Bad Investment

August 16, 2012

Turns out Social Security may not only be an unwise investment for new and future retirees, it may not be an investment at all. A recent Associated Press report noted that today’s new retirees are part of the first generation that has paid more into the Social Security system than they will actually receive after retirement.

One such example from a 2011 Urban Institute study was given in the AP article:

“A married couple retiring last year after both spouses earned average lifetime wages paid about $598,000 in Social Security taxes during their careers. They can expect to collect about $556,000 in benefits, if the man lives to 82 and the woman lives to 85 …”

Though Medicare has come back into the spotlight with the media attention toward Mitt Romney’s new VP pick and his now infamous proposal of remaking the single-payer healthcare system into a “premium support” system (something Romney also supports), reform of the other big entitlement elephant in the room, Social Security, has rarely been discussed since the failed attempts by the last presidential administration to partially “privatize” it.

Perhaps Social Security reform deserves new attention. After all, the program’s own trustees state in their latest annual report that after 2033, “tax income would be sufficient to pay only about three-quarters of scheduled benefits…”  At that point, one could just as well literally hide their money under their mattress and guarantee a more secure retirement. Assuming they remember where they hid it, they at least would not lose any of their money. Not to even mention the problem of inflation.

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Analyzing Tax ‘Credits’

February 27, 2010

After reading a recent AP analysis of CPAC that purported to point out factual errors in political rhetoric, I noticed one interesting problem that represents a common misconception about what some call tax “credits.” The specific example given in the analysis was the $400/$800 “Making Work Pay” tax “credit” given to individuals and joint filers as part of last year’s stimulus package.

Ron Fournier, the writer, referenced that “credit” as an attempt to debunk former Massachusetts Governor Mitt Romney’s claim at the convention that the Democrats were the party of no tax cuts. Fournier equates what he calls these “tax benefits” with what Romney was referring to when he mentioned “tax cuts.”

As I’ve written about before, the Making Work Pay tax “credit” is not really a tax cut. It gives $400 to individual filers or $800 to joint filers without accounting for the fact that many of them do not end up paying federal income taxes anyway. In fact, in many cases this “credit” actually amounts to free money (money they never had nor paid in taxes) to these filers. It can’t be a tax “cut” if there is no tax to cut.

Thanks to our “progressive” income-tax system, such so-called “credits” have become the norm. They equate to what President Obama called “spread the wealth around” during the 2008 campaign. With these types of handouts, is it any wonder why our federal debt is now more than $12 trillion?