I get a lot of email from readers expressing the same sentiments these people have sent me recently: “Why should rich people get Social Security? I think it's morally wrong that rich people can get Social Security checks!” Here's another example: “Why make such a fuss about Social Security going bankrupt? We could save the system forever if we just took the rich people out of the program!”
I always respond to these people by pointing out the following: Social Security is not, and never has been, a welfare program. One of the fundamental principles of Social Security is that if you work long enough and pay your taxes, you will one day receive Social Security benefits. Whether you're poor or rich, you'll get those benefits. In other words, if you pay into the system, you get something out of the system. That's it.
In other words, Social Security has never been means-tested. If we were means-tested, we would begin to turn Social Security into a welfare program by deciding that certain people are too wealthy to receive Social Security. I think that's a dangerous road we never want to go down.
But if we were to do the unthinkable and means-test the program, specifically as part of a reform package aimed at “saving Social Security,” where would we draw the line? That is, how wealthy must someone be to be unable to get Social Security? When I ask this question to people like the ones who sent me the email above, they are usually quick to say something like, “Billionaires shouldn't get Social Security!”
Well, if you're doing that as part of a plan to preserve Social Security for future generations, it's a completely pointless exercise. According to a Google search I did, there are about 770 billionaires in the United States. So taking 770 of the hundreds of millions of current and future recipients off the program just doesn't make sense.
If you think this system is “morally wrong” and want to get them out of it, then I have no choice but to repeat what I said earlier: these people work and pay Social Security taxes just like everyone else, so they should be able to get Social Security benefits just like everyone else.
Speaking of how much the wealthy pay into Social Security, I want to point out a couple of related issues: Many people believe that one part of Social Security reform should be a plan to get the wealthy to pay more into Social Security.
Throughout the program's 86-year history, there has been a cap on the amount of wages that are subject to Social Security tax, which has risen slightly over the years from $3,000 in 1937 to $160,200 today, but some argue the cap should be raised more dramatically or even eliminated.
But people who say this fail to realize that Social Security benefits are tied to an individual's taxable wages. In other words, the more you pay into the program, the more you get out of the program. So if you dramatically raise the wage levels of the wealthy, you'll also dramatically raise the future benefits that these wealthy people will receive. So a lot of the extra money that we think we're pumping into the Social Security pipeline as part of our reform package is just going to come out the other end of the pipe as future benefits for the wealthy.
In other words, if wage caps were to be significantly increased or eliminated in order to “keep the Social Security system running,” then for such reforms to work, they would have to cap the benefits the system pays out to the wealthy — something that is politically difficult to achieve.
Before I conclude my discussion of the wealthy and Social Security, I want to make one final point. I mentioned earlier that Social Security is not a welfare program. But having said that, I must point out that there are in fact characteristics of “social welfare” that have been an intrinsic part of what Social Security is made of from the beginning. After all, the word “social” is in the program's name not just because it looks good with the alliterative form of the word “security.”
In other words, the DNA of Social Security has always been built into the social goals of American society, one of which is to improve the standard of living for low-income people in retirement.
So how does Social Security achieve its goals? The formula for benefits is skewed to give low-income people a better deal than wealthy people. That doesn't mean that low-income people get higher benefits than wealthy people. For example, Warren Buffett gets a much higher Social Security benefit than the maid who cleans his mansion will get when she retires someday. But as a percentage of the money they put into the system (in the form of Social Security taxes), the maid will get a much higher “rate of return” than Buffett.
I don't have the space today to go into the details of the formula for calculating Social Security benefits, but the maid may receive a benefit equal to 90% of her pre-retirement income, whereas Warren Buffett's Social Security benefit may only be about 30% of his Social Security taxable income (a very small portion of his actual income).
In case you're wondering, the formula for calculating Social Security benefits is set up so that most of us (i.e., average-income people) will receive a Social Security benefit that is about 42% of our pre-retirement income.
If you have questions about Social Security, Tom Margenau has two books with all the answers. Social Security – Simple and Smart: 10 easy-to-understand fact sheets to answer all your questions about Social Securitythe other one is Social Security: 100 Myths and 100 Facts. The book is available from: Amazon or other book retailers. To learn more about Tom Margenau, read past columns, and see features by other Creators Syndicate writers and cartoonists, visit the Creators Syndicate website. Copyright.
