Saturday, July 30, 2011

Them Danged "Entitlements"

Gosh, if only we could take control of those darned "entitlements." Right! You hear it continually from Republicans, which should go without saying. But also from our President,and many other Democrats, which is a disgrace!

For one thing, "entitlements" is a misleading term. What it really means is money ordinary citizens are entitled to. Why? Because they paid for them. Yes, believe it or not, both Social Security AND Medicare are paid for by you, the citizens of the US. To hear Republicans talk about these programs, they're something ordinary folk THINK they are entitled to. "Well, what makes YOU think you are entitled to all these benefits, you lazy slacker?" "Uh, excuse me, but I PAID for them!"

Not only have we paid for them, but we've paid through the nose for them.  Here's how our taxes for both Social Security and Medicare break down, according to this Wikipedia article:
Federal social insurance taxes are imposed equally on employers and employees, consisting of a tax of 6.2% of wages up to an annual wage maximum ($106,800 in 2010) plus a tax of 1.45% of total wages. For the year 2011, the employee's contribution has been temporarily reduced to 4.2%, while the employer's portion remained at 6.2%.
This is misleading. The taxes are NOT imposed equally on employers and employees. I know because I was once on the Board of Directors of an organization that was hiring, and the first thing we did in determining what wages we would offer was calculate what our Social Security obligation would be. This was then factored in to our wage offer. I'm sure all employers do the same math when hiring. So what that means is that the Soc. Sec. tax is in effect borne entirely by the worker, and it amounts to 2 * 6.2%, or 12.4%  (prior to the temporary reduction, natch, which is due to expire). Moreover, if you happen to be self-employed, the owner of a small business, a consultant, or an "independent contractor" (a handy category used by employers who refuse to deal with Soc. Sec. at all) you pay the FULL amount without benefit of subterfuge.

Meaning that out of a modest salary of $30,000, you get to pay 30,000 * .124 = $3,720! (Not counting Medicare, natch.) And there's no getting around that. No deductions, no loopholes, no special consideration for working families with lots of kids, etc.

You might be curious to learn what someone earning $1,000,000 a year pays. Do the math. 1,000,000 * .124 comes to $124,000. Nice chunk of change. But wait! Think again. Because the "annual wage maximum" on Social Security is only $106,800. If you earn more than that, this additional income is TOTALLY free from Soc. Sec. taxes. So what you pay for Soc. Sec. if you earn $1,000,000 or $2,000,000 or $200,000,000 or $1,000,000,000 is exactly the same: $106,800 * .124 =  $13,243 -- which amounts to 1.3243% of a million dollars -- and .013243% of a billion dollars. So while the great majority of us pay over 12%, the millionaires pay only a little over 1% -- and the billionaires pay only a minuscule fraction of what they take in. (I was going to write "earn," but nobody actually earns a billion dollars, do they?)

We're continually being reminded that Social Security is in trouble, that the reserve will run out in a few years, that thanks to the Baby Boom there are many more older people around now than ever before, etc., and that this amounts to a huge crisis unless the benefits are drastically reduced. But what we do NOT hear is that there are also far more millionaires and billionaires living in the USA than ever before.

We are constantly reminded that we are in over our heads financially and accumulating a huge national debt, but no one seems interested in the fact that the USA is by far the wealthiest country that ever existed in the history of the world. True, the national debt looks high: well over $14 trillion and climbing. But our total national household wealth is estimated at over $52 trillion. In other words, if we were to institute a one time only wealth tax of roughly 27% we would instantly eliminate our entire national debt! And when you consider that during the 1950's the tax rate on the highest incomes was over 90%, a 27% tax doesn't seem all that unreasonable. Don't get me wrong, I'm not advocating such a tax, only trying to put things into perspective.

So. Are we really in the midst of an entitlements crisis? Or does the real problem lie in another direction entirely?

(to be continued . . .)

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