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Die, wicked trope, die I say! (John Ballard)

This morning somebody pushed my button and before I could finish my morning surfing I had to stop and get this off my chest. Rather than allowing it to sink into Facebook Oblivion I'm reposting it here in case I need to use it again. 

Yet again I have come across someone calling Social Security a Ponzi scheme. This is a widespread careless rhetorical assault crying out to be corrected. Unlike a Ponzi scheme in which specific amounts of money are remitted by specific individuals to other specific individuals, the Social Security system is a collective arrangement which does collect from specific individuals but the money is not earmarked for any specific person. The system can be compared with everything from office pools to insurance to even a lottery — but "Ponzi scheme" is absolutely a misleading comparison.

That said, if it isn't a Ponzi scheme then what is it?

Simply stated, it is a social contract, put into place by taxpayers at work, administered by a government agency, the Social Security Administration, charged with the responsibility of awarding limited benefits to other qualified citizens who for a variety of reasons either cannot work or whose ability to work is limited.

It is not an investment plan.

It is not an insurance plan in any common meaning of that term.
It is not a savings plan.

It is a pay as you go plan.
==>The working population furnishes the revenue stream and those currently receiving benefits are the beneficiaries.

Many people use the phrase "I paid into the system…" indicating that they think of Social Security as some kind of savings or investment plan which it is not. They are, nevertheless, entitled (catch that word – ENTITLED) to benefits of the system, provided they or someone related to them paid 40 quarters into the system. The system is organized in a manner that spouses and dependents have limited protection from total financial ruin when the person dies whose payroll taxes once supported the system.

One of the best-kept secrets in America is that Social Security payroll taxes are not collected from all earned income. Only those who earn less than a certain amount in any given year are taxed. After that amount is passed, not one more dime is collected from that person's earnings until the following January.

In 2012 payroll taxes are collected on earned income up to $110,000. After that point nothing more will be collected from that point til the end of December. The amount of Social Security payroll tax increases annually but every year the same rule applies — after that year's tax has been paid, there will be no more Social Security payroll taxes for the rest of that calendar year.

http://www.socialsecurity.gov/planners/maxtax.htm#maxEarnings

(Medicare taxes are not capped. And as everybody knows by now, income taxes are subject to so many deductions, credits, carve-outs, exemptions and other loopholes that accountants and lawyers are usually employed by high earners to help navigate the system. BUT SOCIAL SECURITY PAYROLL TAXES ARE STRAIGHTFORWARD AND EASY TO UNDERSTAND.)

As anyone can see, poor people are taxed for the purpose of funding the Social Security system beginning with the first dollar earned every year.
There are no exemptions (even those who are paid "tip wages" are expected to pay Social Security taxes on their reported income).

THERE ARE NO DEDUCTIONS FROM SOCIAL SECURITY TAXES.
The "standard deduction" or itemized deductions that working people claim when income taxes are paid are only for that — INCOME. But their payroll taxes are collected all the same. Even if they fail to earn enough to pay income tax, their Social Security (and Medicare) taxes are still collected to become part of what is used, no mater how small that amount may be, to support those systems.

It's hard for most people to understand, but the fact is that the Social Security system was put in place to take care of poor people, not the rich. That was true when it began in 1937 and it remains true today. It should be clear by now, in light of the explanation above, that it is also mainly funded by the working poor from the first dollar they earn.

Hopefully it will not be the only source of income in retirement for anyone reading this post. By that time I sincerely hope you will have additional resources, as I do, in the form of assets or additional income from a pension or other retirement plan to supplement your Social Security income. But just know that for most Americans — yes, MOST — their Social Security check is all that protects them from being totally destitute. " Among elderly Social Security beneficiaries, 23% of married couples and about 46% of unmarried persons rely on Social Security for 90% or more of their income." Considering how modest the Social Security benefit is, an additional ten percent is a very small amount, indeed.

http://www.ssa.gov/pressoffice/basicfact.htm

So please. Never refer to the Social Security system as a Ponzi scheme. In my experience it is one of the most important features of our society. And for what it's worth, my experience with the system is that it is an extraordinary model of efficiency and performance, keeping separate accounts of every person in the system. Anyone at any time can receive a copy of their Social Security earnings (which is a good practice, by the way, to make sure your employers have been remitting your taxes properly.) It is very impressive to look at that statement with your name and account number, listing your lifetime earnings, even that summer job you may have had years ago that you forgot about. But the Social Security system didn't forget. And the day will come when you will be damn appreciative that they didn't.

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8 responses to “Die, wicked trope, die I say! (John Ballard)”

  1. Ruchira

    This is why it is all the more reprehensible of Mitt Romney to sneer at those 47% of Americans who don’t pay a federal income tax.
    (BTW, isn’t it terribly shameless for a hugely wealthy guy who wouldn’t show us his tax returns and whose top agenda is to cut taxes for the very rich, to be so utterly disdainful of people who don’t pay income tax because they don’t have enough income?)

