You know you're in deep, deep trouble when Joe Biden and Donald Trump agree on anything—and that's especially true when it comes to insisting that nobody should ever cut "a single penny" from Social Security, the nation's income program for people over 65.
Here are three reasons why Social Security should be scrapped completely and replaced with a plan that will help the truly needy without impoverishing everyone else.
Social Security is unsustainable. Created in 1935, Social Security is paid for by a 12.4 percent payroll tax on income up to $160,200. Supporters pretend that Social Security is like a retirement plan, where your specific contributions build value over time. But the system is a Ponzi scheme, in which current beneficiaries are paid out of new money coming into the system. The problem is that when the program started paying out benefits in 1940, there were 160 workers per retiree, so a surplus built up. Today, there are just 2.8 workers per retiree.
In a decade, there won't be enough money coming into the system to cover the current level of benefits. By law, benefits will need to be cut by 20 percent or payroll taxes will need to be jacked up even more than they already are. In 2023, we'll be taxed on all income up to $160,200—a figure that's up from $113,700 a decade ago and $87,000 in 2003.
Social Security is unfair. The payroll tax hits younger, poorer workers harder than older and wealthier ones. A minimum-wage worker might pay virtually nothing in federal taxes, but will still be forced to fork over 12.4 percent of his or her compensation in payroll taxes.
It's a bad deal for retirees from an investment point of view: According to a 2016 Tax Foundation study, a worker retiring after making average wages could expect an annual payout of about $20,000. If that person had instead put just 10 percent of their annual earnings into an IRA, they could expect an annual retirement income of almost three times more.
And don't think the government actually owes you anything when you retire, regardless of how much you paid in. In 1960, the Supreme Court ruled in Flemming v. Nestor that there is no contractual or constitutional right to receive Social Security benefits.
Social Security is unnecessary. When Social Security was passed during the Great Depression, old age and poverty went hand in hand. Now the median net worth of households headed by someone over 65 is more than double that of households headed by someone half their age. Households headed by people 75 years or older had a median net worth of $254,800 and those headed by people between the ages of 65 and 74 came in at $266,400. For those between 35 and 44, the figure was just $91,300.
To be fair, part of the reason older Americans are relatively flush is because of Social Security and Medicare. But it's mostly because people are living and working longer and accruing more wealth so that old-age programs are less and less important to financial stability and well-being. There's simply no good reason to pay out universal benefits to millionaires like Biden and billionaires like Trump.
Rather than scheming about ways to save Social Security, politicians—and voters—should be talking about ways to wind it down as quickly as possible. Let people within a decade or so of retirement get benefits, but reduce and eliminate payroll taxes for the rest of us so we have more money to fund our own retirements.
The federal government can and should continue to help older Americans—indeed, Americans of any age—who need assistance with food, housing, and health care. But that doesn't require forcing all of us to pay into a system that is increasingly unsustainable, unfair, and unnecessary.
Photo: Gripas Yuri/ABACA/Newscom
- Video Editing and Audio Production: John Osterhoudt
- Additional Graphics: Danielle Thompson