Social Security: Solidarity, Not Investment

[xchrom]

http://www.commondreams.org/view/2012/09/27

Recently the Associated Press (AP) published a four-part series of stories examining “the state of Social Security and its long-term health.” The AP said that “Few things affect more Americans than the future of Social Security, and yet it’s an issue mostly invisible during the current campaign.” True, it’s not talked about much, but perhaps more important is the fundamental misunderstanding of the nature of the program that is revealed when people do talk about it.

This misunderstanding was revealed in the very first installment of the AP series, which appeared on August 5th. The headline on this kick-off piece read, “Social Security Not Deal it Once Was for Workers.” Asked the AP, “How can you get a better return on your Social Security taxes?”

A large and growing number of people share the misunderstanding revealed in that headline: They think that Social Security is a program of Individual Investment. It’s not, and was never meant to be. Instead, it is a program of Social Insurance. Understanding the difference between these two types of systems is the key to having even a glimmer of understanding about what is at stake in this huge public debate.

Here’s how insurance works: With insurance, one only gets something back if one loses something. I hope I never collect anything on my home insurance, for example, since that would mean my house has burned down, or some other horrible thing has happened. Still, I pay my home insurance premium every year and I don’t think I am wasting my money. Why not? Because I know that, if and when I do lose something, I have insurance. If I never “get back what I paid in,” that’s a good thing. And, if I lose something, and DO get back some of what I paid in, what I get back is related to what I lost, not to what I paid in. And that, too, is a good thing. That’s the nature of insurance. That is not the nature of investment.

[exboyfil]

1. No justifiable reason for a cap on the program

I think income currently over the cap should be taxed at a lower percentage rate to reflect the fact that those contributions would not enter into the S.S. calculations (this would place the approach somewhere between 72% and 88% of the calculuator over 75 years). There is no moral reason for excluding that income from being taxed. Currently income around $50K-$108K is only credited at 15% on the S.S. benefits formula.

A 75 year window seems a bit much since any financial projections could go way off over that period of time. I would prefer to see year by year simulations where assumptions can be changed.