Bad medicine won't cure Social Security
I found the Nov. 22 guest commentary by Eric Smith, "Social Security reform we really need," to be very troubling. First, the author contends employers pay 50 percent of Social Security taxes. The reality is the employee pays the full amount. The employee also pays the full amount of Medicare, unemployment insurance premiums and Worker's Compensation.
Let me explain.
If I can afford to pay $13 per hour for an open job position I'm going to advertise it at $10 per hour. Why? Because it will cost me $2.50 to $3 per hour in taxes and fees for a $10 per hour job. I and every businessman look at total compensation cost per hour, not just the base salary. You may consider yourself a $10 per hour employee or even an $8.50 per hour employee, based on your take-home pay. To your employer you are a $13 per hour employee and need to perform at that level or higher to keep the job. Keep in mind that with 10 paid holidays and a two-week vacation, the employee is actually paid 12 months wages for 11 months work.
Second, Smith views the payroll cap as a break for higher wage owners. This completely ignores the link between what you pay in and what you receive from Social Security. Yes, a high earner pays no Social Security tax above $110,000 of earnings, but he also receives no Social Security credit for those excess earnings. If the link between what you pay in and what your benefit is broken, Social Security becomes another welfare program, like food stamps.
Smith wants to further undermine the whole social contract built in to Social Security by adding a means test. If I plan, save and invest to build up my retirement savings, he wants to penalize me by reducing or even eliminating my Social Security payments; regardless of how much I paid in over 30 to 40 years. Once that happens, a whole segment of our society will no longer support Social Security.
His last proposal is that the past Social Security surpluses borrowed by the federal government be restored. That this fiction is now regarded as fact by so many is frightening. The borrowing was in the form of purchasing interest bearing U.S. Treasury bonds. These bonds are fully reflected in the U.S. debt of $16 trillion. What was done with that money doesn't matter.
When you put your savings in the bank, it is immaterial to you whether the bank uses your money to fund car loans, mortgages, or secured business loans. When Social Security needs that money back, it will cash in the bonds. The Treasury will sell new bonds to other parties and roll over the debt. Nothing has been stolen or misappropriated. There is nothing to be restored. I agree those bonds simply exist as a figure on pieces of paper and Social Security doesn't have actual bonds in its possession, but if you or I buy Treasury bonds, we also only get a notation in our investment account.
I believe that some of his recommended reforms would destroy Social Security if adopted.
Stew Walton lives in Mystic.
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