Tuesday, June 17, 2008

Obama's Social Security proposal - Some background here. I'm less interested in the debate over raising the income cap than whether Obama plans to pay that money back.

As I've written time and time again, when Franklin Delano Roosevelt set up Social Security, he understood the program would have no support if Americans knew that John D. Rockefeller was receiving a huge check every month proportional to the payroll taxes he paid into the system. Thus, the annual income that could be taxed - and thus the payroll taxes collected - was capped, limiting the maximum benefit that could be paid out to any American.

Social Security has always been a program where benefits have been proportional to the payroll taxes paid into the system. Is Obama going to maintain the proportional system and send huge monthly checks to Warren Buffett? Or does he plan to appropriate the new taxes and turn Social Security into another government welfare program? It's an either/or question, really.

Extra - A Stitch in Haste notices the same dilemma: "Will the additional taxes paid by those earning above the donut hole earn them additional Social Security benefits upon retirement?" There goes "universality."


skeneogden said...

Means testing is only a hop, skip and a jump away no matter who becomes president. The next administration is going to have to deal with S.S. The can has been kicked down the road for too long.

I've been telling my adult children for years that they had better plan to fund their retirements privately as the government is a very bad promise keeper. I think the boomers are going to become painfully aware of this maxim soon.

Anonymous said...

Actually social security payouts are not proportional to what you pay in. People who pay less in to the system get more per dollar paid in.

That is the reason why it is capped, because well off people would revolt if they had to pay more into a system that give them such a low return for each additional dollar. It would look even more like a welfare system than it does now.