The
2016 election is unique in many ways. Millenials and younger people are increasingly
encouraged to get more involved with their political process, at least in part
due to anti-establishment candidates like Bernie Sanders. The extraordinary
rise of Donald Trump continues to perplex non-supporters from both parties.
The technology and social media outbreak is revealing trendy, yet important
issues, which are now more intensely heating up in the minds of new voters.
One critical issue is overshadowed on many platforms by the likes of foreign policy, gun control, and healthcare: the discouraging and unanswered system that is social security. The problem arises with the projected exhaustion of the money reserved in the public trust fund. According to the Social Security Administration, over time program costs will overcome tax revenue and the administration will begin depleting the reserves, until taxes will only cover about 75% of the promised benefits after 2037. This is unless we see legislation that increases taxes, reduces benefits, increases the retirement age, or a combination of these. But conservative opposition results in stagnant efforts, and even the two major Democratic candidates aren't differentiating or focusing many arguments on providing a long-term solution, which could make social security a strange concern for the next few years.
It seems many young people have casually scrolled past this significant issue as it appears on their timelines, and people seem to passively assume this problem will be fixed by the time it affects them. What much of the public might fail to realize is that the current system doesn't place enough importance on the well-being of retired individuals, and is not yet pointing towards a particular brand of solution. The recession and the slow recovery has caused most retirees to make up two-thirds to all of their income from the program, which pays a an average benefit of $1265 per month. The tax rate is currently 6.2% for both workers and employees. With the solution currently coming down to tax increases vs. benefit cuts, this will make it increasingly dissatisfying for young aware workers to contribute a portion of their earnings to the program.
The only two sources of funding the government allows the Social Security Administration to rely on are tax revenues and the social security trust fund. The administration is not permitted to take debt, which means when taxes aren't enough to pay the benefits in a given year, and the extra money in the trust fund is depleted (which the administration expects to by 2037), by law, those receiving benefits will have their payments directly reduced to “the level that can be sustained by tax receipts in a given year,” so basically, whatever part of it they can afford at the time. There is no current acknowledgment of a solution, even considering this is money people pay out now to live comfortably at the only time in their lives when they probably have no other reasonable means of producing income. So under the current legislation and projections, people who are expected to receive benefits in 20 years are blindly contributing to the program and practically just hoping the government will be in a good enough position at the right time to provide their full promise. This system is not consistent with being "backed by the full faith and credit of the United States government."
The US government has a skewed perception of people’s retirement money. For the last few decades, tax revenues have been above benefits paid out, leading to a surplus that has become the trust fund, which is a safety net meant to provide benefits during a pessimistic forecast. The Treasury department borrows from this surplus, and instead of issuing regular Treasury bonds to the taxpayers, they issue intragovernmental bonds to the department. These bonds are not included in national debt GDP ratios, and don’t represent actual debt from the US government like treasury bonds; they are nothing more than an IOU from one department to another. So not only does the government disallow this administration from taking on debt to pay retirement benefits, they also borrow money from this department’s fund and mask it from actual economic presence. The problem is this money they are borrowing, in essence, doesn’t belong to the social security department or even the government – it is a retirement fund for citizens of the US. And if the department controlling citizens' money can lend it out from the fund, why can’t it say it will borrow if there isn’t enough to pay its obligations?
What further contributes to the financial black hole that is the current social security system is the way the benefits and the related taxes on the benefits are calculated. As of now, most of the people who pay any taxes on their social security benefits are among the relative high-income earners in the country. The IRS takes taxable income and adds in half of your social security income, and if that number is higher than specific thresholds, the percentage of your benefits that get taxed is increased. According to the Social Security Administration, however, as inflation drives wages up this group will continue to expand into the middle class as more retirees will pay a portion their benefits back to the government in taxes. What’s most questionable is that nearly every IRS formula adjusts for inflation, however this one doesn’t.
Also, the cap on the level of wages subject to social security tax is stuck at about $118,000. This means high-income workers aren't paying as much of their income in social security tax proportionally as everyone below the cap. Perhaps the justification for this limit is that people earning that high of an income should be able to retain more of it for personal retirement use, considering they probably won't be benefiting as much from social security. But again as inflation drives wages up, more of the middle class will pass these thresholds and the people who can't afford it will still be covering the unfunded benefits. So at least one overdue reform would be to raise the level of income subject to the tax keeping in line the high-income workers with the average taxpayers, not just to another fixed number, but a variable that is fair to all workers. The argument to eliminate the cap, like Bernie Sanders has advocated for, is another story.
