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Monday, April 14, 2014
What No One Wants to Admit About Social Security Taxes
By Heritage Foundation @ 12:18 PM :: 4387 Views :: National News, Taxes

What No One Wants to Admit About Social Security Taxes

by Amy Payne, Heritage Foundation, April 14, 2014

It’s a bummer when you see how much income tax comes out of your paycheck. But when you see that Social Security line item, do you think, “At least that’s going to pay for my retirement”?

It’s not.

The tax money you’re paying into Social Security today is going to fund today’s retirees. Who will pay for your benefits? The next generation of workers.

And the payout gets worse with each generation. Heritage experts explain (see chart here):

Early recipients of Social Security received more than six dollars in benefits for every dollar paid in Social Security taxes. Today and in the future, recipients will receive less than a dollar in benefits for every dollar paid in Social Security taxes. (emphasis added)

So the system wasn’t exactly built to be sustainable, was it? That’s why it desperately needs reform.

This idea that Social Security takes from succeeding generations has become all too real for some Americans in the past few years. Because of a change to the statute of limitations on debts owed to the government, the government is now able to go after debts that are decades old. Some are owed by dead people. And if one of those deceased is your ancestor, the feds will come knocking at your door.

Or they’ll just keep your tax refund.

This is what happened to Mary Grice. The Washington Post reports that “Social Security claims it overpaid someone” in Grice’s family in the past—“it’s not sure who”—and now the government wants that money back. Officials tracked down Grice and intercepted her tax refund.

“It was a shock,” Grice told the Post. “What incenses me is the way they went about this. They gave me no notice, they can’t prove that I received any overpayment, and they use intimidation tactics, threatening to report this to the credit bureaus.”

The Post reports that “Social Security officials say that if children indirectly received assistance from public dollars paid to a parent, the children’s money can be taken, no matter how long ago any overpayment occurred.” And it can be relentless: “the policy is to seek compensation from the oldest sibling and work down through the family until the debt is paid.”

While it won’t happen to most Americans, this debt collection scenario is an up-close-and-personal illustration of how Social Security really works. Later generations are paying the benefits of their elders—no matter what a financial hardship it may be for them in the present. Paying all those taxes into an outdated system isn’t helping today’s workers save for their own retirement.

Without reform, Americans will be hit with more tax increases to keep the system from imploding.

Heritage experts have outlined six bipartisan reforms Congress could make to entitlement programs to start the country on a solid path out of fiscal crisis. But it will require that people understand how these programs work—and how they’re getting a raw deal.

Heritage’s Romina Boccia, the Grover M. Hermann Fellow, says perhaps the No. 1 obstacle to real entitlement reform is the fact that “On this issue, too many people believe what they want to believe.”

Share this to spread the truth.

Read the Morning Bell and more en español every day at Heritage Libertad.

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