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  2. John Ballard

    Shameless, indeed. There may or may not be a connection, but in the new movie with Richard Gere and Susan Sarandon, Arbitrage, the main character is an obscenely rich guy whose line of work is basically the same that built the Romney fortune. I don’t go to movies much any more, but this one I may want to see. I read a review sketching the plotline which involves the man “hiding in plain sight” by vanishing from his conspicuous wealthy environment by taking up a more ordinary lifestyle. One revealing lines was “What’s and Applebees?”
    http://www.rottentomatoes.com/m/arbitrage/quotes/
    Another case of life imitating art. Bain Capital’s business is equity capital, a different creature from venture capital. Venture capitalists (VCs) advance money for new businesses in return for a share of the ownership. It’s how most companies grow. But equity capitalists acquire troubled companies already operating. If a company can be resuscitated and returned to profitability, equity capitalists share in the success. But typically they chop up the company and liquidate the assets, profiting by selling off body parts acquired at below market prices. Equity capitalists are the carrion birds of the marketplace and serve an important part.

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  3. prasad

    Re Ponzi scheme, as Samuelson famously said, it’s the only Ponzi scheme that actually works. As someone corrected him, money itself is another Ponzi scheme that works.
    Re 47%, it’s a truly horrible statement in so many ways:
    – I’m sure there’s ‘culture of dependency’ at some level, but to think it’s 47% of the population is plain nuts.
    – If nothing else it shows Romney doesn’t understand the difference between tax and income tax.
    – Also, there is some correlation between income as proxy of tax payment and voting – I think Andrew Gelman is the go-to guy on this. he shows how both a) in all states the rich skew republican and b) rich states skew democratic. But the idea that this 47% votes Obama en masse is plain nuts. It’s more like a skew, the way men skew republican and women skew democratic.
    – Actually I’m not even sure which way the skew goes since the largest identifiable group in that 47% is old people who skew republican by a lot.
    – which is another thing..he doesn’t appear to know much about who doesn’t pay taxes and when or why
    – The clip also communicates that Romney the man is basically fine with the income inequality rising like crazy, and thinks not in terms of structural factors or globalization or automation, but using a strongly moralized frame. US inequality per se I don’t have a problem with, since I care about -global- inequality which is going down, in fact in part because of trends in US inequality. Romney in his own small way probably helps globalization. But I’m not american or voting as one.
    – Plus his mindset is completely the stereotypical wall street ethos of I’ve got it made, so everyone who doesn’t is contemptible. After 3-4 trillion poured into resuscitating the economy and plain bailing out wall street, the idea that welfare means only medicaid and welfare, and not corporate welfare/tbtf/deregulation, this shows that for romney at least nothing from ’08 has sunk in.
    I think Democrats should attack strongly on this, not just cuz it’s a talking point: run ten ads, together forming a representative sample of the 47%. Show old people, students, the working poor, the disabled, those who’ve lost jobs since 2008, those who don’t have jobs long term. In each case show a human being of that sample, and flash statistics about such people. In the background you have the voice of Romney talking about 47%. No need to even sugar coat or anything – in fact you want to sway the undecided, so present facts that are -Republican sounding- as well. Together these ads sum to that 47%. At the end of each ad Obama appears and says I approve this message.

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  4. John Ballard

    At some level I feel sorry for Romney. He is so well-protected protected by a redundancy of safety nets, some of which are psychological,that he may reach the end of life without realizing how very wrong he has been. Taking care of ageing seniors has allowed me to see up close how deeply embedded social attitudes can be. I had one client whose reaction to the Haitian earthquake deaths was that somebody should go down there and castrate the men so they don’t multiply so much. When the tsunami hit Japan all he could think about was how much he hated the Japs because he had lost a brother in WWII.
    There are plenty of folks persuaded that school breakfasts are nothing but a crutch for lazy parents who don’t want to get up and fix breakfast for their kids, that social assistance programs only stand in the way of poor people having what it takes to climb out of their circumstances. This morning on C-SPAN Washington Journal the call-in phones were for Republican’s only, and there were plenty of calls defending and supporting what Romney said.

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  5. Ruchira

    I think Democrats should attack strongly on this, not just cuz it’s a talking point: run ten ads, together forming a representative sample of the 47%. Show old people, students, the working poor, the disabled, those who’ve lost jobs since 2008, those who don’t have jobs long term. In each case show a human being of that sample, and flash statistics about such people. In the background you have the voice of Romney talking about 47%. No need to even sugar coat or anything – in fact you want to sway the undecided, so present facts that are -Republican sounding- as well. Together these ads sum to that 47%. At the end of each ad Obama appears and says I approve this message. _ Prasad.
    Obama’s campaign staff is pretty shrewd. I think they are already designing an ad exactly along these lines.

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  6. Ruchira

    From The Onion
    If Obama were a white man, this presidential race would have been over long ago.

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  7. Ruchira

    They should have included a broader range of people like Prasad suggested. But here it is.
    This video is even more interesting. Perhaps the Obama campaign can use it as flashback between Romney’s fund raising comments.

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  8. prasad

    Hmm, interesting! I would have gone with more of a serious Michael Moore poor people tone, without the quirky music or direct elicitation of views about whether people feel like victims. I guess focus groups must have showed otherwise. Maybe solemnity comes off as boring or pessimistic.

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