The way the social security system is set up sheds some light on how the government views the golden years of its citizens, and in turn how legislation might pan out. But at this point, we will hit a stopping point in 20 years and the system needs a change. Until then we're waiting for something that will invoke confidence into the younger workforce to trust the social security system moving forward. Considering they will either get taxed more, have to work for longer, or lose up to 25% of their promised benefits, it seems that contributing to social security for young people today is like an investment that bets on favorable legislation and a positive economic outlook for the future, and just like any other investment, it's subject to risk and economic downfalls. However, this can't be accepted as the norm. If people are required to pay the tax, they deserve a lasting system that will truly guarantee all benefits through the years, regardless of the timing and political outlook.
So are people supposed to just hope that by the time they reach retirement, conditions have been well enough and there has been proper legislation that provides their full benefits? Shouldn’t benefits be increased with inflation like most other key IRS formulas and the rising cost of living benefits, so that higher wages don't propel lower earning retirees into an increased benefit tax? Should a public retirement system contain this level of inherent risk, to the point where it is a possibility that if Congress can’t come to an agreement, people will not receive up to 25% of their obligated benefits? When you see a big chunk of your money get taxed for social security, you shouldn't have to wonder if it's going to be worth it, or be waiting for legislative change. This is another governmental instance with a systemic fault, why it’s an important problem this new wave of young voters might overlook. They should expect our next president to initiate a permanent fix for the social security system, not just a tool to further extend—and most likely exacerbate—the problem. But what is the solution?
Various candidates have expressed significant views on social security. Bernie Sanders wants to eliminate the cap on the level of wages subject to the tax and impose the 6.2% tax on investment income, which would be huge blows to Republicans and high income earners, but like many of his proposals, it's hard to see legislation like that actually going through in the current political climate. Clinton focuses on women and caregivers whom the system is neglecting, promises not to cut it or raise the retirement age, but her options for funding are vague. Republicans have a more charged view of the current system. Donald Trump has previously expressed his views to raise the retirement age, and in 2015 claimed we should cut foreign spending to infuse large amounts of cash for social security funding. Ted Cruz called social security a Ponzi scheme in 2011, and now has only expressed his intent to raise the retirement age. Rubio would gradually raise the retirement age, reduce growth in benefits for upper-income seniors while strengthening the program for lower income seniors, and exempt seniors who work from the payroll tax (MarketWatch). Either way, the way this election pans out will most likely pave the way towards the solution, whether for better or for worse.
One critical issue is overshadowed on many platforms by the likes of foreign policy, gun control, and healthcare: the discouraging and unanswered system that is social security. The problem arises with the projected exhaustion of the money reserved in the public trust fund. According to the Social Security Administration, over time program costs will overcome tax revenue and the administration will begin depleting the reserves, until taxes will only cover about 75% of the promised benefits after 2037. This is unless we see legislation that increases taxes, reduces benefits, increases the retirement age, or a combination of these. But conservative opposition results in stagnant efforts, and even the two major Democratic candidates aren't differentiating or focusing many arguments on providing a long-term solution, which could make social security a strange concern for the next few years.
It seems many young people have casually scrolled past this significant issue as it appears on their timelines, and people seem to passively assume this problem will be fixed by the time it affects them. What much of the public might fail to realize is that the current system doesn't place enough importance on the well-being of retired individuals, and is not yet pointing towards a particular brand of solution. The recession and the slow recovery has caused most retirees to make up two-thirds to all of their income from the program, which pays a an average benefit of $1265 per month. The tax rate is currently 6.2% for both workers and employees. With the solution currently coming down to tax increases vs. benefit cuts, this will make it increasingly dissatisfying for young aware workers to contribute a portion of their earnings to the program.
The only two sources of funding the government allows the Social Security Administration to rely on are tax revenues and the social security trust fund. The administration is not permitted to take debt, which means when taxes aren't enough to pay the benefits in a given year, and the extra money in the trust fund is depleted (which the administration expects to by 2037), by law, those receiving benefits will have their payments directly reduced to “the level that can be sustained by tax receipts in a given year,” so basically, whatever part of it they can afford at the time. There is no current acknowledgment of a solution, even considering this is money people pay out now to live comfortably at the only time in their lives when they probably have no other reasonable means of producing income. So under the current legislation and projections, people who are expected to receive benefits in 20 years are blindly contributing to the program and practically just hoping the government will be in a good enough position at the right time to provide their full promise. This system is not consistent with being "backed by the full faith and credit of the United States government."
