contrast, over 75% of Social Security benefits are paid to households with less than $20,000 in non-Social Security income and more than 90% of benefits are paid to people with incomes below $50,000.

Lie Number 3:  Social Security and Medicare are $60 trillion in the hole.  These numbers terrify, but they do not educate Americans.  The $60 trillion figure comes from a “infinite horizon” projection which is a calculation of funding gaps projected out to a limitless future and then converted to present-day values, meaning what the cost would be if we had to pay it all today.  The number fails to account for the infinite horizon projections on the revenue side of the ledger.

Lie Number 4:  You are paying too much (or too little) for your benefits.  This is a double-barreleed lie, based on the misconception that Social Security and Medicare are retirement funds.  They are not; they are insurance benefits.  What you recover from SSA depends on personal circumstances.  For example, a couple retiring in 2010 with annual earnings of $113,000 would have paid $750,000 in 2011 dollars in Social Security taxes over their working lives and would collect (on average) $665,000 in lifetime benefits.  This is not a huge profit, but that is how insurance works.  Some people die one year into retirement; others will live to be 100.  Some families will collect disability benefits and some will not need that benefit.  The fact remains that no other public or commercial insurer can provide all of the potential benefits at Social Security’s low cost.

Lie Number 5:  Medicare and Social Security are the same.  Medicare and Social Security are different programs.  Medicare is in trouble due to sharply rising healthcare costs.  Social Security can be tweaked by changing the tax or benefit structure; Medicare is a prisoner of the cost of healthcare.  The same high-earning couple retiring in 2010 will have paid $149,000 in Medicare taxes but will receive $351,000 in lifetime Medicare benefits.  This is an imbalance that needs correction.  However, lumping Medicare and Social Security suggests they have the same issues and the same solutions.  Untrue.

 

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