The US government has a skewed perception of people’s retirement money. For the last few decades, tax revenues have been above benefits paid out, leading to a surplus that has become the trust fund, which is a safety net meant to provide benefits during a pessimistic forecast. The Treasury department borrows from this surplus, and instead of issuing regular Treasury bonds to the taxpayers, they issue intragovernmental bonds to the department. These bonds are not included in national debt GDP ratios, and don’t represent actual debt from the US government like treasury bonds; they are nothing more than an IOU from one department to another. So not only does the government disallow this administration from taking on debt to pay retirement benefits, they also borrow money from this department’s fund and mask it from actual economic presence. The problem is this money they are borrowing, in essence, doesn’t belong to the social security department or even the government – it is a retirement fund for citizens of the US. And if the department controlling citizens' money can lend it out from the fund, why can’t it say it will borrow if there isn’t enough to pay its obligations?
What further contributes to the financial black hole that is the current social security system is the way the benefits and the related taxes on the benefits are calculated. As of now, most of the people who pay any taxes on their social security benefits are among the relative high-income earners in the country. The IRS takes taxable income and adds in half of your social security income, and if that number is higher than specific thresholds, the percentage of your benefits that get taxed is increased. According to the Social Security Administration, however, as inflation drives wages up this group will continue to expand into the middle class as more retirees will pay a portion their benefits back to the government in taxes. What’s most questionable is that nearly every IRS formula adjusts for inflation, however this one doesn’t.
Also, the cap on the level of wages subject to social security tax is stuck at about $118,000. This means high-income workers aren't paying as much of their income in social security tax proportionally as everyone below the cap. Perhaps the justification for this limit is that people earning that high of an income should be able to retain more of it for personal retirement use, considering they probably won't be benefiting as much from social security. But again as inflation drives wages up, more of the middle class will pass these thresholds and the people who can't afford it will still be covering the unfunded benefits. So at least one overdue reform would be to raise the level of income subject to the tax keeping in line the high-income workers with the average taxpayers, not just to another fixed number, but a variable that is fair to all workers. The argument to eliminate the cap, like Bernie Sanders has advocated for, is another story.
The way the social security system is set up sheds some light on how the government views the golden years of its citizens, and in turn how legislation might pan out. But at this point, we will hit a stopping point in 20 years and the system needs a change. Until then we're waiting for something that will invoke confidence into the younger workforce to trust the social security system moving forward. Considering they will either get taxed more, have to work for longer, or lose up to 25% of their promised benefits, it seems that contributing to social security for young people today is like an investment that bets on favorable legislation and a positive economic outlook for the future, and just like any other investment, it's subject to risk and economic downfalls. However, this can't be accepted as the norm. If people are required to pay the tax, they deserve a lasting system that will truly guarantee all benefits through the years, regardless of the timing and political outlook.
So are people supposed to just hope that by the time they reach retirement, conditions have been well enough and there has been proper legislation that provides their full benefits? Shouldn’t benefits be increased with inflation like most other key IRS formulas and the rising cost of living benefits, so that higher wages don't propel lower earning retirees into an increased benefit tax? Should a public retirement system contain this level of inherent risk, to the point where it is a possibility that if Congress can’t come to an agreement, people will not receive up to 25% of their obligated benefits? When you see a big chunk of your money get taxed for social security, you shouldn't have to wonder if it's going to be worth it, or be waiting for legislative change. This is another governmental instance with a systemic fault, why it’s an important problem this new wave of young voters might overlook. They should expect our next president to initiate a permanent fix for the social security system, not just a tool to further extend—and most likely exacerbate—the problem. But what is the solution?
Various candidates have expressed significant views on social security. Bernie Sanders wants to eliminate the cap on the level of wages subject to the tax and impose the 6.2% tax on investment income, which would be huge blows to Republicans and high income earners, but like many of his proposals, it's hard to see legislation like that actually going through in the current political climate. Clinton focuses on women and caregivers whom the system is neglecting, promises not to cut it or raise the retirement age, but her options for funding are vague. Republicans have a more charged view of the current system. Donald Trump has previously expressed his views to raise the retirement age, and in 2015 claimed we should cut foreign spending to infuse large amounts of cash for social security funding. Ted Cruz called social security a Ponzi scheme in 2011, and now has only expressed his intent to raise the retirement age. Rubio would gradually raise the retirement age, reduce growth in benefits for upper-income seniors while strengthening the program for lower income seniors, and exempt seniors who work from the payroll tax (MarketWatch). Either way, the way this election pans out will most likely pave the way towards the solution, whether for better or for worse.
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